Biofrontera AG Annual Report 2023

FY2023 Annual Report · Biofrontera AG

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Biofrontera AG – Annual Report 2023

Key figures 2023

Letter to shareholders

Report of the Supervisory Board of Biofrontera AG for
the financial year 2023 (unaudited)

Corporate Governance Statement of Biofrontera AG
pursuant to Sections 289f, 315d HGB for the financial
year 2023 (unaudited)

Compensation Report

Consolidated management and group management
report for the fiscal year 2023

Consolidated balance sheet as of December 31, 2023

Consolidated statement of comprehensive income for
the fiscal year 2023

Consolidated statement of changes in equity for the
fiscal year 2023

Consolidated cash flow statement for the fiscal year
2023

Notes to the consolidated financial statements as of
December 31, 2023

Responsibility statement

Independent Auditor's Report

III

VIII

XIII

XIV

Our skin is a living diary that records every experience, every sunbath, and every
environmental stress - even if they seem unnoticeable to us at the moment.

Like a chronicle of life, the damage our skin has been exposed to is not necessarily
obvious in the present.

The skin never forgets; it stores the history of our dealings with it. And sometimes it
is the inconspicuous times of yesterday that require our attention today.

Biofrontera AG Annual Report 2023

MEMORIES FADE
OUR SKIN FORGETS NOTHING…

Our skin, as an extremely complex and adaptive organ, is a memory of past stresses and exposures.
Although it may appear intact at present, it carries the memory of past sun exposure, environmental
factors, and age-related influences. This hidden archive of past damage may later manifest as
dermatological irregularities.

With increasing environmental pollution and changing lifestyles, the skin is under increasing stress,
leading to a growing prevalence of skin diseases.

It is important to keep a close eye on your skin and react to any changes at an early stage. Early
detection of skin abnormalities plays a crucial role in successful treatment. The earlier problems are
detected, the better the chances of recovery and the gentler the treatment can be.

Biofrontera has established itself as a pioneer in the field of photodynamic therapy. Many years of
research and development have resulted in innovations that are tailored to the individual needs of
patients.

Our goal is to preserve the health of your skin, consolidate the role of photodynamic therapy and position
Biofrontera as an indispensable expert in the treatment of white skin cancer.

PDT AT A GLANCE

CLEANING OF THE AFFECTED
SKIN AREA AND
APPLICATION OF THE
AMELUZ® GEL.

AFFECTED CELLS ABSORB THE
ACTIVE INGREDIENT WITHIN
THE EXPOSURE TIME AND
CONVERT IT INTO AN LIGHT-
ACTIVATABLE MOLECULE.

THE TREATED SKIN AREA IS
EXPOSED TO AN ACTIVATING
LIGHT SOURCE (DAYLIGHT,
ARTIFICIAL DAYLIGHT, RED LIGHT
LAMP).

LIGHT ACTIVATES THE ACTIVE
INGREDIENT; DISEASED CELLS
ARE DESTROYED AND THE
TREATED SKIN AREA HEALS
WITHOUT SCARRING.

Biofrontera AG Annual Report 2023

OPERATIVE HIGHLIGHTS 2023

JANUARY

Start of phase III clinical trial in the US for the treatment of
actinic keratosis on the extremities, neck and trunk with
Ameluz®-PDT

MAY

US patent granted for an innovative photodynamic treatment
protocol

JULY

Launch of belixos® ACTIVE CARE, an innovative cosmetic foam

AUGUST

Completion of patient enrollment in pivotal study of
Ameluz®-PDT for the treatment of basal cell carcinoma

Biofrontera AG Annual Report 2023

AUGUST

Positive results of Phase I safety study investigating
photodynamic therapy with three tubes of Ameluz®

OCTOBER

U.S. Food and Drug Administration (FDA) approval of an optimized
formulation of Ameluz® for the treatment of actinic keratosis

NOVEMBER

Significant increase in German revenues with growth of nearly
50% compared to the first nine months of last year

DECEMBER

EMA recommendation for label extension of Ameluz® for the
treatment of actinic keratosis with artificial daylight

Recommendation of the EMA for a variation to the marketing
authorization for an improved Ameluz® formulation

Biofrontera AG Annual Report 2023

Key figures in accordance with IFRS

01.01.-31.12.2023

01.01.-31.12.2022

Results of operations

Sales revenue

Gross profit on sales

Result on operations

EBITDA

EBIT

Profit/loss before income tax
Profit/loss for the period

in EUR thousands

Balance sheet key figures

Total assets

Non-current assets

Cash and cash equivalents

Other current assets

Total equity and liabilities
Equity

Non-current liabilities
Current liabilities

Number of employees

Biofrontera Shares

Number of shares outstanding
Share price (Xetra closing price in EUR, Dec 29, 2023)

32,249

26,005

4,782

5,923

5,132

(2,127)
(369)

100.00%

80.64%

14.83%

18.37%

15.91%

(6.60)%
(1.15)%

25,738

20,981

1,591

1,869

1,124

(43,210)
(44,166)

100.00%

81.52%

6.18%

7.26%

4.37%

(167.89)%
(171.60)%

December 31, 2023

December 31, 2022

30,732

13,012

3,080

14,641

19,980

678
10,073

32,725

17,669

6,376

8,680

20,336

4,002
8,387

December 31, 2023

December 31, 2022

63,807,058
0.400

110

63,807,058
1.53

Biofrontera AG Annual Report 2023

III

Non-financial key performance indicators

Employees

110

64%

63%

37%

36%

2023

2022

2023

2022

Quality management

Percentage of women at management level

56%

73%

2022

2023

Standard operating procedures

Trainings and audits/inspections

699

803

2022

2023

Internal inspections

Audits/inspections

External trainings

Biofrontera AG Annual Report 2023

Sustainability as a future performance indicator

The sustainability of our business activities has a significant impact on the environment, society, and our social interaction. We are
aware of this responsibility and consider the impact of our actions on present and future generations. Our goal is to balance the
economic interests of the company with the demands of sustainability through value creation.

Improved patient care is our goal

At Biofrontera, we are committed to skin health and want to use our products to improve the quality of life of people with sun-
induced skin cancer. It is essential that patients have access to this effective therapy. To this end, Biofrontera, together with its
distribution partners, aims to promote photodynamic therapy worldwide as an effective solution for sun-induced forms of skin
cancer and to open up new indications through further research and development.

Employees as our most important asset

Our employees carry our company. Their high level of qualification and extraordinary commitment have made Biofrontera what it is
today. From a very early stage, we at Biofrontera have supported our employees but also challenged them in a rapidly changing
market environment. Employee development has therefore always been a focus of the company and is now complemented by
significantly more flexible working models. In addition, communication with employees is extremely important to us, which is why
employee feedback is given high priority as part of the annual performance appraisal. It is planned to include these results among
the most important performance indicators so that employee commitment becomes a key performance indicator.

Ensuring product quality

We must ensure that our products meet all regulatory requirements and are suitable for their intended use. Biofrontera is therefore
committed to maintaining a quality management system and continuously monitoring its effectiveness. The aim is to minimize
manufacturing errors and possible risks to users and/or patients regarding safety, quality and efficacy. To this end, market
information and changes in regulatory requirements are continuously evaluated to adapt our products to customer needs and
regulatory requirements. In order to do this in the best possible way, Biofrontera strives for fair, open and long-term cooperation
with customers, business partners, suppliers and regulatory authorities. Equally important is a clearly defined organizational
structure and process organization that specifies who, when and how quality assurance tasks are to be performed. With this
approach, we not only fulfill the regulatory requirements of the industry, but also ensure that quality is actively practiced in our
company.

Biofrontera AG Annual Report 2023

The past year was characterized by significant developments and strategic milestones for Biofrontera. We have further consolidated
our position as a leading biopharmaceutical company in the field of photodynamic therapy, expanded our market presence and at
the same time strengthened the company's profitability.

With the separation of Biofrontera Inc., Biofrontera AG has taken the opportunity to focus more strategically and with all available
resources on the European business, to realign itself in terms of costs and thereby increase profitability.

Our focus is clearly on expanding our sales activities in Europe and this is where we want to continue to direct our greatest efforts.
This year's extremely positive results confirm the effectiveness of this strategic approach.

We are proud of the new sales records in Germany, where we have grown sales by 31% compared to the previous year. The significant
jump in sales in the German market impressively demonstrates that we dominate the photodynamic therapy market. Through the
continuous further development of Ameluz®, we offer our patients and customers a product that we are constantly adapting to the
changing requirements of the market and patients Biofrontera is recognized as an expert in this field and is accepted as a leading
innovator in the market thanks to various approval extensions. In Germany, we were able to grow sales; while at the same time
taking an extremely sensitive approach to costs, so that the operating profit achieved in our home market in particular grew
significantly. This is an indicator of future developments in Europe, where we grew by 20% across Europe as a whole.

In view of the complex regulatory environment in the pharmaceutical industry, which influences the cost structure, it is crucial to
carefully examine how we can both strengthen our revenue side and find more efficient solutions on the cost side. By taking this
strategic approach, we intend to diversify our remaining dependence on the US market in the long term and thus place Biofrontera's
business risks on a broader basis.

Despite challenging market conditions, we are pleased that Biofrontera achieved a solid financial result in the 2023 financial year.
We were able to increase total sales by 25% compared to the previous year. With total sales of EUR 32.2 million, we are in the upper
third of our forecast and our targeted EBITDA of EUR 5.9 million is also well above the forecast range.

In addition to the financial successes, we can also look back on a number of achievements in the regulatory area and in clinical
development. We have finally been able to complete patient recruitment in the clinical trial for the extension of approval to basal
cell carcinoma and the safety study on the use of 3 tubes of Ameluz® has now also been successfully completed. Both approval
extensions are important for the US market and can support our market penetration there. The approval application for the
extension to 3 tubes of Ameluz® was submitted to the FDA in the USA as early as December 2023. The extension of the European

Biofrontera AG Annual Report 2023

approval to include the use of artificial daylight provides new momentum for our European market expansion. A major campaign
was initiated at the beginning of this year to promote this even broader range of applications for Ameluz®.

In summary, the development of Biofrontera AG was extremely positive, although this positive momentum was unfortunately not
reflected in the share price. The uncertainty in the business development of our US licensee certainly contributed to this, causing
considerable uncertainty in the market. It is therefore of fundamental importance that we gradually free ourselves from this
dependence on Biofrontera Inc. The reorganization of the license agreement between the two companies is a significant step in this
direction. With the reorganization of clinical development, we are now significantly reduced in terms of costs and Biofrontera Inc.
can manage clinical development independently and in line with market conditions.

However, 2024 will be a very challenging year for Biofrontera AG, as our US licensee has built up an extensive stock of Ameluz® in
the past year and will now monetize this stock in a liquidity-preserving manner, so that we will receive noticeably fewer orders.
However, with Biofrontera Inc. as our most important customer, any change in their business behavior will have a significant impact
on our business.

We will therefore have to react to this with strict cost control in order to keep Biofrontera AG in the EBITDA break-even range. The
expected decline in Ameluz® purchases by Biofrontera Inc. will significantly reduce our sales level in 2024 and thus burden our
liquidity situation. For this reason, it is crucial for the company to carry out a moderate capital increase.

Due to our share price below nominal value, it was technically not feasible for us to carry out a capital increase. With the 21:1 reverse
split approved at the Extraordinary General Meeting in April, we can now stabilize our share price above nominal value.

With the subsequently resolved capital measure and the signed back-stop agreement with one of our major shareholders, we now
see ourselves in a position to raise the required capital in a timely manner.

Over decades, Biofrontera has created structures, networks, and values that we want to develop further with commitment and care.
Over the past two years, far-reaching restructuring has taken place in Biofrontera's management, shareholders, and corporate
structure. The results achieved during this time show that we are on a promising and, in particular, profitable path.

I would like to thank all our employees, consultants and cooperation partners who have supported us throughout this time. None of
our goals could be achieved without the efforts and good work of our employees. And of course I would also like to thank our
shareholders, who are a key element in the future success of the company.

Together, let us continue to develop Biofrontera to realize the potential that we may not have been able to fully address in the past.
I remain convinced that, as a small pharmaceutical company, we can compete successfully with the global players. This is because
we drive innovation, can react flexibly to market changes and, above all, are firmly convinced of the quality and potential of our
product.

I would be delighted if you would accompany us on this journey.

Pilar de la Huerta Martínez

Chief Financial Officer Biofrontera AG

Biofrontera AG Annual Report 2023

VII

Report of the Supervisory Board of Biofrontera AG for the financial
year 2023 (unaudited)

Dear Shareholders,

The fiscal year 2023 shows a positive operating result for Biofrontera AG. With further cost reduction measures and a clear focus on
growth-promoting initiatives, we aim to continue supporting this development in the future. The Supervisory Board collaborates
closely with each other and with the management team in a spirit of trust.

We extend our thanks to the Executive Board and the employees for their contributions, which have supported the development of
Biofrontera AG in the past fiscal year.

Supervision and Consultation

The Supervisory Board fulfilled its duties as stipulated by law, the Articles of Association, the German Corporate Governance Code
(Code), and the rules of procedure. Its activities included overseeing and advising the Executive Board in the management of the
Company and the Group. The Supervisory Board discussed business decisions and plans with the Executive Board.

The Executive Board provided reports to the Supervisory Board on the Company's situation. The Supervisory Board was informed by
the Executive Board about the company's development both in meetings and outside of meetings. Based on written and oral reports
from the Executive Board, the Supervisory Board discussed the business development and the company's situation in its
deliberations. Additionally, there was an exchange of information and ideas between the Executive Board and the Chairman of the
Supervisory Board.

The Supervisory Board also reviewed the legality, regularity, appropriateness, and economic efficiency of management measures.
The division of the operational activities of the Biofrontera Group into an independent US sales company on one hand and the
(former) parent company Biofrontera AG on the other hand, which took place at the end of 2021, is still not optimal in the view of the
Supervisory Board for the Biofrontera AG Group. A restructuring with the aim of reuniting the operational activities is currently not
feasible from the Supervisory Board's perspective, at least not in the short term.

Deviation of business performance from the plans was explained to the Supervisory Board by the Executive Board and discussed
with them. It was also examined to what extent the legal requirements and the decisions, suggestions, and recommendations of the
Supervisory Board were considered or implemented by the Executive Board in business management.

The Supervisory Board made decisions on specific measures after reviewing relevant information and documents and consulting.

Meetings and their Focus of Discussion

In fulfilling its duties, the Supervisory Board held eight meetings during the reporting year. One meeting was held in person, while
all other meetings were conducted via telephone or video conferences.

During the meetings, the Executive Board reported on the current business situation. In particular, the Executive Board explained
the liquidity position of the Company in the context of sales forecasts and cost planning.

In the meeting on March 6, 2023, the Supervisory Board approved the budget for 2023 after intensive discussion with the Executive
Board.

The auditor reported to the Audit Committee and the Supervisory Board in full at the meeting on April 24, 2023, on the timing,
structure, and results of the audit for the fiscal year 2022.

After discussing the financial statements for 2022, the consolidated financial statements, and the consolidated management report,
the Supervisory Board approved the auditor's reports in the meeting on April 27, 2023, without objections after the final results of
its own review and approved the annual financial statements of the Company and the Group. It followed the recommendation of its

VIII

Biofrontera AG Annual Report 2023

Audit Committee, which had previously held a meeting in the presence of the auditor and discussed the annual financial statements
for 2022, the consolidated financial statements, the consolidated management report, and the audit reports.

In the meeting on June 20, 2023, the Executive Board presented a market analysis for extending the distribution of Ameluz to
additional European countries with business cases. In addition, risks of the business planning of Biofrontera Inc. were discussed, and
action options in the event of a decline in order intake and payments from Biofrontera Inc. were debated.

In the meeting on September 8, 2023, the Executive Board presented liquidity plans for various scenarios of reduced product sales
and resulting declines in payments from Biofrontera Inc.

In the meeting on October 4, 2023, the Executive Board presented and discussed updated liquidity plans.

In the meeting on November 2, 2023, a capital increase conducted by Biofrontera Inc. and a possible amendment to the licensing
and supply agreement with Biofrontera Inc. were discussed. The Supervisory Board noted an analysis and confirmation of the
plausibility of the Company's liquidity planning conducted by an auditing firm.

In the meeting on December 7, 2023, the Supervisory Board discussed the budget for 2024 with the Executive Board. The Executive
Board and the Supervisory Board thoroughly examined the financial situation and potential existing risk factors. The budget was
then approved by circular resolution. A future deviation as a whole from the German Corporate Governance Code was discussed and
approved by subsequent circular resolution. The possibility of exempting Biofrontera Pharma GmbH from the obligation to prepare
and audit individual financial statements for the fiscal year 2023 in accordance with § 264 paragraph 3 sentence 1 no. 1 HGB by
providing a parent company guarantee was discussed and approved by subsequent circular resolution.

Decisions outside of Meetings

Outside of meetings, the Supervisory Board made decisions in 13 parallel proceedings, including decisions on Executive Board
matters, legal issues, and matters related to the Annual General Meetings in the fiscal year 2023.

Committees of the Supervisory Board

In the fiscal year 2023, there was an Audit Committee, a Nomination and Personnel Committee, and a Litigation Committee regarding
the proceedings of Deutsche Balaton AG against Biofrontera AG. The Supervisory Board appointed one member to serve as the
chairman of each committee.

According to the rules of procedure of the Supervisory Board, the Chairman of the Supervisory Board is also the chairman of the
committees dealing with Executive Board contracts and preparing Supervisory Board meetings. Although the Chairman of the
Supervisory Board was not the chairman of the Nomination and Personnel Committee, which deals with Executive Board contracts,
in the fiscal year 2023, he was a member of this committee. The Supervisory Board considers this deviation from the standard
regulation of the rules of procedure to be inconsequential. The Chairman of the Supervisory Board should not hold the chairmanship
of the Audit Committee, which was also not the case. The chairpersons of the committees’ report on the work of the committees in
Supervisory Board meetings, except for the Litigation Committee.

Audit Committee

The Audit Committee deals in particular with questions of accounting and risk management, the necessary independence
of the auditor, and the assignment of the audit mandate to the auditor and monitors the audit of the Company's annual
financial statements. The committee met eight times during the reporting year, with all meetings held as video
conferences.

The members of the Audit Committee during the reporting year were: Mr. Karlheinz Schmelig (Chairman), Dr. Helge
Lubenow, Dr. Jörgen Tielmann (January 1, 2023, to July 4, 2023), and Prof. Dr. Karin Lergenmüller (July 5, 2023, to December
31, 2023).

2. Nomination and Personnel Committee

The Nomination and Personnel Committee prepares, among other things, decisions of the Supervisory Board regarding
the appointment and dismissal of Executive Board members. Since the Supervisory Board is ultimately responsible for
compensation decisions, the Personnel Committee also acted preparatory in this regard.

Biofrontera AG Annual Report 2023

The Nomination and Personnel Committee represented the company in the legal dispute with the former Chief Financial
Officer, Mr. Lutter.
The Nomination and Personnel Committee met twice during the reporting period; all meetings were held as video
conferences. In addition to these formal meetings of the Nomination and Personnel Committee, there was at least monthly
informal exchange among committee members.
The members of the Nomination and Personnel Committee during the reporting period were: Dr. Helge Lubenow
(Chairwoman), Mr. Wilhelm K.T. Zours, and Dr. Heikki Lanckriet.

3. Other Committees

Reference is made to the section "Conflicts of Interest" below.

Individualized Disclosure of Attendance of Supervisory Board Members at Supervisory Board and
Committee Meetings in the Fiscal Year 2023

Name

Dr. Heikki Lanckriet
Dr. Helge Lubenow
Karlheinz Schmelig
Prof. Dr. Karin Lergenmüller
Dr. Jörgen Tielmann
Wilhelm K. T. Zours

Board Meetings
Attendance
8/7
8/7
8/8
8/8
8/8
8/8

Presence in %

87.5%
87.5%
100%
100%
100%
100%

Committee Meetings
Attendance
2/2
10/10
8/8
2/2
6/6
2/2

Presence in %

100%
100%
100%
100%
100%
100%

Annual and Consolidated Financial Statements 2023

Baker Tilly GmbH & Co. KG Wirtschaftsprüfungsgesellschaft, Düsseldorf, was appointed as the auditor for the annual and consolidated
financial statements for the fiscal year 2023 by the ordinary Annual General Meeting on June 20, 2023, and subsequently
commissioned by the Supervisory Board. The auditor's independence declaration was obtained. Baker Tilly GmbH & Co. KG
Wirtschaftsprüfungsgesellschaft, Düsseldorf, audited the annual and consolidated financial statements of Biofrontera AG prepared
by the Management Board and the summarized management report for the 2023 fiscal year and issued unqualified audit opinions.
The auditor also confirmed that the Management Board had established an adequate information and monitoring system that is
suitable in its design and application for the early detection of developments endangering the continued existence of the company.

The consolidated financial statements were prepared based on International Financial Reporting Standards (IFRS). The audit
documents were discussed in the Audit Committee on April 29, 2024, in the presence of the auditor and other members of the
Supervisory Board. During this meeting, the annual and consolidated financial statements were also discussed with the Management
Board. In this context, the Audit Committee dealt in particular with the key audit matters described in the respective auditor's report,
including the audit procedures performed. The audit documents were discussed in the presence of the auditor. All Supervisory Board
members received the audit documents and the auditor's reports before this meeting and reviewed these documents. The auditor
reported on the audit, commented on the audit focus areas, and was available to the Supervisory Board for questions and
information. The auditor also reported on the scope, focus areas, and key findings of the audit, focusing in particular on the key
audit matters and the audit procedures performed. Questions from the Supervisory Board were answered by the Management Board
and the auditor. The auditor also reported on his findings regarding internal control and risk management relating to the financial
reporting process.

In its balance sheet meeting on April 29, 2024, the Supervisory Board duly noted the audit reports, the annual and consolidated
financial statements, and the summarized management report. After discussing the annual financial statements, consolidated
financial statements, and the summarized management report, the Supervisory Board approved the auditor's reports and the results
of the audit, raised no objections after the final result of its own review, and approved the annual and consolidated financial
statements. The annual financial statements of Biofrontera AG were thereby adopted.

Biofrontera AG Annual Report 2023

The present report of the Supervisory Board was adopted at the balance sheet meeting on April 29, 2024, as was the corporate
governance statement.

Auditor and Responsible Auditor

Baker Tilly GmbH & Co. KG Wirtschaftsprüfungsgesellschaft, Düsseldorf, has served as the auditor for Biofrontera AG and the Group
for the fiscal year 2023 for the second consecutive year.

Corporate Governance and Declaration of Compliance in accordance with § 161 AktG

Information on corporate governance is presented in the annual report and on the Internet at www.biofrontera.com under
"Investors" / "Corporate Governance" and in the corporate governance statement. In particular, details regarding the objectives of
the Supervisory Board regarding its composition and the status of implementation are provided there.

Conflict of Interest

Every member of the Supervisory Board is obligated to act in the best interest of the company. They must not pursue personal
interests or utilize business opportunities that belong to the company without the approval of the Supervisory Board. The Rules of
Procedure of the Supervisory Board stipulate that each member must disclose any conflicts of interest to the Supervisory Board.
This is especially relevant in cases where conflicts of interest may arise due to consulting or organizational positions with clients,
suppliers, lenders, or other business partners. Significant and not merely temporary conflicts of interest involving a member of the
Supervisory Board should lead to the termination of their mandate.

On December 13, 2021, Deutsche Balaton AG, Heidelberg, filed a declaratory action against Biofrontera AG at the Cologne District
Court, which was decided on December 9, 2022, by the Cologne District Court. Mr. Wilhelm K.T. Zours indirectly holds the majority of
shares in Deutsche Balaton AG through VV Beteiligungen AG and is Chairman of the Supervisory Board of Deutsche Balaton AG. There
is a domination agreement between VV Beteiligungen AG and Deutsche Balaton AG. Since December 14, 2021, Mr. Zours has also been
a member of the Supervisory Board of the company and its chairman. The essence of the lawsuit was that Deutsche Balaton AG
maintains the view, shared by the Cologne District Court in its judgment, that the IPO of Biofrontera Inc. together with capital
measures required the approval of the Biofrontera AG General Meeting. The lawsuit was directed against Biofrontera AG, represented
by the Management Board and represented by the Supervisory Board. Upon learning of the lawsuit, the Supervisory Board decided
to form a committee in this context, and the following members of the Supervisory Board were appointed to the committee: Mr.
Jörgen Tielmann (Chairman), Mr. Karlheinz Schmelig, and Dr. Helge Lubenow. The lawsuit committee did not meet during the
reporting period as no decisions needed to be made.

Mr. Zours therefore did not participate in consultations and decision-making related to the lawsuit.

From the perspective of the Supervisory Board, the conflict of interest has been appropriately addressed. Also, from a retrospective
perspective, it cannot be determined that it was a significant and not merely temporary conflict of interest that would have required
termination of the mandate.

Changes in the Supervisory Board

The composition of the Supervisory Board remained unchanged during the reporting period. The major shareholder Maruho
Deutschland GmbH withdrew its action against resolutions of the General Meeting on August 23, 2022, and the Extraordinary General
Meeting on January 9, 2023, on July 4, 2023. Thus, the resolution-related election of Prof. Dr. Lergenmüller to the Supervisory Board
is finally legally effective. The withdrawal of the action is part of an out-of-court settlement, which also resolved a dispute over
potential loss of voting rights by Maruho Deutschland GmbH at past General Meetings and agreed on a procedure to avoid loss of
voting rights at future General Meetings.

Composition of the Management Board

The composition of the Management Board remained unchanged during the reporting period.

Former Chief Financial Officer Mr. Ludwig Lutter claimed further payment claims from his Executive Board service contract during
the reporting period. The Cologne District Court awarded Mr. Lutter an amount of TEUR 250 in a decision delivered to the company
on March 22, 2024, taking into account the income Mr. Lutter stated to have earned elsewhere.

Biofrontera AG Annual Report 2023

Since September 2022, the current sole Management Board member, Ms. Pilar de la Huerta Martinez, has been appointed as Chief
Financial Officer. Ms. Pilar de la Huerta has been active as CEO and CFO of various technology companies in the pharmaceutical and
healthcare sector for over 25 years, thus possessing relevant industry experience and high professional qualifications.

The Supervisory Board thanks Ms. de la Huerta for her high commitment to the company during a challenging phase of business
development and for the trusting cooperation.

Future

Even if Biofrontera AG is able to report a positive operating result for the 2023 financial year, we must not overlook the fact that we
continue to form a "community of fate" with Biofrontera Inc. even though we only hold less than 8% of the shares in Biofrontera
Inc. due to highly dilutive capital increases and this company is reporting high losses. The economic success of Biofrontera AG in
the future will continue to depend to a large extent on the sales success of Biofrontera Inc. on the US market. Biofrontera AG can
only continue to develop positively if Biofrontera Inc. can further increase its sales and reduce its costs relative to sales with the
funds required to break even with Biofrontera Inc. The share of the US market in total sales of the product Ameluz is expected to
remain high, as is the dependence of Biofrontera AG's earnings on the success of Biofrontera Inc.

In February 2024, an agreement was concluded with Biofrontera Inc. to change the business relationship between the two companies.
Biofrontera AG will focus on the utilization of its existing projects and know-how, while research and development will no longer be
the focus of its activities. This change in strategy and the amended contract with Biofrontera Inc. as the company's largest customer
will have a significant impact on the structure of sales and costs, both of which will be reduced. The sales of Biofrontera AG will be
reduced in the next few years due to the reduction in the percentage of the revenue share in US sales with Ameluz; this will be offset
by lower costs for the AG due to the assumption of the costs of Clinical Trials by Biofrontera Inc.

The performance of the Biofrontera share was also unsatisfactory in 2023. In the coming period, the Supervisory Board and the
Management Board will continue to work constructively and with a focus on results to improve the economic situation of Biofrontera
AG and its valuation on the capital market.

Finally, we would again like to thank you, our shareholders, for your patience, your trust and your willingness to support the company
in future capital increases!

Heidelberg, April 2024

Wilhelm K. T. Zours
Chairman of the Supervisory Board

XII

Biofrontera AG Annual Report 2023

Corporate Governance Statement of Biofrontera AG pursuant to
Sections 289f, 315d HGB for the financial year 2023 (unaudited)

The Company has made use of the option not to include the corporate governance statement pursuant to Sections 289f, 315d of the
German Commercial Code (HGB) for the financial year 2023 in the (combined) management report for the financial year 2023, but
refers to the publication of this statement as well as the statement of the Management Board and the Supervisory Board of
Biofrontera AG (the Company) on the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation
Act (AktG) (unaudited) on the Company's website at www.biofrontera.com in the section "Investors", subsection "Corporate
Governance" with the corresponding labels.

Biofrontera AG Annual Report 2023

XIII

Compensation Report

Remuneration system for the members of the Management Board:

Principles of the system for the remuneration of the members of the Executive Board of Biofrontera AG

The compensation system for the executive board aims to appropriately remunerate the executive board members in line with their
duties and responsibilities, taking into account the performance of each board member as well as the success of the company. The
structure of the compensation system for the executive board of Biofrontera AG aims at sustainable increase of the company's value
and performance-oriented corporate management. The compensation system is effective from December 2021 for new contracts
and contract extensions. The performance of the executive board members is adequately considered through appropriately and
ambitiously set performance criteria within the variable compensation components (Pay for Performance). The current market
practices are taken into account in designing the compensation system.

In determining the compensation levels and the compensation system, the Supervisory Board generally follows the following
guidelines:

▪
▪
▪

▪

The compensation system significantly contributes to promoting the business strategy as a whole.
In particular, the variable compensation components should be linked to the achievement of strategic objectives.
The compensation system and the performance criteria of its variable components incentivize long-term and sustainable
development of the Biofrontera Group.
The strategic objectives formulated within the framework of the variable compensation components should ensure long-
term and sustainable growth of the company.
To ensure long-term developments, variable compensation components with a multi-year character should further
contribute, aligning with the share price performance of Biofrontera AG and thus linking compensation to profit growth
and shareholder interests.

The compensation system consists of:

▪

a fixed basic remuneration, payable monthly, which takes into account the tasks and performance of the members of the
Executive Board ("basic remuneration"),
a short-term variable compensation dependent on the achievement of the Company's annual performance targets in the
form of an annual performance-related bonus ("Short-Term Variable Compensation"; "STI"), and
long-term compensation in the form of a stock appreciation rights program ("SAR program"), which is therefore directly
linked to the Company's performance and is intended to create an incentive for sustained commitment to the Company
("long-term variable compensation"; "LTI"),

together. The goals for short- and long-term variable compensation are derived from the corporate strategy of Biofrontera AG. In
addition, customary fringe benefits are provided.

Overall, the remuneration thus contributes to the long-term development of the company.

Target Total Compensation

The target total compensation for each board member results from the base salary, the short-term variable compensation, and the
long-term variable compensation at 100% target achievement.

In accordance with the compensation system, the Supervisory Board determines the level of target total compensation for each
board member.

In doing so, it takes into account not only an appropriate relationship to the duties and performances of the board member but also
the economic situation as well as the success and future prospects of the company. The Supervisory Board ensures that the target
total compensation does not exceed the customary compensation without special reasons.

The assessment of market conformity is carried out both horizontally (external comparison/peer group comparison) and vertically
(internal comparison).

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Biofrontera AG Annual Report 2023

Horizontal Comparison

The selection of the comparison group for assessing the market conformity of total compensation is based on the requirements of
the Stock Corporation Act (especially industry and size as well as international orientation).

The composition of the comparison group is generally determined, as far as ascertainable, on the one hand from a comparison group
of publicly traded companies in terms of revenue, EBIT, number of employees, and market capitalization. Furthermore, the selection
of the comparison group is made, as far as ascertainable, from a comparison group of publicly traded industry companies.

Vertical Comparison

The compensation and employment conditions of the employees are taken into account within the framework of the vertical
comparison outlined below.

Components of Compensation in Detail

Fixed Compensation Components

The fixed compensation components granted to the members of the Executive Board under the compensation system include the
base salary and fringe benefits. The members of the Executive Board do not receive any pension commitments.

Basic remuneration

The Executive Board members receive the base salary, which is paid out in twelve equal parts monthly.

Fringe Benefits

Fringe benefits are granted based on employment contracts with individual members of the Executive Board and may include, for
example, the following: private use of company cars, special payments such as payment of school fees, housing, rental, and
relocation expenses, contributions to pension insurance (excluding pension commitments as outlined here), contributions to
accident, life, and health insurance, or other insurances. Fringe benefits may be granted once or repeatedly. The annual value of
fringe benefits should not exceed 10% of the annual base salary.

Short-Term Variable Compensation (Short Term Incentives; "STI")

Members of the Executive Board are entitled to short-term variable compensation, which can result in an annual bonus payment.
The short-term variable compensation is linked to the achievement of performance goals, the specific target values of which are
agreed upon at the end of a fiscal year.

The due date for STI payment generally occurs one month after the approval of the annual financial statements and consolidated
financial statements for the respective fiscal year by the Supervisory Board of the Company. If the Company terminates the
employment relationship for good cause within the meaning of § 626 of the German Civil Code (BGB), the STI payment for the fiscal
year in which the termination becomes effective is forfeited.

Target Amounts

Target amounts are agreed upon with the Executive Board in the employment contracts, which are granted to them upon 100%
achievement of the goals ("STI target amounts"). The amount of STI target amounts should not exceed 50% of the base salary at
100% target achievement. The amount of short-term variable compensation depends on the degree of achievement of the agreed
goals and can range between 0% and 200%. The exact payout is determined by multiplying the degree of goal achievement by the
STI target amount of each Executive Board member. In case of exceeding the target, an increase up to a maximum of 200% of the
STI target amount (cap) takes place. If the target is achieved up to 70%, the short-term variable compensation is reduced linearly;
if the target achievement is less than 70%, the STI payment is completely waived.

Performance Goals

In determining the annual target agreement, the Supervisory Board aligns with the following performance goals:

The assessment criteria for STI include financial and non-financial performance criteria, which are agreed upon in a target agreement
at the end of each fiscal year for the following fiscal year. If no agreement is reached between the Executive Board member and the
Supervisory Board, the Supervisory Board decides on the determination of the assessment criteria at its reasonable discretion.

Financial performance criteria should include, besides the company's revenue, financial indicators such as earnings and profitability
ratios (e.g., EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization, EBITDA margin). The Supervisory Board has the
option to adjust the financial performance measure used for evaluation by excluding extraordinary components.

