Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33678
NOVABAY PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
68-0454536
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2000 Powell Street, Suite 1150, Emeryville, California 94608
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (510) 899-8800
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange On Which Registered
Common Stock, par value $0.01 per share
NBY
NYSE American
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ☐
Table of Contents
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes X No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of "large accelerated filer,” "accelerated filer,” "smaller reporting company” and "emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
☐
Accelerated filer
☐
Emerging growth company
☐
Non-accelerated filer
X
Smaller reporting company
X
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X
The aggregate market value of the voting common stock held by non-affiliates of the registrant, computed by reference to the last sale price of the common stock on June 28,
2024 on the NYSE American, was approximately $2,979,107. This figure excludes an aggregate of 469 shares of common stock held by the registrant’s affiliates, including officers
and directors, as of June 28, 2024. Exclusion of shares held by any of these affiliates should not be construed to indicate that such person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant. The registrant has
no non-voting common stock.
As of March 25, 2025, there were 5,816,204 shares of the registrant’s common stock outstanding.
- 2 -
Table of Contents
NOVABAY PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2024
TABLE OF CONTENTS
Page
PART I
ITEM 1.
BUSINESS
4
ITEM 1A.
RISK FACTORS
13
ITEM 1B.
UNRESOLVED STAFF COMMENTS
22
ITEM 1C.
CYBERSECURITY
22
ITEM 2.
PROPERTIES
23
ITEM 3.
LEGAL PROCEEDINGS
23
ITEM 4.
MINE SAFETY DISCLOSURES
23
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
24
ITEM 6.
[RESERVED]
24
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
25
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
32
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
33
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
84
ITEM 9A.
CONTROLS AND PROCEDURES
84
ITEM 9B.
OTHER INFORMATION
84
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
84
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
85
ITEM 11.
EXECUTIVE COMPENSATION
88
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
93
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
94
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
95
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
96
Unless the context requires otherwise, all references in this annual report to "we,” "our,” "us,” the "Company” and "NovaBay” refer to NovaBay Pharmaceuticals, Inc., a Delaware
corporation, and, where applicable, also its former wholly-owned subsidiary, DERMAdoctor, LLC, a Missouri limited liability company ("DERMAdoctor”).
The Company previously owned live trademark registrations in the U.S., as well as trademark registrations and pending applications in many other countries internationally. We
sold our primary trademark, "Avenova®”, to PRN Physician Recommended Nutriceuticals, LLC, a Delaware limited liability company, effective on January 17, 2025. We sold our
"PhaseOne®” and "NeutroPhase®” U.S. trademarks to Phase One Health LLC, a Tennessee limited liability company effective on January 8, 2025. The "DERMAdoctor®”,
trademark is held directly by our former wholly-owned subsidiary DERMAdoctor.
On May 30, 2024, we effected a 1-for-35 reverse stock split of our common stock (the "Reverse Stock Split”). Except as otherwise specifically noted, all share numbers, share prices,
exercise/conversion prices and per share amounts in this annual report have been adjusted, on a retroactive basis, to reflect the Reverse Stock Split.
- 3 -
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act”), that are based on our management's current expectations, assumptions, estimates,
projections and beliefs and on information currently available to our management. Forward-looking statements are predictions based on expectations and projections about
future events, are not statements of historical fact, and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different and adverse from any future results, performances or achievements expressed or implied by the forward-looking statements. These
forward-looking statements and related risks, uncertainties, factors and assumptions include, but are not limited to statements regarding: our business plan and strategy after
completing the Avenova Asset Sale (as defined below) and Wound Care Divestiture (as defined below), including maximizing stockholder value by completing the Dissolution
(as defined below) or pursuing other strategic alternatives, our anticipated expenses and capital requirements, the expected timing of, our ability to complete, and impact of
the Dissolution or other strategic alternatives, the amount of distributions to stockholders (if any) in connection with effecting the Dissolution, and any impact as a result of
failing to complete the Dissolution and/or other strategic alternatives. In some cases, you can identify forward-looking statements by terms such as "anticipates,” "believes,”
"continues,” "could,” "estimates,” "expects,” "intends,” "may,” "might,” "plans,” "potential,” "predicts,” "projects,” "should,” "targets,” "will,” "would” and similar
expressions intended to identify forward-looking statements. No representations or warranties (expressed or implied) are made about the accuracy of any such forward-
looking statements. New risks and uncertainties may emerge from time to time, and it is not possible to predict all risks and uncertainties. We discuss many of these risks in
greater detail under the heading "Risk Factors” in Item 1A of this annual report, and in cautionary language contained elsewhere in this annual report. Given these risks and
uncertainties, you should not place undue reliance on these forward-looking statements in this annual report. You should read this annual report and the documents that we
reference and have filed as exhibits thoroughly and with the understanding that forward-looking statements represent our management’s beliefs, expectations and assumptions
only as of the date of this annual report and our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to
update these forward-looking statements publicly after the date of this annual report.
PART I
ITEM 1.
BUSINESS
Overview
We have undergone significant changes to our business and operations as a result of a series of completed transactions summarized below and discussed in further detail under
the next section titled "Recent Developments and Stock Exchange Listing” below. We are also pursuing a new direction, which will have a significant impact on us in the future,
which is also discussed below and elsewhere in this annual report. Accordingly, this annual report includes a significant amount of new information about us, our changed
business and limited operations, our intended strategic direction and prospects, which will be important to read carefully and understand, as such new information will impact us in
the near term and in the future.
As a result of completing each of the transactions discussed below, we have significantly reduced our business operations and currently have limited sources of future revenue
generation. Our Company was historically focused on the development and sale of scientifically-created and clinically-proven eyecare, wound care, and skin care products. Our
eyecare products sold under the Avenova brand and related assets (the "Avenova Assets”) were our leading products formulated with our proprietary, stable and pure form of
hypochlorous acid and were cleared by the Food and Drug Administration (the "FDA”) for sale in the United States. As described in additional detail below, subsequent to
December 31, 2024, on January 17, 2025, we completed the sale of the Avenova Assets to PRN Physician Recommended Nutriceuticals, LLC, a Delaware limited liability company
("PRN”), which constituted the sale of substantially all of our revenue generating and operating assets (the "Avenova Asset Sale”). See additional discussion under the section
"Recent Developments and Stock Exchange Listing” and subheading "Avenova Asset Sale” below.
- 4 -
Table of Contents
We have also historically manufactured and sold a proprietary form of hypochlorous acid for the wound care market primarily under the NeutroPhase and PhaseOne brands. Our
wound care products are used for cleansing and irrigation as part of surgical procedures, as well as treating wounds, burns, ulcers and other injuries. Subsequent to December 31,
2024, on January 8, 2025, we completed the sale of our wound care product trademarks, NeutroPhase, PhaseOne and OmniPhase (collectively, the "Wound Care Trademarks”) and
the sale of our wound care inventory to Phase One Health LLC, a Tennessee limited liability company ("Phase One”) (collectively, the "Wound Care Divestiture”). Following the
Wound Care Divestiture, our wound care business has been significantly reduced although we are continuing to manufacture our wound care products under remaining
contractual obligations to our distribution partner in China. We anticipate fulfilling these obligations by the end of the second quarter of 2025. See additional discussion under the
section "Recent Developments and Stock Exchange Listing” and subheading "Wound Care Divestiture” below.
Through our former subsidiary, DERMAdoctor, we previously offered over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and
blemishes to dry skin, perspiration and keratosis pilaris. On March 25, 2024, we announced the closing of the sale of DERMAdoctor (the "DERMAdoctor Divestiture”).
With the Company having completed the sale of substantially all of its assets in the Avenova Asset Sale and the other transactions, the Company’s board of directors (the
"Board”) evaluated the different strategic options available to the Company. After consideration of various factors, including the significantly reduced remaining business, assets,
revenue and operating expenses following the completion of the Avenova Asset Sale and the Wound Care Divestiture, the absence of other more favorable strategic options
currently available to us, as well as the greater likelihood of receiving stockholder approval at a newly called special meeting of the stockholders, the Board determined that the
best opportunity available to maximize the remaining value for our Company and to our stockholders is to wind-up the Company’s affairs and pursue a voluntary liquidation and
dissolution under Delaware law (the "Dissolution”) pursuant to a Plan of Complete Liquidation and Dissolution (the "Plan of Dissolution”) that may result in distributions to our
stockholders of our remaining asset value if any remains. Accordingly, the Board unanimously determined that it is in the best interest of the company and its stockholders to
approve and authorize the necessary action to obtain stockholder approval for the Dissolution pursuant to the Plan of Dissolution, with the Board retaining discretion to continue
evaluating and determining if and when the Dissolution should be effected. Concurrently with the Company pursuing the Dissolution, the Company is also evaluating other
strategic alternatives that may be available to us to the extent the Dissolution does not proceed. See additional discussion under the section "Recent Developments and Stock
Exchange Listing” and subheading "Company Dissolution and Other Strategic Alternatives” and "Engagement of Financial Advisor – Lucid” below.
The Company was incorporated under the laws of the State of California on January 19, 2000, as NovaCal Pharmaceuticals, Inc. It had no operations until July 1, 2002, on which
date it acquired all of the operating assets of NovaCal Pharmaceuticals, LLC, a California limited liability company. In February 2007, the Company changed its name from NovaCal
Pharmaceuticals, Inc. to NovaBay Pharmaceuticals, Inc. In June 2010, the Company changed the state in which it was incorporated (the "Reincorporation”) and is now
incorporated under the laws of the State of Delaware. All references to "the Company” herein refer to the California corporation prior to the date of the Reincorporation and to the
Delaware corporation on and after the date of the Reincorporation.
Recent Developments and Stock Exchange Listing
Avenova Asset Sale
Subsequent to December 31, 2024, on January 17, 2025, we completed the sale of the Avenova Assets to PRN, which constituted substantially all of our revenue generating and
operating assets; however, PRN did not purchase any of our other products or assets, including those that related to our wound care, urology or dermatology businesses. The
Avenova Asset Sale was consummated pursuant to the Asset Purchase Agreement, dated September 19, 2024, as amended by Amendment No. 1 to the Asset Purchase
Agreement, dated November 5, 2024 (as so amended, the "Purchase Agreement”).
- 5 -
Table of Contents
In accordance with the Purchase Agreement, at the closing of the Avenova Asset Sale we received the cash purchase price equal to $11.5 million, less (i) the $507,953.72 balance of
a secured promissory note (the "Bridge Loan”) that we entered into with PRN on November 5, 2024 that was paid to PRN and the Bridge Loan was discharged with collateral
released and (ii) $500,000, which amount was deposited into an escrow account (the "Escrow”) for up to six (6) months to be used for our indemnification obligations under the
Purchase Agreement or the payment of any Net Working Capital Adjustment (as defined below) after the closing. The final amount of the purchase price that we received in the
Avenova Asset Sale is subject to a post-closing working capital adjustment, upward or downward, that will be limited to an amount of up to $500,000 (the "Net Working Capital
Adjustment”). The Net Working Capital Adjustment will be mutually determined by PRN and us commencing ninety (90) days after the closing of the Avenova Asset Sale based
upon the difference between the amount of our Net Working Capital (as defined in the Purchase Agreement) immediately prior to the closing and the agreed upon target working
capital value of $800,000.
In connection with the closing of the Avenova Asset Sale, we entered into a Transition Services Agreement, dated January 17, 2025 with PRN, pursuant to which we agreed to
provide services to PRN with respect to specified accounting, marketing, sales, customer service, regulatory and operational support for a period of four (4) months after the
closing of the Avenova Asset Sale (the "PRN Transition Services Agreement”). In exchange for providing such services, PRN and NovaBay agreed upon service fees to be paid
to us.
For more information on the Avenova Asset Sale, please see Note 12, "Avenova Asset Sale and Bridge Loan” in the Notes to Consolidated Financial Statements in Part II, Item 8
of this annual report, the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission (the "SEC”) on September 20, 2024, October 29, 2024,
November 6, 2024, November 22, 2024, December 19, 2024, and January 23, 2025, and the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on October 16,
2024, as supplemented, including on November 12, 2024.
Wound Care Divestiture
Subsequent to December 31, 2024, on January 3, 2025, we entered into a Trademark Acquisition Agreement with Phase One that provided for the purchase by Phase One of the
Company’s Wound Care Trademarks for a purchase price of $500,000 (the "Trademark Acquisition Agreement”). In connection with the Wound Care Divestiture, we also entered
into a Transition Services Agreement, dated January 3, 2025, with Phase One (the "Phase One Transition Services Agreement”), pursuant to which we: (i) provided limited
transition services to Phase One until January 10, 2025; (ii) sold our existing wound care inventory from an outstanding purchase order to Phase One for an aggregate payment of
$126,000; and (iii) provided our remaining empty wound care product bottles to Phase One. In addition, the Phase One Transition Services Agreement provided that the existing
supplier and distributor relationship between NovaBay and Phase One would be terminated upon the closing of the Wound Care Divestiture. We completed the Wound Care
Divestiture on January 8, 2025. For more information on the Wound Care Divestiture, see the Company’s Current Report on Form 8-K filed with the SEC on January 10, 2025.
Company Dissolution and Other Strategic Alternatives
In connection with pursuing the Avenova Asset Sale, that would result in the sale of substantially all of the assets of the Company, our Board also unanimously determined at the
time that the best opportunity available to optimize value to our stockholders was to pursue the Dissolution pursuant to the Plan of Dissolution. The Avenova Asset Sale and the
Dissolution were presented to stockholders at a special meeting of stockholders that was originally convened on November 22, 2024 and was subsequently adjourned and finally
reconvened on January 30, 2025 (the "2024 Special Meeting”). At the 2024 Special Meeting, we received stockholder approval for the Avenova Asset Sale; however, we did not
receive the requisite vote of stockholders representing a majority of the outstanding shares of our common stock to approve the Dissolution, having received approval of
stockholders representing 49% of the outstanding shares of our common stock. Of the votes cast at the 2024 Special Meeting by holders of our common stock, approximately 88%
of those shares voted in favor of the Dissolution.
- 6 -
Table of Contents
With the Company having completed the sale of substantially all of its assets in the Avenova Asset Sale and substantially all of its wound care assets to Phase One in the Wound
Care Divestiture, the Board, upon further analysis of the best opportunity to maximize the remaining value for the Company and its stockholders, among the other alternatives
currently available, determined that it is in the best interest of the Company and its stockholders for the Company to continue pursuing the voluntary Dissolution pursuant to the
Plan of Dissolution. The ability of the Company to proceed with the Dissolution under Delaware law is subject to the Company first receiving stockholder approval. Accordingly,
the Company intends to hold a new special meeting of stockholders on April 16, 2025 (the "New Special Meeting”) where the Company’s stockholders will be asked to, among
other items, consider and approve the Dissolution pursuant to the Plan of Dissolution. Even if the Dissolution is approved by the Company’s stockholders, the Board reserves the
right, in its discretion, to no longer pursue and abandon the Dissolution, if the Board determines that the Dissolution is no longer in the best interest of the Company and its
stockholders. If the Dissolution is not approved by stockholders at the New Special Meeting or the Board otherwise decides not to pursue the Dissolution, then we will continue
our corporate existence and the Board will pursue other strategic alternatives available to us, or, to the extent another viable alternative is not available, then the Company may
need to file for bankruptcy protection or commence a similar state law proceeding. For additional information regarding the Dissolution, see the Company’s new definitive proxy
statement for the New Special Meeting that was filed with the SEC on March 19, 2025.
Engagement of Financial Advisor—Lucid
As a result of the Company having not obtained stockholder approval at the 2024 Special Meeting and the uncertainty of whether stockholders will approve the Dissolution at the
New Special Meeting, the Board determined that it was in the best interest of the Company and its stockholders to identify potential strategic alternatives that may be available to
us now instead of waiting until after the New Special Meeting. Accordingly, the Company entered into an engagement letter with Lucid Capital Markets, LLC ("Lucid”) on March
4, 2025 (the "Engagement Agreement”), that provides for Lucid to assist us in identifying and exploring other strategic alternatives involving a potential business combination of
the Company ("Potential Transaction”). Such potential transactions may include mergers, reverse mergers, strategic partnerships, and licensing and sub-licensing transactions.
The Engagement Agreement will continue until the earlier of: (i) the completion of a Potential Transaction, (ii) nine (9) months from March 4, 2025, or (iii) upon written notice of
termination by either the Company or Lucid at any time. The Engagement Agreement also provides for the Company to pay Lucid for its advisory services, including: (i) a one-time
fee of $100,000 that was due to Lucid on the date the Engagement Agreement was signed; (ii) specified monthly fees of up to a maximum of an additional $250,000 payable to Lucid
upon the termination of the Engagement Agreement (other than in the case of a material breach by Lucid) if a Potential Transaction is not consummated; (iii) an $800,000
transaction fee in the event the Company successfully completes a Potential Transaction; (iv) a fairness opinion fee in the amount of $300,000, due and payable to Lucid upon
Lucid rendering a fairness opinion to the Company’s Board; and (v) a right of first refusal for Lucid to participate as a co-placement agent in any concurrent private placement
equity financing by the Company contemplated along with a Potential Transaction, provided that Lucid secures investors for such private placement equity financing and the
Company and Lucid are able to enter into a separate engagement agreement for Lucid to serve as co-placement agent.
The Engagement Agreement also contains representations, warranties, indemnification provisions and confidentiality provisions that are customary for an agreement of this
nature. For more information on the Engagement Agreement, please see the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2025.
Settlement Agreements with Certain Warrant Holders
In March 2025, the Company entered into three (3) separate confidential settlement and release agreements (collectively, the "Settlement Agreements”) with each of Sabby
Volatility Warrant Master Fund, Ltd. ("Sabby”), Bigger Capital Fund, LP ("Bigger”) and District 2 Capital Fund LP ("District 2,” and together with Sabby and Bigger, the "Warrant
Holders”) to settle certain disputed matters relating to the Company’s common stock purchase warrants held by each of the Warrant Holders. The disputed matters, among other
things, included Sabby seeking to exercise certain buyout rights under their warrants, prior to the expiration of such provisions, which rights have, in any case, expired on February
22, 2025, thirty (30) days following the public announcement of the closing of the Avenova Asset Sale on January 23, 2025. The terms of the Settlement Agreements are
substantially the same, except with respect to the financial terms for each of the Warrant Holders. The Settlement Agreement with Sabby provided for Sabby to have exercised
certain of its common stock purchase warrants for 4.99% of the Company’s outstanding common stock and each of Bigger and District 2’s Settlement Agreements provided for
each of Bigger and District 2 to have exercised their respective common stock purchase warrants for 2.49% of the Company’s outstanding common stock. The remaining
unexercised portion of specified warrants of Sabby, District 2 and Bigger were purchased by the Company for $1,125,000, $344,924 and $344,924, respectively. Following the
execution of the Sabby Settlement Agreement, Sabby’s warrant exercise was promptly completed on March 6, 2025, followed by the completion of the Company’s purchase of the
unexercised portion of Sabby’s specified warrants on the next day, March 7, 2025. Additionally, following the execution of each of Bigger and District 2’s Settlement Agreements,
each of Bigger and District 2 completed its respective warrant exercise on March 11, 2025, followed by the Company’s purchase of the unexercised portion of each of Bigger and
District 2’s specified warrants on March 11, 2025.
- 7 -
Table of Contents
In connection with the warrant exercise, the Warrant Holders will own approximately 9% of the Company’s outstanding common stock and have each agreed to certain
commitments in their respective Settlement Agreements with respect to their exercised shares, which commitments include: (i) continuing to remain the record and beneficial owner
of the exercised shares until the record date of March 18, 2025 (the "Record Date”) for the Company’s New Special Meeting, where the Company’s stockholders will be asked to
consider and vote upon whether to approve the Dissolution, (ii) voting all shares of common stock owned by each respective Warrant Holder as of the Record Date, including the
exercised shares, in favor of the Dissolution proposal (the "Voting Commitment”); and (iii) limiting the amount of shares of common stock that each Warrant Holder would sell
from the Record Date to until the date of the New Special Meeting. The Settlement Agreements provide for a liquidated damages provision, stating that Sabby would pay
liquidated damages of $425,000 for not honoring the Voting Commitment, and each of Bigger and District 2 would pay $150,000 for not honoring the Voting Commitment.
The Settlement Agreements also include a "most favored nations” provision for each of the Warrant Holders that would increase the amount paid to the Warrant Holders if any
other holder of the Company’s common stock receives a higher amount per underlying warrant, as well as a mutual release of all claims by the Company and the Warrant Holders
against each other, without any admission of liability by either party. For more information on the Settlement Agreements, please see the Company’s Form 8-K filed on March 11,
2025.
NYSE American Notices
On April 18, 2024, the Company received a notification from the NYSE American LLC Exchange ("NYSE American”) stating that the Company is not in compliance with Section
1003(a)(ii) and 1003(a)(iii) of the NYSE American Company Guide (requiring stockholders’ equity of $4.0 million or more if the Company has reported losses from continuing
operations and/or net losses in three of the four most recent fiscal years and $6.0 million or more if the Company has reported losses from continuing operations and/or net losses
in its five most recent fiscal years, respectively).
On May 28, 2024, the Company received a letter from NYSE American stating that the Company is not in compliance with the minimum stockholders’ equity requirements of Section
1003(a)(i) of the NYSE American Company Guide. Section 1003(a)(i) of the NYSE American Company Guide requires a listed company to maintain stockholders’ equity of $2.0
million or more if the listed company has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years. The Company reported
stockholders’ equity of $160 thousand as of March 31, 2024 and has had losses from continuing operations and net losses in each of the last three fiscal years.
Therefore, the Company has become subject to the procedures and requirements of Section 1009 of the NYSE American Company Guide and was required to submit a plan of
compliance by May 18, 2024 addressing how it intends to regain compliance with Section 1003(a)(ii) and 1003(a)(iii) of the NYSE American Company Guide by October 18, 2025. On
June 4, 2024, the Company received notice from the NYSE American that it had accepted the Company’s plan of compliance and granted a plan period through October 18, 2025.
During the plan period, the Company will be subject to quarterly monitoring for compliance with the plan. If the Company does not regain compliance with the NYSE American’s
listing standards by October 18, 2025, or if the Company does not make progress consistent with its plan, then the NYSE American may initiate delisting procedures.
- 8 -
Table of Contents
Additionally, the closing of the Avenova Asset Sale and the Wound Care Divestiture may cause the NYSE American to delist our shares of common stock and the Company may
not meet NYSE American’s continued listing requirements. This delisting may occur prior to the Dissolution, and/or the Company being able to pursue another strategic alternative
transaction. To the extent the NYSE American does not delist our shares, and the Board determines to effect the Dissolution, the Company plans to request that our common stock
stop trading on the NYSE American on the effective date of the Dissolution or as soon thereafter as is reasonably practicable.
For more information on the NYSE American Notices, please see Note 15, "Stockholders’ Equity” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual
report.
Our Products and Marketing Approach
In connection with the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture, the Company disposed of its primary commercial operations. Limited
information for products and marketing approaches associated with the Avenova Assets and wound care products which were reported as continuing operations for the years
ended December 31, 2024 and 2023, is provided below. Additional information about these and our former DERMAdoctor products and related marketing approach can be found in
our prior filings with the SEC.