Biofrontera AG Annual Report 2023

Non-financial performance criteria should include criteria such as integrity, employee satisfaction, diversity, as well as
sustainability/environmental-social-governance (ESG) aspects, which should account for at least 10% of the total goal achievement.
Strategic criteria should also be included in the target agreement, such as achieving approvals, successful completion of studies,
conclusion of significant contracts, or conducting financings.

A non-financial, strategic component should consider the contribution of the entire Executive Board as well as individual Executive
Board members to the implementation of the company's strategy and thus to the long-term development of the company.

For the non-financial, strategic goals, it should be clearly defined within the target agreement under which conditions the respective
goal is fully met (100% achievement of the individual criterion) and which parameters are used to assess the degree of goal
achievement.

Calculation of Target Achievement

The total target achievement of short-term variable compensation is determined by the weighted average of individual performance
criteria and the degree of respective goal achievement. Financial performance criteria should generally account for up to 55% of
the goal achievement weighting, while non-financial criteria can account for up to 45%.

Short-Term Variable Compensation for Extraordinary Developments and Performances of an Executive Board
Member

In justified exceptional cases, the Supervisory Board may grant the Executive Board members a special bonus at the discretion of
the Supervisory Board, not exceeding EUR 50,000 (gross) per fiscal year and Executive Board member. The resolution on the
existence of an exceptional case, which should specify the extent and quality of the extraordinary performance of the Executive
Board member, also determines the specific amount of a special bonus and the timing of its payment by the Supervisory Board.

Long-Term Variable Compensation (Long Term Incentive; "LTI")

As a long-term success component, Executive Board members are granted Stock Appreciation Rights ("SARs"). An annual target
amount equal to 150% of the STI target amount ("LTI target amount") is agreed upon with the Executive Board members. The number
of SARs granted annually corresponds to the LTI target amount divided by the economic value of the SARs at the time of grant. The
economic value per SAR to be used corresponds to the intrinsic value determined based on the unweighted average closing prices
of the company's shares traded in the closing auction on the Xetra trading platform of the Frankfurt Stock Exchange or in a
corresponding successor system on the 15 trading days preceding the grant. Executive Board members receive a payout based on
the stock price performance of the company upon exercise of the SARs.

Exercise Conditions

SARs can only be exercised:

(i) if the reference price at the beginning of the respective exercise window exceeds the issue price by at least 20%

and

(ii) if, in addition, the reference price has developed proportionally the same or better than the "MSCI World Health Care
Index TR" or a comparable successor index ("reference index") during the reference period from the last trading day
before the issue date to the 5th trading day (each last index calculation day following USA Eastern Standard Time (EST))
before the start of the respective exercise window. If the reference index is a so-called Total Return Index, dividends and
other distributions paid out by the company to shareholders during the reference period are considered in the
determination of the performance.

The "issue price" corresponds to the unweighted average closing price of the company's shares between the 15th and the last
trading day preceding the issue date (inclusive).

The "reference price" corresponds to the unweighted average closing price of the company's shares between the 15th and the 5th
trading day (inclusive) before the start of the respective exercise window.

"Closing prices" are the prices determined in the daily closing auction on the Xetra trading platform of the Frankfurt Stock Exchange
or in a corresponding successor system. If a closing auction does not take place on relevant trading days or if no closing price is
determined there, the last determined price in continuous trading on the respective trading day is used as the closing price, provided
that such a price was determined on the respective trading day.

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Biofrontera AG Annual Report 2023

"Trading days" shall mean all days on which the Frankfurt Stock Exchange is open for securities trading.

Payout amount

The payout amount is calculated as follows:

Reference price - base amount = payout amount per SAR (gross).

The "base amount" corresponds to the lowest issue price for Biofrontera AG shares pursuant to Section 9 (1) of the German Stock
Corporation Act (AktG).

Limitation of the amount paid out (cap)

SARs for which exercise conditions otherwise exist cannot be exercised if and to the extent that the gross proceeds from all exercised
SARs granted to the Management Board member would exceed the basic compensation plus fringe benefits actually received by the
Management Board member since the first grant of SARs by more than 300% without this cap.

Lock-Up Periods

SARs may be exercised for the first time after the expiration of a lock-up period.

a) The lock-up period for 15% of the SARs granted on an issuance date is one year after the respective issuance date;

b) The lock-up period for an additional 25% of the SARs granted on an issuance date is two years after the respective

issuance date;

c) The lock-up period for another 25% of the SARs granted on an issuance date is three years after the respective

issuance date;

d) The lock-up period for the remaining 35% of the SARs granted on an issuance date is four years after the respective

issuance date.

After the expiration of the respective lock-up period, the SARs can be exercised until six years after the respective issuance date.
Thereafter, the right to exercise the SARs terminates, and any SARs not exercised by then expire without compensation.

Personal Investment

Additionally, according to the SAR terms, Executive Board members are required to make a personal investment in the company's
shares. This investment must be made unconditionally within six months after the SAR exercise date, in an amount equal to 25% of
the gross payout, and the acquired company shares may not be sold earlier than four years after the SARs were granted.

Share Ownership Guidelines

To further enhance the long-term incentive effect of variable compensation and its alignment with sustainable corporate
development, Executive Board members are also obligated in their Executive Board contracts to acquire and hold a determined
number of company shares, as specified by the Supervisory Board until the end of their contract term ("Share Ownership
Guidelines"). The total acquisition expense to be borne by the Executive Board member (including acquisition-related costs) is limited
to an amount equal to 25% of the STI payment (gross) granted to them for the preceding fiscal year.

Blocking periods

Blocking periods relating to acquired shares in the Company imposed on Management Board members end prematurely if, after the
Management Board member has left the Company, the Company announces that the listing of the shares on the regulated market
in Germany will be terminated.

Possibilities for the Company to Reclaim Variable Compensation Components

The Supervisory Board may determine that unpaid variable compensation components of the STI and/or LTI are entirely or partially
withheld and not paid out ("Clawback") in the event of serious misconduct by an Executive Board member. The Supervisory Board
decides on the Clawback at its reasonable discretion. Serious misconduct by an Executive Board member in this regard is particularly
assumed,

Biofrontera AG Annual Report 2023

XVII

a) if it has at least grossly negligently violated its duties under § 93 AktG or

b) if it has at least grossly negligently violated internally documented internal behavior standards or internal guidelines that

have had or could have serious consequences for the company, or

c) in the case of at least grossly negligent behavior of a criminal nature in the exercise of office as a member of the Executive

Board, or

d) in the case of an intentional violation of other legal provisions in the exercise of office as a member of the Executive

Board.

e) The same applies in the case of serious misconduct by employees of the company or the group, especially in cases of at
least grossly negligent violations of criminal or compliance-related provisions, which were recognized by the Executive
Board member in their capacity as the employee's superior and were not immediately stopped or should have been
recognized and immediately stopped with the due care of an Executive Board member.

A Clawback in relation to payments from the STI is only permissible for the fiscal year in which the misconduct occurred, but not for
previous or subsequent years. Regarding payments from the LTI, a Clawback is permissible if and to the extent that the serious
misconduct occurred within the four years following the grant of the entitlement from the LTI (i.e., since the grant of the SARs).

A Clawback of the STI is also permissible in the case of grossly negligent misconduct that has been identified and audited after the
respective financial statements have been finalized and has led to a subsequent correction of the company's financial statements.
In this case, the Clawback is permissible to the extent that the STI was overstated based on the uncorrected basis.

If a Clawback situation arises according to the above provisions, already paid amounts of the STI and/or LTI, which could have been
withheld accordingly, can also be reclaimed. Such recovery is permissible, calculated from the time the Supervisory Board becomes
aware of the triggering event, for the year of awareness and the preceding three fiscal years.

Amounts withheld or repaid as part of the Clawback are credited against any damages claim of the company arising from the
misconduct of the Executive Board member.

No variable compensation components were reclaimed in the fiscal year.

Commitments to members of the Board of Management in the event of resignation

The Supervisory Board may establish resignation arrangements for each compensation component and for each case in which the
employment relationship of an Executive Board member or the appointment as a member of the Executive Board ends. This includes
cases such as retirement, full or partial incapacity for work, death, ordinary termination of the employment contract, termination
of the employment contract for cause, removal from office for cause, transfer of an employment contract to the company's principal
shareholder, or to an entity affiliated with the company's principal shareholder. For each of these cases, the Supervisory Board can
predefine the requirements for individual or all compensation components to be paid, either fully or partially, prematurely or with
a delayed timing, to the Executive Board members or - in case of death - to the heirs of the respective Executive Board member, or
forfeited.

Payments to an Executive Board member upon premature termination of their Executive Board activities shall not exceed the value
of two annual compensations at 100% goal achievement (severance cap) and shall not compensate for more than the remaining
term of the employment contract.

Commitments for benefits in connection with the premature termination of the employment contract by the Executive Board member
as a result of a change of control should not be agreed upon.

The Supervisory Board may agree with Executive Board members on a post-contractual non-competition obligation for a period of
up to two (2) years. If such a post-contractual non-competition obligation takes effect, Executive Board members may receive
compensation of up to half of their respective base salary per year of the respective duration of the post-contractual non-
competition obligation. Payments under a post-contractual non-competition obligation are offset against any severance payments.

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Biofrontera AG Annual Report 2023

Compensation System in Case of Special and Exceptional Circumstances

In special and exceptional circumstances (e.g., in the event of a severe financial or economic crisis), the Supervisory Board has the
right, in accordance with § 87a para. 2 sentence 2 AktG, to temporarily deviate from the compensation system and to change the
regulations regarding the compensation structure and the individual compensation components, as well as the regulations for the
respective procedure, if this is necessary in the interest of the long-term well-being of the company. Unfavorable market
developments are not considered special and exceptional circumstances that allow deviation from the compensation system.

Maximum Compensation

The following maximum amounts apply:

Chairman of the Executive Board

Other members of the Executive Board

Basic remuneration

500.000 p.a.

350.000 p.a.

Fringe benefits

Max. 10 % of basic compensation

STI

LTI

200% of the STI target amount p.a., which
should not exceed 50% of the basic
compensation if 100% of the target is
achieved

that

SARs for which exercise requirements are
otherwise met cannot be exercised if and to
the extent
the gross proceeds
generated from all exercised SARs granted to
the Management Board member would
exceed the basic compensation plus fringe
benefits
the
Management Board member since the first
grant of SARs by more than 300% without
this limit.

received

actually

that

received

actually

50.000 p.a.

Any additional short-term
variable remuneration in the
event of extraordinary
developments and
performance by a member
of the Management Board

Relative proportion of individual components of compensation

The Supervisory Board observes an appropriate ratio of the individual components of compensation to the target total
compensation. The proportion of the components of compensation for Executive Board members to the target total compensation
based on 100% target achievement in the STI and payout of the LTI at the respective LTI target amount is as follows:

Base salary

STI compensation

LTI compensation

44%

22%

33%

The proportion of the components of compensation for Executive Board members to the target total compensation based on 200%
of the STI target amount and 300% of the LTI target amount is as follows:

Base salary

STI compensation

LTI compensation

23.5%

53%

Biofrontera AG Annual Report 2023

XIX

The above percentages are based on the assumptions made. The actual percentages may vary in future fiscal years and in the event
of the appointment of new Executive Board members. Variations may result, in particular, from the achievement of STI and LTI
targets and from annual expenses related to fringe benefits.

Procedure for determining, reviewing, and implementing the compensation system

The compensation of the Executive Board is determined by the Supervisory Board as a whole. For this purpose, the Personnel
Committee of the Supervisory Board prepares appropriate recommendations. If necessary, independent external consultants are
consulted. According to the Rules of Procedure for the Supervisory Board, members of the Supervisory Board are obliged to disclose
any conflicts of interest immediately. The Supervisory Board designs the system for the compensation of Executive Board members,
taking into account applicable laws and regulations, in particular the provisions of the German Stock Corporation Act (AktG) in its
current version, regulatory requirements, and the provisions of the German Corporate Governance Code. It ensures clarity and
comprehensibility. Based on the compensation system, the Supervisory Board determines the specific target total compensation.
The Executive Board compensation system thus resolved by the Supervisory Board is submitted to the Annual General Meeting for
approval.

The Supervisory Board regularly reviews the Executive Board compensation system, compliance with the maximum compensation
of Executive Board members, and the appropriateness of the compensation. Here, too, the Personnel Committee of the Supervisory
Board prepares appropriate recommendations. At the end of a fiscal year, the specific target values for short-term variable Executive
Board compensation for the following fiscal year are also determined by the Supervisory Board in a target agreement with the
Executive Board. In accordance with the requirements of § 120a (1) AktG, the Supervisory Board will submit the Executive Board
compensation system to the Annual General Meeting for approval in the event of significant changes, but at least every four years.
The present compensation system was confirmed by the Annual General Meeting on December 14, 2021.

In accordance with legal regulations (§ 87a (2) AktG), the Supervisory Board, on the proposal of the Personnel Committee, may
temporarily deviate from the components of the compensation system described below in exceptional circumstances if this is
necessary in the interest of the long-term well-being of the company.

Consideration of employee compensation and employment conditions when establishing the
compensation system

When establishing the compensation system and determining the specific level of compensation, the Supervisory Board also takes
into account the employment conditions of employees in the Biofrontera Group. For this purpose, the Supervisory Board has defined
the senior management level in the Biofrontera Group and demarcated it from the Executive Board on the one hand and the total
workforce in the Biofrontera Group on the other hand. In the course of the regularly conducted review of the appropriateness of
Executive Board compensation, the Supervisory Board examines in particular whether changes in the relations of the compensation
of the Executive Board, senior management, and the total workforce result in any need for adjustment in Executive Board
compensation. In doing so, the Supervisory Board also takes into account the development of the compensations of the groups
described over time.

Conflicts of interest

The Supervisory Board ensures, through appropriate measures, that any conflicts of interest of the Supervisory Board members
involved in the deliberations and decisions on the compensation system are avoided and, if necessary, resolved. Each Supervisory
Board member is obliged to disclose conflicts of interest to the Chairman of the Supervisory Board immediately. The Chairman of
the Supervisory Board discloses any conflicts of interest concerning him to his deputy. The handling of an existing conflict of interest
is decided on a case-by-case basis. In particular, it is possible that a Supervisory Board member affected by a conflict of interest
does not participate in a meeting or individual deliberations and decisions of the Supervisory Board or abstains from voting.

Duration of Executive Board employment contracts

The agreed term of the employment contracts of Executive Board members corresponds to the duration of the intended appointment
as Executive Board member. In the case of an initial appointment, the Supervisory Board will determine the duration of the
appointment appropriately and oriented towards the well-being of the company in the respective individual case, whereby the
duration of the appointment should generally not exceed three years. The period for reappointment, in compliance with the
provisions of § 84 AktG, is a maximum of five years. In the event of reappointment of the Executive Board member, the employment
contract is extended in accordance with the duration of a renewed appointment; otherwise, it automatically terminates without the

Biofrontera AG Annual Report 2023

need for termination upon expiration of the intended regular term of appointment. A decision on any extension of the employment
contract or any reappointment should be made no later than 15 months before the expiration of the employment contract or the
term of appointment and finalized with the Executive Board member 10 months before the expiration.

Compensation system in case of special and exceptional circumstances

In special and exceptional circumstances (e.g., in the event of a severe financial or economic crisis, corporate restructuring of the
group such as spin-offs, acquisitions, or sales of companies or similar significant M&A transactions), the Supervisory Board has the
right, in accordance with § 87a (2) sentence 2 AktG, to temporarily deviate from the compensation system and to change the
regulations regarding the compensation structure and the individual compensation components, as well as the regulations for the
respective procedure, if this is necessary in the interest of the long-term well-being of the company. A deviation from the
compensation system is only possible by a corresponding resolution of the Supervisory Board and after careful examination of the
necessity. The components of the compensation system from which deviations can be made under the circumstances mentioned
are the procedure, the compensation structure, the individual components of compensation, and their performance criteria.
Furthermore, in this case, the Supervisory Board may temporarily grant additional components of compensation or replace
individual components of compensation with other components of compensation to the extent necessary to restore the
appropriateness of Executive Board compensation in the specific situation.

Executive Board compensation in fiscal year 2023

The total compensation for members of the Executive Board in fiscal year 2023 and the inventory of all shares options issued to the
Executive Board members as of December 31, 2023, are allocated as follows:

Biofrontera AG Annual Report 2023

XXI

Term
in EUR thousands (unless otherwise inidcated)

Fixed component of compensation

Compensation in kind

Severance pay

Total fixed compensation

Short-term incentive (variable, STI)

Long-term incentive (variable, LTI), thereof from

Stock Appreciation Rights (SARs) (maturity May 3, 2030)

Fair value of SARs

Income from exercising SARs

Total LTI

Total performance-based compensation

Total compensation

Number of stock options (Dec 31)

Number of stock options granted

Fair value when granted

Number of SARs (Dec 31)

Number of SARs granted
Fair value when granted

Pilar de la Huerta Martìnez
CFO

September 12, 2022
2023

incubent
2022

280

289

336

0
0

Ms. Pilar de la Huerta was appointed as CFO to the Executive Board of the Company on September 12, 2022, and has been serving as
sole Executive Board member since October 1, 2022.

The non-performance-related component of compensation for Ms. de la Huerta is 84% (100% in the previous year).

No stock options (LTI) were granted to Executive Board members in the fiscal year 2023. Furthermore, there are no promised stock
options within the meaning of Section 162 (1) sentence 2 No. 3 of the German Stock Corporation Act (AktG).

The maximum compensation for Executive Board members from the non-performance-related and one-year performance-related
compensation (bonus) amounts to EUR 476 thousand for Ms. de la Huerta. This was adhered to. No LTIs have been decided and
contractually agreed upon for Ms. de la Huerta thus far.

The existing service contracts provide that - depending on the achievement of agreed-upon targets - an annual bonus shall be
granted. The assessment factors are determined in a target agreement each year for the following fiscal year by the end of a fiscal
year. The 2022 target agreement included revenue (60%) and EBITDA (earnings before interest, taxes, depreciation, and
amortization) (40%) as goals. Revenue target for 2022 was set at EUR 26.5 million, and EBITDA Break-even was set at EUR 0.3 million.

The contractually agreed bonus for Ms. de la Huerta at 100% target achievement is EUR 140 thousand per year. The aforementioned
performance criteria for 2022 were weighted, evaluated, and calculated pro rata based on the length of the Executive Board's tenure.
The criteria for target achievement were revenue and net profit as per the consolidated income statement determined by the

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Biofrontera AG Annual Report 2023

Supervisory Board for 2022. The goals for the fiscal year 2022 were achieved, thus a bonus payment of EUR 47 thousand was granted
to Pilar de la Huerta.

For 2023, the performance criteria included a revenue target (EUR 33.7 million, weighting 20%) and achieving EBITDA (target EUR 5
million, weighting 30%) as quantitative goals. As significant qualitative goals, the definition and implementation of a medium-term
strategy including a 5-year strategic plan for sustainable sales and profit growth (20%) as well as the definition of a lean
organizational and infrastructure setup to achieve strategic goals (30%) were set.

No benefits or grants were promised or awarded to Ms. de la Huerta by third parties regarding her activities.

Further information on former Executive Board members of the Company:

Mr. Prof. Hermann Lübbert, as a former corporate officer, had a severance entitlement against the Company in accordance with the
terms of the SAR program for Share Appreciation Rights, the lock-up period of which had not yet expired at the time of his
termination. The Company paid a severance payment of EUR 112 thousand to the former Executive Board member in June 2023.

Former corporate officer Ludwig Lutter was removed from the Executive Board for good cause on August 14, 2022. In two lawsuits
before the Cologne District Court, Mr. Ludwig Lutter contested his removal as a member of the Executive Board and the termination
of his employment contract and claimed (partial) continuation of his compensation. We refer to the disclosures in the Group Notes
regarding events after the reporting date.

Following the formal end of his Executive Board mandate, Paul Böckmann served as a consultant for the Company from October
2022 to April 2023. During this time, the Company paid EUR 61 thousand in consulting fees.

Compensation Report Supervisory Board

Compensation system for members of the Supervisory Board

The compensation of the Supervisory Board members shall, in accordance with § 113 of the German Stock Corporation Act (AktG), be
in an appropriate proportion to the duties of the Supervisory Board members and to the situation of the company. The members of
the Supervisory Board are not involved in operational activities. Rather, the Supervisory Board contributes to the long-term
development of the company through its monitoring activities. Recruiting outstanding members is a prerequisite for the best
possible supervision and advice to the Executive Board, which in turn makes a significant contribution to a successful business
strategy and the long-term success of the company. Therefore, the compensation should make taking on a mandate economically
attractive enough to attract and retain outstanding members, which also requires consideration of the compensation arrangements
of other comparable listed companies. However, the compensation and employment conditions of the employees are not of
significant importance for the compensation system of the Supervisory Board.

The Executive Board and the Supervisory Board are of the opinion that a purely fixed compensation for Supervisory Board members
is best suited to ensure independent performance of the control function of the Supervisory Board, as variable compensation,
especially in matters relevant to supervision, could otherwise create a conflict of interest between the Executive Board and the
Supervisory Board regarding their own compensation. Differentiated compensation for individual functions in the Supervisory Board
generally takes into account the workload associated with each Supervisory Board member. In practice, the chairman of the
Supervisory Board and his deputy, as well as the chairman and members of the audit committee, typically have a higher workload,
thus a higher compensation is provided. According to Recommendation G.17 of the German Corporate Governance Code in the version
of April 28, 2022 ("Code"), the compensation of Supervisory Board members should appropriately reflect the higher time
commitment of the chairman and deputy chairman of the Supervisory Board, as well as the chairman and members of committees.
According to Recommendation G.18 of the Code, the compensation of the Supervisory Board should consist of a fixed compensation.
These aspects are appropriately reflected in the current version of § 18 of the Articles of Association when determining the
compensation of the Supervisory Board.

The compensation is to be paid at the end of each fiscal year. There are no deferral periods for the payment of compensation
components.

Biofrontera AG Annual Report 2023

XXIII

Supervisory Board members who are only members of the Supervisory Board or the audit committee or hold the chair or deputy
chair of the Supervisory Board or the chair of the audit committee for part of the fiscal year receive a pro-rata compensation.

There are no commitments for severance payments, pension, or early retirement arrangements. The company reimburses the
Supervisory Board members for expenses incurred in the performance of their duties, including any value-added tax (VAT)
attributable to compensation and reimbursement of expenses, and includes the performance of the duties of the Supervisory Board
members in the coverage of a directors' and officers' liability insurance policy taken out by the company.

The compensation system of the Supervisory Board is resolved by the Annual General Meeting upon proposal of the Executive Board
and the Supervisory Board, as well as a statutory compensation provision. At regular intervals, at least every four years, the
Executive Board and the Supervisory Board review whether the amount and composition of the Supervisory Board compensation
still appear to be market-oriented and appropriate and, if necessary, submit adjustment proposals to the Annual General Meeting.

Since the members of the Supervisory Board are involved in shaping the compensation system relevant to them and must also
submit proposal resolutions to the Annual General Meeting in accordance with § 124 of the German Stock Corporation Act, an
unavoidable conflict of interest arises from the application of the law. However, this is effectively counteracted by assigning the
decision on the final determination of the compensation to the Annual General Meeting.

In accordance with § 113 (3) sentences 1 and 2 of the German Stock Corporation Act, the Annual General Meeting of listed companies
must decide on the compensation of Supervisory Board members at least every four years, whereby a resolution confirming the
compensation is permissible. The compensation of Supervisory Board members is regulated in § 18 of the Articles of Association of
the company. The current version of § 18 of the Articles of Association of the company was resolved by the Annual General Meeting
on June 20, 2023, and reads as follows:

" § 18 Compensation of the Supervisory Board

(1) Each member of the Supervisory Board shall receive an annual fixed remuneration of EUR 22,000. The Chairperson shall receive
twice this amount, the Deputy Chairperson 1.5 times this amount.

(2) For their work on the Audit Committee of the Supervisory Board, those members of the Supervisory Board who are not
simultaneously Deputy Chairman or Chairman of the Supervisory Board shall receive additional remuneration of EUR 3,000; the
Chairman of the Audit Committee shall receive twice this amount.

(3) Supervisory Board members who are members of the Supervisory Board or the Audit Committee for only part of the fiscal year
or who chair or vice-chair the Supervisory Board or chair the Audit Committee shall receive remuneration on a pro rata basis.

(4) The remuneration shall be paid after the end of each financial year.

(5) The Company shall reimburse the members of the Supervisory Board against invoice for expenses incurred in the performance
of their duties, including any value added tax (VAT) payable on the remuneration and the reimbursement of expenses.

(6) The Company shall include the performance of the duties of the members of the Supervisory Board in the coverage of a pecuniary
damage liability insurance policy taken out by the Company."

(7) The Company shall include the performance of duties by the members of the Supervisory Board in the coverage of a pecuniary
damage liability insurance policy taken out by the Company."

The Annual General Meeting made use of the authorization under § 18 (3) of the Articles of Association and resolved a special
compensation for the Supervisory Board member Dr. Helge Lubenow as follows on June 20, 2023:

"The member of the Supervisory Board Dr. Helge Lubenow receives an additional compensation of EUR 22,000.00 for the fiscal year
2022 for assuming special tasks and providing special services in advising the Executive Board in the area of personnel/human
resources. The entitlement to compensation and its due date are subject to the registration of the amendment to § 18 of the Articles
of Association according to the provisions of agenda item 5 lit. a) in the commercial register."

The suspensive condition occurred through registration of the authorization under § 18 (3) of the Articles of Association in the
commercial register on July 3, 2023. The additional compensation for the fiscal year 2022 was resolved in the fiscal year 2023 and

XXIV

Biofrontera AG Annual Report 2023

is therefore included in the following breakdown of the total compensation of the members of the Supervisory Board in the fiscal
year 2023.

Compensation in fiscal year 2023

The total compensation of the members of the Supervisory Board in fiscal year 2023 is as follows:

in EUR thousands

Fixed compensation

Audit Committee activity

Total

Wilhelm K.T. Zours (Supervisory Board: Chair)
Dr. Jörgen Tielmann (Supervisory Board: Vice
Chair)
Dr. Heikki Lanckriet
Dr. Helge Lubenow (Audit Committee: Member)
Prof. Dr. Karin Lergenmüller (Audit Committee:
Member, since July 5th,2023)*
Karlheinz Schmelig (Audit Committee: Chair)
TOTAL

in TEUR

22
44

22
187

in %

100%

in TEUR

100%

100%
94%

96%

79%

in %

0%
6%

21%

0
3

6
10

in TEUR

22
47

28
197

in %

100%

100%
100%

100%

Vertical comparison

Compensation of Executive Board members
Pilar de la Huerta Martìnez*

Compensation Supervisory Board members
Wilhelm K.T. Zours*
Dr. Jörgen Tielmann*
Dr. Heikki Lanckriet*
Dr. Helge Lubenow*
Prof. Dr. Karin Lergenmüller**
Karlheinz Schmelig*

Average compensation of employees
Employees in Europe
*2022 partial year only

Change 2023 vs. 2022

Change 2022 vs. 2021

373%

-21%
-44%
-35%
-8%

-13%

3.8%

2700%
1867%
1033%
1600%

967%

0.8%

When presenting the average salary change of employees, all employees of the European group companies (excluding the Executive
Board) were included. For comparison, the contractually agreed annual gross salary without special payments and ancillary wage
costs was taken into account.

The basis for comparing employee compensation has been altered. Previously, the average annual compensation including wages
and salaries as well as expenses for bonuses, pension provisions, severance payments, and other personnel-related costs had been
considered. It was viewed as total personnel costs per year divided by the number of employees on average per year. This approach
results in an average change in personnel costs of 9%. This value provides a misleading impression. On the one hand, the workforce
of the European Biofrontera companies decreased over the course of 2023, especially in the second half of the year. This trend
continues. On the other hand, the company has strengthened itself with highly qualified personnel and has been able to fill some
key positions that were vacant for a long time. This has had decisive effects on the increased average compensation of the
workforce.

The altered presentation of the average compensation of the workforce thus more clearly and meaningfully demonstrates the
development of wages and salaries in the company in vertical comparison.

Biofrontera AG Annual Report 2023

XXV

Consolidated management and group management report for the
fiscal year 2023

Basis of the Biofrontera Group

Group structure

As of December 31, 2023, the Biofrontera Group (hereinafter also called "Biofrontera", "Biofrontera Group", “Group” or the
“Company”) consists of a parent company, Biofrontera AG and four wholly owned subsidiaries in Germany. The parent company’s
head office is located in Leverkusen, Germany.

Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, Biofrontera Development GmbH and Biofrontera Neuroscience GmbH are
located at the parent company's headquarters in Leverkusen, Germany.

For sales support in Spain and the United Kingdom, two additional entities were founded, firstly Biofrontera Pharma GmbH, sucursal
en España in Barcelona (03/2015) and Biofrontera UK Ltd. initially based in Cambridge (11/2022), later moved to Reading. Biofrontera
UK Ltd. is a wholly owned subsidiary of Biofrontera Pharma GmbH.

Business model

The publicly listed entity Biofrontera AG assumes the holding function within the group of companies. It is responsible for the
management, strategic planning, internal control and risk management and ensures the necessary financing needs are met.
Biofrontera Bioscience GmbH carries out research and development tasks as well as all regulatory functions for the Biofrontera
Group and holds the patents and approvals for Ameluz® as well as BF-RhodoLED® and RhodoLED® XL. According to a license
agreement with Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, which is also the holder of the CE certificate of BF-
RhodoLED®, bears the responsibility for the production, further licensing and marketing of Biofrontera Group’s approved products.

The Biofrontera Group has its own sales organizations to distribute Ameluz® and the BF-RhodoLED® lamp in Germany, Spain and
the United Kingdom. In some other European countries, sales are handled by independent license partners. Biofrontera Inc. is the
licensee responsible for marketing Ameluz® and the RhodoLED® lamp series in the USA.

Asian and Oceanic markets were licensed to Maruho Co, Ltd, Osaka, Japan under the exclusive license agreement signed in April
2020.

Production of Ameluz® for all markets is carried out by a contract manufacturer in Switzerland. The PDT-lamp series is manufactured
at Biofrontera's headquarter in Leverkusen, Germany.

Ameluz® and the RhodoLED® lamp series are supplied to all the licensing partners under a license and supply agreement with
Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH, both wholly owned subsidiaries of Biofrontera AG.

Biofrontera AG realizes revenues through direct sales facilitated by its own sales force operating in Germany, Spain, and UK, from
which Biofrontera retains 100% of the generated revenues.

For Biofrontera's US licensee, a fixed transfer price is applied, structured as a tiered system. This pricing mechanism entails charging
50% of sales for volumes up to USD 30 million, as well as 40% for all sales between USD 30 million and USD 50 million. At the
beginning of each fiscal year, a thorough assessment of the delivered quantities is performed, followed by direct payment for the
delivered batches. Subsequently, at the end of the year, prepaid shipments are reconciled to product sales in the US market. The
transfer price for 2023 was 50% of the gross price per unit of Ameluz®, with a minimum of USD 110 per unit.

The European license partners also charge their license fees via a fixed transfer price. The transfer price varies, but currently
averages 50% of annual net sales. Here, too, the delivery quantities are budgeted in advance, which means that there may be jumps
in sales during the year.

The license partner for Asia and Oceania initially made a one-time payment of EUR 6 million in the fiscal year 2020 upon acquisition.
Until the product is ready for the market, Biofrontera charges service fees for its involvement in the clinical trials and the regulatory
approval process.

Due to these very different sources of income, Biofrontera may experience strong quarterly fluctuations during the year, which do
not correlate with the actual revenue generated in the market

Biofrontera AG Annual Report 2023

Biofrontera Development GmbH and Biofrontera Neuroscience GmbH were founded in December 2012 and are additional wholly
owned subsidiaries of Biofrontera AG. These two companies are intended for the development of pipeline products that are not part
of Biofrontera's core business at this point in time and therefore currently cannot be sufficiently financed within the normal business
activities. The product BF-derm1 (without patent protection since 2009) for the treatment of severe chronic urticaria is owned by
Biofrontera Development GmbH, the product BF-1 (patent protection until 2034) for the prophylactic treatment of migraine by
Biofrontera Neuroscience GmbH. Both products are currently not being pursued any further, as the corporate strategy focuses on
the further development and marketing of Ameluz®. By outsourcing the development projects, projects, a structure has been
created which allows to separate the financing of the development of these two products from the general financing of the
Biofrontera Group.

Group strategy

The strategic goal of the Biofrontera Group is to optimize the positioning and market potential of Ameluz®, and in doing so to
develop the Company into a leading innovative specialty pharma company in dermatology, characterized by a special degree of
innovation. The focus of activities is on the further territorial expansion of marketing and the development of additional market
potential, e.g. through synergistic additions to the company's own product portfolio on the basis of marketing partnerships, as well
as the licensing of Ameluz® in other regions.

Biofrontera has received a centralized approval for its own self-developed drug, which is marketed under the brand name Ameluz®.
Since the market launch in February 2012, Biofrontera has been selling Ameluz® with its own sales force to dermatologists in
Germany and since March 2015 also in Spain. In the UK, Ameluz® was initially promoted through a distribution partner, and since
May 2018 has been actively promoted by Biofrontera's own sales force. Distribution in several other countries of the European Union
and Switzerland is carried out through licensing partnerships.

The US-subsidiary, Biofrontera Inc., was set up as the commercial arm of Biofrontera in the USA and became independent with its
IPO at the end of October 2021. Under a license and supply agreement (LSA) with Biofrontera Pharma GmbH and Biofrontera
Bioscience GmbH, both wholly owned subsidiaries of Biofrontera AG, and Biofrontera Inc. the responsibilities between the companies
are regulated. The agreement was entered into for a period of 15 years and will be extended for another 5 years provided that a
sales volume in the USA of more than USD 150 million has been achieved in the preceding 5 years. Under this agreement, Biofrontera
Inc. acquires Ameluz® and the PDT lamps BF-RhodoLED® and RhodoLED® XL from Biofrontera AG. Up to annual Ameluz® sales of
USD 30 million, Biofrontera Inc. will pay 50% of sales as a transfer price. This share decreases in two steps to 30% with sales more
than USD 50 million, thus taking into account the associated higher distribution costs of Biofrontera Inc. Biofrontera AG has
committed to maintaining the FDA approval, manufacturing the products, providing a pharmacovigilance database and conducting
previously defined clinical trials. For further information, please refer to the disclosures in the Notes to the Consolidated Financial
Statements relating to events after the reporting date.