Avenova Branded Eyecare Products
Avenova Spray is a proprietary form of hypochlorous acid that acts as an antimicrobial solution and has been shown to neutralize bacterial toxins in laboratory tests. Because it is
a gentle isotonic solution, it is well suited for daily use on the lids and lashes. Avenova Spray offers distinct advantages when compared to alternative lid and lash regimens that
contain soaps, bleach, and other impurities, as Avenova Spray removes unwanted microorganisms from the skin without the use of these harmful ingredients. Avenova Spray’s
target market is the millions of Americans who suffer from minor irritation of the skin around the eye (commonly referred to as blepharitis) as well as anyone who suffers from dry
eye (commonly described as a gritty sandy sensation while blinking). The Company made Avenova Spray available both over-the-counter and as a prescription. We primarily
promoted Avenova Spray directly to consumers on Amazon.com and Avenova.com. In total, this was our leading sales channel by unit sales and net revenue in 2024. Prescription
Avenova Spray was made available at optometrists’ and ophthalmologists’ offices, through our physician dispensed channel, and at most retail pharmacies across all 50 states.
Support from ophthalmologists and optometrists for Avenova Spray was strong. Continuous endorsement of medical professionals for Avenova created a "doctor recommended”
halo effect around our brand. This was a key differentiating factor in a crowded consumer space and is a result of its high quality and reliable efficacy. Our physician dispensed
channel was particularly important in this regard as it gave patients the opportunity to purchase Avenova Spray conveniently and immediately upon recommendation in the
doctor’s office. We believe this also created repeat Avenova Spray customers who subsequently purchased Avenova Spray and other Avenova branded products through other
channels.
We also made prescription Avenova Spray accessible nationwide in nearly all retail pharmacies across the United States through agreements with McKesson Corporation, Cardinal
Health, and AmerisourceBergen Corporation. We built our prescription business under a value pricing model. We maintained a rebate program for electronic payment transactions
and in the form of instant rebate cards. The rebate cards were intended to be used by patients who either do not have insurance coverage or whose insurance coverage did not
cover Avenova Spray, thereby lowering the price for the patient at the pharmacy.
We also had agreements with select preferred pharmacy networks through our Partner Pharmacy Program. These agreements provided greater control over the patient experience at
consistent contract pricing. Our Partner Pharmacy Program also ensured that proper insurance reimbursement occurred, and that our patients received the best possible price.
- 9 -
Table of Contents
Because dry eye is a complex condition, in addition to Avenova Spray, we offered a complementary portfolio of scientifically developed products for each step of the standard at
home treatment regimen, including the Avenova Eye Health Support antioxidant-rich oral supplement, Avenova Lubricating Eye Drops for instant relief, NovaWipes by Avenova,
Avenova Warm Eye Compress to soothe the eyes, and the i-Chek by Avenova to monitor physical eyelid health.
NeutroPhase and PhaseOne Branded Wound Care Products
We also manufactured and sold our proprietary form of hypochlorous acid for the wound care market. Consisting of higher concentrations of hypochlorous acid, our wound care
products were used for the cleansing and irrigation of intraoperative pocket lavage, before subcutaneous closure, stage I to IV pressure injuries, stasis ulcers, leg ulcers, diabetic
foot ulcers, first-degree and second-degree burns, post-surgical wounds, grafted and donor sites, minor burns, superficial abrasions, wounds, and moistening absorbent wound
dressings. We marketed our wound care products through NeutroPhase and PhaseOne brands prior to completing the Wound Care Divestiture.
Both NeutroPhase and PhaseOne historically competed in a crowded wound cleanser market with many older and lower-priced products with similar uses, such as Vashe and
Betadine Surgical Scrub. However, we believed our wound care solutions had distinct competitive advantages because they were made without the toxic chemicals found in other
products. Our wound care products were gentle, non-irritating, and non-sensitizing to skin and new tissue. Prior to selling the Wound Care Trademarks in the Wound Care
Divestiture, PhaseOne was distributed through commercial partners in the United States, and NeutroPhase was distributed in China by Chongqing Pioneer Pharma Holdings
Limited ("Pioneer”), who is also a stockholder of our Company.
Following the Wound Care Divestiture, we are continuing to manufacture our wound care products under remaining contractual obligations to our distribution partner in China,
which we anticipate fulfilling in the second quarter of 2025.
Customers, Manufacturing and Suppliers
In connection with the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture, the Company disposed of its primary commercial operations. Limited
information for customers, manufacturing and suppliers associated with the Avenova Assets and the Company’s wound care business which were reported as continuing
operations for the years ended December 31, 2024 and 2023 is provided below. Additional information about these and our former DERMAdoctor customers, product
manufacturing and suppliers can be found in our prior filings with the SEC.
The Company made Avenova branded products available on Amazon.com, Walmart.com and Avenova.com. Online sales accounted for the majority of Avenova Spray revenue.
Internationally, the Company made Avenova Spray available in Australia through a distribution partner.
For Avenova Spray, we outsourced manufacturing to a contract manufacturer with facilities located in the United States. We maintained a good relationship with our Avenova
Spray manufacturer and such manufacturer had adequate manufacturing capacity to satisfy our demands. Sales of our wound care products formerly sold under the NeutroPhase
and PhaseOne brands relied solely on distribution partners in China and the U.S., respectively.
Intellectual Property
In connection with the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture, the Company disposed of its primary trademarks, trade secrets and
know-how. Prior to completing each of these transactions, we sought to protect our intellectual property rights by a variety of means, including obtaining patents, maintaining
trade secrets and proprietary know-how and technological innovation to operate, without infringing on the proprietary rights of others and to prevent others from infringing on our
proprietary rights. We relied on and used reasonable business activities to protect trade secrets, such as confidentiality/invention rights agreements with employees,
confidentiality agreements with manufacturers, proprietary expertise and product formulations, continuing innovation efforts and techniques, and other know-how to develop and
maintain a competitive position.
- 10 -
Table of Contents
Research and Development
The completion of the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture have all had a substantial impact on our Research and Development,
as our business and operations have been significantly reduced. As a result, we are currently not conducting research and development. A majority of previous research and
development activities were focused on compliance with ongoing regulatory and maintenance requirements related to our former products. For the years ended December 31, 2024
and 2023, we incurred total research and development expenses of approximately $42 thousand and $34 thousand, respectively.
Seasonality
In connection with the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture, the Company disposed of its primary commercial operations. Limited
information for seasonality associated with the Avenova Assets and our wound care products which were reported as continuing operations for the years ended December 31,
2024 and 2023, is provided below. Additional information about these and our former DERMAdoctor customers, product manufacturing and suppliers can be found in our prior
filings with the SEC.
Consistent with our peers in the United States pharmaceutical industry, prescriptions for Avenova Spray experienced seasonality with the first quarter of each year typically being
the lowest revenue quarter. This annual phenomenon is due to consumers facing the need to satisfy health insurance deductibles and changes to copays as each new insurance
year begins. Sales of Avenova Spray through non-prescription channels, along with the other former Avenova branded products, experienced less seasonality and more
consistent sales throughout the year ended December 31, 2024.
Our former NeutroPhase and PhaseOne branded products were sold through wholesale distribution relationships with third parties such as Pioneer and Phase One; therefore, we
received periodic large orders that resulted in large chunks of revenue that were received in irregular intervals during the year. We do not expect this seasonality to impact the
manufacture of our wound care products under remaining contractual obligations to our distribution partner in China.
Our Capital Requirements
As a result of the completion of the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture, our business and operating expenses have significantly
changed and will continue to change if we complete the Dissolution or pursue another strategic alternative. Accordingly, based on our funds available on December 31, 2024, as
well as additional cash that the Company received from the Avenova Asset Sale net proceeds of approximately $10.5 million and the Wound Care Divestiture of $0.5 million,
management believes that the Company’s existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through April
2, 2026. However, there is uncertainty with respect to our strategic direction, as the Dissolution is subject to stockholder approval and we are also exploring other potential
strategic alternatives that may be available to us, and, as a result, when we do pursue our strategic direction, there may be unknown or potential future claims and liabilities that
may arise or changing circumstances that may cause the Company to expend cash significantly faster than currently anticipated because of factors beyond its control.
To help address our needs for liquidity and capital to fund our operations in 2024 prior to completing the Avenova Asset Sale, the Wound Care Divestiture, in addition to the net
proceeds that we received upon completing the DERMAdoctor Divestiture in March 2024, we also completed two financing transactions in 2024, which resulted in our Company
raising approximately $4.1 million in gross proceeds.
- 11 -
Table of Contents
2024 Financing Transactions
On July 26, 2024, the Company entered into an underwriting agreement with Ladenburg Thalmann & Co., Inc., as the sole underwriter, relating to the issuance and sale in a public
offering (the "2024 Public Offering”) of: (i) 1,158,566 shares of common stock and 2,041,814 pre-funded warrants, in lieu of shares of common stock (the "July 2024 Pre-Funded
Warrants”), (ii) 3,200,380 Series F-1 warrants to purchase up to 3,200,380 shares of common stock (the "Series F-1 Warrants”), (iii) 3,200,380 Series F-2 warrants to purchase up
to 3,200,380 shares of common stock (the "Series F-2 Warrants”) and (iv) 3,200,380 Series F-3 warrants to purchase up to 3,200,380 shares of common stock (the "Series F-3
Warrants,” and together with the Series F-1 Warrants and Series F-2 Warrants, the "July 2024 Warrants”). The 2024 Public Offering closed on July 29, 2024, and the Company
received gross proceeds of $3.9 million, without taking into account any underwriting discounts and commissions. A portion of the proceeds from the 2024 Public Offering were
used to repay the remaining $598 thousand that we owed on our Original Issue Discount Senior Secured Convertible Debentures (the "Secured Convertible Notes”) during the
third quarter of 2024. As of September 30, 2024, all of the pre-funded warrants issued in the 2024 Public Offering had been exercised, resulting in the Company
issuing 2,041,814 shares of common stock. In connection with such exercises, the Company received net proceeds of approximately $20 thousand.
In June 2024, the Company entered into a warrant reprice transaction (the "2024 Warrant Reprice Transaction”) with certain existing holders of (i) warrants that we issued in
September 2022 to purchase common stock, (ii) Series A-1 warrants issued in November 2022 to purchase common stock, (iii) Series B-1 warrants that we issued in May 2023 to
purchase common stock, and (iv) Series B-2 warrants issued in May 2023 to purchase common stock (collectively (i) through (iv), the "Participant Warrants”). The participants
agreed to exercise a portion of their respective Participant Warrants at a reduced exercise price of $2.50 per share. The Participant Warrants were exercised for an aggregate
of 90,381 shares of common stock, resulting in gross proceeds of approximately $0.2 million.
See also Notes 11, "Financing Activities;” 14, "Common Stock Warrants and Warrant Liabilities” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual
report.
Government Regulation
The completion of the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture all had and will have a substantial impact on the government
regulations that we are subject to. We were previously subject to extensive government regulation, principally by the FDA and state and local authorities in the United States and
by comparable agencies in foreign countries prior to these transactions. As a result of our significantly reduced business and operations, which primarily consist of the
manufacture and supply of our wound care products under remaining contractual obligations to our distribution partner in China, we are subject to substantially less government
regulation. Additional information about these regulations can be found in our prior filings with the SEC.
Human Capital
As of December 31, 2024, on a consolidated basis, we had a total of 14 employees, 13 of whom were full-time employees and 1 who was a part-time employee. Since the completion
of the Avenova Asset Sale, as of April 2, 2025, we have reduced the number of employees to a total of 4 employees, 3 of whom are full-time employees and 1 who is a part-time
employee. None of our employees are represented by labor unions or covered by collective bargaining agreements. We comply with the latest employment best practices and
consider our relationship with our employees to be good.
Facilities
Our principal executive office is located in Emeryville, California. We are party to an Office Lease (the "Lease”), dated August 24, 2016, as subsequently amended on January 24,
2022, pursuant to which we lease approximately 7,675 rentable square feet of real property located on the eleventh floor (Suite 1150) at 2000 Powell Street, Emeryville, California
94608 from KBSIII Towers at Emeryville, LLC (the "Landlord”), for our principal executive offices. The expiration date of the Lease is July 31, 2027, unless terminated earlier
pursuant to the provisions of the Lease. Prior to completing the Avenova Asset Sale, our office and administration facilities were suitable and adequate for our then current
operations and purpose. As a result of our significantly reduced business and operations and due to the potential Dissolution, we currently intend to explore options to reduce the
costs of the Lease, which will include subleasing the office space that will be subject to the Landlord’s approval.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our corporate website, located at www.novabay.com, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. Our website is not part of this annual report on Form 10-K. The SEC also maintains an Internet site that
contains reports, proxy, information statements and other information regarding issuers at http://www.sec.gov.
- 12 -
Table of Contents
ITEM 1A.
RISK FACTORS
Our Company is subject to a number of risks, the most important of which are discussed below. You should consider carefully the following risks in addition to the other
information contained in this annual report and our other filings with the SEC (including the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on
March 19, 2025 (as may be supplemented, the "Special Meeting Proxy Statement”)) before deciding to buy, sell or hold our common stock. If any of the following risks
actually occur, our business plan, financial condition and the market price of our common stock could be materially adversely affected, the value of our common stock could
decline, and you may lose all or part of your investment. The risks and uncertainties described below are not the only ones facing our Company, but those that we consider to
be material. These risks and uncertainties take into account the completed Avenova Asset Sale and the Wound Care Divestiture under the heading "Risks Relating to Our
Business,” as well as the potential that we will effect the Dissolution of our Company or pursue other strategic alternatives, including a Potential Strategic Transaction (as
defined below) under the heading "Risks Relating to the Potential Dissolution of our Company and Potential Strategic Transaction.” Additional risks not presently known to
us or that we currently believe are immaterial may also significantly impair our business, the potential Dissolution of our Company, any other strategic alternatives, or
ownership of our common stock. It is important to note that our past financial performance will not be a reliable indicator of future performance, and historical trends should
not be used to anticipate results or trends in future periods. Please also read carefully the section in this annual report above entitled "Special Note Regarding Forward-
Looking Statements.”
Risks Relating to Our Business
As a result of the completion of the Avenova Asset Sale and the Wound Care Divestiture, we no longer have a significant revenue generating business.
Prior to the Avenova Asset Sale, our principal assets, product offerings and business primarily consisted of the production and commercialization of Avenova products, which
was responsible for a majority of our revenue from 2015 until the completion of the Avenova Asset Sale. After completion of the Avenova Asset Sale and the Wound Care
Divestiture in January 2025, our business operations and ability to generate revenue has been significantly reduced with a few remaining employees, limited operations, including
fulfilling remaining contractual obligations for the manufacture and delivery of wound care products and performance of the services contemplated by the PRN Transition Services
Agreement. Accordingly, until we either commence the Dissolution or complete an alternative strategic transaction, we will be generating minimal revenue and without currently
having a significant underlying business to generate meaningful revenue, particularly when compared to our historic financial performance.
The cash proceeds from the Avenova Asset Sale and the Wound Care Divestiture will continue to be used to fund our expenses and ongoing liabilities until we are able to
commence the Dissolution or pursue another strategic alternative, which will deplete our remaining cash assets.
Until we are able to wind down our remaining business and operations through the Dissolution process or we pursue another strategic alternative available to us, which could
include bankruptcy proceedings, then we will continue incurring expenses for our continuing operations, including the ongoing disclosure and compliance obligations as a public
reporting company, such as the preparation and filing of this annual report, and utilize the cash on hand that is comprised primarily of the proceeds from the Avenova Asset Sale
and the Wound Care Divestiture to fund those expenses and to satisfy our liabilities. As a result, the longer it takes to complete the Dissolution or pursue another strategic
alternative, the more our remaining cash assets will be depleted and limit potential distributions to stockholders, if any.
We remain liable for claims and expenses that may arise related to our business operations prior to the completion of the Avenova Asset Sale and the Wound Care
Divestiture.
Pursuant to the Purchase Agreement for the Avenova Asset Sale and the Trademark Acquisition Agreement for the Wound Care Divestiture, NovaBay generally retained pre-
closing liabilities related to the operation of its eye care and wound care business, which may include amounts owed to our suppliers and potential claims related to products we
sold or the marketing of our products during the time we operated such business. While we are not aware of any such liabilities that may be material and have adequately accrued
for these liabilities, there can be no assurances that additional expenditures will not be incurred in resolving these liabilities, which may impact our financial condition and the
amount of proceeds available (if any) in the Dissolution.
- 13 -
Table of Contents
We are subject to contingent liabilities related to the Avenova Asset Sale and the Wound Care Divestiture that could have a material adverse effect on our financial
condition.
Pursuant to the Purchase Agreement for the Avenova Asset Sale, the purchase price is subject to a post-closing working capital adjustment, upward or downward, that will be
limited to an amount of up to $500,000. The Net Working Capital Adjustment will be mutually determined by us and PRN commencing April 17, 2025 (ninety (90) days after the
closing of the Avenova Asset Sale). If the Net Working Capital Adjustment is determined to be in favor of PRN, it would reduce up to the full amount of the $500,000 that was
placed into an escrow account at the closing of the Avenova Asset Sale until the six (6) month anniversary of closing, or July 17, 2025. As part of the Avenova Asset Sale, we also
agreed to indemnify PRN for breaches of any representation, warranty, or covenant made by us in the Purchase Agreement, for losses arising out of or in connection with excluded
assets or excluded liabilities, and for certain other matters, subject to, in certain cases, customary deductibles and caps and exceptions to such deductibles and caps, including in
the case of fraud. Successful indemnification claims by PRN would first reduce the Escrow, and thereafter, NovaBay would be directly responsible for any indemnification claims.
Separately, pursuant to the Trademark Acquisition Agreement for the Wound Care Divestiture, we also agreed to provide limited indemnification to Phase One for losses arising
from a third-party claim involving a material breach or nonperformance of representations, warranties, covenants, agreements and obligations of the Company contained in the
Trademark Acquisition Agreement. Our liability for indemnification of Phase One for any such losses is limited to 50% of the purchase price for the Wound Care Trademarks, or
$250 thousand.
Any Net Working Capital Adjustment in favor of PRN or successful claims for indemnification made by PRN will reduce the Escrow payable to us or otherwise be payable by us
from our cash assets, and any successful claims for indemnification made by Phase One will be payable by us from our cash assets, which, in any of these circumstances, would
further reduce the amount of our cash assets and the amount of cash that may ultimately be available for distribution to our stockholders in the Dissolution or otherwise, if any.
We may be subject to litigation, which is expensive and could divert our attention.
As a result of having completed the Avenova Asset Sale and the Wound Care Divestiture or addressing our existing obligations and outstanding liabilities to third parties or
otherwise in connection with the Dissolution, we may be subject to potential litigation, including commercial litigation or claims by holders of our securities, including securities
class action litigation. We recently settled disputes with three warrant holders of the Company that resulted in the aggregate net payment of $1,466,511 to such warrant holders,
which amount reflects a reduction of the aggregate exercise price paid by such warrant holders to the Company in connection with such settlement of $348,337. Litigation could
also arise from our prior operations, and related to products sold, before the completion of the Avenova Asset Sale and the Wound Care Divestiture. Any such claims, with or
without merit, or litigation initiated against us could result in substantial costs and divert our remaining management resources and attention from completing the Dissolution in a
timely manner or pursuing another strategic alternative, which could increase our expenses, ultimately decrease the amount of our cash and other assets available for distribution
(if any) to our stockholders as part of the Dissolution and possibly force us into a bankruptcy situation.
- 14 -
Table of Contents
Significant disruptions of information technology systems or breaches of information security could adversely affect our businesses.
We relied upon information technology systems to historically operate eye care and wound care businesses, and we continue to use such systems in our performance of the PRN
Transition Services Agreement. In the ordinary course of business, we have collected, stored and transmitted large amounts of confidential information (including, but not limited
to, personal information and intellectual property), and we continue to deploy and operate an array of technical and procedural controls to maintain the confidentiality and integrity
of such confidential information. We also have outsourced aspects of our operations to third parties, including significant elements of our information technology infrastructure
and, as a result, we have managed independent vendor relationships with third parties who may or could have access to our confidential information. The size and complexity of
our information technology and information security systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to service
interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from attacks by malicious third parties. Such attacks are of ever-
increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including organized criminal groups, "hacktivists,” nation
states and others. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or
security breaches. Any such interruption or breach of our systems could adversely affect us and/or result in the loss of critical or sensitive confidential information or intellectual
property, and could result in financial, legal, business and reputational harm to us.
Risks Relating to the Potential Dissolution of our Company and Potential Strategic Transaction
There can be no guarantees that the Dissolution will be completed and, if not completed, it may be very difficult for us to identify strategic alternatives to maximize the
remaining value for NovaBay and its stockholders.
The Dissolution is subject to approval by our stockholders, which we are seeking at the New Special Meeting. While we continue to believe that the Dissolution is currently the
best opportunity for us to maximize the remaining value of the Company for our stockholders, there are risks and uncertainties as to whether stockholders will approve the
Dissolution at the New Special Meeting, including taking into consideration that we were not able to obtain stockholder approval for the Dissolution at our previously held special
meeting of stockholders convened on November 22, 2024, and subsequently adjourned and finally reconvened on January 30, 2025.
If it is not completed for any reason, we may have to continue our limited business operations while exploring other strategic alternatives that are available to return capital to
stockholders in a manner intended to maximize value. Given our past voting challenges with respect to the Dissolution, we have engaged a financial advisor to explore additional
strategic options, which may include mergers, reverse mergers, strategic partnerships, and licensing and sub-licensing transactions ("Potential Strategic Transaction”). However,
particularly in light of our limited business operations, our recent completion of the Avenova Asset Sale and the Wound Care Divestiture (constituting substantially all of our
assets), our announced intent to complete the Dissolution, and the generally competitive market for such a Potential Strategic Transaction, our efforts to identify other business
strategies may be hindered and we may not be able to identify an alternate transaction on the necessary timing before our cash runs out.
Even if we are able to identify and pursue a Potential Strategic Transaction, any such alternatives may not result in greater (or even equivalent) stockholder value than the
proposed Dissolution and such alternatives may entail additional risks and costs. As a result of such risks or if we do not identify a Potential Strategic Transaction, there is a high
probability that, in such situation, we may have to cease all operations, make an assignment for the benefit of any creditors, turn NovaBay over to a third-party management
company or liquidator or file for bankruptcy protection. If we fail to successfully execute the Dissolution or a Potential Strategic Transaction, our shareholders may lose their entire
investment.
- 15 -
Table of Contents
We cannot assure you as to the amount of distributions, if any, to be made to our stockholders.
To the extent we proceed with the Dissolution, we cannot predict with certainty the timing, amount, or number of distributions, if any, to our stockholders. As of February 28, 2025,
we had approximately $10.4 million in cash and cash equivalents. We currently estimate that we will expend between $6.8 million and $9.9 million after March 1, 2025, which would
be used to pay all expenses (including operating expenses up until the filing of a certificate of dissolution with the Secretary of State of the State of Delaware (the "Certificate of
Dissolution”) in accordance with the Delaware General Corporation Law (the "DGCL”)) and other known, non-contingent liabilities, and which also includes reasonable provision
for expenses of liquidation and potential, contingent or unknown liabilities as required by Delaware law. We currently estimate that the aggregate amount of liquidating
distributions to stockholders will be between $0.7 million and $5.6 million, or between $0.13 and $0.97 per share of common stock (based on 5,831,269 shares of common stock and
other equity outstanding as of March 18, 2025). This amount may be paid in one or more distributions. Any such distributions would not occur until after the Certificate of
Dissolution is filed, and we cannot predict the timing or amount of any such distributions, or whether any such distributions will occur, as uncertainties as to the ultimate amount
of our liabilities, the operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process, and the related timing to
complete such transactions, make it impossible to predict with certainty the actual net cash amount, if any, that will ultimately be available for distribution to stockholders or the
timing of any such distributions. Examples of uncertainties that could reduce the value of distributions to our stockholders include: (i) our incurrence of expenses relating to the
Dissolution being different than estimated; (ii) unanticipated costs relating to the defense, satisfaction or settlement of lawsuits or other claims that may be threatened against us
or our current or former directors or officers; (iii) amounts necessary to resolve claims, including unforeseen claims, of any creditors or other third parties; and (iv) delays in the
Dissolution or other winding up process. In addition, as we wind down, we will continue to incur expenses from the remaining operations, such as operating costs, severance
payments, payments to any continuing employees or consultants, lease rental payments, directors’ and officers’ insurance, taxes, legal, accounting and financial advisory fees and
expenses related to our filing obligations with the SEC, which will reduce amounts that will be available for distribution to our stockholders, if any. We have attempted to estimate
reasonable reserves for such liabilities, obligations, expenses and claims against us; however, those estimates may be inaccurate. Accordingly, stockholders may receive
substantially less than the amount that we currently estimate that they may receive, or they may receive no distribution at all.