Products

Ameluz® and PDT-lamps BF-RhodoLED® and RhodoLED® XL

In December 2011, Ameluz® 78 mg/g gel (Spanish for "love the light", development name BF-200 ALA) received its first centralized
European approval for the treatment of mild and moderate actinic keratoses (AK) on the face and scalp. It's significant superior
effect in combination with an LED lamp compared to the direct competitor product Metvix® for AK was proven during phase III
development. Actinic keratoses are superficial forms of skin cancer with a risk of spreading to deeper skin layers and thus developing
into potentially fatal squamous cell carcinoma. The combination of Ameluz® with light treatment is an innovative form of treatment
that is classified as photodynamic therapy (PDT). The product information authorized by the European Medicines Agency (EMA)
expressly states the significant superiority of Ameluz® in the removal of actinic keratosis compared to the direct competitor product
in conventional light treatment with a special red-light lamp.

Ameluz® has a number of product advantages in terms of efficacy, handling and user-friendliness. This, together with the associated
skin rejuvenation effect and comparatively low recurrence rates, leads to the expectation that this treatment option will become
even more of a focus for dermatologists in the coming years.

In 2017, Biofrontera submitted an application for approval for daylight-PDT with Ameluz® and was granted approval by the European
Commission in March 2018. Since then, the label extension has also included the treatment of actinic keratoses and field
cancerization with daylight-PDT. Daylight-PDT is a cost-effective and painless alternative to conventional PDT treatment with a
special lamp. The topically applied drug is activated by natural or artificial daylight. Since daylight-PDT does not necessarily have to
be carried out in a physician's office, it competes directly with topical drugs, which are much more widely used in Europe, are used
independently by patients, and are therefore reimbursed by statutory health insurers in Germany.

Biofrontera AG Annual Report 2023

Since March 2020 Ameluz®-PDT also covers the treatment of mild and moderate actinic keratoses not only on the head, but also on
the extremities and trunk/neck.

In December 2023, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA)
recommended the extension of the marketing authorization for Ameluz® for use in artificial daylight. Formal approval by the
European Commission has also been granted, meaning that marketing activities for Europe can be started. Photodynamic therapy
with artificial daylight combines the advantages of the original daylight therapy, which significantly reduces treatment pain, with
the controlled environment of a doctor's surgery, so that daylight PDT with Ameluz® can now also be used regardless of the
prevailing light conditions, weather conditions and time of day.

Also in December, the European Medicines Agency (EMA) approved an amendment to the approval of Ameluz® for an improved gel
formulation without the use of propylene glycol. By avoiding the use of propylene glycol, this improved Ameluz® formulation
eliminates potential risks, particularly with regard to the formation of impurities and allergic reactions. This formulation will be
available in Europe in the third quarter of 2024 at the earliest.

In May 2016, Biofrontera received the marketing approval for Ameluz® in the USA. The approved indication is "lesion and field
directed PDT in combination with the BF-RhodoLED® lamp of mild and moderate actinic keratoses on the face and scalp". As the
approval in the USA includes a combination of drug and lamp according to FDA guidelines, Biofrontera has developed its own PDT
lamp, the BF-RhodoLED®. To meet the strict requirements of the FDA for the production of a Class III medical device, production of
the lamp is carried out at the Company's headquarters in Leverkusen. This makes Biofrontera the responsible manufacturer from
the perspective of the regulatory authorities. In the EU, this lamp has already been CE-certified in 2012, which also required ISO 13485
certifications for the entire company. The ISO certification was renewed. In October 2021, the FDA approved the new, more advanced
RhodoLED® XL. This approval was also granted as a combination approval of lamp and the prescription drug Ameluz®. With the new
RhodoLED® XL, larger areas can be illuminated, enabling simultaneous treatment of multiple interspersed lesions. The new lamp is
protected by several patent applications, which also help to protect the drug Ameluz® in the U.S. market due to the FDA’s
combination approval.

Both RhodoLED® lamps emit light with a wavelength of approx. 635 nm via their LEDs. Light at this wavelength, which is optimal for
illumination in PDT with ALA or methyl ALA containing drugs, emits red light, but is still below the warming infrared range. The
RhodoLED® lamp series combines controlled and constant light output in the desired wavelength with simple and clear operability
and energy efficiency. Light energy and fan power can be changed during PDT treatment to respond to treatment-related pain. The
BF-RhodoLED® can be distributed throughout the EU, UK, Switzerland as well as the USA. The use of the RhodoLED® XL is currently
only planned for the US market.

The optimized formulation of the Ameluz® gel without propylene glycol was also submitted to the FDA as an extension of approval
for the USA. The application was approved in October 2023.

Belixos®

Belixos® represents a medical skin care range specifically developed for irritated and sensitive skin.

Originally designed as a cosmetic series with different products, it addressed various skin irritations. A unique combination of active
ingredients was created by combining purely plant-based biocolloids with medicinal plant extracts to achieve a proven deep skin
effect. As part of a comprehensive redesign, the Belixos® line has been undergoing transformation since mid-2022, which was
successfully completed in May 2023 with the launch of Belixos® ACTIVE CARE, a novel foam formulation. With the foam formulation,
the ingredients can now be delivered to the skin without any irritating supplements. This means that Belixos® is now even better
adapted to the needs of damaged skin. This new product replaces the previous cosmetic line.

In addition, a patent application has been filed for the underlying formulation due to its highly innovative character. Belixos® thus
continues to emphasize its focus on advanced skin care to meet the individual needs of damaged skin.

Sales and marketing

Germany and Europe

With its Central European approval, Ameluz® can be sold and distributed in all EU countries as well as in Norway, Iceland and
Liechtenstein. However, in many European countries, pricing and reimbursement status must be determined prior to launch, which
can be a lengthy process. Reference pricing and re-imports can lead to low prices in individual EU countries, which in turn can have
a negative impact on the overall EU market. For this reason, Ameluz® is currently only available in certain EU countries. However,

Biofrontera AG Annual Report 2023

due to changing framework conditions, it is always necessary to monitor whether a territorial expansion might make sense. Ameluz®
is available at pharmacy retail prices ranging from EUR 140 to approximately EUR 210 per 2 g tube.

In Europe, Ameluz® and BF-RhodoLED® are marketed in Germany (since 2012), Spain (since 2015) and Great Britain (since May 2018)
by our own sales forces. Germany is by far the largest European market for Ameluz®. In other EU countries and in Switzerland, the
products are distributed with the help of distribution partners. In Switzerland, independent approval procedures were required,
which were carried out by our local marketing partner in collaboration with Biofrontera. The contracts with distribution partners
were concluded in such a way that Biofrontera received no or only a moderate upfront payment and the regional partners purchase
Ameluz® from Biofrontera at a price that is linked to their own sales price. Depending on the market conditions in each country,
Biofrontera's share of the sales price varies somewhat, but averages 50% of net sales.

In December 2020, the Group covered sales in Scandinavia through an exclusive licensing partnership with Galenica AB, Malmö,
Sweden. Sales of the products in the Scandinavian region started with the delivery of the first batch of Ameluz® in June 2021.
Following initial product launches in Norway, Sweden and Denmark. Since November 2022 Ameluz® is also marketed in Finland.

In July 2021, a license agreement was signed with Medac Gesellschaft für klinische Spezialpräparate mbH for the commercialization
of Ameluz® and BF-RhodoLED® in Poland. Medac started marketing Ameluz® and BF-RhodoLED® to selected customers in the fall
of 2022. To date, activities have been limited to the private healthcare sector, as Ameluz® PDT is currently not reimbursed by public
payers. Medac anticipates that reimbursement of Ameluz® will be possible by the Mid of the year 2024.

In general, Biofrontera was able to significantly increase its presence in the European market through its own sales structures and
the territorial expansion through additional licensing partners.

USA

Ameluz® was commercially launched by Biofrontera in the USA in October 2016. For marketing purposes, Biofrontera AG established
its own sales organization in the USA for this purpose in March 2015, the Biofrontera Inc. based in Woburn. With the IPO of Biofrontera
Inc. in 2021, it became a licensing holder. Since its launch, Ameluz®-PDT has gradually established itself in the US PDT market
segment, and the increased sales efforts by Biofrontera Inc. and its sales expansion efforts promise further significant market
growth. The clinical program defined in the licensing agreement also holds further market potential in the longer term through
several label extensions.

Other regions

In April 2020, an exclusive license and supply agreement was entered into with Maruho Co., Ltd., Osaka, Japan (Maruho) for the
development and marketing of Ameluz® for all indications in East Asia and Oceania. Under the agreement, the product will be
marketed for a period of 15 years from the start of sales in the countries covered by the contract. The clinical development program
on which approval will be granted will initially focus on actinic keratosis as an indication and will be extended to acne if appropriate.

Market overview

Actinic keratosis (AK)

Non-melanoma skin cancer and its precursor actinic keratosis (AK) is the main market for the flagship prescription drug Ameluz®.
Actinic keratoses are superficial potentially pre-cancerous skin lesions caused by chronic sun exposure that may, if left untreated,
develop into a form of potentially life-threatening skin cancer called squamous cell carcinoma. Actinic keratoses typically appear
on sun-exposed areas, such as the face, bald scalp, arms or the back of the hands. They often appear as rough or crusty patches on
the surface of the skin that may be skin-colored, reddish, or yellowish. These skin lesions feel dry and rough to the touch.

These skin lesions occur not only isolated, but in many cases also over a large area. Such an area of the skin is called field
cancerization. In this case, visible and not yet visible skin damage can be in direct proximity to each other on the affected skin areas.
In about one in ten patients with AK, a malignant form of non-melanoma skin cancer (squamous cell carcinoma) can develop from a
skin lesion or in its vicinity. Even AK that are not yet visible already carry a high risk of transitioning into squamous cell carcinoma.

Lifetime dose of UV radiation plays an important role in the development of AK. Over many years, UV radiation damages the skin
cells, which then mutate and proliferate, which can lead to abnormal keratinization (hyperkeratosis). This is why AK occurs most
frequently in older people: in Germany, for example, more than 11 out of every 100 people between the ages of 60 and 70 are affected.
Men are more frequently affected than women, as, among other things, it is not uncommon for men to work outdoors and thus be
exposed to the sun, usually without protection. Particularly at risk are, for example, farmers and forestry workers, roofers,

Biofrontera AG Annual Report 2023

carpenters, gardeners and lifeguards. In addition to age and gender, other factors can promote the development of AK. These include
a fair skin type, severe sunburns, or treatment with medications that weaken the immune system.

Therapy options for the treatment of actinic keratosis

Because actinic keratosis can develop into squamous cell carcinomas, actinic keratosis is classified by The European Academy of
Dermatology and Venereology and other international treatment guidelines as a tumor that requires treatment. In order to minimize
the risk of developing cancer, AK must be detected and treated early.

Actinic keratoses are treated using a wide range of therapy options. The traditional methods of treating actinic keratoses are
cryotherapy (or the deep freezing of skin with liquid nitrogen); simple curettage; self-administered prescription topical medications
(usually creams, gels, or solutions containing active ingredients that must be applied to the damaged areas of the skin, usually
regularly over an extended period of time); and combining a drug with photodynamic therapy (PDT). When deciding on the treatment
option, the physician takes into account the disease progression to date, the extent of the existing skin damage, and the patient's
condition (age, possible existing concomitant diseases, medications to be taken).

The international treatment guidelines list photodynamic therapy as first-line therapy for the treatment of actinic keratoses,
especially for patients with large areas of actinic keratoses. In this process, a gel containing the active ingredient, such as
Biofrontera’s Ameluz®, is first applied to the affected areas of skin. The active ingredient is preferentially absorbed by cells with
high metabolic activity, such as cancer cells and their precursors, and converted into its light-activatable form. As a result, they
become more light-sensitive and are destroyed within a few hours by targeted illumination, while healthy skin cells remain
unharmed. The dead cells are broken down and the skin renews itself. Usually, no scarring remains and the appearance of the skin
visibly improves over the next weeks and months. There are two forms of PDT: one using an artificial light source (conventional PDT
with red or blue light) and one using natural/simulated daylight (daylight PDT). Compared to conventional PDT with red light or
another suitable light source, the treatment time for daylight PDT is shorter at about 2,5 hours and the treatment is associated with
less pain.

Market overview and competitive landscape in Germany

Germany is Biofrontera's largest European sales market. In Germany, around 1.7 million people are being treated by dermatologists
for AK, which corresponds to around 2 to 3% of the total population. However, the number of sufferers is probably higher. In 2023,
a total of 1,089,054 prescriptions were issued for the treatment of AK (previous year: 965,848). Superficially applicable medications
such as prescription creams and gels containing active ingredients (topicals) are primarily used, which also accounted for a constant
market share of 93.9% in the reporting year, followed by PDT (the combination of a superficially applied medication with light
therapy) with 6.1% (previous year: 93.8% and 6.2%). The PDT market segment was therefore unable to expand further in 2023. The
main growth in the AK market was triggered by two topical drugs, whose growth rates were just under 50%, meaning that the overall
AK market grew by 14% in 2023. Within the PDT segment, Ameluz® grew by 17%, while our direct competitor only grew by 3%.

Although information on a frequency of use of cryotherapy or simple curettage treatments for actinic keratosis is not accessible in
Europe, we assume that a large number of patients are also treated in this way due to the simplicity of these therapies and the low
cost.

In Germany, the largest European market for Ameluz®, the market share in the PDT drugs segment increased from 62% to 65% in
2023. Above all, the further establishment of daylight PDT enabled Ameluz® to continue to prove itself as a strong market leader in
the PDT market compared to competing products. We estimate that daylight PDT will gain further market share in the future, which
was previously reserved for self-applied topical creams, thanks to the expansion of the application with artificial daylight. This is
primarily due to the reimbursement of daylight PDT by statutory health insurance companies, which means that the number of
patients who would in principle have access to treatment with Ameluz® has multiplied as a result of this possible application. After
the coronavirus pandemic subsided and parallel imports from Spain declined significantly, Ameluz® unit sales in Germany grew by
around 32,8% in the reporting year compared to 2022.

Since 2013, actinic keratosis has been recognized as an occupational disease in Germany by the Federal Ministry of Labor and Social
Affairs. Based on this recognition, the employers' liability insurance associations in Germany cover the treatment costs of patients
for life who have worked predominantly outdoors over an extended period and meet certain other criteria. Since March 2016,
photodynamic therapy has been included as a recognized treatment option for occupational actinic keratosis in Germany and is thus
paid for by the Berufsgenossenschaften for these patients.

Biofrontera AG Annual Report 2023

Market overview and competitive situation in the other proprietary markets of Spain and the United Kingdom (UK)

In the Spanish market, sales of Ameluz® recorded a significant increase in 2021 and 2022 due to the price reduction ordered by the
Ministry of Health. After this intervention was terminated, there was a significant decline in the quantities of Ameluz® sold in 2023
due to the loss of this considerable price advantage. A decline of Ameluz® units of 23,3% compared to the previous year was
recorded. Nevertheless, due to the consistently higher price in 2023, sales remained almost stable at around EUR 1.7 million in 2023
(a decrease of -0.8% compared to 2022).

Ameluz® showed a solid growth of 9,3% in the UK market. We were able to increase sales to customers in the UK from 3,389 units
in 2022 to 3,757 units in 2023. Market figures on the competitive situation are not available.

Market overview in European countries with distribution partners

Our distribution partners Pelpharma in Austria, Louis Widmer in Switzerland, Galenica in the Scandinavian countries and Finland, as
well as our latest partner Medac in Poland can look back on a successful 2023. Overall, our partners contributed to the solid product
development with nearly 13,000 units sold.

Market overview and competitive situation in the USA

The USA is the most important pharmaceutical market in the world. According to the Skin Cancer Foundation, approximately 58
million people in the USA have actinic keratosis. In 2022, the market size was USD 2.3 billion for this indication, according to the
Grand View Research Report (01/2023). The US market differs from the European market in that cryotherapy dominates the market
with a market share of over 80%. PDT has only a very small share of the overall market. Segment expansion is predicted for the
coming years, but this is based on overall market growth rather than a proportionate redistribution within therapy options.
Cryotherapy is expected to remain the dominant therapy option.

The PDT segment currently has a share of less than 2%, with Ameluz®-PDT expanding its market share within this segment.

It is therefore important to improve the acceptance of PDT, with its clear advantages, particularly in scar-free healing and in the
treatment of field cancers, which would be preferable to surgical intervention. To this end, our US licensing partner is continuing to
expand its US sales force and marketing expenditure is also being significantly increased. For 2023 Biofrontera Inc. reported a further
sales improvement of nearlyt 20%.

Personnel matters

Management Board

As of December 31, 2023, the Management Board consisted of Pilar de la Huerta Martínez (CFO).

Name

Nationality

Pilar de la Huerta Martínez

Spanish

Age

Position

Date of first
appointment

Term

CFO

September 12, 2022

December 31,
2025

Employees

As of December 31, 2023 the Biofrontera Group had EUR 95 employees (December 31, 2022: 110) representing 87.91 FTE (December 31,
2022: 99 FTE) who were distributed as follows:

Biofrontera AG Annual Report 2023

Total number of employees

Full-time
With PhD degree

By business segments

Production

Research and development

Clinical and regulatory tasks

Marketing and sales

Quality management
Management, business development, finance, HR and administration

By countries

Germany

Spain

United Kingdom

Supervisory Board

December 31, 2023

December 31, 2022

87.91

73.00
20.30

87.91

9.75

6.55

18.80

27.78

6.85
18.18

87.91

77.28

7.63

3.00

99.32

83.00
16.32

99.32

11.81

8.65

19.67

29.53

5.85
23.81

99.32

87.94

8.38

3.00

In 2023, the Supervisory Board comprised the following members as representatives of the shareholders:

Name

Nationality

Age

Position

Wilhelm K. T. Zours

Dr. Jörgen Tielmann

Dr. Heikki Lanckriet

Prof. Dr. Karin Lergenmüller

Dr. Helge Lubenow
Karlheinz Schmelig

German

Belgian

German

German
German

55
58

Chairman

Vice Chair

Member

Member
Member

Date of first
appointment

December 14, 2021

August 23, 2022

December 14, 2021
December 14, 2021

Term

2026

2026
2026

Research and development projects

All research and development activities of the Biofrontera Group relating to nanoemulsion and Ameluz® are carried out by
Biofrontera Bioscience GmbH, which is responsible for pharmaceutical development, conducting preclinical and clinical studies, and
for granting, maintaining, and extending the drug approvals. Responsibility for project management of all development activities is
assumed internally; individual tasks such as data management and statistics for clinical studies are partially or completely
outsourced. The development of the new red-light lamp RhodoLED® XL was the responsibility of Biofrontera Pharma GmbH. All
ongoing clinical studies are carried out in the U.S., as part of the agreement entered into with Biofrontera Inc. to expand labeling for
the U.S. market.
Both for the approved drug Ameluz® and for the other research and development projects, except for the further development of
the new red-light lamp RhodoLED® XL, the research and development costs are recognized as expenses in the period in which they
are incurred. In the reporting period, 25 full-time employees (FTEs) were employed in research and development and regulatory
affairs (previous year: 28 FTEs).

Update for 2022 on the ongoing pharmaceutical and clinical development program:

Biofrontera AG Annual Report 2023

Optimized formulation for Ameluz®

An improved Ameluz® formulation was approved in both the U.S. and the EU during the reporting period. The new formulation n
longer contains contain propylene glycol, a component commonly used in semi-solid formulations. This may have a positive impact
on the safety profile of the gel as the absence of propylene glycol eliminates potential risks, particularly in terms of the formation
of impurities and allergic reactions.

Extension of the marketing authorization for Ameluz® for the treatment of actinic
keratoses with artificial daylight

In the EU, the EMA has positively assessed the extension of approval for the photodynamic treatment of mild and moderate actinic
keratoses (AK) with artificial daylight. Photodynamic therapy with artificial daylight combines the advantages of the original daylight
therapy, which significantly reduces treatment pain, with the controlled environment of a doctor's office, so that daylight PDT with
Ameluz® can now also be used regardless of the prevailing weather conditions.

Phase I safety study with Ameluz®-PDT

The Phase I safety study, which started in December 2021, is a non-randomized, open-label, multi-center study in which 100 patients
with mild to severe actinic keratosis on the face and scalp will be treated. It is designed to evaluate the safety and tolerability of
photodynamic therapy (PDT) for the field-directed treatment of actinic keratosis (AK) with the simultaneous application of three
tubes of Ameluz® together with the new RhodoLED® XL lamp. A total of nine clinical centers in the U.S. were involved in the study.

The study was completed with the milestone "last patient, last visit" in April 2023. The study results were submitted to the FDA in
December 2023.

Phase II trial for the treatment of moderate to severe acne

In December 2021, patient recruitment started for the Phase IIb trial to evaluate the safety and efficacy of Ameluz® in combination
with the BF-RhodoLED® red light lamp in the treatment of moderate to severe acne with photodynamic therapy (Ameluz®-PDT).

In the multicenter, randomized, double-blind, four-arm study, 126 adult patients suffering from moderate to severe acne are being
treated with Ameluz® PDT or placebo. The efficacy and safety of Ameluz® PDT will be tested at exposure times of one and three
hours compared to placebo. The primary endpoint of the study is the reduction in the number of inflammatory lesions in combination
with an improvement in the severity of acne to "Free of acne" or "Almost free of acne". To ensure collection of highly consistent
data across all participating sites, the study will combine clinical assessments performed by the physicians conducting the study
with a cutting-edge, FDA-approved, artificial intelligence analysis platform that will provide a lesion count along with a severity
assessment. Currently a total of nine clinical sites are participating in the study. Indication expansion is planned for the USA, so the
study is conducted there as well.

By the end of the year 2023, 77 patients had been enrolled in the study.

Phase III trial for the treatment of superficial basal cell carcinoma (sBCC) with Ameluz®-
PDT

To further increase growth potential in the US market in the medium term, the company is conducting a clinical trial for the treatment
of superficial basal cell carcinoma (sBCC) with Ameluz® together with the BF-RhodoLED® red light lamp in the USA. Intensive work
on patient recruitment has been ongoing since September 2018. In August, all required 186 patients were enrolled in the study, with
the next milestone expected to be reached in February 2024, when the last patient completes the treatment phase. This is followed
by a 5-year follow-up period for each patient. If approved by the FDA, Ameluz® would be the only drug in the U.S. for the treatment
of superficial BCC with PDT. A total of 19 clinical centers are involved in the study.

Since the FDA has also requested results from the first year of the follow-up phase, a submission is not expected until 2026.

Phase III trial for the treatment of actinic keratosis on the extremities, neck and trunk
with Ameluz®-PDT

Biofrontera AG Annual Report 2023

At the end of 2022, a randomized, double-blind, placebo-controlled, multicenter Phase III clinical trial was started to evaluate the
safety and efficacy of Ameluz® in a field-directed treatment of actinic keratosis (AK) on the extremities, neck and trunk. Biofrontera's
new red-light lamp RhodoLED® XL will also be used in this study. At multiple trial sites across the USA, 165 patients, each with 4-15
AK lesions on the extremities or trunk/neck, will be enrolled in the study. By introducing an optimized illumination profile, the study
design further addresses a promising approach to alleviate PDT pain, which is often a hurdle in PDT treatment for patients and
physicians. Mild to moderate actinic keratoses are treated with one or, if necessary, two PDT treatments. Patients will have their
final examination three months after their last PDT. The clinical study phase will be followed by a follow-up period of twelve months
after the last PDT. The primary endpoint of the study is efficacy in terms of the rate of complete healing of all lesions three months
after the last treatment. During the reporting period, there was a protocol adjustment to implement the FDA's recommendations
regarding the recording of local side effects and pain management during PDT.

By the end of the year, 72 patients had been enrolled and treated in the study, although most centers were only able to start patient
recruitment in April-May 2023 after completion of the Phase I safety study.

Patent development

Biofrontera's patent portfolio is constantly being expanded by filing new patent applications for new technologies and/or in other
countries. The company currently maintains 9 different proprietary patent families worldwide. As at December 31, 2023, the patent
portfolio consisted of 26 granted patents and 30 pending patent applications, including international patent applications (as at
December 31, 2022: 23 granted patents and 18 pending patent applications). The Group's patents are held by Biofrontera Bioscience
GmbH and Biofrontera Pharma GmbH. The patent families relate to our innovative technologies in connection with our nanoemulsion,
our red light lamp for photodynamic therapy, photodynamic therapy itself and migraine prophylaxis.

Nanoemulsion

We have been granted patents for our nanoemulsion technology
in Europe (validated for Germany, Spain, UK,
Switzerland/Liechtenstein, France and Italy), Israel, Japan, China, Hong Kong, Singapore, Australia, New Zealand, Canada, South
Africa, Mexico, Chile, Russia, Belarus and Ukraine. The patent protection expires on December 21, 2027. A patent was granted for the
corresponding US patent application on January 3, 2023, which expires on February 7, 2028. A divisional application has also been
filed in the US, which is currently still pending. As part of the license agreement with our strategic partner Maruho, the corresponding
Japanese patent was transferred to Maruho.

The patent family serves to protect our nanoemulsion technology and thus also to protect Ameluz®. The risk of possible future
generic competition with regard to Ameluz® is also mitigated by specific challenges in the development and market launch of
generic dermatological combination products. Furthermore, as part of Biofrontera's patent strategy to protect Ameluz® , additional
patent applications have been filed for photodynamic therapy itself and our red light lamp.

Red-light lamp for photodynamic therapy

An international patent application entitled "Illumination for photodynamic therapy" has been filed. We have already been granted
a patent in the USA for a resulting divisional application. The patent was also granted in Australia on November 30, 2023. The patents
have a maximum term until June 5, 2039. Further patent applications are also pending in Europe, the USA, Japan, China, Hong Kong,
Singapore and New Zealand. The Japanese patent application was transferred to Maruho as part of the license agreement with the
strategic partner Maruho.

A further patent application "Illumination device for photodynamic therapy, method for treating a skin disease and method for
operating an illumination device" was initially filed in the USA; this is still pending. We have already been granted a patent in the
USA for a resulting US divisional application. The patent has a maximum term until October 15, 2040. Furthermore, an international
patent application was filed in this patent family, for which national/regional phases were initiated in Europe, the USA, Japan, China,
Hong Kong, South Korea, India, Australia, Canada and Brazil in spring 2023.

A further international patent application to protect the lamp entitled "Illumination device for photodynamic therapy, method for
treating a skin disease and method for operating an illumination device" has been filed and is still in the international phase of the
PCT procedure (PCT = Patent Cooporation Treaty). All contracting states belonging to the PCT at the time of filing have been
designated.

Biofrontera AG Annual Report 2023

In order to protect our new RhodoLED® XL PDT lamp from imitation, design applications have also been filed for certain key design
aspects of the lamp. In Europe and the United Kingdom, two designs each were already entered in the register in April 2023. Further
design applications are pending in the USA and Canada. Following a successful examination, the responsible patent office issued the
registration decision for one of the US design applications on November 2, 2023.

Photodynamic therapy

In the patent family of the international patent application "Photodynamic therapy comprising two light exposures at different
wavelengths", Biofrontera has already been granted a patent in Australia. In addition, the corresponding US patent was granted on
May 9, 2023. The patents protect a number of innovations relating to a new illumination method for the treatment of dermatological
skin diseases with photodynamic therapy (PDT) and have a maximum term until August 23, 2038 (or April 23, 2039, for the USA).
Further patent applications are pending in Europe, the USA, Japan, China, Hong Kong, Singapore and New Zealand. As part of the
license agreement with the strategic partner Maruho, the then pending Japanese patent application was transferred to Maruho; in
the meantime, a patent was also granted for this on 20 February 2023.

Internal controls
Biofrontera AG is managed by its Management Board. The Management Board is responsible for and supervises the operational
business. To this end, the Management Board regularly receives and reviews internal management reports.

Key performance indicators are compiled monthly, while the budget planning for the current financial year is revised and updated
quarterly. In addition, medium-term planning is prepared once a year. In-depth cost analyses are performed on an ongoing basis.

Key financial performance indicators
With regard to the operating performance for the Group, the key performance figures, revenue and liquidity as well as EBITDA and
EBIT serve as financial control variables. Biofrontera AG uses the key performance figures liquidity and net income as financial
performance indicators.

Revenue is also considered by region. On a consolidated basis, revenues include sales to wholesalers as well as to physicians and
clinics, sales to our licensing partners, as well as revenues from research contracts.

In addition, the development of liquidity is used as an important key performance and management metric for the Group as well as
for Biofrontera AG. It is monitored on daily basis. Liquidity is defined as the sum of cash and cash balances in bank accounts and is
described as cash and cash equivalents.

Group EBITDA includes earnings before interest, taxes, depreciation of tangible assets and amortization of intangible assets. EBIT
includes earnings before interest and taxes. These key performance indicators are suitable for describing and comparing operating
performance, as they do not include non-operating fluctuation variables such as valuation adjustments and amortization of acquired
assets.

The key financial performance indicators are calculated as follows:

Result from operating activities
+ Depreciation and amortization
+ /- Other expenses and income
EBITDA
- Depreciation and amortization
EBIT
+/- Interest expense and interest income
Earnings before income taxes

Biofrontera AG Annual Report 2023

Non-financial performance indicators
The maintenance and further development of our regulatory approvals is essential to secure and strengthen Biofrontera's market
position and is reflected, among other things, in research and development costs. Consequently, both the maintenance of our
regulatory approvals and the expansion of our drug labels as well as the number of external and internal audits are important non-
financial control parameters for the Company.

Biofrontera’s employees are an important success factor and therefore also represent a central control parameter. With respect to
personnel, particular emphasis is placed on the qualifications and the necessary know-how of the employees to achieve the set
goals in the operational and administrative areas. We therefore measure the annual number of external and internal training courses.
Personnel costs are always considered on the basis of the salary level customary in the industry.

Management report for the 2023 fiscal year

Business performance

Biofrontera was once again able to confirm its targeted profitability in this financial year. The forecast EBITDA result of
EUR 5.9 million was clearly exceeded and the company's sales of EUR 32.2 million were also in the upper third of the issued forecast.

In the current financial year, Biofrontera has been working intensively on its future strategic positioning after the separation of the
cost-intensive US business was completed and Biofrontera decided to focus on its European business. Initially, the complete
separation of the US unit was driven forward in terms of both organization and business activities. This involved reviewing existing
corporate structures to ensure they are optimally aligned with the requirements of the newly focused business. Special attention
was given to evaluating the current European operations with the aim of significantly expanding them in the future while
simultaneously achieving cost optimization.

This strategic process was supported by a renowned consulting firm to ensure its efficiency and effectiveness. The long-term goal
is to secure the profitability of Biofrontera AG independently of the business performance of the US licensing partner. To achieve
this, a strategic expansion of Ameluz® market presence in Europe is a feasible approach. At the same time, it would be advantageous
to expand the product portfolio through potential collaborations or licensing agreements to utilize existing complex structures more
efficiently. Through this measures Biofrontera AG aims to reduce its revenue dependence on the US business and thus becaume less
reliant on the business development of Biofrontera Inc.
The management is confident that these strategic steps can contribute to the long-term stability and sustainability of the company.
The positive growth of the European business, particularly the outstanding performance in the German market, marks significant
milestones in this long-term corporate transformation. In Germany, our consistently good sales performance in the first three
quarters of this financial year enabled us to avoid the therapy-related sales fluctuations in the summer for the first time. With the
usual strong fourth quarter, we were then able to achieve a revenue growth of 31.4 % for the year. In total we were able to generate
revenues in Germany amounting EUR 6.3 million, with unit sales growing significantly by roughly 33%.

For the rest of Europe, sales development was more moderate over the past year, but we also recorded a slight growth of 5%. This
was mainly due to a weak third quarter. Throughout the year, the Spanish market has not yet fully recovered from the price
adjustment. However, with a satisfactory fourth quarter, we see growth momentum that we expect to translate into increased
demand this year.

Consolidated with the German revenues, the overall European business totalled EUR 9,919 thousand (previous year:
EUR 8,261 thousand), which corresponds to growth of slightly over 20 %. With this result, this division is now profitable.

As part of the license agreement concluded with Maruho Ltd., income of EUR 106 thousand was generated in the reporting year from
services and the supply of medication for clinical development (previous year: EUR 342 thousand). The decline is due to the fact that
a one-off payment of EUR 200 thousand was made in 2022 as part of a patent transfer.

However, in addition to these sources of income, the company's profitability is still significantly dependent on US income. In the US,
we generated license income of EUR 22.1 million in 2023, representing growth of 34.3% compared to the previous year. Based on the
publication of the annual results of Biofrontera Inc., the sales achieved by Biofrontera Inc. were below the expectations set by

Biofrontera AG Annual Report 2023

Biofrontera Inc., as the sales growth of 25 % announced for 2023 was slightly below the forecast market development with actual
growth of 19 %. This has led to a certain level of stockpiling, which must now be reduced in 2024. It is therefore becoming increasingly
important for Biofrontera AG to successively minimize the risk of uncontrollable uncertainties in the US business and to resolve the
existing dependency.

The company reorganization described above resulted in one-time expenses on the cost side, particularly in the area of consulting
and legal costs. This was reflected in an almost constant cost level for general and administrative expenses. The increase in legal
costs was due to legal disputes, which were, however, settled through agreements with the parties concerned. Furthermore, costs
were also incurred in connection with the preparation of a prospectus for a capital measure planned for August 2023 but cancelled
in July. Total G&A costs in the reporting period amounted to EUR 6,105 thousand compared to EUR 5,906 thousand in the previous
year.
Research and development costs totaled EUR 7,846 thousand in the reporting year compared to EUR 7,128 thousand in the previous
year, representing a percentage increase of 10.1 %. This increase resulted from intensified clinical development activities in the first
quarter to increase market potential in the USA.
Sales and marketing costs increased to a total of EUR 7,273 thousand in the reporting year, compared to EUR 6,356 thousand in the
previous year. This increase was primarily caused by preparations to intensify and expand our sales activities in Europe.

Marketing & Sales of Ameluz® in Europe

Sales development in Germany was very strong compared to the previous year. German product sales totaled EUR 6.3 million
compared to EUR 4.8 millionin 2022, an increase of around 31.4 %, mainly due to the end of re-imports and the coronavirus pandemic.
Direct tube-based Ameluz® sales in the German market grew by around 33% in the reporting year compared to 2022. The share of
Ameluz® PDT in the PDT segment grew from 62% in the previous year to 65% in 2023.

In the remaining European countries, Biofrontera generated product sales of EUR 3.7 million compared to EUR 3.5 millionin 2022, an
increase of slightly under 5%. In the Spanish market, sales of Ameluz® fell compared to the previous year due to the lack of exports
and the price returning to the original level. Over the reporting year as a whole, significantly fewer tubes of Ameluz® were sold in
the Spanish market, down 23%.

Ameluz® showed dynamic unit-based growth of 13% in the UK market. We were able to increase sales to customers in the UK from
3,389 tubes in 2022 to 3,757 tubes in 2023. On a sales basis, revenue increased from EUR 662 thousand in 2022 to EUR 723.4 thousand
in 2023, an increase of 9.3 %.

Marketing by our European licence partners Galenica AB for the Nordic countries, Louis Widmer for Switzerland, Pelpharma for
Austria and Medac Gesellschaft für klinische Spezialpräparate mbH for Poland has consistently developed positively with generally
double-digit growth rates in market sales.

Sales of Ameluz® in the USA

Biofrontera Inc. generated sales of EUR 22.1 million in the reporting period, an increase of 34.3 % compared to the previous year. In
the past financial year, Biofrontera Inc. made enormous investments to expand its marketing activities and significantly increased
both its sales force and sales support. However, with sales growth slightly under 20 %, our sales partner fell slightly short of its own
expectations for 2023. The difference between deliveries and sales indicates a certain level of stockpiling, meaning that we will have
to monitor market developments in the US very closely in 2024. Both companies are in close dialogue on this.

Regulatory and clinical progress

The aim of Biofrontera's development strategy is to successively adapt Ameluz® to market requirements and patient needs and to
utilize it for further indications. The full treatment and market potential of Ameluz® can only be realized with corresponding
extensions of the approval.

An improved Ameluz® formulation was approved in both the USA and the EU in the reporting period. The new formulation does not
contain propylene glycol. This may have a positive effect on the safety profile of the gel and avoid potential risks regarding the
formation of impurities and allergic reactions.

In the EU, the EMA has positively assessed the authorization extension for the photodynamic treatment of mild and moderate actinic
keratoses (AK) with artificial daylight. Photodynamic therapy with artificial daylight combines the benefits of the original daylight

Biofrontera AG Annual Report 2023

therapy, which significantly reduces treatment pain, with the controlled environment of a doctor's office, meaning that daylight PDT
with Ameluz® can now also be used regardless of the prevailing weather conditions.

Progress was also made in the area of clinical studies: a phase I study required by the FDA to collect more safety data on the use of
three tubes of Ameluz® in a PDT session was completed this year. The extended approval dossier for the USA was submitted to FDA
at the end of 2023.

The company is currently conducting three independent phase II and III clinical trials in parallel to expand the US approval of
Ameluz®. One of these ongoing studies is evaluating the efficacy of Ameluz® PDT in moderate to severe forms of adult acne in
adults. So far, 77 of 126 patients have been enrolled in the study. In December 2022, another phase III trial was launched to test the
efficacy of Ameluz® PDT on the extremities, trunk and neck. A new lighting profile will also be used to alleviate pain during PDT. So
far, 72 patients have been included in this study. In the trial to test Ameluz® PDT for superficial basal cell carcinoma, which has been
running since 2018, recruitment was successfully completed in August 2023. A total of 187 patients were included in the trial. We
expect the treatment phase to be completed in the first quarter of 2024, after which all patients will be in the 5-year follow-up phase.

Further information on the ongoing studies can be found in the Research and development section.

Cancellation of the capital increase resolved on January 09, 2023

Due to the significant decline in the share price, the Management Board, with the approval of the Supervisory Board, decided in
August 2023 not to implement the planned capital increase against cash contributions resolved by the Annual General Meeting on
January 9, 2023, and to withdraw the proposal for approval of a corresponding securities prospectus. The share price below nominal
value also made it impossible to restart these efforts in the course of the second half of the year, so that this capital resolution was
no longer feasible.

Litigation

Biofrontera Inc. and another shareholder filed a contestation lawsuit against all resolutions of the extraordinary general meeting
on January 9, 2023, including resolutions on Authorized Capital and the increase of the share capital. The lawsuit was withdrawn as
part of an out-of-court settlement dated April 11, 2023 ("Inc. Agreement dated April 11, 2023"). The Inc. Agreement dated April 11, 2023,
is reproduced in detail in Biofrontera AG's announcement in the Bundesanzeiger pursuant to Section 248a of the German Stock
Corporation Act (AktG) dated April 19, 2023.

With the Biofrontera Inc. Agreement dated April 11, 2023, a lawsuit by the Company in the state of Delaware, USA, was also settled,
seeking in particular to invalidate the resolutions adopted at the Biofrontera Inc.'s general meeting on December 12, 2022, including
the elections to the Board of Directors. Essential components of the Inc. Agreement dated April 11, 2023, include the appointment of
a new member nominated by the Company to the Board of Directors of Biofrontera Inc., the mutual search for a new independent
member for the Board of Directors, and the mutual commitment not to significantly increase the ownership in the respective
company and not to implement additional dilution measures that could prevent the holdings from being maintained in the event of
capital increases.

Deutsche Balaton AG filed a declaratory action with the Cologne District Court on December 13, 2021, concerning the legal
examination and determination of a so-called unwritten competence of the general meeting regarding the IPO of Biofrontera Inc. On
December 9, 2022, the Cologne District Court decided in a declaratory judgment that the approval resolutions of the then Board of
Directors and the then Supervisory Board for the IPO of Biofrontera Inc. were unlawful because the prior approval required for the
IPO by the general meeting, as required by the Holzmüller doctrine, was unlawfully not obtained. The further claim was dismissed.
In its reasoning, the court stated that the IPO initiated a significant loss of control by allowing third-party investors to take over the
majority in the subsidiary without exercising the subscription rights of the parent company. According to the court, this loss of
control results in significant financial losses for Biofrontera AG and its shareholders. Since all former members of the management
board and supervisory board involved in the resolutions have left the company, former board members and supervisory board
members were served with statements of intervention regarding possible claims for damages. The Company has decided not to
appeal the judgment. Appeals by the intervenors have rendered the judgment not final, and it will be continued in the second instance
by the intervening parties. The effectiveness of the IPO of Biofrontera Inc. remains unaffected by the judgment.

Management Board

Biofrontera AG Annual Report 2023

Ms. Pilar de la Huerta Martínez was appointed as a member of the Executive Board on 19 August 2022 with effect from 12 September
2022. Since then, Ms. de la Huerta Martínez has been the sole member of the Executive Board, and her contract was extended by the
Supervisory Board at the end of December 2023 until December 31, 2025.

Supervisory Board

At the Annual General Meeting of Biofrontera AG in 2022, Prof. Dr. Karin Lergenmüller was elected to the Supervisory Board. The
election was confirmed by the Extraordinary General Meeting on 9 January 2023. On 4 July 2023, Maruho Deutschland GmbH withdrew
its actions for annulment brought against both decisions. This means that the election of Prof. Dr. Lergenmüller to the Supervisory
Board is final. At the same time, with the withdrawal of the lawsuit, the last lawsuit directed against resolutions of the company's
general meeting was also disposed of. The withdrawal of the lawsuit is part of an out-of-court agreement dated June 19, 2023, which
simultaneously settled a dispute over possible losses of voting rights of Maruho Deutschland GmbH at past general meetings and
agreed on a procedure to avoid loss of voting rights at future general meetings. The agreement is set out in detail in the Company's
announcement in the Federal Gazette pursuant to Section 248a of the German Stock Corporation Act (AktG) dated July 7, 2023.

Evaluation of the business performance of the Biofrontera Group

Comparison of actual and forecast business performance

The Biofrontera Group generated sales of around EUR 32.2 million in the 2023 financial year, significantly exceeding the upper third
of the revenue forecast range of EUR 27 to 33 million. This result was achieved through a 34.3% increase in US licensing revenues
and a remarkably positive sales performance in our home market of Germany, which also grew by 31.4%.

For the fiscal year 2023, the company had forecasted an EBITDA between EUR 3 and 5 million, and with an actual EBITDA of
EUR 5.9 million, this forecast range was exceeded. Additionally, the EBIT of EUR 5.1 million, also exceeded the forecast of EUR 2 to 4
million. Essentially, Biofrontera was able to significantly strengthen the revenue side, so that the moderate increase in costs had
less of an impact on the result than anticipated.

Liquidity developed as forecasted, standing at 3,080 TEUR as at 31 December 2023, was below the previous year's level of 6,376 TEUR.
Due to a weak share price, the company decided to cancel a planned capital measure in July 2023. Over the course of the year, the
share price was unable to recover from this low, meaning that the shares traded below the nominal value of EUR 1.00 for the
remainder of the year. This meant that the implementation of a capital measure at a later date could no longer be formally realized.
In the previous year, liquidity was significantly strengthened by a successfully implemented capital measure with gross issue
proceeds of around EUR 7.1 million.

In the case of training measures and internal/external audits as non-financial performance indicators, the development in the
financial year met the forecasts. The number of external training courses fell slightly to 40 in the year under review compared to
48 in the previous year. The company's internal identification of further training measures is based on demand, so that the
development of this key figure depends significantly on the level of qualification of the current employee base. In addition, the
number of employees in the Biofrontera Group declined in the year under review, with the result that training courses in particular
declined as a result of onboarding processes. The number of documents describing standardized and controlled workflows (SOPs)
increased dramatically again during the reporting period. The company now manages 803 SOPs (previous year: 699). Internal training
was at a similar level compared to the previous year. In the internal training courses, employees are trained in new and modified
SOPs. If there are product modifications or changes in official requirements, such training becomes necessary. The regulatory
environment of a pharmaceutical company sets enormously high standards here, so that the internal and external training standard
at Biofrontera has been at an extremely high level since the introduction of this metric. The number of external and internal audits
remained stable in 2023 compared to the previous year, with 16 audits or inspections carried out.

The number of employees did not increase in the financial year as forecast.

The regulatory and clinical progress planned for 2023 was largely achieved. An improved Ameluz® formulation was approved in both
the USA and the EU in the reporting period. The new formulation does not contain propylene glycol. This may have a positive effect
on the safety profile of the gel and avoid possible risks with regard to the formation of impurities and allergic reactions. Biofrontera
has submitted a patent application to protect this new formulation.

In the EU, the EMA has approved the extension of the marketing authorization for the photodynamic treatment of mild and moderate
actinic keratoses (AK) with artificial daylight. Photodynamic therapy with artificial daylight combines the advantages of the original

Biofrontera AG Annual Report 2023

daylight therapy, which significantly reduces treatment pain, with the controlled environment of a doctor's office, so that daylight
PDT with Ameluz® can now also be used regardless of the prevailing weather conditions.

The Phase I study required by the FDA to collect additional safety data on the use of three tubes of Ameluz® in a PDT session was
completed this year as planned. The extended approval dossier in the USA was submitted to the FDA at the end of 2023.

The Company is currently conducting three independent Phase II and III clinical trials to expand the U.S. approval of Ameluz®. One
of these ongoing studies is testing the efficacy of Ameluz-PDT® in moderate to severe forms of acne in adults. So far, 77 out of 126
patients have been enrolled in the study. In the study to test Ameluz-PDT® in superficial basal cell carcinoma, which has been
running since 2018, recruitment was successfully completed in August 2023. A total of 187 patients were included in the study. The
treatment phase is expected to be completed in the first quarter of 2024, after which all patients will be in the 5-year follow-up
phase. In December 2022, a Phase III study to investigate the efficacy of Ameluz-PDT® for the treatment of actinic keratoses of the
extremities, trunk and neck started. A new lighting profile is used to alleviate pain during PDT. Recruitment progress in this study
fell short of expectations in 2023. So far, 72 patients have been enrolled.

Evaluation of the business performance by the Management Board

With the exception of cancellation of the capital measure, business performance for both the Biofrontera Group and Biofrontera AG
was positive overall for the year as a whole and thus met the management's expectations. Both total sales and the forecast EBITDA
and EBIT were achieved or exceeded. Only in Spain did sales decline slightly, which was due to both the price increase for Ameluz®
and personnel changes in the Spanish sales team. This delayed the expected recovery in Spanish sales, but it is expected that this
trend will not continue in 2024 and that the extended approval of Ameluz® for artificial daylight will also provide new impetus in
the Spanish market. Over the course of the year, Biofrontera continued to be affected by supply bottlenecks and inflationary
pressure in the procurement of materials for the manufacturing of the RhodoLED® XL lamp.

Despite the positive EBITDA of EUR 5.9 million, earnings before income taxes amounted to EUR ‑2,127 thousand in the 2023 financial
year (previous year:EUR ‑43,210 thousand).
The separate financial statements of Biofrontera AG show a net loss for the year of EUR -7,295 thousand after EUR -31,527 thousand
in the previous year.

Biofrontera Group financial position and performance

Results of operations of the Biofrontera Group

The results of operations as of December 31, 2023 are as follows:

in EUR thousands

Sales revenue

Gross profit on sales

Research and development costs

General administrative costs

Sales and marketing costs

Result on operations

Other expenses and income

EBITDA

EBIT

Financial result

Loss before income tax

Loss after income tax

Biofrontera AG Annual Report 2023

2023

32,249

26,005

(7,846)

(6,105)

(7,273)

4,782

350

5,923

5,132

(7,259)

(2,127)

(369)

2022

25,738

20,981

(7,128)

(5,906)

(6,357)

1,591

(467)

1,869

1,124

-44,334

-43,210

-44,166

Sales revenue

The Biofrontera Group generated total sales of EUR 32,249 thousand in the reporting year 2023, an increase of 25.3% compared to
the previous year (previous year: EUR 25,738 thousand).

Total revenues in Europe increased by 20% compared to the previous year to EUR 9,919 thousand (previous year: EUR 8,261
thousand). In Germany, sales increased by 31.4% year-on-year to EUR 6,257 thousand (previous year: EUR 4,763 thousand) and total
sales in the rest of Europe also increased slightly by 5% to a total of EUR 3,662 thousand (previous year: EUR 3,498 thousand).

In the 2023 financial year, Biofrontera generated revenue of EUR 22,224 thousand with our licensee in the USA compared to EUR
17,135 thousand in the previous year, an increase of 30%. This includes revenues from service agreements in the amount of EUR 76
thousand (previous year: EUR 648 thousand).

Revenue from other regions amounted to EUR 106 thousand in the financial year (previous year: EUR 342 thousand) and included
both license income and revenue from the sale of study materials

Gross profit on sale

Gross profit increased by EUR 5,024 thousand and amounted to EUR 26,005 thousand in 2023 compared to EUR 20,981 thousand in
the prior year period. The gross margin decreased from 82% in 2022 to 81% in the 2023 financial year.

Research and development costs

Research and development costs increased by 10% to EUR 7,846 thousand in the reporting period compared to EUR 7,128 thousand
in the previous year due to increased activities in clinical trials. In addition to the costs for clinical trials, research and development

Biofrontera AG Annual Report 2023

costs also include expenses for regulatory affairs, i.e. for obtaining, maintaining and expanding our approvals, expenses for patents
and personnel costs for employees working in these departments.

General and administrative costs

General administrative expenses amounted to EUR 6,105 thousand in the 2023 financial year (previous year: EUR 5,906 thousand),
an increase of EUR 199 thousand in total compared to the previous year. Expenses were incurred for one-off and extraordinary legal
and consulting costs.

Sales and marketing costs

Sales and marketing expenses amounted to EUR 7,273 thousand in the 2023 financial year, an increase of EUR 917 thousand on the
previous year (EUR 6,357 thousand), mainly due to increased marketing expenses for the expansion of approvals to include artificial
daylight and exploratory costs for market expansion in other European countries.

EBITDA and EBIT

The Group's EBITDA includes earnings before interest, taxes, depreciation of property, plant and equipment and amortization of
intangible assets and decreased by EUR 4,054 thousand to EUR 5,923 thousand in fiscal year 2023 compared with the prior-year
period (EUR 1,869 thousand). The significant increase in EBIT is largely due to the increase in income, while costs remained relatively
consistent.

includes earnings before

EBIT
EUR 1,124 thousand).

Financial result

interest and taxes and

improved year-on-year to EUR 5,132 thousand (previous year:

In addition to the interest result, the financial result totaling EUR ‑7,259 thousand (previous year: loss of EUR 44,334 thousand)
includes expenses from the subsequent measurement of the carrying amount of the investment in Biofrontera Inc. amounting to
EUR 7,264 thousand (previous year: profit of EUR ‑44,172 thousand).

Other income and expenses

Other expenses and income amounted to a total of EUR 350 thousand in the reporting period (previous year: EUR -467 thousand)
and primarily include expenses and income from currency translation and the reversal of provisions.

Income taxes

This position includes expenses from current income taxes in the amount of EUR 685 thousand (previous year: EUR 156 thousand)
and income from deferred taxes in the amount of EUR 2,443 thousand (previous year: EUR -800 thousand) resulting from the first-
time capitalization of deferred taxes at Biofrontera Bioscience GmbH, which is partially offset by a reduction in deferred taxes from
tax-deductible loss carryforwards at Biofrontera Pharma GmbH.

Net assets of the Biofrontera Group

The net assets position as of December 31, 2023is as follows:

Biofrontera AG Annual Report 2023

in EUR thousands

Non-current assets

Current financial assets

Other current assets

Total assets

Equity

Non-current liabilities

Current financial liabilities

Other current liabilities
Total equity and liabilities

Non-current assets

December 31, 2023

December 31, 2022

13,012

11,792

5,928

30,732

19,980

678

5,879

4,194
30,732

17,669

9,324

5,732

32,725

20,336

4,002

5,109

3,277
32,725

Non-current assets as of December 31, 2023, totaling EUR 13,012 thousand(previous year: EUR 17,669 thousand) include recognized
deferred tax assets on tax loss carryforwards at Biofrontera Pharma GmbH and the first time recognition of deferred taxes at
Biofrontera Bioscience in the amount of EUR 6,818 thousand (previous year: EUR 5,176 thousand), property, plant and equipment in
the amount of EUR 3,290 thousand (previous year: EUR 3,012 thousand), and intangible assets (EUR 1,152 thousand; previous year:
EUR 1,198 thousand). Also included here is the investment in Biofrontera Inc. valued at equity in the amount of EUR 1,718 thousand
(previous year: EUR 8,982 thousand).

Current financial assets

Current financial assets totaled EUR 11,792 thousand as of December 31, 2023 (previous year: EUR 9,324 thousand). This includes cash
and cash equivalents of EUR 3,080 thousand (previous year: EUR 6,376 thousand), trade receivables of EUR 774 thousand (previous
year: EUR 691 thousand), receivables from associates of EUR 6,365 thousand (previous year: EUR 1,344 thousand), other current
financial assets of EUR 1,556 thousand (previous year: EUR 878 thousand) and receivables from leasing contracts of EUR 54 thousand
(previous year: EUR 35 thousand).

Other current assets

Other current assets mainly contain inventories. These increased slightly to EUR 5,077 thousand as of December 31, 2023 (previous
year: EUR 4,794 thousand). In the reporting year, impairment losses were recognized on inventories in the amount of EUR 24
thousand (previous year: EUR 155 thousand).

Other current assets also include current receivables in the amount of EUR 207 thousand (previous year: EUR 146 thousand) and
prepaid expenses in the total amount of EUR 643 thousand (previous year: EUR 791 thousand).

Equity

In accordance with IFRS, the Group reported equity of EUR 19,980 thousand (previous year: EUR 20,336 thousand). The equity ratio
increased from 63% to 70%, mainly due to improved profit.

Non-current liabilities

The financial liabilities reported under non-current liabilities (EUR 678 thousand; previous year: EUR 1,055 thousand) contain the
liabilities from leases to be recognized in accordance with IFRS 16 in the amount of EUR 678 thousand (previous year: EUR 1,055
thousand).

Biofrontera AG Annual Report 2023

Current financial liabilities

Current financial liabilities include, in particular, trade payables in the amount of EUR 2,594 thousand (previous year: EUR 1,984
thousand) and current financial liabilities in the amount of EUR 468 thousand (previous year: EUR 446 thousand). Also included are
liabilities to associated companies of EUR 2,747 thousand (previous year: EUR 2,653 thousand); the installment of the liability from
the DUSA settlement due in January 2024 is reported here.

Current financial liabilities include current liabilities from leases in accordance with IFRS 16 in the amount of EUR 417 thousand
(previous year: EUR 444 thousand).

Other current liabilities

Other current liabilities amounted to EUR 4,194 thousand (previous year: EUR 3,277 thousand) and mainly include provisions of EUR
895 thousand (previous year: EUR 603 thousand) as well as other accrued liabilities of EUR 2,458 thousand (previous year: EUR 2,518
thousand) and income tax liabilities of EUR 841 thousand (previous year: EUR 156 thousand).

Financial position of the Biofrontera Group

The Company's capital management body regularly reviews the equity ratio of both the Biofrontera Group and the parent company.
The objective is to ensure an appropriate equity base, within the framework of the expectations of the capital market, and
creditworthiness with respect to national and international business partners. The Group's Management Board ensures that all Group
companies have sufficient liquidity at their disposal.

in EUR thousands

Cash flow from/in operating activities

Cash flow from/in financing activities

Cash and cash equivalents

Non-current financial liabilities

Current financial debt
Net liquidity

2023

(1,905)

(912)

(479)

3,080

678

468
1,934

2022

(3,895)

(981)

4,344

6,376

1,055

446
4,874

Net cash flow from operating activities improved by EUR 1,990 thousand to EUR -1,905 thousand compared to the previous year's
figure of EUR -3,895 thousand.

Net cash flow from investing activities amounted to EUR -912 thousand (previous year: EUR -981 thousand) and contains investments
in property, plant and equipment and intangible assets.

Net cash flow from financing activities amounted to EUR -479 thousand and was lower than the previous year's figure (previous
year: EUR 4,344 thousand), which included proceeds from a capital increase carried out in the previous year.

Cash and cash equivalents

Cash and cash equivalents in the Group amount to EUR 3,080 thousand as of December 31, 2023 (previous year: EUR 6,376 thousand).

Biofrontera AG Annual Report 2023

Biofrontera AG financial position and performance

Results of operations of Biofrontera AG

in EUR thousands

Sales revenue

Other operating income

Personnel costs

Depreciation and amortization

Other operating expenses

Other interest and similar income

Depreciation on financial assets

Interest and similar expenses

Other taxes
Net loss

2023

3,311

449

(3,238)

(12)

(4,939)

2,078

(4,945)

(1)

(1)
-7,297

2022

3,754

1,403

(2,751)

(22)

(6,203)

1,934

(29,492)

(146)

(2)
-31,527

The revenue reported in the separate financial statements under German GAAP includes income from intercompany services. Other
operating income mainly relates to income from the reversal of provisions and income from costs recharged to affiliated and
associated companies.The decrease in personnel expenses is mainly due to the reduction in Management Board compensation. For
further details, please refer to the compensation report.

The increase in personnel expenses is primarily due to settlements for personnel restructuring.

Other operating expenses decreased by EUR 1,264 thousand to EUR 4,939 thousand. This is primarily due to the reduction in costs
for legal disputes.

Interest and other income results almost exclusively from related companies. The net loss for the year amounted to EUR -7,297
thousand (previous year: EUR -31,527 thousand). In the 2023 financial year, the net loss for the year was reduced by the impairment
of the investment in Biofrontera Inc. in the amount of EUR 4,945 thousand, resulting in an adjusted net loss for the year of EUR -
2,350 thousand.

Biofrontera AG Annual Report 2023

Net assets of Biofrontera AG

in EUR thousands

Non-current assets

Receivables due from affiliated companies

Cash and cash balances with banks

Other assets

Total assets

Equity

Provisions

Bonds

Liabilities to banks

Other liabilities
Total equity and liabilities

December 31, 2023

December 31, 2022

36,225

69,644

2,560

411

108,840

104,208

1,768

2,864
108,840

41,176

72,112

5,706

609

119,603

111,493

2,417

5,694
119,603

Fixed assets mainly relate to shares in affiliated companies at EUR 32,224 thousand (previous year: EUR 32,224 thousand) and
investment in associates at EUR 3,988 thousand (previous year: EUR 8,933 thousand).

Cash on hand and bank balances decreased from EUR 5,706 thousand in the previous year to EUR 2,560 thousand in 2023. For further
details on the financial position, please refer to the presentation of the Group financial position.

As of December 31, 2023, Biofrontera AG had equity under German commercial law of EUR 104,208 thousand (previous year: EUR
111,493 thousand).

The provisions mainly include provisions for outstanding invoices, litigation costs, bonuses for employees as well as the audit of the
annual financial statements and tax returns. The convertible bond 2017/22 was repaid in full on January 03, 2022 including interest.

Assessment of the financial position of Biofrontera AG and the Group

In the separate financial statements of Biofrontera AG, liquidity of EUR 2,560 thousand is, as expected, below the previous year's
figure of EUR 5,706 thousand. The Group's liquidity decreased by EUR 3,296 thousand to EUR 3,080 thousand in the 2023 financial
year. Please refer to the section on liquidity, profitability and access to the capital market in our risk report in the management
report for more information on the necessity of providing liquidity to ensure the continuation of business activities.

Biofrontera AG Annual Report 2023

Outlook and forecast

General conditions

The global economic situation for 2024 remains challenging in the context of the past crises, in particular due to significant losses
in purchasing power as a result of inflation, as well as the generally weak global economic development and geopolitically tense
situation.

In the current annual projection published on February 21, 2024 in the annual economic report of the Federal Ministry for Economic
Affairs and Energy, the German government predicts an increase in price-adjusted gross domestic product of just 0.2% for 2024 and
1.0% for the following year. According to preliminary data from the Federal Statistical Office, gross domestic product (GDP) fell by
around 0.25% towards the end of 2023 after seasonal adjustment, resulting in an overall decline of 0.3% in 2023. The inflation rate
had already weakened significantly at the start of the year and now stands at 2.9%, compared to an average inflation rate of just
under 6% in 2023. Despite the economic challenges, the labor market remained robust, with employment rising to a historic high of
just under 46 million people.

With stagnating industrial production and global trade that has not yet reached its full strength despite slight growth, the
development of the global economy will also be more subdued in 2024. International organizations are forecasting a moderate
recovery in the volume of global trade this year to 3.1% (2023: 0.5%). Economic growth in the western economies is expected to
continue to converge.

A panel of US economists expects the year to be characterized by rising growth in the US, largely due to falling inflation and job
creation - a far cry from the widespread fears of recession that characterized 2023. The National Association for Business Economics
(NABE) forecasts that gross domestic product will rise by 2.2 % in 2024, a much more optimistic forecast than at the end of 2023.
According to NABE, the consumer price index is expected to fall to an annual rate of 2.4 % this year, compared to 4.1 % in 2023 and
8 % in 2022. Another indicator closely monitored by the Federal Reserve to assess price changes, personal consumption
expenditures, is also expected to fall further.

Moderate growth of 0.1% to 0.4% is expected for the pharmaceutical market in Western Europe and North America in 2023 and the
following years. Growth of -1% to +2% is forecast for the US market, which represents a slight reduction compared to previous
forecasts and results from the Inflation Reduction Act. Growth in the European market is likely to be driven primarily by generics,
biosimilars and new launches, while price pressure on innovative drugs is likely to remain. In the dermatology sector, a 5-year CAGR
of 4-7% is expected for the period 2023-27.

A strategy paper from the German government is currently formulating stronger economic policy support for the pharmaceutical
industry. Against the backdrop of persistent drug supply bottlenecks, geopolitical risks and regulatory changes at European and
national level, the intention is to strengthen Germany as a pharmaceutical location.

Guidance

For 2024, we expect both sales and earnings to be significantly lower than in the previous year. This largely depends on the
development of inventories at our main customer Biofrontera Inc. In the past year, Biofrontera Inc. has built up a high stock of
Ameluz® through an aggressive stockpiling policy, which is now to be utilized in a liquidity-preserving manner. Biofrontera Inc. will
continue to calculate with significantly reduced inventories in the future. As a result, our main customer will order significantly
fewer merchandise from us in 2024. This change is not due to weakness in the US market or poor sales performance, but is the result
of the change in stockpiling described above.

Biofrontera AG Annual Report 2023

However, the solid growth in the European markets will continue.

Forecast of key performance indicators relevant to management

Key Figure
Group revenue
EBITDA
EBIT
Cash and cash equivalents at 31. Dezember 2024
Nicht finanzielle Kennzahlen
Employees
Trainings
External and internal audits

*on the condition that the planned capital measure is fully placed

Forecast 2024
20-23 Mio. EUR
-1 Mio. bis +1 Mio. EUR
-2 Mio. – 0 Mio. EUR
3 –4 Mio. EUR*

Decrease
unchanged
unchanged

The Group anticipates revenue of EUR 20 to 23 million for the 2024 financial year, with growth of 10% expected for the European
markets, while revenue from the US licensing business will decline significantly, as described above. This decline is due on the one
hand to the change in stockpiling policy described above, and on the other to an adjustment to the US license agreement, which
reduced the transfer price of Ameluz® for the second half of the year. However, this transfer price change is fully offset by the
reduction in costs for the clinical program.

In Germany, the most important European sales market, the company expects further expansion of the PDT market in the current
year due to market share gains in the area of topical drugs. Increasing awareness of actinic keratosis as an early form of skin cancer
requiring treatment and the approach of patient-friendly and reimbursable daylight therapy should support new sales momentum
in the market.

Furthermore, the approval of artificial daylight therapy will help us to expand the market in countries where weather conditions do
not permit the patient-friendly daylight option.

As a result of the expanded base of sales partners and the associated regional expansion of the marketing of Ameluz®, particularly
in the Scandinavian countries and Poland, we expect continuous sales growth for the European market. The expansion of sales
efforts in Spain and the UK should also contribute to this market growth. As mentioned at the beginning, however, sales growth
outside the USA is heavily dependent on the continued economic recovery and overcoming the effects of the global crises. There is
therefore still a degree of uncertainty regarding the sales that can be achieved in the current year.

Although the decrease in revenue will be approximately EUR 10 million, EBITDA will not be burdened to the same extent due to lower
expenses for clinical studies. With the amendment of the license agreement between Biofrontera AG and Biofrontera Inc., all
expenses for clinical development will be transferred to Biofrontera Inc. as of June 1. This will enable the company to maintain EBITDA
in the break-even range of EUR -1 to +1 million until 2024. Following a normalization of the stockpiling policy of our main customer,
EBITDA growth is expected to be in line with previous years in subsequent years. EBIT will be between EUR -2 million and break-even.

As of December 31, 2023, the Biofrontera Group held cash and cash equivalents of EUR 3,080 thousand. Based on the current
corporate planning for 2024 and the assumption of a successful capital measure, the Group will have sufficient liquidity to meet all
obligations for a further 12 months from the date of preparation. In this liquidity forecast, it was assumed that a capital measure will
result in a cash inflow of EUR 3 million in May 2024. Assuming expenses and income develop as planned and the capital measure
described above, the Group expects to have cash and cash equivalents of between EUR 3 million and EUR 4 million as of December
31, 2024.

For the separate financial statements of Biofrontera AG, we continue to expect a net loss for the year, which is likely to be in the low
single-digit million range. As the parent company, Biofrontera AG manages the liquidity of the Biofrontera Group. The planned cash
and cash equivalents of the Group as of December 31, 2024 therefore also correspond to the planned cash and cash equivalents of
Biofrontera AG.

Forecast of further key figures

Biofrontera expects the number of employees to decrease by at least 12 FTEs in 2024 due to the transfer of clinical trial activities to
Biofrontera Inc.

Biofrontera AG Annual Report 2023

As a result of the increasing requirements for capital market-oriented pharmaceutical companies, we assume that the number of
training measures in 2024 will be at a comparable level to 2023.

Maintaining and expanding our approvals is essential for securing and strengthening Biofrontera's market position and is reflected
in our quality management, among other things. The number of external and internal audits are important non-financial performance
indicators for the company. We assume that the number of audits in 2024 will be at a similarly high level as in 2023.

Planned regulatory progress

In fall 2024, we expect the FDA's response to our application to extend approval for the use of three tubes of Ameluz in a PDT session.
The Phase I study required by the FDA to collect additional safety data on the use of 3 tubes of Ameluz® during PDT treatment was
completed as planned in 2023. The submission of the extended approval dossier in the USA took place at the end of 2023.

The progress of the clinical trials will no longer be reported as a key performance indicator from 2024, since clinical research and
development will be transferred to the US licensee Biofrontera Inc. in the middle of the year (see note 35 to the consolidated financial
statements; events after the reporting date).

Risk and opportunity report

Each industry has its own specific characteristics that give rise to specific risks. The health industry, in particular, is in a state of
constant change, with the ensuing risks and opportunities being shaped by a wide variety of influences.

As an internationally biopharmaceutical company, the Biofrontera Group is exposed to a large number of risks arising from its
business activities, which can have a significant impact on the achievement of the targets. Deviations from the plan are to be
understood as opportunities (positive deviations) and risks (negative deviations).

Risk management system (unaudited)

Biofrontera's management counters the risks existing in the Group with a comprehensive risk management system. Due to its holding
function, Biofrontera AG controls all legally independent entities within the Biofrontera Group. Therefore, a uniform group-wide
assessment of risks and opportunities within the group is necessary.

The primary objective of the Biofrontera Group is to grow sustainably and thus to steadily increase the value of the company. Risk
management makes a significant contribution to achieving this goal. Risk management at Biofrontera involves the identification of
risks that could lead to a permanent or significant impairment of the Biofrontera Group's net assets, financial position and results
of operations, the responsible analysis and monitoring of these risks, and the taking of appropriate countermeasures. This requires
defined principles, organizational structures, and measurement and monitoring processes that are specifically geared to the
activities of the Biofrontera Group.

Appropriately detailed risk prevention measures are the prerequisite for fully exploiting the opportunities arising from Biofrontera's
business activities. The existing risk management structures at Biofrontera within the framework of the quality management system
required for pharmaceutical manufacturers and entrepreneurs as well as for medical device manufacturers are constantly being
further developed. The marketing and sales activities as well as the international responsibilities that a marketing authorization
holder has for the manufacture and distribution of drugs, medical devices and cosmetics are included in this system.

The Biofrontera Group's risk management is integrated into the business processes and entrepreneurial decisions, and thus into the
Group-wide planning and controlling processes. Risk management and control mechanisms are coordinated with each other. They
ensure that risks relevant to the company are identified and assessed at an early stage. At the same time, it serves to quickly seize
potential opportunities.

Risk management at Biofrontera is organized both decentrally and centrally. The Executive Board has overarching responsibility for
this. The coordinated subsystems are the responsibility of the specialist departments. Opportunities and risks are regularly identified
and evaluated across all hierarchical levels. All executives of the Group and the Audit Committee are involved in Groupwide risk
monitoring and the associated reporting. This includes both the Executive Board and the managing directors of the Group companies
as well as the process and project managers.