We intend to rely on the "safe harbor” procedures under Sections 280 and 281(a) of the DGCL to, among other things, obtain an order from the Delaware Court of Chancery
establishing the amount and form of security for pending claims for which the Company is a party, contingent or unmatured contract claims for which the holder declined the
Company’s offer of a security, and unknown claims that, based on facts known to the Company, are likely to arise or become known within three (3) years of filing of the Certificate
of Dissolution (or such longer period of time as the Delaware Court of Chancery may determine) (the "Court Order”), and pay or make reasonable provision for our uncontested
known claims and expenses and establish reserves for other claims as required by the Court Order and the DGCL. We expect to distribute all of our remaining assets in excess of
the amount to be used by us to pay claims and fund the reserves required by the Court Order and pay our operating expenses through the completion of the dissolution and
winding-up process to our stockholders. The Court Order will reflect the Delaware Court of Chancery’s own determination as to the amount and form of security reasonably likely
to be sufficient to provide compensation for all known, contingent and potential future claims against us. There can be no assurances that the Delaware Court of Chancery will not
require us to withhold additional amounts in excess of the amounts that we believe are sufficient to satisfy our potential claims and liabilities. Accordingly, our stockholders may
not receive any distributions of our remaining assets for a substantial period of time, if at all, after satisfaction of all claims.
As a result of these and other factors, we cannot assure you as to any amounts, if any, to be distributed to our stockholders if the Board proceeds with the Dissolution. If our
stockholders do not approve the Dissolution at the New Special Meeting, we will not be able to proceed with the Dissolution and no liquidating distributions will be made.
We cannot predict the timing of the distributions to stockholders.
Our current intention is that, if the Dissolution is approved by our stockholders and the Board proceeds with the Dissolution, then the Certificate of Dissolution would be filed as
soon as practical following the New Special Meeting; however, ultimately, the decision of whether or not to proceed with the Dissolution will be made by the Board in its sole
discretion. If our stockholders approve the Plan of Dissolution, the Board has not set a deadline to make its decision to proceed with the effectiveness of the Dissolution. No
further stockholder approval would be required to effect the Dissolution.
Under the DGCL, before a dissolved corporation may make any distribution to its stockholders, it must pay or make reasonable provision to pay all of its claims and obligations,
including all contingent, conditional or unmatured contractual claims known to the corporation, as determined by the Board and pursuant to the "safe harbor” procedures
approved by the Court Order. We can provide no assurance as to if or when any such distribution will be made, and we cannot provide any assurance as to the amount to be paid
to each stockholder in any such distribution, if one is made. The Board intends to seek to distribute funds to our stockholders as quickly as possible, as permitted by the DGCL,
and will take all reasonable actions to optimize the distributable value to our stockholders. We anticipate that distributions, if any, to our stockholders will be made in cash, and
may be made at any time with initial distributions to stockholders anticipated to occur in nine (9) to twelve (12) months from the effective time of the Dissolution (the "Effective
Time”).
- 16 -
Table of Contents
The precise timing of any distributions to our stockholders will depend on and could be delayed due to many factors, including without limitation, the time it takes to obtain the
Court Order and whether a creditor or other third party seeks an injunction against the making of additional distributions to stockholders on the basis that the amounts to be
distributed are needed to satisfy our liabilities or other obligations to the extent not previously reserved for. As a result of these and other factors, we are unable to predict the
timing of distributions, if any are made, to our stockholders.
The Board may determine not to proceed with the Dissolution.
Even if the Dissolution is approved by our stockholders at the New Special Meeting, the Board may determine, in the exercise of its fiduciary duties, not to proceed with the
Dissolution. If the Board elects to pursue any strategic alternative to the Dissolution, including a Potential Strategic Transaction, our stockholders may not receive any of the
funds that might otherwise be available for distribution to our stockholders. The decision of whether or not to proceed with the Dissolution will be made by the Board in its sole
discretion and the Board has not set a deadline to make its decision to proceed with or abandon the Dissolution after stockholder approval.
Our stockholders may be liable to our creditors for part or all of the amount received from us in our liquidating distributions if reserves are inadequate.
Under the DGCL, we would be required, in connection with the Dissolution, to pay or make reasonable provision for payment of our liabilities and obligations. To the extent the
Dissolution is approved by stockholders and the Board determines to proceed with the Dissolution, we will establish a reserve, consisting of cash or other assets that we believe
will be adequate for the satisfaction of all of our current known expenses and unknown, contingent and/or conditional claims and liabilities. The estimated amount of the reserve is
established by the Board, and approved by the Delaware Court of Chancery; however, such estimated amount may not be adequate to cover all of our claims and obligations.
Under the DGCL, if we fail to create an adequate contingency reserve for payment of our expenses, claims and obligations, each stockholder could be held liable for payment to our
creditors for claims. However, to the extent the "safe harbor” procedures under Sections 280 and 281(a) of the DGCL are followed as we plan to, a stockholder will not be liable for
any claim in excess of the lesser of (a) the stockholders’ pro rata share of the claim and (b) the amount distributed to the stockholder, and only with respect to claims that began
before the expiration of a post-dissolution period of at least three (3) years (or longer as the Delaware Court of Chancery shall in its discretion direct).
If our stockholders vote against the Dissolution pursuant to the Plan of Dissolution, we may pursue other strategic alternatives; which may not result in greater (or even
equivalent) stockholder value than the proposed Dissolution and may entail additional risks and costs (e.g., bankruptcy).
If our stockholders do not approve the Dissolution or the Board does not proceed with the Dissolution, we will continue our corporate existence and the Board will continue to
explore what, if any, strategic alternatives are available, including a Potential Strategic Transaction, to return capital to stockholders in a manner intended to maximize value in light
of its discontinued business activities. Any Potential Strategic Transaction or other strategic alternative that we may pursue and complete is subject to a number of risks, including
risks related to:
●
whether such transaction can be identified in a timely manner and completed;
●
the successful integration with a potential transaction partner following the closing of any such transaction;
●
depleting our remaining cash resources whether prior to or following a Potential Strategic Transaction;
●
litigation resulting from a Potential Strategic Transaction;
●
continuing to have insufficient revenues to offset expenses after completing a Potential Strategic Transaction;
●
challenges maintaining our internal standards, controls, procedures and policies;
●
entering markets in which we have no prior experience and where we may not succeed; and
●
any impairment of intangible assets, such as goodwill, or depreciation and amortization expenses associated with the Potential Strategic Transaction.
- 17 -
Table of Contents
As a result, if some or all of such risks occur, it is unlikely that a Potential Strategic Transaction or other strategic alternative would result in greater stockholder value than the
Dissolution, and pursuing a Potential Strategic Transaction, if we are not successful, may result in our Company seeking bankruptcy protection or protection under other
insolvency laws.
If we proceed with the Dissolution, our stockholders will not be able to buy or sell shares of our common stock after we close our stock transfer books at the Effective Time of
the Dissolution.
If stockholders approve the Dissolution and the Board determines to proceed with the Dissolution, we intend to close our stock transfer books and discontinue recording transfers
of our common stock at the Effective Time of the Dissolution as set forth in the Certificate of Dissolution. After we close our stock transfer books, we will not record any further
transfers of our common stock on our books except by will, intestate succession or operation of law. Therefore, shares of our common stock will not be freely transferable after
such date. As a result of the closing of the stock transfer books, all liquidating distributions in the Dissolution will be made pro rata to the stockholders of record as of the Effective
Time of the Certificate of Dissolution, with distribution (if any) anticipated to occur in nine (9) to twelve (12) months from the Effective Time.
Further stockholder approval will not be required in connection with the implementation of the Plan of Dissolution, including the sale or disposition of all or substantially
all of our assets following the Effective Time of the Dissolution pursuant to the Plan of Dissolution.
The approval of the Dissolution by the requisite vote of our stockholders at the New Special Meeting will grant full and complete authority to the Board and executive officers,
without further stockholder action, to decide whether to proceed with the Dissolution pursuant to the Plan of Dissolution in accordance with any applicable provision of Delaware
law. If we proceed with the Dissolution, then following the Effective Time, we may sell, distribute or otherwise dispose of our remaining non-cash assets without further
stockholder approval. As a result, after the Effective Time, the Board may, in order to maximize value for our stockholders and creditors, authorize actions in implementing the Plan
of Dissolution, including the specific terms and prices for the sales and dispositions of its remaining assets, with which stockholders may not agree.
If we proceed with the Dissolution, our stockholders may not be able to recognize a loss for U.S. federal income tax purposes until they receive a final distribution from us.
If stockholders approve the Dissolution and the Board determines to proceed with the Dissolution, distributions made pursuant to the Plan of Dissolution are intended to be
treated as received by a stockholder in exchange for the stockholder’s shares of our common stock. Accordingly, the amount of any such distribution allocable to a block of shares
of our common stock owned by a U.S. stockholder will reduce the stockholder’s tax basis in such shares, but not below zero. Any excess amount allocable to such shares will be
taxable as capital gain. Such gain generally will be taxable as long-term capital gain if the shares have been held for more than one year. Any tax basis remaining in a share of our
common stock following the final liquidating distribution by the Company will be treated as a capital loss. The deductibility of capital losses is subject to limitations. You should
consult your tax advisor as to the particular tax consequences of the Dissolution to you, particularly due to the tax treatment of any liquidating distribution varying among different
stockholders, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.
The loss of members of our senior executive management team could adversely affect our ability to operate our remaining business and administer the Dissolution process.
Our ability to operate our remaining business and administer the Dissolution process in a cost effective and efficient manner, to the extent our stockholders approve the
Dissolution and the Board determines to proceed with the Dissolution, depends, in large part, on the continued service of our senior executive management team, including our
Chief Executive Officer, Justin M. Hall, and our Interim Chief Financial Officer, Tommy Law. Following the sale of substantially all of our assets as a result of the Avenova Asset
Sale, our remaining senior executive officers and employees: (i) have been performing the post-closing services under the terms of the PRN Transition Services Agreement; (ii) are
currently managing our remaining business operations and supporting our Company’s identification and evaluation of potential strategic alternatives; and (iii) are expected to
provide certain support to our Company in connection with the Dissolution, to the extent the Dissolution is approved by stockholders and the Board determines to proceed with
the Dissolution. Accordingly, the loss of one or both of our remaining senior executive officers would adversely impact our ability to operate the remaining business and may
result in delays or potential inefficiencies, with respect to the Dissolution process, to the extent it proceeds.
Resources may be wasted in searching for Potential Strategic Transactions that are not completed, which could materially adversely affect stockholder value, including
distributions as part of the Dissolution (if any).
As disclosed, simultaneously with our Company pursuing the Dissolution, we have also engaged a financial advisor to explore any Potential Strategic Transactions that may be
available, which is an ongoing expense to the Company. Any investigation of a specific Potential Strategic Transaction and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments would require substantial management time and attention and substantial costs for accountants, attorneys, and others.
Furthermore, if we reach an agreement relating to a specific Potential Strategic Transaction, we may fail to complete the transaction for any number of reasons, including those
beyond our control. Any such event will result in a loss to us of the related costs incurred which could reduce distributions to stockholders (if any) and materially adversely affect
subsequent attempts to identify and effect another business opportunity.
Our disposal of historical assets and operations through the Avenova Asset Sale and the Wound Care Divestiture could result in our Company becoming a "shell company” if
we do not complete the Dissolution or an Alternative Strategic Transaction. As a result, we may ultimately become subject to more stringent reporting requirements, offering
limitations and resale restrictions.
Although we currently have our significantly reduced business, that includes fulfilling remaining contractual obligations for the manufacture and delivery of wound care products
and performance of the services contemplated by the PRN Transition Services Agreement, such business may no longer be conducted in the near future and our business
operations and assets would consist primarily of any remaining cash and cash equivalents. As such, we could be a "shell company” under SEC rules and regulations, and, in such
event, if we do not receive approval for or proceed with the Dissolution, and instead engage in a Potential Strategic Transaction, it is possible that certain requirements for shell
company business combinations could be applicable, which include:
●
the potential future combined company needing to file a Form 8-K to report the Form 10 type information after closing the combination transaction with the SEC reflecting
its status as an entity that is not a shell company;
- 18 -
Table of Contents
●
us and the potential future combined company not being eligible to use a Form S-3 until 12 full calendar months after closing of the combination transaction;
●
the potential future combined company needing to wait at least 60 calendar days after closing of the merger to file a Form S-8 for any equity plans or awards; and
●
the potential future combined company being an "ineligible issuer” for three years following the closing of the combination transaction, which will prevent the combined
company from (i) incorporating by reference in its Form S-1 filings, (ii) using a free writing prospectus, or (iii) taking advantage of well-known seasoned issuer status
despite its public float.
The foregoing SEC requirements could increase our or the potential future combined company’s time and cost of raising capital, offering stock under equity plans, and complying
with securities laws.
Risks Relating to Owning Our Common Stock
The price of our common stock may fluctuate substantially, which may result in losses to our stockholders.
The stock prices of our Company and many other companies in our market segment have generally experienced wide fluctuations in response to various factors. Broad economic,
market and industry factors may negatively affect the market price of our common stock. The market price of our common stock is further likely to be volatile, particularly given the
completion of the Avenova Asset Sale and our determination to continue pursuing the Dissolution, and could fluctuate in response to, among other things:
●
our cash position;
●
actual or anticipated variations in our expenses, particularly as we pursue the Dissolution or any Potential Strategic Transaction;
●
any unanticipated contingent liabilities or litigation that may arise; and
●
adverse developments with respect to the Dissolution or any other Potential Strategic Transaction.
Our common stock will likely be delisted from the NYSE American, and in connection with the Dissolution we plan to initiate steps to exit from certain reporting
requirements under the Exchange Act. If the exit process is protracted, we will continue to bear the expense of being a public reporting company despite having no source of
revenue.
Our common stock is currently registered under the Exchange Act, which requires that we comply with certain public reporting and proxy statement requirements. Compliance with
these requirements is costly and time-consuming; however, it aids in information being widely publicly available to our stockholders and has historically been beneficial in capital
raise transactions.
The Avenova Asset Sale constituted the sale of substantially all of our assets. Under the NYSE American continued listing requirements, the completion of the sale of
substantially all of our assets may cause the NYSE American to delist our shares. Further, pursuant to a Deficiency Letter received from the NYSE American on April 18, 2024, we
are currently subject to the procedures and requirements of Section 1009 of the Company Guide related to not meeting the NYSE American’s continued listing standards related to
stockholders’ equity, which also may cause the NYSE American to commence delisting procedures. Our NYSE listing is currently subject to a plan of compliance through October
18, 2025. While we are subject to this plan, the Company is subject to quarterly monitoring for compliance with the plan. If the Company does not regain compliance with the NYSE
American’s listing standards by October 18, 2025, or if the Company does not make progress consistent with its plan, then the NYSE American may initiate delisting procedures.
To the extent the NYSE American does not delist our shares and the Board determines to effect the Dissolution after having received stockholder approval at the New Special
Meeting, we plan to notify FINRA of our impending dissolution and request that our common stock stop trading on the NYSE American on the effective date of the Dissolution or
as soon thereafter as is reasonably practicable. Whether or not the Dissolution is completed, and regardless of whether our shares are delisted from the NYSE American, we will
have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act until we have exited from such reporting requirements.
- 19 -
Table of Contents
We plan to initiate steps to exit from such reporting requirements in order to curtail expenses; however, such process may be protracted and we may be required to continue to
make certain filings with the SEC. Accordingly, we will continue to incur expenses that will reduce any amount available for distribution, including expenses of complying with
public company reporting requirements and paying our service providers, among others. If our reporting obligations cease, publicly available information about us will be
substantially reduced.
To the extent the NYSE American delists our common stock from trading on its exchange and the Dissolution is not approved or implemented or is otherwise delayed, we will not
be eligible to apply to list our securities on the NYSE American or on another national securities exchange due to our inability to currently meet the initial listing standards
applicable to a newly listed company, and we could face significant material adverse consequences, including during any period between such delisting and the effective date of
the Dissolution, such as reduced liquidity for our securities, limited availability of market quotations for our securities and a determination that our common stock is a "penny
stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading
market for our securities, and a substantial impairment on our ability to raise additional funds in connection with a Potential Strategic Transaction, if needed.
Further, the National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are
referred to as "covered securities.” Because our common stock is currently listed on the NYSE American, our common stock qualifies as covered securities under such statute.
Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and,
if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If we were no longer listed on the NYSE American,
our common stock would not be a covered security and we would be subject to regulation in each state in which we offer our securities.
Our stockholders may experience significant dilution as a result of the conversion of the Series B Preferred Stock and the potential exercise of outstanding common stock
purchase warrants.
We have a significant number of Company securities that are or will be convertible and/or exercisable into shares of our common stock. As of March 25, 2025, these Company
securities include 131 shares of Series B Preferred Stock that are convertible into 15,065 shares of common stock, Unsecured Convertible Notes that are convertible into 107,146
shares of common stock and common stock warrants exercisable for 4,753,613 shares of common stock. As of March 25, 2025, we had 5,816,204 shares of common stock issued and
outstanding. Accordingly, upon the conversion or exercise (as applicable) of some or all of the Series B Preferred Stock, convertible notes and common stock warrants, as well as
the exercise of stock options and other equity based awards that have been or will be issued and/or granted by us, the percentage ownership and voting power held by our
existing stockholders will be significantly reduced and our stockholders could experience significant dilution. If such dilution were to occur ahead of the Dissolution, distributions
to stockholders (if any) would reduce as a result of such dilution.
We have not paid dividends or repurchased stock in the past and do not expect to pay dividends or repurchase stock in the future, and any return on investment may be
limited to the value of our stock.
We have never paid cash dividends on, or repurchased shares of, our common stock and do not anticipate paying cash dividends or repurchasing shares of our common stock in
the foreseeable future, unless in connection with a Potential Strategic Transaction. While we anticipate making distributions to stockholders in connection with the Dissolution, we
do not anticipate paying any dividends or repurchasing any shares of our Series B Preferred Stock before the Dissolution or if the Dissolution is not completed. If we pay
dividends on our shares of common stock, we are required to pay dividends on our Series B Preferred Stock on an as converted basis. The payment of dividends on, or the
repurchase of shares of, our common stock or Series B Preferred Stock will depend on our financial condition and other business and economic factors affecting us at such time as
our Board may consider relevant. If we do not pay dividends or repurchase stock or if the Dissolution is not completed with related distributions to stockholders, holders of our
common stock will experience a return on their investment in our shares only if our stock price appreciates or if part of a Potential Strategic Transaction.
- 20 -
Table of Contents
We may issue additional shares of our common stock, other series or classes of preferred stock or other equity securities without your approval, which would dilute your
ownership interests and may depress the market price of your shares.
If we do not proceed with the Dissolution, we may issue additional shares of our common stock, other series or classes of preferred stock, in addition to our Series B Preferred
Stock, units, warrants or other equity securities of equal or senior rank in the future in order to fund our operations, provide working capital and for other purposes, including in
connection with, among other things, executing upon a Potential Strategic Transaction, repricing of warrants or other outstanding securities. These issuances of additional
securities shall occur without stockholder approval in most circumstances. Our issuance of additional shares of our common stock, preferred stock or other equity securities of
equal or senior rank could have the following effects:
●
your proportionate ownership interest in NovaBay will decrease;
●
the relative voting strength of each previously outstanding share of common stock may be diminished; and/or
●
the market price of your shares of common stock may decline.
Offers or availability for sale of a substantial number of shares of our common stock, including as a result of the conversion of the Series B Preferred Stock, conversion of the
Unsecured Convertible Notes and/or the exercise of outstanding warrants may cause the price of our publicly traded securities to decline.
Sales of a significant number of shares of our common stock in the public market could depress the market price of our common stock. For example, sales of shares of common
stock that are issuable upon conversion of the Series B Preferred Stock, the conversion of the Unsecured Convertible Notes and/or the exercise of outstanding warrants may cause
the price of our publicly traded securities to decline. The shares of common stock underlying the shares of Series B Preferred Stock, the Unsecured Convertible Notes and
outstanding warrants represent, in the aggregate, approximately 84% of the total number of shares of common stock outstanding as of March 25, 2025. Upon conversion or
exercise, as the case may be, of those securities, the shares of common stock we issue upon such conversion or exercise could be sold into the public market, and such sales could
be significant and have an adverse impact on the price of our common stock. Additionally, such conversion or exercise could make it more difficult for us to raise additional
financing in connection with a Potential Strategic Transaction through the sale of equity or equity-related securities in the future at a time and/or at a price that we deem reasonable
or appropriate, or at all.
If we become a "shell company,” the holders of our restricted securities and control securities will not be able to sell their securities in reliance on Rule 144.
We may become a "shell company,” as that term is defined by the applicable federal securities laws. Applicable provisions of Rule 144 specify that during that time that we are a
"shell company” and for a period of one year thereafter, holders of our restricted securities cannot sell those securities in reliance on Rule 144. This restriction may have potential
adverse effects on certain holders converting our Series B Preferred Stock, the Unsecured Convertible Notes or exercising warrants before the Dissolution or any future efforts to
raise additional capital through unregistered offerings to the extent needed in connection with a Potential Strategic Transaction.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code”), if a corporation undergoes an "ownership change,” generally defined as a greater than 50%
change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss ("NOL”) carryforwards and other pre-change
tax attributes (such as research tax credits) to offset its post-change income may be limited. Since our formation, we have raised capital through the issuance of capital stock on
many occasions which, combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in one or more changes of control, as defined by
Section 382 of the Code. We have not currently completed a study to assess whether any change of control has occurred, or whether there have been multiple changes of control
since our formation, due to the significant complexity and cost associated with such study. If we have experienced a change of control at any time since our formation, our NOL
carryforwards and tax credits may not be available, or their utilization could be subject to an annual limitation under Section 382. In addition, since we may complete a Potential
Strategic Transaction, which may include raising additional capital, we may undergo further ownership changes in the future. If we earn net taxable income, our ability to use our
pre-change NOL carryforwards to offset United States federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.
- 21 -
Table of Contents
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 1C.
CYBERSECURITY
Risk Management and Strategy
Many aspects of our business are dependent upon our computer systems, devices, and networks to collect, process, and store data necessary to conduct many aspects of our
business, including the recording and reporting of commercial and financial information, and payroll. We rely on standard operating systems and software from established and
reliable third parties to provide security including Microsoft 365 and ADP. The Company does not have in-house information technology personnel. Management makes concerted
efforts to select third-party software providers with a demonstrated track-record of effectively addressing cybersecurity concerns. In the event of a cybersecurity incident, we
would rely upon these providers. In light of the Company's current size and relatively low cyber-risk profile, management believes that reliance upon experienced third-party
providers is the most prudent and cost-effective course.
Governance
Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company employees, including our Chief Executive Officer, General
Counsel and Chief Compliance Officer. Our Board addresses the Company’s cybersecurity risk management as part of its general risk oversight function. The Board has access to
various reports, summaries or presentations related to cybersecurity threats, risk, and mitigation. In its oversight role, the Board is expected to specifically consider risks that relate
to the reputation of the Company and the general industry in which we operate, including with respect to privacy, information technology and cybersecurity and threats to
technology infrastructure.