Biofrontera AG Annual Report 2023

Risk management reports to the risk management team headed by the Management Board. The risk management team coordinates
the individual management bodies and ensures they are kept informed at an early stage and on an ongoing basis. In addition, the
team is responsible for the ongoing monitoring of the risk profile, the initiation of risk prevention measures and the corresponding
control instruments. Within the framework of regular meetings, the management of the Biofrontera Group comes together to
exchange and evaluate risk management-relevant information between the operational and central divisions across all levels.

The Group-wide contact person is the risk officer, who is also a member of the risk management team. If unforeseen risks arise, he
immediately initiates the necessary steps to counter them. On the one hand, he is responsible for the further development of the
risk management system and its documentation. In addition, the risk officer defines uniform standards and ensures that similar risk
management processes are applied within the Biofrontera Group. For example, the regular analysis of key figures relating to the
course of business serves to identify and evaluate possible deviations from expected developments in terms of potential
opportunities or risks at an early stage and to initiate necessary measures. Overall monitoring of the relevant control parameters
and business processes is carried out. Risk planning and identification are carried out in cooperation with the respective department
heads.

Accounting-related risk management system and accounting-related internal controls

The accounting process of the Group as well as of Biofrontera AG pursues the presentation of correct and complete figures and
disclosures in the instruments of external accounting (bookkeeping, annual and consolidated financial statements, summarized
management report) as well as compliance with the relevant legal and statutory provisions. The structures and processes in place
for this purpose integrate detailed internal control measures with regard to the accounting process. In connection with the
increasing business activities, the accounting-related internal control system is subject to a continuous monitoring and
improvement process.

The aim of the internal control system is to identify, assess and manage all risks that could prevent the preparation of our annual
and consolidated financial statements in accordance with the rules. Identified risks must be assessed with regard to their impact on
the annual and consolidated financial statements. It is the task of the accounting-related internal control system to ensure that the
closing process complies with the rules by implementing appropriate principles, procedures and controls. The internal control
system covers all departments that are important for the annual and consolidated financial statements and all processes relevant
to the preparation of the financial statements.

Significant aspects of risk management and control in accounting are the clear allocation of responsibilities and controls in the
preparation of the financial statements and transparent accounting policies. The dual control principle and the separation of
functions are further important control principles in the accounting process.

Risk reporting concerning financial instruments

In the ordinary course of business, the Group is exposed to risks that may have an impact on its net assets, financial position and
results of operations.

Market risk

As of the reporting date, the Biofrontera Group was exposed to foreign currency risks, in particular due to the transfer price in US-
Dollar agreed with the former 100%-owned subsidiary Biofrontera Inc. The Company does not enter into any specific currency
hedging transactions. Exchange rate fluctuations are recognized in profit or loss.

Credit risk

The Group is exposed to credit risk if transaction partners are unable to meet their obligations within the usual payment periods.
The maximum default risk is represented in the balance sheet by the carrying amount of the respective financial asset. The
development of the receivables portfolio is monitored in order to identify potential default risks at an early stage and to initiate
appropriate measures. Biofrontera's financial instruments bear a minimal risk of default.

Liquidity risk

Liquidity risk refers to the inability to meet existing or future payment obligations as they become due. To ensure the ability to pay
at all times and to avoid financial shortages, Biofrontera has established a central cash management system that monitors liquidity
requirements in the short, medium and long term. Refinancing for all Group companies is mainly provided by Biofrontera AG.

Biofrontera AG Annual Report 2023

Liquidity is monitored and managed on the basis of short- and long-term corporate planning. Liquidity risks are identified at an early
stage by simulating various scenarios. Current cash and cash equivalents are recorded and monitored on a daily basis.

For further information, please refer to the section "Liquidity, profitability and capital markets access".

Risks and opportunities relating to future business development and growth

The business strategy of Biofrontera AG is based to a large extent on establishing the current products, in particular the drug
Ameluz®, on the relevant sales markets in the long term. In order to exploit market potential, it is necessary to obtain and expand
the existing approvals in the USA and Europe. In addition, the aim is to broaden the product pipeline. The protection of our intellectual
property is to be secured by a suitable patent strategy. The prerequisite for achieving these targets is ensuring sustained
profitability and sufficient liquidity.

Risks may arise from deviations from targets in the form of negative developments, the insufficient realization of targeted and
already recognized opportunities or potentials, or the failure to take advantage of new opportunities. Biofrontera's risk management
takes this into account through continuous analysis of relevant influencing factors.

Net assets

Biofrontera AG has investments in subsidiaries, some of which have significant carrying amounts. If the companies do not develop
according to plan in the long term, there is a risk that the carrying amounts of the investments may have to be written down.

External influences and global risks

The increasing integration of the global economy due to globalization and digitalization can have a negative impact on Biofrontera's
target achievement in the context of macroeconomic developments. In addition, political developments in our sales markets can
have an influence on the structures relevant to Biofrontera in the respective healthcare sector.

In addition to effects on individual markets, global crises may arise in this context that could have a significant impact on the
Biofrontera Group's business operations.

As a result of potential crises, the maintenance of business processes may be jeopardized, among other things, by the ordering of
official measures that do not permit full business operations, by the fact that employees of the Biofrontera Group are affected, or
due to impairments of relevant suppliers.

However, the Executive Board assumes that it will be able to counter these possible effects by means of suitable measures.

To this end, the company had already developed a suitable set of tools after the onset of the COVID pandemic to counter these risks
and safeguard business processes through comprehensive cost reductions, contingency planning to maintain central processes,
and activities to protect employees. These could be re-executed if necessary.

The war in Ukraine, which broke out at the end of February 2022, does not currently have a direct impact on Biofrontera, as the
company is not active in Ukraine or Russia. However, there are negative indirect factors influencing the company's success, such as
price increases on the procurement markets and a further impairment of supply chains that were already impaired in the context
of the COVID 19 pandemic. There is also the possibility of further escalations and the resulting cross-regional economic risks.

For further risks in connection with the ongoing Ukraine crisis, please refer to the comments in the section on liquidity, profitability
and access to capital markets.

Since February 1, 2020, the United Kingdom is no longer a member state of the European Union. As the regulatory framework for
pharmaceutical products in the United Kingdom, which covers quality, safety and efficacy of pharmaceutical products, clinical trials,
marketing authorization, commercial distribution and sales of pharmaceutical products, is derived from European Union directives
and regulations, this could impact the future regulatory regime which applies to products and the approval of product candidates
in the United Kingdom. Corresponding adjustments to changed regulatory requirements have already been implemented. To this
end, the specially founded Biofrontera UK Ltd. has taken over the distribution of pharmaceutical products in the United Kingdom in
its entirety from the parent company Biofrontera Pharma GmbH on the basis of a wholesale license since September 2023. It remains
to be seen how changed regulatory requirements will also be implemented with regard to medical devices in the United Kingdom.

Biofrontera AG Annual Report 2023

Due to the implementation of the amended regulatory requirements for the distribution of pharmaceutical products, the company
considers the risk from product sales in the United Kingdom to be low.

These risks cannot be influenced by Biofrontera. In the past, however, the monitoring processes and standards implemented in the
company have enabled Biofrontera to always adapt external effects or risks appropriately and successfully.

Liquidity, profitability and capital markets access

Liquidity risks can arise from possible loss situations of the company and uncertainties regarding the future further business
development, or from not being able to exploit market potentials in line with Biofrontera's business strategy due to insufficient
liquidity.

Biofrontera balances this risk with a long-term capital market strategy. In addition, potential risks are regularly identified and
assessed as part of our short-, medium- and long-term Group-wide liquidity planning in order to be able to take timely measures to
achieve targets, if necessary.

The Biofrontera Group might not be able to meet existing or future payment obligations due to insufficient availability of cash. To
date, the Group has been able to meet its payment obligations at all times. By injecting equity or debt capital, Biofrontera has so far
always succeeded in providing the financing required for its business operations.

As of December 31, 2023, the Biofrontera Group held cash and cash equivalents of EUR 3,080 thousand. Based on the current
corporate planning for 2024 and the assumption of a successful capital measure, the Group will have sufficient liquidity to meet all
obligations for another 12 months from the time of preparation. The prerequisite for this is that liquidity of EUR 3,000 thousand is
raised in the capital measure planned for May 2024. A major shareholder has already signed a backstop agreement in the amount
of EUR 1,800,000 for this approved capital measure. These proceeds will enable the company to cover its capital requirements at a
base level over the next 12 months.

If the capital measure planned for May 2024 cannot be carried out to the planned extent, the continued operation of Biofrontera AG
would be severely jeopardized (material uncertainty).

Law and compliance

The Group may be exposed to litigation or legal proceedings in the future. These include in particular risks from the areas of product
liability, antitrust law, competition law, patent law, tax law and environmental protection. Risks may also arise in connection with
disclosure and information requirements on the capital market. Investigations and inquiries into possible infringements of statutory
provisions or regulatory requirements may result in criminal and civil sanctions, including substantial monetary penalties, as well
as other financial disadvantages, damage our reputation and ultimately have a negative impact on our business success or our
access to the capital markets.

An action for avoidance has been filed by two shareholders against all resolutions of the Company's Extraordinary General Meeting
on January 9, 2023, i.e. inter alia against the resolutions under agenda item 1 (resolution on authorized capital) and agenda item 2
(resolution on the increase in capital stock). The claim was withdrawn on April 13, 2023.

Further information on litigation is provided separately in the section "Litigation".

Regulatory approvals

Restrictions on existing approvals in Europe and the United States would jeopardize the ability to market the Company's products.
The risk also exists that strategically relevant marketing authorization extensions may not be approved, or may be approved with
delays or only to a limited extent, which could impair the Company's ability to compete with its competitors.

The Company compensates for these risks through consistent compliance with regulatory requirements and an effective quality
management system.

Research and development

Biofrontera AG Annual Report 2023

The Company is also exposed to a further risk in the context of product development processes or indication expansions. No
guarantee exists that a product can be brought to market after the end of the clinical development process of a project - on average
6 to 10 years. Due to a lack of success in individual study phases, for example in study design, patient recruitment, possible quality
deficiencies or the documentation of study results, studies can prove to be more cost-intensive than planned, be delayed or even
come to a complete standstill. Invested funds may not be recovered, or only partially recovered, through the revenues generated.

The Company seeks to mitigate these risks to some extent by selecting projects with relatively appealing risk profiles and by
establishing a project control and reporting system. The project control system maps the entire development process up to approval
in detail and enables analysis of the impact that even small changes or delays, for example in clinical trials, have on the development
process and its costs. In this way, the risk of individual projects can be closely monitored and the necessary steps can be taken to
minimize development risk.

Product portfolio

With Ameluz® , the company currently has only one approved product, which is sold in some European countries and the USA with
its own sales force or by license partners. The risk exists that Ameluz® may not be sufficiently or sustainably established on the
market.

Another potential risk is that the company may be at a competitive disadvantage compared with its competitors due to advantages
in terms of the range of indications for competing products. For this reason, for example, indication extensions are initiated in order
to gain competitive advantages.

A further risk is that the company's own product pipeline cannot be broadened and that successor or supplementary products
cannot be brought to market maturity.

Biofrontera counters these risks by constantly monitoring the market with regard to the activities of known competitors or the
market entry of new competitors, and carries out extensive research and development activities to broaden the indication base. In
addition, cooperation opportunities to expand the product portfolio are evaluated.

Through the acquisition of Cutanea Life Sciences, Inc. in March 2019, Biofrontera Inc. became a licensee of Xepi® and has since been
marketing the FDA-approved drug launched in the U.S. market. Prior to the deconsolidation of Biofrontera Inc. at the end of the
reporting period, Xepi was still part of Biofrontera AG's product range. For the consolidated financial statements, the risk of
impairment for the acquired Xepi® license in the event of insufficient or sustained establishment on the market thus no longer
exists.

Patent protection

The company may be subject to patent protection risks. In case of successful commercialization, the contribution margins can be
used to continue and sustainably invest in research and development. Due to the long time between the patent application and the
market launch of a product, Biofrontera usually has only a few years to generate an adequate return on its intellectual output. If a
patent expires or if a patent cannot be successfully defended, increased competition can usually be expected. Lack of patents can
jeopardize the market position of the Company's products and facilitate market entry by competitors. To avoid these risks,
Biofrontera's patent portfolio is continuously reviewed and the patent strategy is adjusted. Further information on individual patents
is presented in the section on patent and trademark development.

Lawsuits filed by third parties due to potential infringement of patents or other intellectual property rights by Biofrontera may
impede or even stop the development or manufacture of certain products and may require us to pay damages or royalties to third
parties. Our patent department regularly reviews the current patent situation in cooperation with the respective operating units
and monitors possible patent infringement attempts in order to initiate legal action if necessary.

Ameluz® is protected by a family of patents relating to nanoemulsion technology. The patent was not granted in US until January
2023 with a term until February 2028. In Europe, Australia, Canada and other countries, this patent was granted earlier, with a term
until December 2027. The risk of potential future generic competition is further mitigated by specific challenges in the development
of generic dermatological products, including regulatory hurdles. As part of Biofrontera's patent strategy to further protect
Ameluz®, additional patent applications have been filed in recent years to protect the use of the combination of Ameluz® and BF-
RhodoLED®. With the granting of these patents in December 2021, a substantial contribution has been made to limiting this risk.

Biofrontera AG Annual Report 2023

Furthermore, a patent application for an improved Ameluz® formulation without propylene glycol was filed in spring 2023. If this
patent is granted, Ameluz® will be protected in the EU and the USA until 2043.

Further information on patent development is provided in the section entitled "Patent development". Further information on patent
litigation is presented separately in the section "Litigation".

Products and product stewardship

As an international biopharmaceutical company, Biofrontera is subject to the highest requirements and associated risks in the
quality and safety areas. Biofrontera assesses potential environmental and health risks associated with a product along the entire
value chain. This includes every stage from research and development to disposal, including production, marketing and customer
use. Despite extensive studies, the possibility exists of previously unknown and unexpected side effects from Biofrontera products.
The Company may be exposed to a cost risk due to product safety deficiencies if, for example, our products are recalled voluntarily
or as a result of legal or regulatory action. Possible payments of damages associated with the aforementioned risks could exert a
considerable negative effect on the Company's financial results. These risks are offset by established pharmacovigilance processes
in the Company and ensure that potential side effects or other product-related problems are quickly identified. As no previously
unknown side effects of our drugs have appeared, we consider it highly improbable that risks of this kind will arise.

Both regulatory requirements and standards applied beyond them are guaranteed by a wide variety of processes integrated into
the Company. The Company's product-related risks are countered with a functioning quality management system. Biofrontera's
focus on Good Manufacturing Practice (GMP) guidelines and Standard Operation Procedures (SOPs), which are mandatory in the
pharmaceutical industry, ensures the quality and safety requirements for products and processes. Regular internal audits of
standards at suppliers and subcontractors contribute in this context. Regular checks and inspections are also carried out by
regulators.

Markets

Biofrontera operates in regulated competitive markets. The Company's sales and revenue targets could be jeopardized by measures
taken by competitors with an impact on sales and revenue with regard to the fields of application of their products, the pricing
strategy or the marketing strategy, but also by new products from competitors. If the sales targets are not achieved, this could also
have a negative effect on the Company's earnings and liquidity targets, as well as impairments on product inventories already
produced.

Realignments in the respective healthcare systems and changes in the reimbursement behavior of drug reimbursement
organizations, as well as market barriers in the relevant markets, may result in the risk of insufficient or unsustainable market
penetration. The competitive position of our products may also be negatively impacted by product characteristics that are not
perceived as optimal compared to competitive products in the respective market. In addition, our products compete with other
therapies such as simple curettage and, particularly in the United States, cryotherapy, which do not require the use of a drug but
have gained significant market acceptance due to their long history of use.

To avoid these risks, Biofrontera's sales and marketing organization closely monitors the market and conducts regular market
analyses. The marketing instruments used and the communication with our customers are subject to constant further development
in this context in order to be able to identify opportunities and risks and to strengthen the company's competitive position.

Procurement and production

As a pharmaceutical manufacturer, the Company is exposed to various risks in connection with the procurement and production of
its products. Biofrontera relies on individual manufacturers or suppliers for the production of its finished products as well as raw
materials, whose exchange would entail lengthy regulatory approval processes. Difficulties regarding procurement prices, quality,
delivery reliability or quantity at or with these suppliers may affect the Company's revenue and results targets. By establishing
alternative suppliers, changing production sizes and actively managing contracts and inventories, Biofrontera seeks to minimize
these dependencies and ensure the supply of the required goods and services.

Risks associated with the manufacturing, bottling, storage and transportation of products may result in personal injury or material
or environmental damage and may give rise to an obligation to pay damages. Using our own audit and monitoring system,
Biofrontera regularly ensures that the manufacturing conditions at its most important suppliers meet the required standard. This

Biofrontera AG Annual Report 2023

enables us to avoid such risks and damages. We have also established our own production facilities for in-house production quality
control of the BF-RhodoLED® lamp to reduce our dependence on suppliers in this area, too.

Business strategy

Due to changing framework conditions, the strategy chosen by the Company to guarantee its sales, growth and profitability targets
may not be sufficiently effective in the future. As part of the risk management process, management uses ongoing analyses to
counteract current and potentially future influencing variables or developments in order to initiate suitable measures if necessary.

Staff

The recruitment of qualified and dedicated staff is a key prerequisite for the Company's success. A high staff turnover rate could
jeopardize the achievement of corporate goals and the safeguarding of the Company's know-how. In order to counter these risks,
motivate employees and retain key personnel, the Company offers competitive compensation, participation in option programs and
extensive training and professional development opportunities for employees. Furthermore, the Group pursues a diversity-
orientated personnel policy in order to leverage the labor market's full potential. To date, Biofrontera has always succeeded in
recruiting the qualified staff the Company requires. For this reason, the Company regards this risk as low. However, this assessment
could change significantly in the case of a change of control.

Information technology and data protection

The Group's business processes and internal and external communication are increasingly based on global IT systems. A significant
technical malfunction or total failure of IT systems could result in severe impairment of our business processes. It is of fundamental
importance to us that both internal and external data remain confidential. If the confidentiality, integrity or authenticity of data or
information were to be lost, the manipulation and/or uncontrolled outflow of data and know-how could arise. We have adopted
appropriate measures to mitigate this risk, such as an authorization concept. However, while we have IT security measures and
disaster recovery plans in place, they may prove to be inadequate or ineffective. Our IT systems may be vulnerable to cyberattacks,
unauthorized access, computer viruses, system failures, human error, natural disasters, fire, power failure, communication
disruptions or acts of sabotage. The measures adopted by the Company have always proven adequate to date, so such risk is to be
regarded as low.

As a pharmaceutical company, Biofrontera is exposed to additional risks in the area of data protection. A large volume of person-
related data is generated, particularly in the area of clinical trials and drug safety reports and must be protected in particular under
the new Basic Data Protection Regulation (EU-DSGVO). Violations or violations of these regulations may result in severe penalties
against the Company. Biofrontera counteracts these risks with continuous data protection processes and the implementation of
legal guidelines.

Insurance coverage

The Company may be subject to the risk of insufficient insurance coverage for the continuation of business operations in the event
of damage, for events affecting the Company's assets or claims for damages due to product defects as well as actions by the
Company and its employees. Biofrontera mitigates these risks as part of its risk analysis with regular reviews of the adequacy of the
relevant insurance coverage.

Taxes

The future use of the tax loss carryforwards accrued to date in the consolidated group of companies may not be realized or may not
be optimized due to the organizational structure of the Company. To this end, Biofrontera carries out regular analyses to make
appropriate adjustments, if necessary.

However, the Company cannot influence the risk of limited use of the tax loss carryforwards due to changes in tax law or as a result
of a tax-relevant change in the shareholder structure.

Opportunities

In addition to the identification of risks, the Biofrontera Group's risk management system also includes opportunities, which are to
be seen as positive deviations from corporate planning.

Biofrontera AG Annual Report 2023

The company considers opportunities in the expansion of the indications of its products, particularly in the extension of the approval
of Ameluz® in our important sales markets, especially in the USA to expand and exploit market potential. For example, at the time
of publication of the annual report, the company is conducting a phase III clinical trial for the treatment of superficial basal cell
carcinoma (BCC) with Ameluz® , a phase IIb trial to expand the approval of Ameluz® for moderate to severe acne in the U.S., and a
phase I safety trial to amend the product information,which currently limits use to one tube of Ameluz® per treatment, to three
tubes. In addition, a Phase III trial is in preparation for approval of the US approval extension for Ameluz® for the treatment of AK
also on the extremities and trunk/neck, which is expected to start at the end of 2022. To complement this progress with an optimized
illumination source, the Group has also achieved development and FDA approval of a larger RhodoLED® XL lamp. In addition, there
is a medium- and long-term opportunity for portfolio expansion through the development of new products based on our
nanoemulsion technology.

We also see further long-term revenue opportunities in the form of milestone and royalty payments through licensing and supply
agreements with our licensing partners in Europe, Asia, and the United States. At the same time, the company is analyzing new
markets such as Canada or Brazil with regard to cooperation with a relevant market player there. In the European market, marketing
options for countries such as France, Italy or the Netherlands are also being examined, either through a partnership or the
establishment of a dedicated sales unit. The establishment of a separate sales unit in France in particular currently appears
promising in the mid to long term due to the attractive market environment and would be accompanied by an expansion of personnel
sales structures in this country. A more comprehensive European sales structure that covers the major European markets could
also make the company more attractive as a licensee for marketing other companies' products. The growth and expansion of the
Ameluz markets is a clear priority for Biofrontera.

Overall opportunity and risk situation at Biofrontera

The Management Board considers the overall risks not related to the current crisis to be controllable. The Management Board has
confidence in the effectiveness of the risk management system with regard to positive and negative changes in the environment
and the requirements of the current business. The assessment is based on various factors, which are summarized below:

▪

The company has developed a suitable set of tools to counteract risks and safeguard business processes if necessary
through comprehensive cost reductions, contingency planning to maintain central processes, and activities to protect
employees. These could be carried out again if necessary.

To date, the Group has been able to meet its payment obligations at all times.
In recent years, the Company has regularly relied on external cash and cash equivalents. As of December 31, 2023, the
Biofrontera Group held cash and cash equivalents of EUR 3,080 thousand. Based on the current corporate planning for
2024 and the assumption of a successful capital measure, the Group will have sufficient liquidity to meet all obligations
for another 12 months from the time of preparation. The prerequisite for this is that liquidity of EUR 3,000 thousand is
raised in the capital measure planned for May 2024. A major shareholder has already signed a backstop agreement in the
amount of EUR 1,800,000 for this approved capital measure. These proceeds will enable the company to cover its capital
requirements at a base level over the next 12 months.

The market position was further strengthened by the EU approval extensions received in recent years - the approval of
daylight PDT with Ameluz® , as well as photodynamic therapy of actinic keratoses on the extremities and the trunk and
neck in the EU. In this regard, we continue to see an increase in the market potential of Ameluz® in the EU.

To further increase growth opportunities in the US market, we are conducting a clinical program in the USA. This includes
a phase III clinical trial for the treatment of superficial basal cell carcinoma (BCC) with Ameluz®, a phase IIb trial to extend
the approval of Ameluz® for moderate to severe acne in the USA and the already completed phase I safety trial to extend
the posology for Ameluz® to three tubes in the USA, where use is currently limited to one tube of Ameluz® per treatment..

To further strengthen its competitive position, Biofrontera has also achieved development and FDA approval in October
2021 of a larger RhodoLED® XL lamp, which will allow Ameluz® to be applied to larger areas. With the market launch of
this new medical product, the Group expects a further increase in sales of Ameluz® , particularly in the US market.

Also, in the medium and long term, there is an opportunity for portfolio expansion through the development of new
products based on our nanoemulsion technology.

Biofrontera AG Annual Report 2023

▪ With the IPO of Biofrontera Inc., the capital raised by Biofrontera Inc. can be invested in further growth to further expand
its presence in the US market. Under the original scope of the license and supply agreement, Biofrontera AG will receive
up to 50% of Ameluz® sales in the form of a transfer price. This share applies up to $30 million in annual sales and
decreases to 40% between $30 million and $50 million in annual sales and to 30% above that. With the license and supply
agreement, Biofrontera AG also benefits from a strengthening of Biofrontera Inc. in the US market without having to fund
the largest cost block of the past, sales and marketing in the US. A sufficiently financed Biofrontera Inc. is the only way
for both companies to grow and develop successfully, both together and independently of each other.

▪

An amendment to the existing license and supply agreement between Biofrontera AG and Biofrontera Inc. will be
implemented on June 1, 2024. This contract amendment provides for Biofrontera Inc. to take over the entire clinical
development from now on, which will reduce the cost burden for Biofrontera AG. As a result, Biofrontera AG's available
resources can now be increasingly focused on expanding its portfolio and developing the market in Europe and other
countries. In addition, Biofrontera AG can continue to benefit significantly from the positive growth of the US business.
Further information on changes relating to the license and supply agreement between Biofrontera AG and Biofrontera Inc
is provided separately in the "Outlook and forecast" section.

▪ With regard to legal disputes, Biofrontera considers itself well positioned. The judgment obtained by Deutsche Balaton AG
in 2022 declaring that the approval resolutions of the former Management Board and the former Supervisory Board for
the IPO of Biofrontera Inc. were unlawful does not affect the completed IPO of Biofrontera Inc. or the company's operating
business. The proceedings are being continued by the former members of the Management Board and Supervisory Board
in the second instance against Deutsche Balaton AG. The action for rescission brought by two shareholders against the
capital increase resolved at the Extraordinary General Meeting on January 9, 2023 was withdrawn on April 13, 2023 on the
basis of a settlement. The action for annulment brought by Maruho Deutschland GmbH against the resolutions of the
Annual General Meeting on August 23, 2022 and the Extraordinary General Meeting on January 9, 2023 was also withdrawn
on July 4, 2023 on the basis of a settlement. This also settles the last action brought against resolutions of the company's
Annual General Meeting.

Litigation

Maruho Deutschland GmbH v. Biofrontera AG (actions for annulment)

Maruho Deutschland GmbH filed an action for annulment with the Cologne Regional Court against the election of Prof. Dr. Karin
Lergenmüller to the Supervisory Board resolved at the Annual General Meeting on August 23, 2022 under agenda item 8a. In an
extension of the action, Maruho Deutschland GmbH is also contesting the confirmation pursuant to Art. 244 sentence 1 AktG of the
election of Prof. Dr. Karin Lergenmüller to the Supervisory Board resolved at the Extraordinary General Meeting on January 9, 2023
under agenda item 5. The Cologne Regional Court has not yet ruled on the action and the extension of the action. Maruho Deutschland
GmbH withdrew the action for annulment and the extension of the action on July 4, 2023. Prof. Dr. Lergenmüller's election to the
Supervisory Board is therefore final. At the same time, the withdrawal of the action also settled the last action brought against
resolutions of the company's Annual General Meeting. The withdrawal of the lawsuit is part of an out-of-court agreement dated June
19, 2023, which also settled a dispute over possible losses of voting rights by Maruho Deutschland GmbH at past Annual General
Meetings. At the same time, a procedure for avoiding losses of voting rights at future Annual General Meetings was agreed. The
agreement is reproduced in detail in the company's announcement in the Federal Gazette pursuant to Section 248a AktG dated July
7, 2023.

Deutsche Balaton AG v. Biofrontera AG (declaratory action)

On December 13, 2021, Deutsche Balaton AG filed an action with the Regional Court of Cologne, the subject of which was the legal
examination and determination of a so-called unwritten competence of the Annual General Meeting for the IPO of Biofrontera Inc.
The statement of claim was served to the company on February 9, 2022.

After service, the Supervisory Board resolved to form a Litigation Committee for further decisions in connection with the lawsuit,
consisting of Dr. Helge Lubenow, Mr. Karlheinz Schmelig and, as Committee Chairman, Dr. Jörgen Tielmann.

All members of the former Executive Board and Supervisory Board involved in the resolutions challenged by the action have since
left the Company. They have been served with notices of dispute regarding possible claims for damages.

Biofrontera AG Annual Report 2023

On December 9, 2022, the Cologne Regional Court ruled in a declaratory judgment that the resolutions approving the IPO of
Biofrontera Inc. passed by the former Management Board and the former Supervisory Board were unlawful because the required
prior approval for the IPO by the Annual General Meeting was unlawfully not obtained. The further action was dismissed. In its
reasoning, the court stated that the IPO initiated a colossal loss of control by allowing third-party investors to acquire a majority
stake in the subsidiary by waiving the exercise of the parent company's subscription rights. In the opinion of the court, this loss of
control resulted in asset losses for the Company and its shareholders.

The IPO remains unaffected by the ruling. On the unanimous recommendation of the Litigation Committee, the Executive Board and
Supervisory Board have decided not to appeal the ruling. Due to the appeals of the disputants, the judgment is not yet final.

Biofrontera AG v. Biofrontera Inc.

The Company brought an action before the Court of Chancery of the U.S. State of Delaware seeking in particular to annul the
resolutions adopted at the Annual General Meeting of Biofrontera Inc. on December 12, 2022, including the elections to the Board of
Directors of Biofrontera Inc. Among other things, the Company requested a repetition of the Annual General Meeting of Biofrontera
Inc. taking into account the proposed resolutions of the company. By mutual agreement, the proceedings were terminated by a
declaration filed jointly with Biofrontera Inc. with the Court of Chancery. The amicable termination was agreed in an out-of-court
settlement with Biofrontera Inc. dated April 11, 2023 ("Inc. Agreement dated April 11, 2023").

Biofrontera Inc et al. v. Biofrontera AG

An action for avoidance was filed by two shareholders against all resolutions of the Company's Extraordinary General Meeting of
January 9, 2023, i.e., inter alia, against the resolutions under agenda item 1 (resolution on authorized capital) and agenda item 2
(resolution on the increase of the share capital). The action was withdrawn on April 13, 2023. The withdrawal of the action is part of
the Inc. agreement of April 11, 2023. The Inc. agreement dated April 11, 2023 is published in detail in the announcement of
Biofrontera AG in the Federal Gazette pursuant to Section 248a AktG dated April 19, 2023.

Ludwig Lutter v. Biofrontera AG

In two actions before the Regional Court of Cologne, Mr. Ludwig Lutter contested his dismissal as a member of the Management
Board and the termination of his employment contract and claimed the (partial) continued payment of his remuneration. The
Cologne Regional Court ruled on the two lawsuits in judgments served to the company on March 22, 2024.

In the proceedings for a declaratory judgment, the court ruled that the employment relationship was not terminated by
extraordinary termination, as the alleged derelictions of duty, if any, were not serious enough individually and as a whole to justify
extraordinary termination in the opinion of the court. As a result, Mr. Lutter was awarded the continued payment of his fixed
remuneration in the proceedings for documentary evidence. This amounts to EUR 250 thousand. This amount includes income
earned elsewhere, which was deducted by the court. The company can claim the deduction of any other income earned elsewhere
in subsequent proceedings relating to the documentary proceedings.

Biofrontera Inc et al. v. Biofrontera AG

In an action before the Cologne Regional Court, an injunction was obtained against Biofrontera AG prohibiting Biofrontera AG from
accessing data from certain e-mail accounts relating, among others, to a former employee and a former member of the Management
Board. The parties to the lawsuit are currently in settlement negotiations.

Biofrontera Bioscience GmbH v. PCS Europe Sp. z o.o.

In proceedings before the District Court in Warsaw (Sąd Okręgowy w Warszawie), Biofrontera Bioscience GmbH obtained an injunction
against a competitor. The injunction of September 3, 2023 prohibited the competitor from advertising their cosmetic product by
attributing effects that are reserved for medications.

Biofrontera AG Annual Report 2023

Takeover-relevant information

The following overview provides an explanation of the mandatory disclosures in accordance with Section 315a (1) HGB. The
disclosures reflect the situation as of December 31, 2023.

Composition of the share capital

As of December 31, 2023, the subscribed capital amounted to EUR 63,807,058 and was divided into 63,807,058 nopar value ordinary
registered shares (no-par value shares). There were no different classes of shares.

Trading platforms

Biofrontera shares are traded under the stock exchange code B8F and the ISIN DE0006046113 in the Prime Standard of the Frankfurt
Stock Exchange and on all other German stock exchanges.

Restrictions affecting voting rights or the transfer of shares

Each share grants one vote at the Annual General Meeting. The Company is not aware of any restrictions on voting rights. There are
also no shares with special rights that grant powers of control.

Disclosures on significant equity investments

The company is aware of the following direct and indirect shareholdings in the company's share capital exceeding 10% of the
voting rights as of December 31, 2023:

Maruho Co., Ltd., Osaka Japan
The total share of voting rights is assigned to Maruho Co., Ltd, Osaka, through the
company Maruho Deutschland GmbH, Düsseldorf, which is controlled by the former. In an
accompanying voting rights notification, Mr. Takagi reported "acting in concert" over
the entire voting rights of Maruho.
Wilhelm Konrad Thomas Zours
The voting rights through the chain of subsidiaries listed below are attributed to Mr.
Zours:
• DELPHI Unternehmensberatung Aktiengesellschaft;
• VV Beteiligungen Aktiengesellschaft
• Deutsche Balaton Aktiengesellschaft;
• Heidelberger Beteiligungsholding AG;
• SPARTA AG;
• Deutsche Balaton Biotech AG
Biofrontera Inc., Woburn, USA
Free float
Total

December 31, 2023

December 31, 2022

18,850,981

13,399,965

18,671,057

17,021,057

177,465
26,107,555
63,807,058

6,466,946
26,919,090
63,807,058

Only those shareholders are listed who are subject to reporting requirements under the German Securities Trading Act (WpHG) and
the Securities and Exchange Commission (SEC) and have made a corresponding notification. This includes all shareholders who hold
at least 3% of the outstanding shares or voting rights. The number of shares listed here refers to the last notification of the
respective shareholders, since then they may have changed their holdings within the respective notification thresholds without
informing the Company.

Type of voting rights control if employees have an interest in the capital and do not exercise their control
rights directly.

If employees have an interest in the capital, their control rights are not subject to any restrictions.

Appointment and dismissal of members of the Management Board

Biofrontera AG Annual Report 2023

The appointment and dismissal of members of the Management Board is governed by Sections 84 and 85 AktG and Section 9 of the
Articles of Association in the version dated June 27, 2023. In accordance with Section 9 of the Articles of Association, the
Management Board consists of one or more persons. The number of Management Board members is determined by the
Supervisory Board.