Our cybersecurity risk management processes are integrated into our overall approach to risk management. Given the nature and size of our Company, we do not have a dedicated
enterprise risk function, but our management regularly considers and evaluates risks to our Company. As part of that risk management process, management identifies, assesses
and evaluates risks impacting our operations across the Company, including those risks related to cybersecurity, and raises them for discussion with our employees, and where it
is determined to be appropriate, issues are also raised to the Board for consideration.
To promote organization-wide attention to cybersecurity issues, we conduct mandatory employee training on cybersecurity and provide ongoing cybersecurity education and
awareness, monitoring phishing attacks, and cybersecurity awareness materials. The Company will be evaluating its cybersecurity governance and practices and expects to make
appropriate changes to align with our significantly reduced and changed business and operations following the completed the Avenova Asset Sale and the Wound Care
Divestiture.
Cybersecurity Risks
As of the date of this annual report, we are not aware of any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially
affected our business strategy, results of operations or financial condition or are reasonably likely to have such a material effect. However, the sophistication of and risks from
cybersecurity threats and incidents continues to increase, and the preventative actions that we have taken and continue to take to reduce the risk of cybersecurity threats and
cybersecurity incidents and protect our information systems and information may not successfully protect against all cybersecurity threats and cybersecurity incidents. For
additional information regarding risks relating to cybersecurity, see "Item 1A—Risk Factors.”
- 22 -
Table of Contents
ITEM 2.
PROPERTIES
Our principal executive offices and administrative operations are located at 2000 Powell Street, Suite 1150, Emeryville, California. In total, we lease approximately 7,675 square feet of
office space in the facility pursuant to the Lease expiring on July 31, 2027.
ITEM 3.
LEGAL PROCEEDINGS
On March 6, 2025, a complaint was filed against the Company by Sabby alleging a breach of contract claim in the U.S. District Court for the Southern District of New York involving
matters that were disputed by Sabby and us. As disclosed above in the section "Recent Developments and Stock Exchange Listing,” and the subheading "Settlement Agreements
with Certain Warrant Holders” we recently settled our dispute with Sabby, where we made an aggregate payment of $1,125,000 to Sabby to purchase its warrants and Sabby prior
to such warrant purchase exercised certain of its warrants that resulted in the Company receiving an aggregate amount of $174,168. As a result of such settlement, on March 10,
2025, Sabby dismissed the complaint filed against the Company with prejudice. The Company also settled similar disputes with two other warrant holders of the Company.
Pursuant to such settlement agreements with the other two warrant holders, we made a payment of $344,924 to each of the two warrant holders to purchase their respective
warrants (together with the payment to Sabby, an aggregate payment of $1,814,848) and the two warrant holders prior to the purchase of their warrants each exercised their
respective warrants resulting in the Company receiving $87,084 from each warrant holder (together with the exercise by Sabby, the Company received an aggregate of $348,337 from
such exercises).
Except as described above, from time to time, the Company may be involved in various legal proceedings arising in the ordinary course of business, prior to completing the
Avenova Asset Sale, as a result of having completed the Avenova Asset Sale or as a result of matters that may otherwise arise as the Company pursues the Dissolution and/or
other strategic alternatives. As of December 31, 2024, there were no matters that, in the opinion of management, would ultimately result in liability that would have a material
adverse effect on the Company’s financial position, results of operations or cash flows.
ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable.
- 23 -
Table of Contents
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the NYSE American, under the symbol "NBY.”
Holders
As of March 25, 2025, there were approximately 94 holders of record of our common stock. This figure does not reflect persons or entities that hold their stock in nominee or
"street” name through various brokerage firms.
Dividend Policy
We have not paid cash dividends on our common stock since our inception. We currently expect to retain earnings primarily for use in the remaining operations of our business;
therefore, we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board and will
be dependent upon our financial condition, results of operations, capital requirements, restrictions under any existing indebtedness and other factors the Board deems relevant.
ITEM 6.
[RESERVED]
- 24 -
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in
Part II, Item 8 of this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Words such as "expects,” "anticipated,” "will,”
"may,” "goals,” "plans,” "believes,” "estimates,” "concludes,” determines,” variations of these words, and similar expressions are intended to identify these forward-looking
statements. As a result of the Avenova Asset Sale, the Wound Care Divestiture and future strategic direction of our Company, as well as many other factors, including those set
forth under the section entitled "Risk Factors” in Part I, Item 1A. and elsewhere in this annual report, our actual results may differ materially from those anticipated in these
forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be
reasonable at the time and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking
statements. Except as required by law, we undertake no obligation to publicly revise or update any forward-looking statements after the date of this annual report, even if new
information becomes available in the future.
Overview of Significant Changes and Strategic Direction
We have undergone significant changes to our business and operations beginning in March 2024 as a result of a series of completed transactions, which changes are discussed
below and summarized in further detail in this annual report under the section "Recent Developments and Stock Exchange Listing” in Part I, Item 1 above. As a result of completing
these transactions, we are pursuing a new direction that may result in the Dissolution of our Company or another strategic alternative transaction, which are also discussed below
and elsewhere in this annual report. Due to the significant changes that have already occurred to our business and operations and the future changes that will occur as we pursue
the Dissolution or another strategic alternative, our historic financial condition, results of operations, and prospects discussed in this "Management’s Discussion and Analysis of
Financial Condition and Results of Operations” will be materially different than our future financial condition, results of operations and prospects in the near term and in the future.
Accordingly, it will be important to read about our recent developments and new strategic direction when reading our Management’s Discussion and Analysis of Financial
Condition and Results of Operations. As a result of each of the completed transactions discussed below and elsewhere in this annual report, we have significantly reduced our
business operations with limited sources of revenue generation. We were historically focused on the development and sale of scientifically-created and clinically-proven eyecare,
wound care, and skin care products. Our Avenova Assets were our leading products formulated with our proprietary, stable and pure form of hypochlorous acid and were cleared
by the Food and Drug Administration for sale in the United States. As described in additional detail below, subsequent to December 31, 2024, on January 17, 2025, we sold the
Avenova Assets to PRN in the Avenova Asset Sale, which constituted the sale of substantially all of our revenue generating and operating assets. See additional discussion
under the section "Recent Developments and Stock Exchange Listing” and subheading "Avenova Asset Sale” in Part I, Item 1 above. See also Note 12, "Avenova Asset Sale and
Bridge Loan” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.
We have also historically manufactured and sold a proprietary form of hypochlorous acid for the wound care market primarily under the NeutroPhase and PhaseOne brands. Our
wound care products are used for cleansing and irrigation as part of surgical procedures, as well as treating wounds, burns, ulcers and other injuries. Subsequent to December 31,
2024, on January 8, 2025, we sold our Wound Care Trademarks and our wound care inventory to Phase One in the Wound Care Divestiture. Following the Wound Care Divestiture,
our wound care business has been significantly reduced although we continue to manufacture our wound care products under remaining contractual obligations to our
distribution partner in China. We anticipate fulfilling these obligations by the end of the second quarter of 2025. See the additional discussion under the section "Recent
Developments and Stock Exchange Listing” and subheading "Wound Care Divestiture” in Part I, Item 1 above. See also Note 22, "Wound Care Divestiture and Held-for-Sale
Assets” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.
Through our former subsidiary, DERMAdoctor, we previously offered over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and
blemishes to dry skin, perspiration and keratosis pilaris. On March 25, 2024, we announced the closing of the sale of DERMAdoctor pursuant to the DERMAdoctor Divestiture.
See also Note 21, "DERMAdoctor Divestiture and Discontinued Operations” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.
- 25 -
Table of Contents
With the Company having completed the sale of substantially all of its assets in the Avenova Asset Sale, as well as the other transactions discussed above, the Board, after
evaluating the different strategic options available to the Company, determined that the best opportunity available to maximize the remaining value for our Company and to our
stockholders is to wind-up the Company’s affairs and pursue the Dissolution pursuant to the Plan of Dissolution, which may result in distributions to our stockholders of our
remaining asset value to the extent any remains. Concurrent with pursuing the Dissolution, the Company is also evaluating other strategic alternatives that may be available to us
to the extent the Dissolution does not proceed. See the additional discussion under the section "Recent Developments and Stock Exchange Listing” and subheading "Company
Dissolution and Other Strategic Alternatives” and "Engagement of Financial Advisor—Lucid” in Part I, Item 1 above.
Financial Overview and Outlook
We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses as we pursue our strategic initiatives, including the
Dissolution. Our net losses from continuing operations were $7.2 million and $6.1 million for the years ending December 31, 2024 and 2023, respectively. As of December 31, 2024,
we had an accumulated deficit of $183.5 million, total current assets of $1.9 million and total assets of $3.4 million. Subsequent to December 31, 2024, on January 17, 2025, we
completed the Avenova Asset Sale for which we received net proceeds of approximately $10.5 million and on January 8, 2025, and we completed the Wound Care Divestiture for
which we received net proceeds of $0.5 million.
Based on our funds available on December 31, 2024, as well as the net proceeds from the Avenova Asset Sale and the Wound Care Divestiture, management believes that the
Company’s existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through April 2, 2026. However, there is
uncertainty with respect to our strategic direction, as the Dissolution is subject to stockholder approval and we are also exploring other potential strategic alternatives that may be
available to us, and, as a result, when we do pursue our strategic direction, there may be unknown or potential future claims and liabilities that may arise or changing circumstances
that may cause the Company to expend cash significantly faster than currently anticipated because of factors beyond its control.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated
financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. In preparing these consolidated
financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. On an ongoing basis, we evaluate our
estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may
differ from these estimates.
While our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in
Part II, Item 8 of this annual report, we believe that the following accounting estimates are most critical to fully understanding and evaluating our reported financial results for the
periods set forth in this annual report.
- 26 -
Table of Contents
Impairment of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets
We review goodwill, indefinite-lived intangible assets and long-lived assets for impairment at least annually or whenever events or changes in business circumstances indicate that
any such asset may be impaired, that the carrying amount of any such asset may not be fully recoverable or that the useful life of the asset, if applicable, is no longer appropriate.
Management uses judgment in making critical assumptions and estimates in determining when an impairment assessment should be recorded, if more frequent than annually, or in
the completion of any such assessment. This includes cash flow projections that look several years into the future and assumptions on variables such as future sales and
operating margin growth rates, economic conditions, probability of success, market competition, inflation and discount rates. Changes in judgments with respect to these
assumptions and estimates could impact any such impairments recorded such as those recorded in the fourth quarter of 2023 to fully impair these assets related to our
DERMAdoctor business as further described in Note 2, "Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, in Part II, Item 8 of this
annual report.
Estimates of Future Product Returns
The Company records revenue in an amount that reflects the consideration which the Company expects to receive. Accordingly, revenue is reduced for estimated future product
returns. The Company’s estimates for product returns have been historically updated quarterly based on historical data of actual returns. Actual future product returns experienced
by us could differ significantly from historical data. As a result of having completed the Avenova Asset Sale, the impact of product returns has been significantly reduced, in
particular due to PRN assuming the liability for returns of Avenova products that occur after the closing date of January 17, 2025.
Common Stock Warrant Liabilities
For warrants that are classified as liabilities, the Company records the fair value of the warrants upon issuance and at each balance sheet date with changes in the estimated fair
value recorded as a non-cash gain or loss in the consolidated statements of operations. The fair values of these warrants are determined using the Black-Scholes option pricing
model. These values are subject to a significant degree of management’s judgment.