Amendment of the Articles of association

Pursuant to Section 179 AktG, amendments to the Articles of Association require a resolution by the Annual General Meeting. In
accordance with Section 179 (2) AktG in conjunction with Section 22 (2) of the Articles of Association, the resolution of the Annual
General Meeting requires a simple majority of the votes and the share capital represented when the resolution is passed. A
majority of at least 75% of the share capital represented when the resolution is passed is required for changes to the purpose of
the company. In accordance with Section 16 (6) of the Articles of Association, the Supervisory Board may resolve amendments to
the Articles of Association that only affect the wording of the Articles of Association, i.e. do not themselves result in any material
changes.

Powers of the Board of Management to issue or repurchase shares

By resolution of the Annual General Meeting on 9 January 2023, the Executive Board is authorized, with the approval of the
Supervisory Board, to increase the company's share capital by up to EUR 12,700,000.00 in return for cash contributions on one or
more occasions until 31 December 2027 (Authorized Capital 2022). Shareholders are generally entitled to subscription rights.
However, the Executive Board is authorized, with the approval of the Supervisory Board, to exclude subscription rights for fractional
amounts resulting from the subscription ratio.

The share capital was conditionally increased by up to EUR 1,359,864 by resolution of the Annual General Meeting on 28 August 2015
(Conditional Capital I). Conditional Capital I serves to secure the granting of shares to fulfil (i) option rights and obligations or (ii)
conversion rights and obligations that were issued, agreed or guaranteed on the basis of the authorization of the Annual General
Meeting on 28 August 2015 until 27 August 2020.

The share capital was conditionally increased by up to EUR 249,050.00 by resolution of the Annual General Meeting on July 2, 2010
(Conditional Capital III). Conditional Capital III serves to secure the granting of shares for share options in accordance with the
conditions of the 2010 share option plan, which were issued on the basis of the authorization of the Annual General Meeting on
02.07.2010 until 01.07.2015.

The share capital was conditionally increased by up to EUR 1,554,984.00 by resolution of the Annual General Meeting on 28.08.2015
(Conditional Capital V). Conditional Capital V serves to secure the granting of shares for share options in accordance with the
conditions of the 2015 share option plan, which were granted on the basis of the authorization of the Annual General Meeting on 28
August 2015 until 27 August 2020.

The share capital is conditionally increased by up to EUR 17,725,000.00 by resolution of the Annual General Meeting on June 20, 2023
(Conditional Capital 2023). The contingent capital 2023 serves to grant shares to the holders of bonds with warrants or convertible
bonds with or without warrants, profit participation rights or participating bonds (or combinations of these instruments), each with
option or conversion rights, which are issued on the basis of the authorization of the Annual General Meeting on 20.06.2023 until
15.06.2028.

The Annual General Meeting has not authorized the purchase or sale of treasury shares.

Significant agreements of the Company that are subject to the condition of a change of control as a
result of a takeover bid

No agreements have been made in this respect.

Biofrontera AG Annual Report 2023

Compensation agreements between the Company and the Management Board or employees in the event
of a takeover bid

No agreements have been made in this respect.

Leverkusen, April 29, 2024

Biofrontera AG

Pilar de la Huerta Martínez, CFO

Biofrontera AG Annual Report 2023

Corporate Governance Statement of Biofrontera AG pursuant to
Sections 289f, 315d HGB for the financial year 2023 (unaudited)

Leverkusen, April 29, 2024

Biofrontera AG

Pilar de la Huerta Martínez
CFO

Biofrontera AG Annual Report 2023

Consolidated financial statements as of December 31, 2023

Consolidated balance sheet as of December 31, 2023

Assets

in EUR thousands

Non-current assets

Tangible assets

Intangible assets

Deferred tax

Investments accounted for using the equity method

Non-current lease receivables

Total non-current assets

Current assets

Financial assets

Trade receivables

Receivables from associated companies

Other financial assets

Cash and cash equivalents

Current lease receivables

Total financial assets

Other assets

Inventories

Other assets

Total other assets

Total current assets
Total assets

(1)

(9)

(2)

(6)

(4)

(33)

(5)

(8)

(6)

(3)

(7)

December 31, 2023

December 31, 2022

3,290

1,152

6,818

1,718

13,012

774

6,365

1,556

3,080

11,792

5,077

850

5,928

17,720
30,732

3,012

1,198

4,375

8,982

101

17,669

691

1,344

878

6,376

9,324

4,794

938

5,732

15,056
32,725

Biofrontera AG Annual Report 2023

Equity and liabilities

in EUR thousands

Equity

Subscribed capital

Capital reserve

Capital reserve from foreign currency conversion adjustments

Loss carried forward

Loss for the period

Total equity

Non-current liabilities

Financial debt

Liabilities to associated companies

Total non-current liabilities

Current liabilities

Financial liabilities

Trade payables

Liabilities to associated companies

Current financial debt

Other financial liabilities

Total financial liabilities

Other liabilities

Income Tax

Other provisions

Other liabilities

Total other liabilities

Total current liabilities
Total equity and liabilities

(10)

(11)

(13)

(33)

(11)

(12)

(14)

(15)

(16)

December 31 , 2023

December 31 , 2022

63,807

137,330

(180,789)

(369)

19,980

678

2,594

2,747

468

5,879

841

895

2,458

4,194

10,073
30,732

63,807

137,318

(136,623)

(44,166)

20,336

1,055

2,642

4,002

1,984

2,653

446

5,109

156

603

2,518

3,277

8,387
32,725

Biofrontera AG Annual Report 2023

Consolidated statement of comprehensive income for the fiscal year 2023

in EUR thousands

Sales revenue
Cost of sales
Gross profit from sales

Operating expenses
Research and development costs
General administrative costs
Sales costs
Result from operations

Depreciation and amortization
Other Expenses
Other Income

EBITDA
Depriciation and amortization
EBIT

Interest expenses
Interest Income
Income from investments accounted for using the equity method

Profit/loss before income tax
Income tax
Profit/loss for the period
Profit attributable to owners of the parent company

Other comprehensive income after income taxes
Items which may in future be regrouped into the profit and loss
statement under certain conditions.
Translation differences resulting from the conversion of foreign
business operations

Total profit/loss for the period

Basic earnings per share in EUR
Diluted earnings per share in EUR

01.01.-31.12.2023 01.01.-31.12.2022

32,249
(6,243)
26,005

(7,846)
(6,105)
(7,273)
4,782

791
(236)
586

5,923
(791)
5,132

(15)
21
(7,264)

(2,127)
1,758
(369)
(369)

25,738
(4,757)
20,981

(7,128)
(5,906)
(6,356)
1,591

746
(902)
435

1,869
(746)
1,124

(163)
1
(44,172)

(43,210)
(956)
(44,166)
(44,166)

(368)

(44,166)

(0.01)
(0.01)

(0.77)
(0.77)

(17)
(18)
(18)

(19)
(20)
(21)

(27)
(24)
(24)

(27)

(22)
(22)
(23)

(25)

(26)
(26)

Biofrontera AG Annual Report 2023

Consolidated statement of changes in equity for the fiscal year 2023

Ordinary
shares

Subscribed
capital

Capital
reserve

Number of
shares

56,717,385

0
0
0
7,089,673

in EUR
thousands

56,717

137,332

0
0
0
7,090

0
0
0
0

-64

(10)

63,807,058

63,807

137,318

Ordinary
shares

Subscribed
capital

Capital
reserve

Number of
shares

in EUR
thousands

(10)

63,807,058

63,807

137,318

0
0
0
0

(10)

63,807,058

63,807

137,330

Reserve from
foreign
currency
conversion
adjustment
(OCI)
in EUR
thousands

Loss carried
forward
Loss for the
period

Total

in EUR
thousands

0
0
0
0

Reserve from
foreign
currency
conversion
adjustment
(OCI)
in EUR
thousands

0
1
1
0

-136,623

-44,166
0
-44,166
0

57,426

-44,166
0
-44,166
7,090

-64

-180,789

20,336

Loss carried
forward
Loss for the
period

Total

in EUR
thousands

-180,789

20,336

-369
0
-369
0

-369
1
-368
0

-181,158

19,980

Balance as of January 01,
2022
Loss for the period
Foreign currency conversion
Total loss for the period
Capital increase
Conversion of stock options
from the stock option program
Cost of equity procurement
Increase in capital reserve
from the stock option program
Disposal scope of
consolidation
Balance as of December 31,
2022

Balance as of December 31,
2022
Loss for the period
Foreign currency conversion
Total loss for the period
Capital increase
Conversion of stock options
from the stock option
program
Cost of equity procurement
Increase in capital reserve
from the stock option
program
Balance as of December 31,
2023

Biofrontera AG Annual Report 2023

Consolidated cash flow statement for the fiscal year 2023

in EUR thousands

01.01.-31.12.2023

01.01.-31.12.2022

Cashflows from operations
Loss before income tax
Adjustments to reconcile loss before income tax to cash flow into operations

Income tax
Financial result
Depreciation
Losses from disposal of assets
Non-cash (income) and expenses
Changes in operating assets and liabilities

Trade receivables

Other assets and income tax assets
Inventories
Trade payables
Provisions
Other liabilities

Net cash flow from/in operational activities

Cash flow from investment activities

Purchase of intangible and tangible assets
Net cash flow from/in investment activities

Cashflows from financing activities
Proceeds from the issue of shares
Costs of equity procurement
Proceeds from draw down of EIB loan
Leasing payments
Interest paid

Net cash flows from/in financing activities

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

(8)

-2,127

1,758
7,259
791
0
-2,450

-5,077

-590
-283
711
305
-2,238
-1,905

-912
-912

0
0
0
-467
-12
-479

-3,296
6,376
3,080

-43,210

-956
44,334
746
11
569

-831

-367
20
-3,204
-309
-728
-3,895

-981
-981

0
-64
-2,031
-453
-198
4,344

-532
6,908
6,376

Biofrontera AG Annual Report 2023

Notes to the consolidated financial statements as of December 31,
2023

Information about the Company

Biofrontera AG (hereinafter also referred to as "Biofrontera" or the "company"), registered in the Commercial Register of the Local
Court of Cologne, Department B under no. 49717, and its wholly owned subsidiaries Biofrontera Bioscience GmbH, Biofrontera Pharma
GmbH, Biofrontera Development GmbH, and Biofrontera Neuroscience GmbH, all with registered offices at Hemmelrather Weg 201,
51377 Leverkusen, Germany, along with the wholly owned subsidiary Biofrontera UK Ltd. based in Reading (Berkshire, United
Kingdom) as a 100% subsidiary of Biofrontera Pharma GmbH, and the Spanish branch Biofrontera Pharma GmbH sucursal en España,
based in Cornellá de Llobregat, research, develop and distribute dermatological products.

The declarations on the German Corporate Governance Code required by § 161 of the German Stock Corporation Act have been
submitted and made available to the shareholders on Biofontera's website (www.biofrontera.com).

The shareholding in Biofrontera Inc. as at the reporting date amounts to 26.4% and is reported under investments in associates
using the at-equity method.

Segment reporting

Biofrontera's main business activity is the sale of pharmaceuticals and medical products and the associated research and
development activities to optimize their market potential. The Biofrontera Group is essentially a single-product company.
Accordingly, segmentation is based exclusively on geographical aspects and only with regard to sales revenues, as internal reporting
to management and corporate controlling are also based exclusively on these criteria. Internal reporting to management is a
condensed presentation of the consolidated statement of comprehensive income. The results of the companies are monitored
separately by management in order to be able to measure and assess their performance.

For further information, please refer to our comments in the notes on „Sales revenue“ (Note 18).

Summary of significant accounting policies

Basis for preparation of the consolidated financial statements

The consolidated financial statements of Biofrontera AG for the financial year from January 1, 2023 to December 31, 2023 have been
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) valid at the
reporting date and recognized by the European Union (EU). In addition, the provisions of German commercial law applicable under
Section 315e (1) of the German Commercial Code (HGB) have been observed.

The consolidated financial statements are prepared on a going concern basis. This assumes that a capital increase of around EUR
3,000 thousand planned for May 2024 will be successfully implemented (material uncertainty). To this end, the company has entered
into a backstop agreement with a major shareholder in the amount of EUR 1,800 thousand to ensure that the company has sufficient
cash to cover its liquidity requirements over the next 12 months, regardless of the final subscription ratio of the capital increase.
Without the planned capital increase, the company's continued existence as a going concern is seriously jeopardized.

Biofrontera AG Annual Report 2023

Biofrontera AG is the ultimate controlling company preparing consolidated financial statements for the group of consolidated
companies. For Biofrontera Pharma GmbH, Leverkusen, which is included in the consolidated financial statements, the exemption
provisions pursuant to Section 264 (3) of the German Commercial Code (HGB) are utilized.

The consolidated financial statements as of December 31, 2023 are prepared in EUR or EUR thousand. Rounding differences may
occur in the tables due to commercial rounding.

The consolidated financial statements as of December 31, 2023 were authorized for issue and forwarding to the Supervisory Board
by the Executive Board on April 29, 2024.

Changes in accounting standards

The accounting policies applied are consistent with those used as of December 31, 2022, with the exception of the new and revised
standards and interpretations described below, the application of which was mandatory for the first time as of fiscal year 2023.

Standard

Description

Mandatory application Effects

Initial Application of IFRS 17

Insurance contracts

Amendments to IFRS 17

Insurance contracts: Initial Application of IFRS 17

"Presentation of financial statements”: Disclosure of
accounting policies

January 1, 2023

No effects

January 1, 2023

No effects

Amendment to IAS 1

Amendment to IAS 8

Amendment to IAS 12

"Accounting Policies, Changes in Accounting Estimates
and Errors”: Definition of accounting estimates

January 1, 2023

No effects

"Income taxes": deferred taxes relating to assets and
liabilities arising from a single transaction

January 1, 2023

No effects

"Income taxes": Deferred taxes resulting from the
introduction of global minimum taxation

January 1, 2023

No effects

Future changes in accounting standards

Biofrontera has not implemented early adoption or does not intend to implement early adoption of the following standards,
interpretations and amendments to the set of regulations approved by the IASB:

Standard

Description

Mandatory
application

Expected effects

Amendment to IAS 1

"Presentation of financial statements”: Classification of
liabilities as current or non-current

January 1, 2024

No effects

Amendment to IFRS 16

"Leases": Lease liability in a Sale-and-Leaseback

January 1, 2024

No effects

Amendments to IAS 21 *

"The Effects of Changes in Foreign Exchange Rates":
Lack of Exchangeability

January 1, 2025

No effects

Amendments to IAS 7 and IFRS 7
*

" Statement of Cash Flows" and "Financial Instruments":
Disclosures: Supplier Finance Arrangements

January 1, 2024

No effects

* Endorsement by the EU still pending

Basis of consolidation

The consolidated financial statements as of December 31, 2023 include the financial statements of the parent company, Biofrontera
AG, and the subsidiaries that the parent company controls. Control exists when Biofrontera is subject to, or has rights to, variable
returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

Biofrontera AG Annual Report 2023

The basis for the consolidation of the companies included in the consolidated financial statements was the annual financial
statements (or HBII according to IFRS) of these companies as of December 31, 2023, prepared in accordance with uniform principles.
The consolidated financial statements as of December 31, 2023 were prepared on the basis of standard 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
obtained control of these group companies. Subsidiaries are included in the consolidated financial statements until control of these
entities is lost.

All intercompany receivables and payables as well as income and expenses have been eliminated in the course of consolidation.

Associated companies in which the companies of the Biofrontera Group hold a share of between 20% and 50% of the voting rights,
or in which relevant indicators point to significant influence, are accounted for using the equity method. For investments accounted
for using the equity method, the carrying amounts are increased or decreased by the changes in equity corresponding to
Biofrontera's equity interest. The changes in the proportionate equity recognized in profit or loss are included in the result from
investments accounted for using the equity method.

Translation of amounts in foreign currencies

The consolidated financial statements as of December 31, 2023 are presented in EUR (or EUR thousand), which is the functional
currency of the German entities included in the consolidated financial statements, and the presentation currency of the Group.

For subsidiaries whose functional currency, other than the Group's presentation currency, is the local currency of the country in
which the entity is domiciled, assets and liabilities denominated in foreign currencies that are reported in the balance sheets of the
foreign entities are translated into euros using the exchange rate prevailing at the balance sheet date (2023: 0.86905 GBP/EUR).
Revenue and expense items are translated at the average foreign currency exchange rates (2023: 0,86979 GBP/EUR) during the
underlying period. The difference resulting from the valuation of equity at the historical exchange rate and the closing rate is
recognized as a change in equity within other components of equity with no effect on profit or loss (2023: EUR 1 thousand).

Transactions denominated in currencies other than EUR are recognized at the current exchange rate on the date of the transaction.
Assets and liabilities are revalued at each balance sheet date using the closing rate.

Application of estimates

The preparation of the consolidated financial statements as of December 31, 2023 has been made in accordance with the estimates
and assumptions by management required by IFRS, which affect the reported amounts of assets and liabilities at the balance sheet
date and the reported amounts of revenues and expenses during the reporting period.

Main areas of application for significant assumptions, estimates and the exercise of discretion arise for the following matters:

▪

Assessment of the recoverability of non-current assets

Biofrontera is required to assess external and internal sources of information for non-current assets that are subject to
amortization, based on which possible indications of impairment or reversal of impairment can be identified. When
assessing whether there are indications of impairment or a reversal of impairment losses and - if such indications exist -
when determining the fair values required in this case as part of an impairment test, management must make assumptions
and estimates about the expected future cash flows from the use of the non-current assets and a determination of the
cost of capital.

▪

Income taxes

Biofrontera is required to calculate the expected current income tax for each group company, as well as to assess
temporary differences arising from the different treatment of certain balance sheet items between the IFRS consolidated
financial statements and the financial statements prepared for tax purposes. Where temporary differences exist, these
generally result in the recognition of deferred tax assets and liabilities in the consolidated financial statements.

Biofrontera AG Annual Report 2023

Management must make assumptions and estimates when calculating actual and deferred taxes. The recognition of
deferred tax assets of Biofrontera is subject to higher requirements due to the loss history. Deferred tax assets are only
recognized if it can be substantiated that taxable profits will be generated in the future and that it is then probable that
the deferred tax item to be capitalized can be offset against future taxable profits. In order to assess the probability of
the future utilization of deferred tax assets, various factors have to be taken into account, such as the earnings situation
in the past and operational planning. If actual results differ from these estimates, or if these estimates have to be adjusted
in future periods, this could have an adverse effect on the Group's net assets, financial position and results of operations.
If there is a change in the assessment of the recoverability of deferred tax assets, the recognized deferred tax assets -
corresponding to the original recognition - are to be written down through profit or loss or recognized in equity, or
impaired deferred tax assets are to be recognized through profit or loss or in equity.

▪

Provisions for litigation risks

Provisions are recognized for pending legal proceedings on the basis of current estimates. The outcome of the legal
proceedings cannot be determined or is subject to uncertainties. In assessing the risks arising from litigation, management
must make assumptions and estimates as to whether and to what extent provisions for litigation risks should be
recognized. Actual claims arising from legal proceedings may therefore differ from the amounts accrued.

▪

Estimates in connection with liabilities from the SAR program

In connection with the measurement of liabilities arising from the stock appreciation rights program, estimates are made
to determine the fair value. The determination requires management to make assumptions regarding the valuation models
used.

▪

Development costs

At Biofrontera, research and development costs include expenses for clinical trials as well as for the granting, maintenance
and extension of approvals. Both for the approved drug Ameluz® and for the other research and development projects,
with the exception of the further development of the new BF-RhodoLED® XL red light lamp, research and development
costs are recognized as expenses in the period in which they are incurred. In the opinion of management, the criteria
prescribed by IAS 38.57 for the recognition of development costs as assets are not met due to the uncertainties associated
with the development of new products by the Biofrontera Group until approval in the target markets has been obtained
and it is probable that future economic benefits will flow to the Company. The BF-RhodoLED® XL red light lamp is a further
development of the existing lamp, from which Biofrontera expects a future economic benefit.

Estimates are based on experience and other assumptions that are believed to be reasonable under the circumstances. They are
reviewed on an ongoing basis but may differ from actual values.

The carrying amounts of the items affected by estimates can be found in the respective explanations of the items in the notes to
the consolidated financial statements.

Tangible assets and leases

In accordance with IAS 16, property, plant and equipment are carried at historical cost less depreciation. Depreciation of property,
plant and equipment is generally charged on a straight-line basis over the estimated useful lives of the assets (generally between
three and thirteen years). The main useful lives are unchanged:

▪
▪
▪
▪

IT equipment 3 years, linear
Other equipment, furniture and fixtures 4 years, linear
Office and laboratory equipment 10 years, linear
Laboratory equipment 13 years, linear

Since January 1, 2018, low-value assets with acquisition costs between EUR 250 and EUR 1,000 are posted in the year of acquisition
to a collective item for the respective year, which is fully depreciated over 5 years.

Biofrontera is the lessee mainly for buildings and motor vehicles used for operational and administrative purposes. The
corresponding lease liability is calculated as the present value of the highly probable payments to be made to the lessee. It is

Biofrontera AG Annual Report 2023

amortized using the effective interest method. The right-of-use asset to be recognized in return for the underlying asset is
recognized at cost at the inception of the lease. In addition to the lease payments, any initial direct costs of the lessee and
dismantling costs are included in the calculation. Incentive payments granted by the lessor must be deducted. The capitalized right-
of-use asset must be depreciated on a straight-line basis and tested for impairment if there are indications of such impairment. The
main useful lives of leases are determined by the term of the lease and are as follows:

▪ Motor vehicles 3 years, straight-line
- Buildings 6 years, straight-line
▪

Future lease payments are to be discounted at the lessor's imputed interest rate or, if this is not available, at the marginal borrowing
rate on the date of initial application.

For expenses from leases with a remaining term of no more than one year and from leases with a low value, Biofrontera has decided
to make use of the simplification of IFRS 16.6 and to immediately recognize the monthly lease payments in profit or loss.

Biofrontera is a sublessor with regard to the subleasing of business premises. The subleases were classified as finance leases on
the basis of the right of use from the main lease. Accordingly, rights of use from the main lease were derecognized, with
simultaneous recognition of the net investment in the lease as an asset.

Intangible assets

Acquired intangible assets consist of software and licenses as well as other rights (rights of use). They are recognized at acquisition
or production cost less accumulated amortization. These intangible assets are capitalized and amortized on a straight-line basis
over their estimated useful lives of between 4 and 12 years.

The principal useful lives for intangible assets are:

•
•
•

- Software and licenses 3 years, straight-line
- Self-generated assets 10 years, straight-line
- Rights of use 4 to 12 years, straight-line

Intangible assets under development relate to the further development of BF-RhodoLED®. Beyond this, no development costs are
capitalized, as the requirements for the capitalization of internally generated intangible assets are not met.

There are no intangible assets with indefinite useful lives.

Borrowing costs are not recognized as part of the cost of the acquired assets, but as an expense in the period in which they are
incurred because the Group does not have any significant qualifying assets as defined by IAS 23.5.

Associated companies

Associated companies as defined by IAS 28 are accounted for using the equity method.

An associated company is a company over which the Group can exercise influence, but not control, by participating in the financial
and operating policies. Significant influence is presumed when the parent company holds 20% or more but less than 50% of the
voting rights (Associated companies). Under the equity method, investments in associated companies are initially recognized in the
consolidated statement of financial position at cost, adjusted for changes in the Group's share of profit or loss and other
comprehensive income of the associate after the date of acquisition. At the balance sheet date, the Group's share of equity is
translated into the reporting currency using historical exchange rates. The Group's share of profit or loss for the year plus
intercompany eliminations and related deferred taxes is recognized in the income statement using the closing rate.

Impairment of assets

The Group reviews non-current tangible and intangible assets for impairment whenever there is an indication that the carrying
amount of an asset may not be recoverable. The recoverable amount of an asset is the higher of its value in use and its fair value
less costs to sell. The value in use is determined by the future cash flows expected to be generated by the asset. Biofrontera
measures any impairment to be recognized at the amount by which the carrying amount of the asset exceeds its recoverable
amount.

Biofrontera AG Annual Report 2023

Financial assets

Financial assets are recognized if Biofrontera has a contractual right to receive cash or other financial assets from another party.
Customary purchases and sales of financial assets are generally recognized on the settlement date. Financial assets are assigned
to the "hold" category and measured at amortized cost. Non-interest-bearing or low-interest-bearing receivables are recognized at
present value.

Impairment of financial assets

Biofrontera determines the credit risk of trade receivables as the probability-weighted amount of the expected shortfall in
collections compared to the contractual payment claims. The basis for the estimation of expected credit losses is, in addition to
individual factors, the general experience with the collection of receivables in the past. The Company adjusts the fixed allowance
rates derived from these, which are based on the extent to which the receivables are past due, in the event of significant changes
in economic conditions.

Trade receivables

Trade receivables are recognized at their carrying amount. In the case of adjustments, these are booked directly against the
receivable in question.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and checks, bank balances and cash deposits with a maturity of up to three
months at the time of acquisition. They are measured at amortized cost.

Inventories

Raw materials and supplies as well as finished goods and work in progress are stated at the lower of cost and net realizable value.
Borrowing costs are not capitalized. Cost is determined using the first-in, first-out (FIFO) method. An allowance is made for
inventories at the balance sheet date if the net realizable value is lower than the carrying amount.

Financial liabilities

Financial liabilities include original liabilities. Original liabilities are recognized if there is a contractual obligation to transfer cash
or other assets to another party. The initial recognition of a non-derivative financial liability is at fair value. In the subsequent
measurement of financial liabilities measured at amortized cost, any discount between the amount received and the repayment
amount is amortized over the term of the liability using the effective interest method.

Trade payables

Trade payables and other liabilities are recognized at their repayment amount. Due to their short-term nature, the carrying amount
reported reflects the fair value.

Provisions

Provisions are recognized if an obligation to a third party resulting from a past event exists, and it is probable that an outflow of
assets will be required to settle the obligation in the future, and a reliable estimate can be made of the amount of the obligation.

Stock options

Stock options (equity-settled share-based payment transactions) are recognized at fair value at the time of granting. The fair value
of the obligation is recognized as personnel expense over the vesting period. If Biofrontera AG has the option to settle in cash or in
shares when the option is exercised, the capital reserve is initially increased in accordance with IFRS 2.41 and IFRS 2.43. The expense
is recognized over the vesting period. The fair value of cash-settled and equity-settled share-based payment transactions is
generally determined using internationally accepted valuation techniques.

Stock Appreciation Rights

Obligations under Biofrontera's stock appreciation rights program are cash-settled share-based payments that are recognized at
fair value. Changes in the fair value during the term are recognized in profit or loss. The fair value is determined using internationally
recognized valuation techniques.

Biofrontera AG Annual Report 2023

Income taxes

Biofrontera recognizes deferred taxes in accordance with IAS 12 for valuation differences between the IFRS carrying amounts and
the tax base. Deferred tax liabilities are generally recognized for all taxable temporary differences.

The recognition of deferred tax assets is subject to more stringent requirements due to the loss history. Deferred tax assets are
only recognized if there are substantial indications that taxable profits will be generated in the future and that the deferred tax item
to be capitalized can then probably be offset against future taxable profits.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is not
probable that sufficient taxable profit will be available against which the deferred tax asset can be at least partially utilized.
Previously unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent
that it has become probable, from a current perspective, that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and deferred tax assets are offset if a right of set-off exists and they are levied by the same taxation authority.

Current taxes are calculated on the basis of the Company's taxable income for the period. The tax rates of the respective company
applicable on the balance sheet date are used as a basis.

Earnings per share

Earnings per share are calculated in accordance with IAS 33 ("earnings per share") by dividing net income by the weighted average
number of shares outstanding during the year.

Revenue recognition

The Company recognizes as revenue all income from product sales and the granting of licenses. The completed customer contracts
each comprise only one performance obligation. The Company is entitled to a fixed consideration for the products sold and licenses
granted. To the extent that return obligations for expired products have been agreed with customers, Biofrontera recognizes
revenue only in the amount that is most likely to be recoverable, taking into account the proportion of the products that are expected
to be returned. The timing and amount of revenue to be recognized in the consolidated income statement is determined by the
extent to which Biofrontera transfers control of the products to be delivered or rights to be granted to the customers. Revenue from
product sales to third parties and licensees is recognized at the time of delivery.

The majority of revenue is generated from product sales. In accordance with the respective local laws on the sale of pharmaceuticals
and medical devices, Ameluz® is sold in Germany exclusively via pharmaceutical wholesalers or directly to hospitals, and in other
European countries also directly to pharmacies or hospitals.

In the case of direct sales of BF-RhodoLED® , the deliveries and services owed are only provided after installation has taken place.
The installation service represents a purely ancillary service because, for legal reasons, the lamp may only be used after it has been
installed by the customer. This is a uniform performance obligation. In the United States, lamps are sometimes made available to
physicians for a fee for an evaluation period of up to six months, and a final purchase decision does not have to be made until the
end of this period. The Company generates revenue from monthly fees during the evaluation period and from the sale of lamps.

Belixos® is sold through Amazon and through pharmaceutical wholesalers. Revenue is recognized through Amazon upon delivery
and payment by the customer and through pharmaceutical wholesalers upon delivery. Experience has shown that customers make
only insignificant use of the rights of return granted on sales.

Sales are recognized net of sales-related taxes and sales deductions. For expected sales deductions, such as rebates and discounts,
amounts estimated at the time of revenue recognition are taken into account accordingly. The payment terms include short-term
payment terms with the possibility of cash discounts.

Cost of sales

Cost of sales includes cost of materials for products sold, payments to third parties for services directly attributable to the
generation of sales or production of the products, as well as directly attributable personnel expenses and depreciation and
amortization, and a proportion of overheads.

Biofrontera AG Annual Report 2023

Research and development expenses

Pursuant to IAS 38, development costs are recognized as "intangible assets" under certain conditions. Research costs are expensed
as incurred. Development costs are capitalized if the criteria of IAS 38.57 are met, depending on the potential outcome of the
development activities.

Research and development costs for both the approved drug Ameluz® and the Company's other research and development projects
are therefore recognized as expenses in the period in which they are incurred. The intangible assets under development relate to
the further development of BF-RhodoLED® , as the recognition criteria of IAS 38.57 are fulfilled.

Notes to the consolidated balance sheet

1. Intangible and tangible assets

As in the previous year, no impairment losses were recognized on property, plant and equipment or intangible assets during the
fiscal year 2023. Biofrontera uses external and internal sources of information to determine at each reporting date whether there
are any indications of impairment or a reversal of impairment losses.

Property, plant and equipment and intangible assets break down as follows:

Biofrontera AG Annual Report 2023

Statement of changes in non-current assets for 2023

in EUR thousands

Purchase and production cost

Accumulated depreciation

Carrying amounts

01.01. 2023 Currency

translation Additions Disposals Transfers 31.12.2023 01.01. 2023 Currency

translation Additions Disposals 31.12.2023 31.12.2023 01.01. 2023

Tangible assets and leases
Operating and business equipment
Right-of-use leasing properties
Right-of-use leasing tangible assets
Tangible assets and leases

Intangible assets
Software and licenses
Right-of-use assets
Self-generated intangible assets
Intangible assets

Total

3,680
3,110
954
7,744
0
0
259
736
1,250
2,245
0
9,989

0
0
0
0
0
0
0
0
0
0
0
0

799
0
62
861
0
0
40
0
73
113
0
974

-16
86
-110
-40
0
0
-26
0
0
-26
0
-66

0
0
0
0
0
0
0
0
0
0
0
0

4,462
3,196
906
8,564
0
0
273
736
1,323
2,332
0
10,896

-1,997
-2,005
-730
-4,732
0
0
-212
-707
-127
-1,047
0
-5,778

0
0
0
0
0
0
0
0
0
0
0
0

-214
-295
-124
-633
0
0
-43
-9
-107
-159
0
-791

16
-36
110
90
0
0
26
0
0
26
0
116

-2,194
-2,336
-743
-5,274
0
0
-230
-716
-234
-1,180
0
-6,454

2,268
859
163
3,290
0
0
43
20
1,089
1,152
0
4,442

1,683
1,105
225
3,012
0
0
46
28
1,124
1,198
0
4,210

Biofrontera AG Annual Report 2023

Statement of changes in non-current assets for 2022

in EUR thousands

Purchase and production cost

Tangible assets and leases
Operating and business equipment
Right-of-use leasing properties
Right-of-use leasing tangible assets
Tangible assets and leases

Intangible assets
Software and licenses
Right-of-use-assets
Intangible asset under development
Intangible assets

Total

01.01. 2022 Currency

translation Additions

Disposals 31.12.2022 01.01. 2022 Currency

translation Additions

Disposals 31.12.2022 31.12.2022 01.01. 2022

3,551
2,710
949
7,210

260
887
1,073
2,219

9,429

0
0
0
0

767
400
165
1,332

24
12
178
214

-639
0
-159
-798

-25
-163
0
-188

3,680
3,110
954
7,744

259
736
1,250
2,245

-2,441
-1,728
-760
-4,928

-203
-859
-18
-1,079

1,546

-986

9,989

-6,008

0
0
0
0

-188
-278
-130
-595

-30
-12
-109
-150

-746

633
0
159
792

20
163
0
183

-1,997
-2,005
-730
-4,732

-212
-707
-127
-1,047

1,683
1,105
225
3,012

46
28
1,124
1,198

1,110
982
189
2,281

57
28
1,055
1,139

975

-5,778

4,210

3,421

Biofrontera AG Annual Report 2023

2. Financial assets accounted for using the equity method

Financial assets include the carrying amount of the investment in Biofrontera Inc. of EUR 1,718 thousand (previous year:
EUR 8,982 thousand), which is included and measured in the consolidated financial statements using the equity method:

General information

Capital share

Share of voting rights

31.12.2023

31.12.2022

31.12.2023

31.12.2022

Fair value of the investment
when a quoted market price
exists
in TEUR

31.12.2023

31.12.2022

Biofrontera Inc., Woburn (USA)

26.40%

29.96%

26.40%

29.96%

1,108

6,854

The decrease in shares is due to dilution by further capital measures of the associated company.

Description of the type of activity of the associated company

Biofrontera Inc., based in Woburn, Massachusetts, USA, distributes Biofrontera's products in the USA as a license partner. For further
details, please refer to our related party disclosures.

Financial information

The table below summarizes the financial information of Biofrontera Inc. as presented in its own financial statements (values do not
relate to the shares attributable to Biofrontera AG, but represent the values based on a notional shareholding of 100%):

in TEUR

31.12.2023

31.12.2022

Current assets

thereof cash and cash equivalents

Noncurrent assets
Current liabilities
Noncurrent liabilities

Revenues
Operating Result
Other Income
Result after tax

20,882
1,215
4,395
16,369
4,571
0
30,833
(20,522)
2,317
(18,218)

Reconciliation to the carrying amount included in the consolidated balance sheet

The carrying amount of the investment in Biofrontera Inc. developed as follows:

in EUR thousands

Carrying amount as of December 31, 2022
Proportionate earnings after taxes 2023
Impairment
Carrying amount as of December 31, 2022

Biofrontera AG Annual Report 2023

40,446
16,134
7,260
19,589
5,730
0
26,884
(17,421)
16,851
(600)

8,982
-7,264
0
1,718

Obligations to the associated company

The Group has obligations to Biofrontera Inc. in the amount of EUR 201 thousand resulting from services rendered under service
agreements. Furthermore, future obligations to Biofrontera Inc. in the amount of EUR 2,545 thousand in connection with the
settlement payments arising from the legal dispute with DUSA Pharamaceuticals Inc. are included in liabilities.

3. Inventories

in EUR thousands

Raw materials

Unfinished goods

Finished goods and products
Total

December 31, 2023

December 31, 2022

2,749

921

1,407
5,077

2,746

1,045

1,003
4,794

In the reporting year, impairment losses of EUR 24 thousand (previous year: EUR 218 thousand) were recognized on finished goods.

4. Trade receivables

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

As in the previous year, there were no overdue, unimpaired receivables as of the balance sheet date.

5. Other financial assets

Other financial assets mainly comprise security deposits, primarily for rented premises, credit cards and leased vehicles (EUR 30
thousand; previous year: EUR 27 thousand), as well as advance payments for services (EUR 1,508 thousand; previous year: EUR 816
thousand). As in the previous year, there was no impairment in the year under review.

6. Receivables from leases

Biofrontera is a sublessor with regard to the subleasing of business premises. The subleases were classified as finance leases on
the basis of the right of use from the main lease. As of December 31, 2023, there were non-current receivables of
EUR 33 thousand(previous year: EUR 101 thousand) and current receivables of EUR 18 thousand (previous year: EUR 35 thousand)
under the subleases.

7. Other assets

Other assets mainly comprise prepaid expenses (EUR 643 thousand; previous year: EUR 791 thousand) and VAT receivables of EUR
207 thousand (previous year: EUR 147 thousand). As in the previous year, no impairment losses were recognized in the reporting
year.

8. Cash and cash equivalents

Cash and cash equivalents include cash on hand and checks, bank balances, and cash deposits with a maturity of up to three months
at the time of acquisition totaling EUR 3,080 thousand (previous year: EUR 6,376 thousand).

9. Deferred income tax

Deferred tax assets amount to EUR 6,818 thousand (previous year: EUR 4,375 thousand) concern both Biofrontera Pharma GmbH and
Biofrontera Bioscience GmbH.

The increase in deferred tax assets of EUR 2,443 thousand (previous year: EUR -800 thousand) results from the first-time recognition
of deferred tax assets at Biofrontera Bioscience GmbH, which is offset by a reduction in the usable tax loss carryforwards of

Biofrontera AG Annual Report 2023

Biofrontera Pharma GmbH, with the amount of the usable tax loss carryforwards being reduced to the probable utilization during
the planning period. The following table explains the deferred tax assets arising from tax loss carryforwards, as they have developed
within the Group:

in EUR thousands

December 31, 2023

December 31, 2022

Corporation tax including Solidarity
Surcharge

Business tax
Total

Loss carried
forward

Deferred
tax assets

Loss carried
forward

148,164

129,303

23,447

11,314
34,761

151,887

133,709

Deferred
tax assets

24,036

11,700
35,736

These loss carryforwards have an unlimited carryforward period under current German law.

in EUR thousands

December 31, 2023

December 31, 2022

Loss carried forward

Non-current assets
- Intangible assets

- Tangible assets
-Receivables and other assets

Current assets
- Receivables and other assets

Non-current and current financial liabilities

Current liabilities
- Liabilities and other

Total

Netting of deferred tax assets and liabilities

As recognized on balance sheet

Deferred tax
assets

7,086

Deferred tax
liabilities

Deferred tax
assets

4,651

0
0

264

7,350

(532)

6,818

(268)

(251)
(13)

(532)

532

0
0

360

5,011

(636)

4,375

Deferred tax
liabilities

(276)

(327)
(25)

(8)

(636)

636

Deferred taxes on loss carryforwards are capitalized to the extent that there are substantial indications that they can probably be
offset against future profits or that they are offset by deferred tax liabilities to the same extent. Due to the lack of predictability of
future taxable profits, taking into account the loss history, the remaining deferred tax assets from loss carryforwards of EUR 27,675
thousand (previous year: EUR 31,085 thousand) have not been recognized in accordance with IAS 12.34.

The following is a reconciliation of the expected income tax expense to the income tax expense actually recognized, using the
applicable income tax rate of 24.575% (previous year: 24.575%) of the parent company as the starting point.

Biofrontera AG Annual Report 2023

in EUR thousands

December 31, 2023

December 31, 2022

Consolidated loss before tax

Expected income tax reimbursement

Differences arising from different tax rates

Share of result of associated companies

Tax increases due to non-deductible expenses
- from impairment of at-equity investments
- other non-deductible expenses
Changes in unrecognized deferred tax assets
- from active temporary differences

- from loss carryforwards

Other effects

Income taxes per statement of comprehensive income

10. Equity

Share capital

(2,127)

523

(57)

(1,785)

0
(147)
0
(85)

3,309

1,758

(43,210)

10,619

(394)

(10,461)
(117)
0
0

(617)

(957)

The fully paid-in share capital of the parent company, Biofrontera AG, amounted to EUR 63,807,058.00 as of December 31, 2023. It
consisted of 63,807,058 registered shares with a nominal value of EUR 1.00 each. On December 31, 2022, the share capital had
amounted to EUR 63,807,058.00.

The shares of Biofrontera AG were listed on the Regulated Market of the Düsseldorf Stock Exchange in 2006. In August 2012, at the
request of the Company, admission to trading on the Regulated Market of the Frankfurt Stock Exchange was also granted. The shares
are also traded on the Xetra computer trading system and on all other German stock exchanges. On June 03, 2014, the shares were
admitted to the Prime Standard of the Frankfurt Stock Exchange.

The share capital was held as follows on December 31, 2023:

Maruho Co., Ltd., Osaka Japan
The total share of voting rights is assigned to Maruho Co., Ltd, Osaka, through the company Maruho
Deutschland GmbH, Düsseldorf, which is controlled by the former. In an accompanying voting rights
notification, Mr. Takagi reported "acting in concert" over the entire voting rights of Maruho.
Wilhelm Konrad Thomas Zours
The voting rights through the chain of subsidiaries listed below are attributed to Mr. Zours:
• DELPHI Unternehmensberatung Aktiengesellschaft;
• VV Beteiligungen Aktiengesellschaft
• Deutsche Balaton Aktiengesellschaft;
• Heidelberger Beteiligungsholding AG;
• SPARTA AG;
• Deutsche Balaton Biotech AG
Biofrontera Inc., Woburn, USA
Free float
Total

December 31,
2023

December 31,
2022

18,850,981

13,399,965

18,671,057

17,021,057

177,465
26,107,555
63,807,058

6,466,946
26,919,090
63,807,058

Biofrontera AG Annual Report 2023

at least 3% of the outstanding shares or voting rights. The number of shares listed here refers to the last notification of the
respective shareholders, since then they may have changed their holdings within the respective notification thresholds without
informing the Company.

In the event of the Company achieving an annual surplus, the Management and Supervisory boards are authorized to transfer all or
part of the annual surplus that remains, after deduction of the sums to be placed in the legal reserves and of a loss carried forward,
to retained earnings. It is not permissible to transfer more than half of the annual surplus to retained earnings if, after such a
transfer, the other retained earnings would exceed half of the share capital. The shareholders' share of profits is calculated based
on the size of their holding of the share capital.

Authorized/conditional capital

By resolution of the Annual General Meeting on 9 January 2023, the Management Board is authorized, with the approval of the
Supervisory Board, to increase the company's share capital once or several times by up to EUR 12,700,000.00 until 31 December 2027
in return for cash contributions (Authorized Capital 2022). The conditional capital consisted of three share capital amounts.

The conditional increase in the share capital (Conditional Capital I) of EUR 6,434,646 was approved on August 28, 2015, of which is
EUR 1,359,864 available as at December 31, 2023. Conditional Capital I serves to secure the granting of option rights and the
agreement of option obligations in accordance with the bond terms and conditions.

The conditional increase in the share capital (Conditional Capital III) of EUR 542,400 was approved on February 28, 2015, of which is
EUR 249,050 available as of December 31, 2023, and serves exclusively to fulfill option rights (2010 share option program) granted
on July 1, 2015 on the basis of the annual general meeting (“AGM”) of July 2, 2010.

The conditional increase in the share capital (Conditional Capital V) of EUR 1,814,984 approved on February 28, 2015. of which is EUR
1,554,984 available as at December 31, 2023 and serves exclusively to fulfill option rights (2015 share option program) granted until
August 27, 2020 on the basis of the AGM on August 28, 2015.

The share capital has been conditionally increased by up to EUR 17,725,000.00 by resolution of the Annual General Meeting on June
20, 2023 for the issue of bonds with warrants and convertible bonds (Conditional Capital 2023).

2015 stock option program

At the AGM on August 28, 2015, the Management Board and Supervisory Board proposed a new share option program for employees
to the AGM, which approved the initiative. Accordingly, the Management Board or, to the extent that the beneficiaries are
Management Board members, the Supervisory Board, are entitled until August 27, 2020 to issue up to 1,814,984 subscription rights
to up to EUR 1,814,984 of the Company's ordinary registered shares, whose exercise is tied to certain targets.

The program has a total nominal value of EUR 1,814,984 and a term of five years from the issue date, in other words, until August 27,
2020. Eligibility for the 2015 share option program was granted to members of the Management Board and employees of the Company
as well as to members of management bodies and employees of affiliates of Biofrontera AG. The granting of options is made without
any payment being provided in return.

In accordance with the associated conditions, each subscription right that is granted entitles the beneficiary to acquire one new
registered no par value unit share in the Company. The exercise price is equal to the arithmetical average (unweighted) of the
closing prices on the Frankfurt Stock Exchange in floor trading and in Xetra trading for the Company's shares on the ten trading
days prior to the issuing of the share. However, the minimum exercise price shall amount to the proportionate share of the
Company's share capital allocated to each individual no par value unit share, pursuant to Section 9 (1) of the German Stock
Corporation Act (AktG).

The options granted can only be exercised after expiry of a vesting period. The vesting period is four years from the respective date
of issue. A prerequisite for the whole or partial exercising of the options is that the following performance target is achieved:

Exercising the options from a tranche is possible, if at the beginning of the respective exercise period, the price (hereinafter referred
to as the "reference price") of a share in Biofrontera Aktiengesellschaft exceeds the exercise price by at least 20%, and a minimum
reference price of EUR 5.00 is reached (hereinafter referred to as the "minimum reference price"). The reference price is equal to
the arithmetical average (unweighted) of the closing prices on the Frankfurt Stock Exchange in floor trading and Xetra trading for

Biofrontera AG Annual Report 2023

the Company's shares between the 15th and the 5th stock market day (in each case inclusive) before the start of the respective
exercise window. The minimum reference price is adjusted in the following cases to align the specified performance target with
changed circumstances:

▪

In the event of a capital increase from company funds being implemented by issuing shares, the minimum reference price
is reduced by the same ratio as new shares issued compared to existing shares. If the capital increase is implemented
from company funds without issuing new shares (Section 207 (2) Clause 2 of the German Stock Corporation Act [AktG]),
the minimum reference price is not changed.

In the case of a capital reduction, no adjustment of the minimum reference price is implemented, provided that the total
number of shares is not changed by the capital reduction, or if the capital reduction is connected to a capital repayment
or purchase of treasury shares. In the case of a capital reduction performed by consolidating shares without capital
repayment and in the case of increasing the number of shares with no associated change in capital (share split), the
minimum reference rate increases in line with the capital reduction or share split.

Other adjustments to the minimum reference price are not implemented.

The exercising of options is limited to the following time periods (hereinafter "exercise windows"), in other words, only declarations
of exercising of rights submitted to the Company within an exercise window will be considered:

a) on the 6th and subsequent 20 banking days after the date of the AGM (exclusive),
b) on the 6th and subsequent 20 banking days after the date of submission of the semi-annual or quarterly report or an

interim statement by Biofrontera AG (exclusive)
in the period between the 15th and 5th banking day prior to the expiration of the option rights of the respective
expiration day (exclusively).

After the vesting period, the options can be exercised up until the expiry of six years from the date of issue (exclusive). For the
valuation of the employee share options, we have assumed an average holding period of 5 years.

Any claim by the beneficiaries to receive a cash settlement in the event of non-exercise of the options is invalid even in the event
of the existence of the above exercise prerequisites. An option may only be exercised if the holder has a current service or
employment contract with the Company or another Company affiliated with the Company or if the holder is a member of the
Management Board or the management team of another company affiliated with the Company.

In the event of the exercising of a subscription right, the Company is generally and in specific cases permitted to choose between
granting the registered share in exchange for payment of the exercise price, or fulfilling its debt by paying a cash settlement to the
holder of the subscription right. The cash settlement per subscription right is equal to the difference between the exercise price per
share and the share price on the exercise date, minus due taxes and fees.

As this stock option scheme entails share-based payment transactions in which the terms of the arrangement provide the Company
with a choice of settlement, the Company has decided, in accordance with IFRS 2.41 and IFRS 2.43, to recognize the transactions
pursuant to the provisions for equity-settled share-based payments (IFRS 2.10-29).

Biofrontera AG Annual Report 2023

Number of options issued
End of vesting period
Exercise price
Adjusted exercise price March 2018
End of vesting period
End of exercise window
Fair value per option
Share price volatility
Dividend yield
Share price yield
Risk-based interest rate
Fluctuation rate

Tranche 1

Tranche 2

Tranche 3

Tranche 4

Tranche 5

Tranche 6

425,000
18.04.2016
2.49 EUR
2.25 EUR
18.04.2020
18.04.2022
1.00 EUR
50.59%
0%
2.31%
5.92%
12%

130,500
01.12.2016
3.28 EUR
3.04 EUR
01.12.2020
01.12.2022
1.30 EUR
49.00%
0%
7.00%
13.26%
12%

329,000
28.04.2017
4.02 EUR
3.78 EUR
28.04.2021
28.04.2023
1.56 EUR
47.00%
0%
7.50%
13.94%
12%

300,500
28.11.2017
3.33 EUR
3.09 EUR
28.11.2021
28.11.2023
1.48 EUR
46.00%
0%
7.60%
14.05%
12%

180,000
07.05.2018
5.73 EUR
0
07.05.2022
07.05.2024
2.35 EUR
47.00%
0%
7.60%
14.03%
9%

333,485
14.05.2019
6.710 EUR
0
14.05.2023
14.05.2025
2.55 EUR
47.30%
0%
7.60%
13.35%
9%

The fair value of a stock option under this option program is determined on the basis of a Monte Carlo risk simulation. The pro rata
amounts are recognized ratably over the vesting period as personnel expenses and an increase in the capital reserves.

2015 stock option program

December 31, 2023

December 31, 2022

Outstanding at the beginning of the period

Granted during the period

Forfeited during the period

Exercised during the period

Expired during the period

Outstanding at the end of the period

Exercisable at the end of the period

Range of exercise prices for outstanding options

Weighted average of remaining contractual life
Cost during the period

338,490

96,500

157,000

84,990

693,990

231,000

124,500

338,490

5,73-6,71 EUR

2,25-6,710 EUR

16 months
12 TEUR

14 months
50 TEUR

Due to the non-fulfillment of the exercise conditions, no options were exercisable as of December 31, 2023.

Capital reserves

The capital reserves shown on the balance sheet comprise the capital reserve, the reserves from currency translation, the loss
carried forward and the result of the period. The consolidated statement of changes in equity provides further information about
the development of equity.

In accordance with IAS 32.37, equity procurement costs in connection with capital increases are deducted from the capital reserve
in an amount of EUR 0 thousand (previous year: EUR 64 thousand) for the year ended December 31, 2023.

Capital management

The Group's equity calculated in accordance with IFRS is managed as capital. The Company's capital management regularly reviews
the Group's equity and liquidity position. The objective is to provide adequate financing in line with capital market expectations and
to ensure creditworthiness in relation to national and international business partners in order to secure the Group's business
operations for at least 12 months. The Company's Management Board ensures that sufficient capital is available to all Group
companies in the form of equity and debt, with the aim of achieving Group equity of at least 20% of total assets.

Biofrontera AG Annual Report 2023

The development of the liquidity of the Group and of Biofrontera AG is used as an important key figure and control parameter. This
is monitored on a daily basis and reported to the company's Management Board. In addition, the liquidity status is reviewed in
regular target/actual variance analyses and communicated to the Management Board.

11. Financial liabilities

The repayment of the convertible bond 2017/2022 in the amount of EUR 2,031 thousand was made on schedule by January 03, 2022;
the repayment amount was included in current financial debt in the previous year.

in EUR thousands

December 31, 2023

December 31, 2022

Non-current financial liabilities

Leasing liabilities

Total non-current financial liabilities

Current financial liabilities

Leasing liabilities

Other current liabilities
Total current financial liabilities

678

429

39
468

1,055

446

0
446

The contractual interest and principal payment obligations from financial liabilities at the balance sheet date break down as
follows:

in EUR thousands

Leasing liabilities
Principal repayment
Interest payment

December 31, 2023

2023

2024

2025

2026

2027

Total

428
8

395
4

284
1

0
0

1,107
13

in EUR thousands

December 31, 2022

Leasing liabilities
Principal repayment
Interest payment

2023

2024

2025

2026

2027

Total

446
10

408
6

374
3

273
1

0
0

1,501
20

Biofrontera AG Annual Report 2023

Leasing liabilities

The carrying amount of current and non-current lease liabilities is EUR 1,107 thousand (previous year: EUR 1,501 thousand). Future
lease payments are discounted at the lessor's imputed interest rate or, if this is not available, at the marginal borrowing rate.

For further details, please refer to the section on significant accounting policies.

Development of lease liabilities:

Lease liabilities
in EUR thousands
Buildings
Cars
Others
Total

as of
01.01.2023
1,274
178
49
1,501

Additions

Disposals

0
62
0
62

0
0
0
0

Principal
paymnets
(332)
(111)
(13)
(456)

as of
31.12.2023
942
129
36
1,107

Leasing
payments
308
4
14
325

Interest
expense
11
121
1
132

For further details, please refer to the presentation of the significant accounting policies.

12. Other financial liabilities

in EUR thousands

December 31, 2023

December 31, 2022

Non-current other financial liabilities

Liability
from SAR program

Current financial liabilities

0
0

Trade accounts payable amount to EUR 1,984 thousand as of December 31, 2022 (previous year: EUR 2,735 thousand).

13. Trade payables

As of December 31, 2023, trade payables amount to EUR 2,594 thousand (previous year: EUR 1,984 thousand).

14. Income taxes

Income tax liabilities amounting to EUR 841 thousand (previous year: EUR 156 thousand) relate to liabilities from corporation tax
(EUR 499 thousand, previous year: EUR 83 thousand) and commercial tax (EUR 342 thousand, previous year: EUR 73 thousand) at
Biofrontera Pharma GmbH and Biofrontera Bioscience GmbH.

15. Other provisions

The development of other provisions of the Biofrontera Group is as follows:

in EUR thousands

December 31,
2022

Utilized

Released

Added

Reclassified

December 31,
2023

Provisions for litigation
costs

Other provisions

Total

518

603

(23)

(3)

(26)

(15)

325

332

Biofrontera AG Annual Report 2023

805

895

Other provisions relate to various identifiable individual risks and uncertain obligations. The provisions classified as current are
expected to result in an outflow of economic benefits within the subsequent financial year.

The companies included in the consolidated financial statements of Biofrontera AG face pending legal proceedings at the time of
reporting, the outcome of which either cannot be determined or cannot be predicted due to the uncertainty associated with such
legal proceedings. For passive lawsuits, provisions for litigation costs have been recognized in the amount of the expected
payments; for active lawsuits, provisions have solely been recognized in the amount of the legal services rendered to date. For
further details, please refer to our disclosures on litigation in the Group management report.

16. Other current liabilities

in EUR thousands

Liabilities from SAR program

Total other non-current liabilities

Accrual for employee bonuses

Accrual for outstanding vacation

Payroll tax

Accruals for outstanding invoices

Accruals for financial statement and audit costs

Other accruals
Total other current liabilities

December 31, 2023

December 31, 2022

738

139

1,049

215

230
2,458

304

563

117

101

1,187

215

335
2,518

Employees entitled to receive stock options whose vesting period has not yet expired are entitled to a severance payment in the
event that an affiliated company leaves the Group in accordance with §10 of the option conditions for employee stock options. A
liability of EUR 15 thousand (previous year: EUR 15 thousand) is therefore included under other accruals for the settlement of
employees of Biofrontera Inc. entitled to receive stock options.

Stock Appreciation Rights Program 2019

In April 2019, the Executive Board, with the approval of the Supervisory Board, established a stock appreciation rights plan under
which the Company grants virtual options ("stock appreciation rights" or "SARs") entitling the "beneficiary" to receive cash
payments in accordance with the specific terms of the SAR plan. However, SARs do not confer any right to subscribe to shares of
the Company. SARs may be issued to members of the Management Board of the Company, to members of the management of
affiliated companies as well as to employees of the Company and affiliated companies (hereinafter collectively referred to as
"beneficiaries"). The exact number of beneficiaries and the number of SARs to be granted to them are determined by the Company's
Management Board. To the extent that members of the Management Board are to receive SARs, the Supervisory Board alone is
responsible for determining and deciding on the issue of the SARs. In accordance with the SAR Plan, a maximum of 4,000,000 SARs
may be issued until March 31, 2024, of which a maximum of 1,600,000 SARs may be granted to members of the Management Board
and a maximum of 2,400,000 SARs to other beneficiaries. The SAR Plan sets the dates for the payment of cash in connection with
the SARs, unless there are legally binding regulations that conflict with the payout for the beneficiary. In addition, the eligible party
must meet certain conditions for the grant of SARs and must enter into a written contract ("SAR Agreement") with the Company
prior to exercise and delivery. Finally, SARs are subject to regulations on vesting periods, expiry and forfeiture. In particular, the
SARs may be exercised for the first time after a "vesting period" has expired:

d) The vesting period for 15 % of the SARs granted on an issue date is one year after the issue date;
e) The vesting period for an additional 25% of the SARs granted on an issue date is two years after the issue date;
The vesting period for an additional 25% of the SARs granted on an issue date is three years after the issue date;
f)
g) The vesting period for the remaining 35% of the SARs granted at an issue date is four years after the issue date.

Biofrontera AG Annual Report 2023

After expiry of the respective vesting period, SARs may be exercised until six years after the respective issue date, unless mandatory
legal provisions stipulate otherwise in individual cases. If the SARs have not been exercised by that date, they expire without
replacement. The beneficiary has no claim to payment if the SARs are not exercised on time and no further compensation will be
granted.

SARs may only be exercised as long as their holder is in an ongoing employment or service relationship with the Company or with
an affiliated company or as a member of the Company's Management Board.

SARs may only be exercised if the reference price at the beginning of the respective exercise window exceeds the issue price by at
least 20%. Furthermore, the reference price must be at least as high as the MSCI World Health Care Index TR or a comparable
successor index in the time between the last trading day before the issue date and the 5th trading day before the beginning of the
respective exercise window.

Upon effective exercise of the SARs, the Company is obligated, subject to certain adjustments, to make a payment (gross) for each
SAR exercised as follows: reference rate - base amount = payout amount per SAR (gross).

SAR program 2019

December 31, 2023

December 31, 2022

Outstanding at the beginning of the period

Granted during the period

Forfeited during the period

Exercised during the period

Outstanding at the end of the period

Exercisable at the end of the period

Fair value at the end of the period
Cost during the period

341,504

250,791

90,713

0 TEUR
-304 TEUR

569,205

227,701

341,504

80 TEUR
-22 TEUR

The fair value of a stock option under this option program is determined on the basis of a Monte Carlo risk simulation. The pro rata
temporis amounts are recognized ratably as personnel expense over the vesting period until the end of the blocking period and are
reported under other liabilities.

17. Reporting on financial instruments

The following tables present the carrying amounts and fair values of the individual financial assets and liabilities for each category
of financial instrument in accordance with IFRS 9:

Financial assets

Biofrontera AG Annual Report 2023

in EUR thousands

Valuation
category

Fair value
as of

Carrying
amount
as of

Fair value
as of

Carrying
amount
as of

Hierarchy level

according to IFRS 9

December 31,
2023

December 31,
2022

Cash and cash equivalents

Trade receivables

Receivables from associated
companies

Receivables from leases

Other financial asstes

Total

3,080

774

6,365

1,556

11,792

3,080

774

6,365

1,556

11,792

6,376

691

1,344

878

9,324

6,376

691

1,344

878

9,324

Valuation
category

Fair value
as of

Carrying
amount
as of

Fair value
as of

Carrying
amount
as of

Hierarchy level

according to
IFRS 9

December 31,
2023

December 31,
2022

December 31,
2023

Financial liabilities, current

Trade payables

Liabilities to associated companies
current

Other financial liabilities

Financial liabilities, non-current

Liabilities to associated companies
non-current
Total

468

2,594

2,747

678

468

2,594

2,747

678

446

1,984

2,653

1,055

2,642

446

1,984

2,653

1,055

2,642

6,558

8,807

Based on the input factors used at the valuation methods fair values are divided into different steps of the fair value hierarchy:

Level 1: Fair value valuations using prices listed on active markets (not adjusted) for identical assets or liabilities.

Level 2: Fair value valuations using inputs for the asset or liability that are either directly observable (as prices) or indirectly
observable (derived from prices), but which do not constitute listed prices pursuant to Level 1.

Level 3: Fair value valuations using inputs for the asset or liability that are not based on observable market data (unobservable input
data).

No reclassifications were made between the individual levels of the fair value hierarchy during the 2023 financial year. For further
details, please refer to the disclosures in the general accounting policies and the notes to the statement of financial position and
statement of comprehensive income (Notes 11 and 12).

Due to the generally short maturity of trade receivables and trade payables as well as receivables from associates, other financial
receivables and liabilities and cash and cash equivalents, the carrying amounts on the balance sheet date do not differ
significantly from the fair values.

Biofrontera AG Annual Report 2023

Expenses, income, losses and gains/losses from financial instruments:

in EUR thousands

Assets AC

Liabilities AC

Income from currency translation
Expenses from currency translation
Total

34
(25)
10

245
(223)
22

Total

279
(248)
32

Net gains and losses generally include currency translation effects as well as impairment losses and reversals. Fair value changes
of liabilities measured at fair value are included in interest expense. Interest income and other interest expense are not included in
net income.

Principles of risk management

In the ordinary course of business, the Group is exposed to risks that may have an impact on its net assets, financial position and
results of operations. The company's risks from financial instruments result primarily from foreign currency-related market price
risks. In contrast, credit and default risk is of minor importance.

In general, Biofrontera's market risk consists primarily of foreign currency risk.

▪

Foreign currency risk: The Biofrontera Group was exposed to foreign currency risks as of the balance sheet date. Risks
with regard to the valuation of trade receivables are of minor importance, as the company mainly invoices in Euro.
However, due to the fact that sales with license partners are tied to the prices achievable in the respective market, there
is a foreign currency-related market price risk with regard to the Company's sales valued in Euro, primarily for the U.S.
market due to the expansion of business in the United States. Trade payables denominated in foreign currencies in these
markets have a corresponding offsetting effect. There is also a foreign currency risk in Switzerland, particularly with
regard to the production of wages and salaries and due to the fact that the sales of the license partner are tied to the
local currency. In addition, there is a foreign currency risk in the United Kingdom for the sales organization based there.

Exchange rate related change in profit 2022

in EUR
thousands
Profit

USD
EUR +10%

(1,898)

CHF
EUR +10%

193

GBP
EUR +10%

(1)

USD
EUR -10%

2,320

CHF
EUR -10%

(236)

GBP
EUR -10%

▪

The Company does not enter into any specific currency hedging transactions. Exchange rate fluctuations are recognized
in profit or loss.

Credit risk: The Group is exposed to credit risk if counterparties are unable to meet their obligations within the customary payment
periods. The maximum default risk is represented in the balance sheet by the carrying amount of the respective financial asset. The
development of the receivables portfolio is monitored in order to identify potential default risks at an early stage and to initiate
appropriate measures. Biofrontera's financial instruments have a low default risk.

No individual valuation allowances were recognized on trade receivables in the 2023 financial year (previous year: EUR 0 thousand).
The very low default rate in the past and the lack of overdue receivables also meant that no portfolio valuation allowances were
recognized; the company expects the default rate to remain very low in the future due to the existing customer structure. Cash and
cash equivalents are invested with banks and insurance companies with adequate deposit protection. All financial assets are due in
the short term. As in the previous year, there are no material overdue financial assets.

Biofrontera AG Annual Report 2023

For information on the (undiscounted) payments from financial debt due in the next few years and other financial liabilities, please
refer to the corresponding notes on this balance sheet item. All other financial liabilities are current and are expected to be settled
within one year.

Maturity analysis of financial instruments

in EUR thousand

Financial liabilities current
Trade payables
Liabilities to associated companies current
Other financial liabilities current
Financial liabilities non-current
Liabilities to associated companies non-current
Total

Carrying
amount
31.12.2023
468
2,594
2,747
71
678
0
6,558

2023
468
2,594
2,747
71
0
0
5,879

Maturity

2025
0
0
0
0
284
0
284

2024
0
0
0
0
395
0
395

2026
0
0
0
0
0
0
0

2027
0
0
0
0
0
0
0

Biofrontera AG Annual Report 2023

Notes to the consolidated statement of comprehensive income

18. Sales revenue

01.01.-31.12.2023

01.01.-31.12.2022

in EUR thousands

Product
revenues

Service
revenues

Licensing
revenues

Germany

Spain

U.K.

Other European countries

Total Europe (excluding
Germany)

Total Europe

U.S.A.

Other regions

Total

6,257

1,743

723

2,466

8,723

Total

2023

6,257

1,743

723

1,195

3,662

1,195

9,919

22,148

106

22,224

106

Product
revenue

Developme
nt
revenues

Licensing
revenues

Total

2022

4,763

1,757

662

2,419

7,182

648

4,763

1,757

662

1,079

3,498

1,079

8,261

16,487

17,135

342
342
17,908 25,73
8

23,449

32,249

7,182

All sales revenues result from contracts with customers. Sales with Biofrontera Inc. account for 69% of the Group's total sales.

As in the previous year, no license income from downpayments of license agreements was received in the current financial year.

Provisions for manufacturer rebates amount to 0.17% of total sales in fiscal 2023 (previous year: 0.17%), while provisions for return
obligations amount to 0.19 % of total sales (previous year: 0. 21%).

19. Cost of sales, gross profit

The cost of materials included in the cost of sales amounted to EUR 4,117 thousand in fiscal year (previous year: EUR 3,069thousand).

The gross profit
EUR 20,981 thousand in the prior-year period.

increased by EUR 5,024 thousand

20. Research and development costs

in the reporting year 2023 to EUR 26,005 thousand compared to

Research and development costs amounted to EUR 7,846 thousand (previous year: EUR 7,128 thousand). They include costs for
clinical trials, but also regulatory expenses, i.e., for the granting, maintenance, and extension of our marketing authorizations. The
increase in research and development costs is mainly due to increasing activities in our clinical trials.

21. General administrative costs

General and administrative expenses amounted to EUR 6,105 thousand (previous year: EUR 5,906 thousand) in fiscal year 2023 a
slight increase of 3% compared to the previous year.

Biofrontera AG Annual Report 2023

22. Sales and marketing costs

Sales and marketing costs amounted to EUR 7,273 thousand (previous year: EUR 6,356 thousand) in fiscal year 2023. Sales costs
include the costs of our own sales force in Germany, Spain, and the United Kingdom, as well as marketing expenses.

23. Other expenses and income

Other expenses and income totaled to a profit of EUR 350 thousand in the reporting period (previous year: loss of EUR 467 thousand)
and mainly include expenses and income from currency translation amounting to a profit of EUR 42 thousand (previous year: loss of
EUR 677 thousand) as well as other income from the recognition of non-cash benefits and the recharging of costs in the amount of
308 TEUR (previous year: 204 TEUR).

24. Interest expenses and income

The interest expenses of EUR 15 thousand (previous year: EUR 163 thousand) mainly result from interest of EUR 11 thousand (previous
year: EUR 15 thousand) to be recognized for leases in accordance with IFRS 16.

Interest income amounts to EUR 21 thousand (previous year: EUR 1 thousand) and increased by EUR 20 thousand compared to the
previous year.

25. Result from investments

The investment result reflects the adjustment of the carrying amount of the investment in Biofrontera Inc. by the share of earnings
in the amount of EUR -7,264 thousand (previous year: EUR -1,604 thousand). In the previous year, the investment result also included
impairment losses of EUR 42,568 thousand.

26. Income tax

in EUR thousands

Deferred taxes

Actual income taxes
Total income taxes

December 31, 2023

December 31, 2022

2,443

(685)
1,758

(800)

(156)
(956)

The income from the capitalization of deferred taxes in the amount of EUR 2,443 thousand(previous year: EUR ‑800 thousand) results
from the first-time recognition of deferred tax assets at Biofrontera Bioscience GmbH, which is partially offset by a reduction in the
tax loss carryforwards of Biofrontera Pharma GmbH, with the amount of the recognizable tax loss carryforwards being reduced to
the expected utilization during the planning period.

27. Earnings per share (EPS)

Earnings per share are calculated on the basis of the net loss for the year of the Biofrontera Group and the average ordinary shares
in circulation in the financial year, in accordance with IAS 33.

Biofrontera AG Annual Report 2023

Number of weighted ordinary shares in circulation (on average)

Result attributable to owners of the parent in EUR

Basic earnings per share in EUR

Number of weighted ordinary shares in circulation (on average)

Result attributable to owners of the parent in EUR

Diluted earnings per share in EUR

December 31, 2023

December 31, 2022*

63,807,058

(369,347)

(0.01)

63,807,058

(369,347)

(0.01)

57,474,912

(44,166,205)

(0.77)

57,474,912

(44,166,205)

(0.77)

28. Additional information to the consolidated statement of comprehensive income

Other comprehensive income after tax only includes exchange differences from the conversion of foreign currency from our foreign
operations into the Group currency.

Depreciation and amortization expense

The amortization of intangible assets and depreciation of tangible assets are included in the following items of the statement of
comprehensive income:

in EUR thousands

December 31, 2023

December 31, 2022

Research and development costs

General administrative costs

Cost of sales

Sales and marketing

Depreciation and amortization expense

Personnel costs

in EUR thousands

Wages and salaries

Social security charges

Cost for pension schemes
Total

29. Staff

166

433

154

791

158

433

129

745

December 31, 2023

December 31, 2022

7,652

1,539

106
9,297

6,904

1,123

94
8,121

In 2023 the Biofrontera Group had an average of 103 salaried employees (previous year: 100).

Biofrontera AG Annual Report 2023

Notes to the consolidated cash flow statement

30. Composition and change

The cash flow statement is presented in accordance with IAS 7. The net result is adjusted for the effects of non-cash transactions,
accruals or deferrals of past or future operating cash receipts or payments, and items of income and expense attributable to
investing or financing activities.

In the consolidated statement of cash flows, cash and cash equivalents include cash on hand and checks as well as bank balances
and cash deposits with a maturity of up to three months. Current account liabilities are included in cash and cash equivalents where
appropriate.

The change in cash and cash equivalents in the fiscal year amounted to EUR ‑3,296 thousand (previous year: EUR ‑532 thousand).

Interest paid amounted to EUR 12 thousand (previous year: EUR 198 thousand). Interest payments received amounted to EUR 21
thousand (previous year: EUR 13 thousand).

Expenses for short-term leases and leases of low value amounted to EUR 11 thousand (previous year: EUR 19 thousand). Income from
subleases amounted to EUR 36 thousand (previous year: EUR 30 thousand).

in EUR thousands

January 1, 2023

Cash
effective

Addition/
retirement

Fair value
change

December 31,
2023

Leasing liabilities
Total financial liabilities

1,501
1,501

(456)
(456)

62
62

-
-

1,107
1,107

in EUR thousands

January 1, 2022

Cash
effective

Addition/
retirement

Fair value
change

December 31,
2022

Convertible bond 2017/2022

Interest convertible Bond
2017/2022,
Convertible Bond 2017/22

Leasing liabilities

Total financial liabilities

2,031

1,208

3,300

(2,031)

(61)

(437)

(2,529)

730

1,501

Other explanatory notes

31. Members of the Management Board

The Executive Board in 2023 consisted of Ms. Pilar de la Huerta Martínez (Chief Financial Officer).

Biofrontera AG Annual Report 2023

Management Board compensation

in EUR thousands

December 31, 2023

December 31, 2022

Short-term benefits

Performance-based compensation

Total compensation

336

-
336

542

-
542

The previous year's figure included the remuneration of former Management Board members Ludwig Lutter and Paul Böckmann
totaling EUR 452 thousand.

Further information on individualized compensation of the Management Board can be found in the "Compensation Report" in the
Management Report.

The Management Board members held the following supervisory board positions and positions on comparable domestic and foreign
boards during the reporting period:

Name

Company

Pilar de la Huerta Martínez

4BaseBio Ltd, UK

Vaxdyn, S.L., Spain

Epidisease S.L., Spain

Atlas S.L:, Spain

CELAX Innovation S.L., Spain

Sarcorem S.L., Spain

Board

Board of Directors

Board of directors

Board of Directors

Position

Member

Board of Directors

Sole adminstrator

Board of Directors

Sole adminstrator

32. Members of the Supervisory Board

Name

Wilhelm K.T. Zours

Nationality

German

Age

Position

Chair

Date of first
appointment
December 14, 2021

Term until

2026

Mr. Zours is shareholder and managing director of DELPHI Unternehmensberatung AG as well as chairman of the
supervisory boards of Deutsche Balaton AG, Beta Systems Software AG, Strawtec Group AG and SPARTA AG. Since 1985,
Mr. Zours has held various management and supervisory board mandates and founding participations in various
companies, including Balaton Ungarn Beteiligungen AG, Sparta Beteiligungen AG and Elsö Nemet Ertekpapirkereskedelmi
Kft (co-founder of the Budapest Stock Exchange in 1990).

Dr. Jörgen Tielmann

German

Vice Chair

December 14, 2021

2026

Dr. Jörgen Tielmann studied law at the Universities of Tübingen and Göttingen and received a Master of Laws from the
University of Manchester. He has been advising companies and entrepreneurs on corporate law since his admission to
the bar in Hamburg in 1998 and has been practicing this activity as a partner at Luther since 2006. Dr. Jörgen Tielmann
was head of Luther's Stock Corporation, Banking and Capital Markets Law department from 2008 - 2018.

Dr. Heikki Lanckriet

Belgian

Member

December 14, 2021

2026

Dr. Lanckriet is Chief Executive Officer and Chief Scientific Officer at 4basebio Plc. Earlier in his career, Dr. Lanckriet was
Chief Executive Officer & Chief Scientific Officer at Expedeon AG and Principal at Puratos NV. Dr. Lanckriet holds a
Bachelor and Master degree in Biochemical Engineering from the University of Ghent, Belgium and a PhD in Biochemical
Engineering from the University of Cambridge, UK.

Biofrontera AG Annual Report 2023

Prof. Dr. Karin
Lergenmüller

German

Member

August 25, 2022

2026

Prof. Dr. Karin Lergenmüller is Professor of Marketing and General Business Administration at the Rhine-Main University
of Applied Sciences, Wiesbaden since 1999. She worked for Deutsche Bank AG after holding positions in the management
consulting industry, including at Andersen Consulting and Gemini Consulting. From 1996 to 1998 she was a member of
the management of Joas & Comp., Bad Homburg. Since 2000 Prof. Dr. Karin Lergenmüller is Global Equity Investor,
specialized in Digital World, Technology companies, NFT's and Crypto.

Dr. Helge Lubenow

German

Member

December 14, 2021

2026

Dr. Helge Lubenow studied biology and obtained her doctorate in the field of genetics at the University of Cologne and
the Max Planck Institute. After completing her doctorate, Dr. Lubenow joined the diagnostics company Qiagen in 1997. In
the course of her professional career at Qiagen, Dr. Lubenow held various management positions. From 2011 to 2015, Dr.
Lubenow led the molecular diagnostics business as Senior Vice President. In 2016, Dr. Lubenow founded her own
consulting company AGOS Consulting. From 2018 to 2019 she was Managing Director of tesa Labtec GmbH and from
January 2020 to 2023 she was Managing Director of Proteomedix AG, Zurich, Switzerland.

Karlheinz Schmelig

German

Member

December 14, 2021

2026

Karlheinz Schmelig is managing partner of Creathor Venture Management GmbH, where he has been responsible for
investments in the life sciences sector since 2004. At the beginning of his career, Mr. Schmelig worked for Boehringer
Mannheim and later for Roche Diagnostics in Germany and the USA. His responsibilities there included supply chain
management, global marketing and business development. Mr. Schmelig holds a Bachelor's degree from the Baden-
Wuerttemberg Cooperative State University Mannheim and an MBA from the Kelley School of Business, USA.

Supervisory Board compensation

in EUR thousands

Wilhelm K.T. Zours

Dr. Jörgen Tielmann

Dr. Heikki Lanckriet

Dr. Helge Lubenow

Prof. Dr. Karin Lergenmüller

Karlheinz Schmelig

Prof. Dr. Franca Ruhwedel

Gesamt

2023

2022

197

n.a.

191

The payments are short-term payments within the meaning of IAS 24.17 (a).

The Supervisory Board members held the following other supervisory board positions and positions on comparable domestic and
foreign boards during the reporting period:

Biofrontera AG Annual Report 2023

Name

Company

Board

Position

Wilhelm K.T. Zours

Deutsche Balaton AG

Beta Systems Software AG

SPARTA AG

YVAL Idiosynkratische Investments SE

Dr. Heikki Lanckriet

4basebio UK limited, Cambridge, UK

4basebio Discovery Ltd., Cambridge, UK

4basebio SLU, Madrid, ES

Neophore Ltd., Cambridge, UK

I2i capital Ltd., Cambridge, UK

Kither Biotech s.r.I., Italy

Biofrontera Inc.

Dr. Helge Lubenow

Epigenomics AG

Human Gesellschaft für Biochemika und Diagnostika
mbH

Neracare GmbH

Avelo AG

Supervisory Board

Board of Directors

Chair

Board of Directors

Member

Supervisory Board

Chair

Advisory Board

Member

Supervisory Board

Member

Board of Directors

Chair

Karlheinz Schmelig

Prostatype Genomics AB, Stockholm, Schweden

Supervisory Board

Member (until June 30,
2023)

CryoTherapeutics S.A., Awans, Belgien

Tacalyx GmbH, Berlin

Supervisory Board

Advisory Board

Member

33. Related party disclosures

The group of related parties is limited to the group of persons listed in Notes 31 and 32 as well as to the persons and companies
listed in Note 10. The group of key management personnel is limited to the Management Board and the Supervisory Board.

Within the framework of the underlying holding structure, Biofrontera AG assumes the administrative and control tasks. Biofrontera
AG is also responsible for the financing of the currently still in the loss-making business areas, since as a listed company it has the
best access to the capital market. Against the background of the close cooperation between the Group companies, an internal
settlement is carried out which is adjusted annually to meet current requirements.

Biofrontera AG Annual Report 2023

The following relationships exist with Biofrontera Inc.:

in EUR thousands

Sales revenues

Other income

Clinical trial expenses

Other expenses

Trade receivables

Trade payables

Payables from DUSA settlement

December 31, 2023

December 31, 2022

22,224

775

6,365

201

2,545

17,135

436

1,344

2,642

Biofrontera Inc. was established to market our products in the USA. Under a license and supply agreement between Biofrontera
Pharma GmbH and Biofrontera Bioscience GmbH, both wholly owned subsidiaries of Biofrontera AG, and Biofrontera Inc. the
responsibilities between the companies are regulated. The agreement was concluded for a period of 15 years and will be renewed
for another 5 years, provided that a sales volume in the USA of more than USD 150 million has been achieved in the preceding 5
years. Under this agreement, Biofrontera Inc. acquires Ameluz® and the PDT lamps BF-RhodoLED® and RhodoLED® XL from
Biofrontera AG. Up to annual Ameluz® sales of USD 30 million, Biofrontera Inc. pays 50% of sales as a transfer price. This share
decreases in two steps for higher sales, down to 30% for sales in excess of USD 50 million. Biofrontera AG has agreed to maintain
FDA approval, to manufacture the products, to provide a pharmacovigilance database and to conduct predefined clinical trials.

Additionally, services that were previously invoiced as part of intercompany billing are now performed and invoiced on the basis of
corresponding service agreements with Biofrontera Inc. This relates primarily to services in the areas of pharmacovigilance, quality
management, IT and investor relations. In the financial year 2022, Biofrontera entered into a sublease agreement for business
premises and a service agreement for accounting services with Bio-FRI GmbH, the German subsidiary of Biofrontera Inc.

The following relationships exist with the Maruho Group:

in EUR thousands

Revenue from patent transfer

Revenue from license agreements

Income from subleases

Trade receivables

December 31, 2023

December 31, 2022

106

200

141

In April 2020, Biofrontera entered into an exclusive license agreement with Maruho Co, Ltd, Osaka, Japan (Maruho) for the
development and commercialization of Ameluz® for all indications in East Asia and Oceania. The agreement has a term of 15 years
from the start of sales in the countries covered by the agreement. Under the agreement, Maruho receives exclusive development
and marketing rights, including permission to sublicense Ameluz® in Japan, China, Korea, India, Pakistan, Vietnam, the Philippines,
Australia, New Zealand, and surrounding countries and islands (territory of applicability). Maruho is entitled, with Biofrontera's
consent, to conduct its own research and development under the license agreement. Maruho will grant to Biofrontera a royalty-free
and perpetual license to any results of such research and development conducted by Maruho for commercialization outside the
Territory. Under the License Agreement, Biofrontera will supply Ameluz® to Maruho at cost plus 25%, while Maruho has an obligation
to use commercially reasonable efforts to develop, register and commercialize Ameluz® in all countries in the Applicable Territory.

Biofrontera AG Annual Report 2023

Under the license agreement, Maruho has made a one-time payment of EUR 6 million to Biofrontera AG in the previous year. Further
future payments will be due upon the achievement of certain regulatory and sales milestones. Maruho will also pay royalties of
initially 6% of net sales in the countries of the scope, which may increase to 12% depending on sales volumes and will decrease in
the event of generic launches in these countries. In the reporting year, revenue from this licensing agreement was recognized for
the supply of materials for clinical trials and the recharging of associated costs.

In the financial year 2023, there were no further reportable transactions or relationships with related parties other than those
mentioned above and in Note 31 and Note 32.

34. Auditor's fees and services

The total fee invoiced by the auditor for the 2023 financial years consist of:

in EUR thousands
Auditing services

of which for the previous year

Other consulting services

December 31, 2023
198
0

December 31, 2022
197
2

The auditing services relate to the mandatory audits of the annual and consolidated financial statements of Biofrontera AG.

35. Subsequent events

Extraordinary shareholders‘ meeting / Resolution on capital reduction

At the Extraordinary General Meeting on April 4, 2024, a capital reduction at a ratio of 21:1 was resolved at the proposal of the
Executive Board and Supervisory Board. To enable this ratio, a resolution was previously passed to cancel seven shares. Following
the implementation of the capital reduction, the new share capital amounts to EUR 3,038,431.00. The Biofrontera AG share will be
listed on the stock exchange under a new ISIN. The capital reduction will ensure that the price of the Biofrontera share rises
significantly above EUR 1.00 again and that necessary capital measures can be implemented in the future, which was previously not
possible due to the prohibition of the sub-par issue, i.e. the prohibition to issue shares for less than EUR 1.00 per share. Both
resolutions were adopted with the required majority.

Capital increase

On April 4, 2024, the administration of Biofrontera AG decided to carry out a capital increase from authorized capital. This is based
on the resolutions of the Extraordinary General Meeting to reduce the company's share capital to EUR 3,038,431.00. The reduced
share capital is to be increased at a ratio of 1:1 by issuing up to 3,038,431 new shares. Shareholders will be granted statutory
subscription rights, with one existing share (after the capital reduction) entitling them to subscribe to one new share. In addition,
the shareholders are to be granted a multiple subscription right; the subscription rights are to be traded on the stock exchange. The
subscription price is to be EUR 1.10 per share. The company has entered into a backstop agreement with a major shareholder in the
amount of EUR 1,800 thousand to ensure that the company has sufficient cash to cover its liquidity requirements over the next 12
months, irrespective of the final subscription ratio of the capital increase. The funds from the capital increase will be used to finance
the operating business.

Amendment of license agreement with Biofrontera Inc.

In February 2024, Biofrontera Inc. and Biofrontera agreed on an amendment to the existing license and supply agreement. The
amendment provides for Biofrontera Inc. to take over the entire clinical development program effective on or before June 1, 2024.

Legal issues

In two lawsuits before the Regional Court of Cologne, Mr. Ludwig Lutter challenged his dismissal as a member of the Management
Board and the termination of his employment contract and asserted the (partial) continued payment of his remuneration. The
Regional Court of Cologne ruled on the two actions in judgments served on the company on March 22, 2024.

Biofrontera AG Annual Report 2023

In the declaratory proceedings, the court ruled that the employment relationship was not dissolved by extraordinary termination,
as the alleged derelictions of duty, if any, were not serious enough individually and collectively to justify extraordinary termination
in the opinion of the court. As a result, Mr. Lutter was awarded the asserted continued payment of his fixed remuneration in the
documentary proceedings. This amounts to EUR 250 thousand. This amount includes income earned elsewhere, which was deducted
by the court. The company can claim the deduction of any other income earned elsewhere in subsequent proceedings relating to
the documentary proceedings.

Regulatory progress

The Medicines and Healthcare Products Regulatory Agency (MHRA), the regulatory authority for medicinal products in the UK, has
approved the extension of the marketing authorization for Ameluz® to include use with artificial daylight.

No other events occurred after the balance sheet date.

Leverkusen, April 29, 2024

Pilar de la Huerta Martinéz

Chief Financial Officer

Biofrontera AG Annual Report 2023

Responsibility statement

Responsibility statement pursuant to section 297 (2) sentence 4 HGB and
section 315 (1) sentence 5 HGB

We affirm that, to the best of our knowledge and in accordance with the applicable accounting principles, the consolidated financial
statements give a true and fair view of the Group assets, financial position and results of operations of the Group and that the
combined management and group management report presents the course of business, including the business results and the
position of the Biofrontera Group and Biofrontera AG, in such a way that a true and fair view is given and that the main opportunities
and risks of the expected future development of the Biofrontera Group and Biofrontera AG are described.

Leverkusen, April 29, 2024

Biofrontera AG

Pilar de la Huerta Martínez
CFO

Biofrontera AG Annual Report 2023

- convenience translation –

AUDITOR'S REPORT OF THE INDEPENDENT AUDITOR

To Biofrontera AG, Leverkusen, Germany

NOTES ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND THE COMBINED
MANAGEMENT REPORT

Audit Opinions

We have audited the consolidated financial statements of Biofrontera AG and its subsidiaries (the
Group), which comprise the consolidated statement of financial position as of December 31, 2023, the
consolidated statement of comprehensive income, the consolidated statement of changes in equity and
the consolidated statement of cash flows for the financial year from January 1, 2023 to December 31,
2023, and the notes to the consolidated financial statements, including a summary of significant
accounting policies. We have also audited the combined management report of Biofrontera AG for the
financial year from January 1, 2023 to December 31, 2023. In accordance with German legal
requirements, we have not audited the content of the "Risk management system (unaudited)" section
of the risk and opportunity report or the declaration on corporate governance pursuant to Sections 289f
and 315d HGB, which also contains the declaration on the German Corporate Governance Code.

In our opinion, based on the findings of our audit:

•

the accompanying consolidated financial statements comply in all material respects with IFRSs as adopted
by the EU and the additional requirements of German law pursuant to § 315e (1) HGB and give a true and
fair view of the financial position of the Group as of December 31, 2023 and of its financial performance for
the fiscal year from January 1, 2023 to December 31, 2023 in accordance with these requirements and
the accompanying combined management report as a whole provides a suitable view of the Group's
position. In all material respects, this combined management report is consistent with the consolidated
financial statements, complies with German legal requirements, and suitably presents the opportunities
and risks of future development. Our opinion on the combined management report does not cover the
content of the statement referred to above or the non-management report information marked as
unaudited.

In accordance with § 322 (3) sentence 1 HGB, we declare that our audit has not led to any reservations
concerning the propriety of the consolidated financial statements and the combined management
report.

Basis for the audit judgments

We conducted our audit of the consolidated financial statements and the combined management report
in accordance with Section 317 HGB and the EU Regulation on Auditors (No. 537/2014; hereinafter "EU-
APrVO") and German generally accepted standards for the audit of financial statements promulgated by
the Institut der Wirtschaftsprüfer (IDW). Our responsibility under those regulations and standards is
further described in the section "Auditor's Responsibility for the Audit of the Consolidated Financial
Statements and the Combined Management Report" of our auditor's report. We are independent of the
Group companies in accordance with European law and German commercial and professional

Biofrontera AG Annual Report 2023

regulations and have fulfilled our other German professional obligations in accordance with these
requirements. Furthermore, in accordance with Article 10 (2) (f) EU-APrVO, we declare that we have not
performed any prohibited non-audit services as defined in Article 5 (1) EU-APrVO. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions
on the consolidated financial statements and the combined management report.

Material uncertainty in connection with the company's ability to continue as a going concern

We first refer to the disclosures in the "Risk and opportunity report" of the combined management
report and the disclosures in the section "Summary of significant accounting policies, basis of
preparation of the consolidated financial statements" in the notes to the consolidated financial
statements, in which the legal representatives describe that if the capital measure of EUR 3,000
thousand planned for May 2024 cannot be carried out to the planned extent, the continued existence of
Biofrontera AG would be severely jeopardized. It is also stated that an investor has already signed a
backstop agreement for this capital increase in the amount of EUR 1,800 thousand. As explained in the
"Risk and opportunities report" in the combined management report and in the section "Summary of
significant accounting policies" in the notes to the consolidated financial statements, these events and
circumstances indicate that a material uncertainty exists that may cast significant doubt on the
company's ability to continue as a going concern and that constitutes a going concern risk within the
meaning of Section 322 (2) sentence 3 HGB.

In accordance with Article 10 (2) (c)ii) of the EU Audit Regulation, we summarize our audit response to
this risk as follows:

On the basis of the corporate planning presented, we have assessed whether the assessment made by
the Management Board of the Biofrontera Group's ability to continue as a going concern is appropriate.
For this purpose, we first reviewed the planning for formal consistency (mathematical accuracy, correct
implementation of the underlying assumptions) and checked its plausibility. In addition, we obtained
and assessed evidence on the planned financing measures of the management (including: capital
measure and backstop agreement). Based on the results of our audit, we consider the going concern
assumption used by the executive directors to be appropriate.

Our audit opinions on the consolidated financial statements and on the combined management report
are not modified with respect to this matter.

Particularly important audit matters in the audit of the consolidated financial statements

Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the financial year from January 1, 2023 to December
31, 2023. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters. In addition to the matter described in the "Material uncertainty related to going
concern" section, we have determined the matters described below to be the key audit matters to be
communicated in our auditor's report.

In our view, the following matter was most significant in our audit:

• Valuation of shares in Biofrontera Inc., Woburn, USA

We have structured our presentation of this particular key audit matter as follows:

1. Facts and problem

Biofrontera AG Annual Report 2023

2. Audit approach and findings

3. Reference to further information

We present this particularly important audit matter below: Valuation of shares in Biofrontera Inc.,
Woburn, USA

In the consolidated financial statements of BIOFRONTERA AG, the shares in Biofrontera Inc.
Woburn, USA, amounting to EUR 1.718 thousand, which thus represent 5.5% of total assets, are
reported under the balance sheet item "Financial assets accounted for using the equity
method". After application of the equity method, the Company assesses whether there is
objective evidence that the net investment in the associate is impaired. In determining whether
an impairment exists, management makes assumptions about the future development of
Biofrontera Inc. and the present values of future cash flows resulting from this investment. The
result of this assessment is highly dependent on management's estimate of future cash flows
and the discount rate used, and is therefore subject to considerable uncertainty, which is why
this matter is of particular importance in the context of our audit.

In order to test this risk appropriately, we critically reviewed management's assumptions and
estimates and performed the following audit procedures, among others:

We have traced the methodical procedure for determining the present value of future cash
flows and assessed the determination of the discount rate used.

We have satisfied ourselves that the assumptions underlying the future cash flows and the
discount rates used, taken as a whole, provide an appropriate basis for determining the
recoverable amount of this investment. Our assessment of the planned future cash flows was
based, among other things, on a comparison with general market expectations and
management's explanations of the main value drivers of the plans, as well as a comparison of
this information with the current budgets from the planning approved by the Supervisory Board.

Knowing that even small changes in the discount rate can have a material impact on the
recoverable amount determined in this way, we considered the parameters used in determining
the discount rate and understood the Company's calculation scheme.

In our opinion, the valuation parameters and assumptions applied by the legal representatives,
taking into account the available information, are suitable overall for testing the determination
of the recoverable amount.

The Company's disclosures on the shares in Biofrontera Inc., Woburn, USA, are included in the
notes to the consolidated financial statements in the sections "Information on the Company,"
"Summary of Significant Accounting Policies" in the subsection "Principles of Consolidation" and
in the subsection "Associated Companies," in the section "Notes to the Consolidated Balance
Sheet" under "2. Investments Accounted for Using the Equity Method," and in the section
"Notes to the Consolidated Statement of Comprehensive Income" in subsection "25. Income
from Investments.

Biofrontera AG Annual Report 2023

Other information

The legal representatives and the Supervisory Board are responsible for the other information. The
other information includes:

•

the responsibility statement of the legal representatives attached to the notes to the consolidated
financial statements

pursuant to Section 297 (2) sentence 4 HGB and Section 315 (1) sentence 5 HGB on the combined
management report (unaudited balance sheet)

•

the declaration on corporate governance published on the company's website, to which reference is
made in the section "Declaration by Biofrontera AG on corporate governance pursuant to Sections 289f,
315d HGB for the 2023 financial year (unaudited)" of the combined management report
the remaining parts of the annual report the subsection "Risk management system (unaudited)" of the
combined management report but not the consolidated financial statements, not the information of the
combined management report included in the content of the audit and our auditor's report thereon.

Our audit opinions on the consolidated financial statements and the combined management report do
not cover the other information and, accordingly, we do not express an audit opinion or any other form
of assurance conclusion thereon.

In connection with our audit, we have a responsibility to read the other information and, in doing so,
evaluate whether the other information is

•

are materially inconsistent with the consolidated financial statements, the combined management
report or our knowledge obtained in the audit, or
otherwise appear to be materially misrepresented.

If, based on our work performed on the other information obtained before the date of this auditor's
report, we conclude that there has been a material misstatement of such other information, we are
required to report that fact. We have nothing to report in this regard.

Responsibility of the legal representatives and the Supervisory Board for the consolidated
financial statements and the combined management report

Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with IFRSs as adopted by the EU and the additional requirements of German
law pursuant to Section 315e (1) HGB and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error. Furthermore, management is responsible for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error (i.e. manipulation
of the accounting system or misstatement of assets).

In preparing the consolidated financial statements, management is responsible for assessing the Group's
ability to continue as a going concern. They are also responsible for disclosing, as applicable, matters
related to going concern. Furthermore, they are responsible for preparing the financial statements on a
going concern basis unless there is an intention to liquidate the Group or to cease operations, or there is
no realistic alternative but to do so.

In addition, management is responsible for the preparation of the combined management report that as
a whole provides a suitable view of the Group's position and is consistent in all material respects with
the consolidated financial statements, complies with German legal requirements, and suitably presents

Biofrontera AG Annual Report 2023

the opportunities and risks of future development. Furthermore, management is responsible for the
arrangements and measures (systems) that it determines are necessary to enable the preparation of the
combined management report in accordance with the applicable German legal requirements and to
provide sufficient appropriate evidence for the statements made in the combined management report.

The Supervisory Board is responsible for overseeing the Group's financial reporting process for the
preparation of the consolidated financial statements and the combined management report.

Auditor's Responsibility for the Audit of the Consolidated Financial Statements and the
Combined Management Report

Our objective is to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and whether the combined
management report as a whole provides a suitable view of the Group's position and is consistent, in all
material respects, with the consolidated financial statements and the audit findings, complies with
German legal requirements, and suitably presents the opportunities and risks of future development,
and to issue an auditor's report that includes our audit opinions on the consolidated financial
statements and the combined management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with § 317 HGB and the EU-APrVO and in compliance with German generally accepted
standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW)
will always detect a material misstatement. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements and
combined management report.

During the audit, we exercise dutiful judgment and maintain a critical mindset. In addition:

▪

Identify and assess the risks of material misstatement of the consolidated financial statements and the
combined management report due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not
detecting a material misstatement resulting from error because fraud may involve collusion, forgery,
intentional omissions, misleading representations, or the override of internal control.

▪

▪ Obtain an understanding of internal control relevant to the audit of the consolidated financial statements
and of the arrangements and actions relevant to the audit of the combined management report in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of those systems.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of the going concern basis of accounting used by management and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor's report to the related
disclosures in the consolidated financial statements and the combined management report or, if such
disclosures are inadequate, to modify our respective audit opinions. We draw our conclusions based on the
audit evidence obtained up to the date of our audit opinion. However, future events or conditions may
result in the Group being unable to continue as a going concern.

Biofrontera AG Annual Report 2023

▪ we assess the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in such a way that the consolidated financial statements give a true and fair view
of the net assets, financial position and results of operations of the Group in accordance with IFRSs as
adopted by the EU, and the additional requirements of German law pursuant to § 315e Abs. 1 HGB.
obtain sufficient appropriate audit evidence regarding the accounting information of the entities or
business activities within the Group to express opinions on the consolidated financial statements and the
combined management report. We are responsible for directing, supervising and performing the audit of
the consolidated financial statements. We are solely responsible for our audit opinions.

▪

▪ we assess the consistency of the combined management report with the consolidated financial statements,

its legality and the overall presentation of the Group's position in the consolidated financial statements.

▪ We perform audit procedures on the forward-looking statements made by management in the combined
management report. In particular, based on sufficient appropriate audit evidence, we reproduce the
significant assumptions made by management regarding the forward-looking statements and evaluate the
appropriateness of the information derived from these assumptions. We do not express an independent
opinion on the forward-looking statements or on the underlying assumptions. There is a significant
unavoidable risk that future events may differ materially from the forwardlooking statements.

We discuss with those charged with governance, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.

We make a declaration to those charged with governance that we have complied with the relevant
independence requirements and discuss with them all relationships and other matters that may
reasonably be thought to bear on our independence and, where relevant, the actions taken or
safeguards implemented to address independence threats. From the matters we discussed with those
charged with governance, we determine those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are therefore the key audit matters.

We describe these matters in our auditor's report unless law or regulation precludes public disclosure of
the matter.

OTHER STATUTORY AND OTHER LEGAL REQUIREMENTS

Report on the Audit of the Electronic Reproductions of the Consolidated Financial Statements
and the Combined Management Report Prepared for the Purposes of Disclosure Pursuant to
Section 317 (3a) of the German Commercial Code (HGB)

Audit opinion

We have performed an assurance engagement in accordance with § 317 Abs. 3a HGB to obtain
reasonable assurance about whether the reproduction of the consolidated financial statements and the
combined management report (hereinafter also referred to as "ESEF documents") contained in the
provided file "biofronteraag-2023-12-31-en.zip" and prepared for publication purposes complies in all
material respects with the requirements of § 328 Abs. 1 HGB for the electronic reporting format ("ESEF
format"). In accordance with German legal requirements, this audit only extends to the conversion of
the information contained in the consolidated financial statements and the combined management
report into the ESEF format and therefore does not extend to the information contained in these
reproductions or any other information contained in the above-mentioned file.

Biofrontera AG Annual Report 2023

In our opinion, the reproduction of the consolidated financial statements and the combined
management report contained in the above-mentioned file and prepared for publication purposes
complies in all material respects with the requirements of Section 328 (1) HGB for the electronic
reporting format. We report on this audit opinion and on our audit opinions on the accompanying
consolidated financial statements and on the accompanying combined management report for the
financial year from January 1, 2023 to January 31, 2023 contained in the "Report on the Audit of the
Consolidated Financial Statements and of the Combined Management Report" above.

January 1, 2023 to December 31, 2023, we do not express any opinion on the information contained in
these disclosures or on the other information contained in the above-mentioned file.

Basis for the audit opinion

We conducted our audit of the reproduction of the consolidated financial statements and of the
combined management report contained in the above-mentioned file provided in accordance with
Section 317 (3a) HGB and in compliance with IDW Auditing Standard: Audit of the Electronic
Reproduction of Financial Statements and Management Reports Prepared for Publication Purposes in
Accordance with Section 317 (3a) HGB (IDW PS 410 (06.2022)). Our responsibilities under those
requirements are further described in the "Auditor's responsibilities for the audit of the ESEF
documents" section. Our auditing practice has complied with the requirements of the IDW Quality
Management Standard: Requirements for Quality Management in the Auditing Practice (IDW QMS 1).

Responsibilities of the executive directors and the supervisory board for the ESEF documents

The executive directors of the company are responsible for the preparation of the ESEF documents
including the electronic reproduction of the consolidated financial statements and the combined
management report in accordance with § 328 Abs. 1 Satz 4 Nr. 1 HGB and for the tagging of the
consolidated financial statements in accordance with § 328 Abs. 1 Satz 4 Nr. 2 HGB.

Furthermore, the company's management is responsible for such internal control as they have
determined necessary to enable the preparation of ESEF documents that are free from material non-
compliance with the requirements of Section 328 (1) HGB for the electronic reporting format, whether
due to fraud or error.

The Supervisory Board is responsible for overseeing the process of preparing the ESEF documents as
part of the financial reporting process.

Auditor's responsibilities for the audit of the ESEF documents

Our objective is to obtain reasonable assurance about whether the ESEF documents are free from
material - intentional or unintentional - non-compliance with the requirements of Section 328 (1) HGB.
We exercise professional judgment and maintain professional skepticism throughout the audit. In
addition

•

Identify and assess the risks of material non-compliance with the requirements of Section 328 (1) HGB,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion.

• Obtain an understanding of internal control relevant to the audit of the ESEF documents in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of these controls.

Biofrontera AG Annual Report 2023

•

Evaluate the technical validity of the ESEF documents, i.e. whether the file containing the ESEF documents
complies with the requirements of the Delegated Regulation (EU) 2019/815 in the version applicable at
the reporting date regarding the technical specification for this file.

Evaluate whether the ESEF documents enable an XHTML reproduction with content equivalent to the
audited consolidated financial statements and the audited combined management report.

Evaluate whether the tagging of the ESEF documents with Inline XBRL technology (iXBRL) according to
Articles 4 and 6 of the Delegated Regulation (EU) 2019/815 in the version applicable at the reporting date
provides an adequate and complete machine-readable XBRL copy of the XHTML reproduction.

Other information pursuant to Article 10 EU-APrVO

We were elected as auditor and group auditor by the annual general meeting on June 20, 2023. We
were engaged by the supervisory board on November 2, 2023. We have been the auditor of Biofrontera
AG, Leverkusen, without interruption since the financial year 2022.

We declare that the audit opinions expressed in this auditor's report are consistent with the additional
report to the audit committee pursuant to Article 11 EU Audit Regulation (audit report).

OTHER MATTERS - USE OF THE AUDITOR'S REPORT

Our audit opinion should always be read in conjunction with the audited consolidated financial
statements and the audited combined management report as well as the audited ESEF documents. The
consolidated financial statements and the combined management report converted into the ESEF
format - including the versions to be filed in the company register - are merely electronic reproductions
of the audited consolidated financial statements and the audited combined management report and do
not replace them. In particular, the ESEF report and our audit opinion contained therein can only be
used in conjunction with the audited ESEF documents provided in electronic form.

AUDITOR RESPONSIBLE FOR THE AUDIT

The German Public Auditor responsible for the engagement is Andreas Weissinger."

Munich, April 29, 2024

Baker Tilly GmbH & Co. KG

Wirtschaftsprüfungsgesellschaft

(Düsseldorf)

Weissinger

Nitsche

Wirtschaftsprüfer

Biofrontera AG Annual Report 2023