- 27 -
Table of Contents
Results of Operations
Comparison of Years Ended December 31, 2024 and 2023 (in thousands)
For the Years Ended
December 31,
Dollar
Percent
2024
2023
Change
Change
Statement of Operations
Sales:
Product revenue, net
$
9,747 $
10,455 $
(708)
(7%)
Other revenue, net
34
—
34
100%
Total sales, net
9,781
10,455
(674)
(6%)
Cost of goods sold
3,300
4,371
(1,071)
(25%)
Gross profit
6,481
6,084
398
7%
Research and development
42
34
8
24%
Sales and marketing
4,034
4,705
(671)
(14%)
General and administrative
7,379
5,447
1,932
35%
Loss on divestiture of subsidiary
865
—
865
—
Total operating expenses
12,320
10,186
2,134
21%
Operating loss
(5,839)
(4,102)
1,737
42%
Non-cash gain on changes in fair value of warrant liability
114
272
(158)
(58%)
Extinguishment of Secured Convertible Note
(13)
—
(13)
—
Non-cash gain (loss) on change in fair value of embedded derivative liability
(18)
40
(58)
(145%)
Accretion of interest and amortization of discounts on convertible notes
(904)
(1,694)
(790)
(47%)
Non-cash loss on modification of common stock warrants
—
(292)
292
(100%)
Other expense, net
(550)
(369)
(181)
49%
Net loss from continuing operations
(7,210)
(6,145)
(1,065)
17%
Net profit from held-for-sale assets (Note 22)
111
404
(293)
(73%)
Net loss from discontinued operations (Note 21)
(124)
(3,899)
3,775
(97%)
Net loss
$
(7,223) $
(9,640) $
2,417
(25%)
Impact of Held-for-Sale Assets and Discontinued Operations
Financial results related to the Company’s wound care products sold under the Wound Care Trademarks from January 1, 2023 through December 31, 2024 are set forth in the table
above and as set forth in this annual report have been aggregated in the caption entitled "Net profit from held-for-sale assets” for the years ended December 31, 2024 and 2023. The
Wound Care Divestiture, resulting in the sale of the Wound Care Trademarks, was unanimously approved by the Board on December 30, 2024 and closed subsequent to December
31, 2024, on January 8, 2025. See additional discussion in Note 22, "Wound Care Divestiture and Held-for-Sale Assets,” in the Notes to the Consolidated Financial Statements in
Part II, Item 8 of this annual report.
The financial results of DERMAdoctor beginning from January 1, 2023 through the closing of the DERMAdoctor Divestiture on March 25, 2024 in the table above and as set forth
in this annual report have been aggregated in the caption entitled "Net loss from discontinued operations” for the years ended December 31, 2024 and 2023. See additional
discussion in Note 21, "DERMAdoctor Divestiture and Discontinued Operations,” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this annual report.
- 28 -
Table of Contents
The discussions below and throughout this section apply only to results from continuing operations as of December 31, 2024, except as otherwise noted.
Total Net Sales and Cost of Goods Sold
Product revenue, net, decreased by $0.7 million, or 7%, to $9.7 million for the year ended December 31, 2024, from $10.5 million for the year ended December 31, 2023.
Revenue from eyecare products increased $0.6 million to $9.7 million for the year ended December 31, 2024, from $9.1 million for the year ended December 31, 2023. The increase was
primarily due to a continued overall increase in Avenova Spray sold through online channels.
The overall increase in eyecare product revenue was offset by a $1.4 million decrease in NeutroPhase sales to Pioneer. The Company recorded $1.4 million in product revenue, net,
from NeutroPhase in the year ended December 31, 2023, with no comparable revenue in the year ended December 31, 2024.
Cost of goods sold decreased $1.1 million, or 25%, to $3.3 million for the year ended December 31, 2024, from $4.4 million for the year ended December 31, 2023. The decrease was
due primarily to the decrease in lower margin NeutroPhase sales, partially offset by the increase in higher-margin eyecare products sales during the comparable periods.
Sales and marketing
Sales and marketing expenses decreased $0.7 million, or 14%, to $4.0 million for the year ended December 31, 2024, from $4.7 million for the year ended December 31, 2023. The
decrease was due primarily to continued digital advertising efficiencies, a decrease in the cost of marketing samples and lower marketing consulting costs incurred in the year
ended December 31, 2024 as compared to the year ended December 31, 2023.
General and administrative
General and administrative expenses increased $1.9 million, or 35%, to $7.4 million for the year ended December 31, 2024, from $5.4 million for the year ended December 31, 2023. The
increase was due primarily to an increase in legal costs primarily related to non-recurring strategic initiatives, including the DERMAdoctor Divestiture, the 2024 Public Offering, the
Avenova Asset Sale, the Wound Care Divestiture and the Dissolution, ongoing during the year ended December 31, 2024.
Loss on divestiture of subsidiary
As a result of the closing of the DERMAdoctor Divestiture on March 25, 2024, we incurred a loss of $0.9 million for the year ended December 31, 2024 with no comparable activity
for the year ended December 31, 2023. For additional information regarding the loss on divestiture of this subsidiary, please see Note 21, "DERMAdoctor Divestiture and
Discontinued Operations,” in the Notes to Consolidated Financial Statements, in Part II, Item 8 of this annual report.
Non-cash gain on changes in fair value of warrant liability
Adjustments to the fair value of warrant liabilities resulted in a gain of $114 thousand for the year ended December 31, 2024 and $272 thousand for the year ended December 31,
2023. The warrant liabilities for the December 2023 Warrants (as defined in Note 14, "Common Stock Warrants and Warrant Liabilities”) and the March 2024 Warrant (as defined in
Note 14, "Common Stock Warrants and Warrant Liabilities”) were reclassified to equity during the year ended December 31, 2024, and will no longer require fair value adjustments
which will impact our results of operations. For additional information regarding warrant liabilities and their valuation, please see Note 14, "Common Stock Warrants and Warrant
Liabilities,” in the Notes to Consolidated Financial Statements, in Part II, Item 8 of this annual report.
- 29 -
Table of Contents
Non-cash gain (loss) on changes in fair value of embedded derivative liability
Adjustments to the fair value of embedded derivative liability resulted in a loss of $18 thousand for the year ended December 31, 2024 and gain of $40 thousand for the year ended
December 31, 2023. For additional information regarding the embedded derivative liability and its valuation, please see Note 3, "Fair Value Measurements,” in the Notes to
Consolidated Financial Statements, in Part II, Item 8 of this annual report.
Accretion of interest and amortization of discounts on convertible notes
Accretion of interest and amortization of discounts on convertible notes was $0.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31,
2023. See additional discussion in Note 13, "Convertible Notes,” in the Notes to Consolidated Financial Statements, in Part II, Item 8 of this annual report.
Non-cash loss on modification of common stock warrants
During the year ended December 31, 2023, the Company recorded a $0.3 million non-cash loss on the modification of common stock warrants, which resulted from the 2023 Private
Placement and 2023 Warrant Reprice Transaction. For additional information, see Notes 11, "Financing Activities” and 14, "Common Stock Warrants and Warrant Liabilities,” in
the Notes to Consolidated Financial Statements, in Part II, Item 8 of this annual report.
Other expense, net
Other expense, net was $0.6 million for the year ended December 31, 2024 and $0.4 million for the year ended December 31, 2023. Expenses were related primarily to separate and
unrelated financing events recorded during the respective periods.
Financial Condition, Liquidity and Capital Resources
We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses as we pursue our strategic initiatives, including the
Dissolution. Our net losses from continuing operations were $7.2 million and $6.1 million for the years ending December 31, 2024 and 2023, respectively. As of December 31, 2024,
our cash and cash equivalents were $430 thousand, compared to $2.9 million as of December 31, 2023. Our cash and cash equivalents as of December 31, 2024 included cash
received from the Bridge Loan. As of December 31, 2024, our Bridge Loan had a balance of approximately $0.5 million, which was subsequently repaid upon the closing of the
Avenova Asset Sale on January 17, 2025, at which time the collateral securing the Bridge Loan was also released. See additional discussion in Note 12, "Avenova Asset Sale and
Bridge Loan” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.
On March 25, 2024, the Company issued unsecured convertible notes (the "Unsecured Convertible Notes”) to four (4) secured parties that have an aggregate principal amount of
$525,000 or will be convertible into an aggregate of 107,146 shares. The principal amount of the Unsecured Convertible Notes does not accrue interest and is payable to the secured
parties upon maturity in March 2026, unless earlier converted into common stock. For additional information regarding the 2023 Private Placement and the Unsecured Convertible
Notes, see Note 11 "Financing Activities,” Note 13 "Convertible Notes,” and Note 15 "Stockholders’ Equity” in the Notes to the Consolidated Financial Statements in Part II, Item
8 of this annual report.
Subsequent to December 31, 2024, on January 17, 2025, we completed the Avenova Asset Sale for which we received net proceeds of approximately $10.5 million and we completed
the Wound Care divestiture on January 8, 2025 where we received net proceeds of $0.5 million.
Based on our funds available on December 31, 2024, together with the net proceeds subsequently received from the Avenova Asset Sale, management believes that the
Company’s existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through April 2, 2026. However, there is
uncertainty with respect to our strategic direction, as the Dissolution is subject to stockholder approval and we are also exploring other potential strategic alternatives that may be
available to us, and, as a result, when we do pursue our strategic direction, there may be unknown or potential future claims and liabilities that may arise or changing circumstances
that may cause the Company to expend cash significantly faster than currently anticipated because of factors beyond its control.
- 30 -
Table of Contents
Cash Used in Operating Activities
Net cash used in operating activities from continuing operations was $5.2 million for the year ended December 31, 2024, which consisted primarily of a net loss from continuing
operations of $7.2 million, adjusted by depreciation and amortization expenses of $40 thousand, stock-based compensation expenses related to employee and director stock awards
of $0.1 million, non-cash loss on divestiture of subsidiary of $0.9 million, non-cash expense incurred to obtain consent of Secured Convertible Note (as defined in Note 13,
"Convertible Notes”) holders to release collateral for the DERMAdoctor Divestiture of $0.4 million, non-cash loss on modifications of warrants of $69 thousand, non-cash gain on
changes in fair value of warrant liabilities of $0.1 million, non-cash loss on changes in fair value of embedded derivative liability of $18 thousand, non-cash right-of-use amortization
of $0.3 million, accretion of interest and amortization of debt discounts on convertible notes of $0.9 million, and a net decrease of $0.6 million in our net operating assets and
liabilities of continuing operations.
Net cash used in operating activities from continuing operations was $4.3 million for the year ended December 31, 2023, which consisted primarily of a net loss from continuing
operations of $9.6 million, adjusted by depreciation and amortization expenses of $51 thousand, stock-based compensation expenses of $0.3 million, non-cash loss on modifications
of warrants of $0.3 million, non-cash gain on changes in fair value of warrant liabilities of $0.3 million, non-cash gain on changes in fair value of embedded derivative liability of $40
thousand, non-cash right-of-use amortization of $0.3 million, accretion of interest and amortization of debt discounts on convertible notes of $1.7 million, and a net decrease of $0.4
million in our net operating assets and liabilities of continuing operations.
Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities from continuing operations was $1.1 million for the year ended December 31, 2024, which included the DERMAdoctor Divestiture
proceeds of $1.1 million and purchase of property and equipment in a nominal amount. Net cash used in investing activities for the purchase of property and equipment from
continuing operations was $19 thousand for the year ended December 31, 2023.
Cash Provided by Financing Activities
Net cash provided by financing activities from continuing operations was $1.5 million for the year ended December 31, 2024, which included repayment of $2.0 million for the
Secured Convertible Notes, net proceeds of $2.9 million from the 2024 Public Offering (as defined in Note 11, "Financing Activities”), net proceeds of $0.2 million from the 2024
Warrant Reprice transaction, and the Bridge Loan of $0.5 million.
Net cash provided by financing activities was $1.9 million for the year ended December 31, 2023, including $0.6 million of net proceeds from the 2023 Warrant Reprice Transaction
and $3.0 million of net proceeds from the 2023 Private Placement. The proceeds were partially offset by repayments of $1.5 million on the Secured Convertible Notes issued in the
2023 Private Placement.
Additional information on Financing Activities can be found in Notes 11 to 15 in the Notes to Consolidated Financial Statements, in Part II, Item 8 of this annual report.
Net Operating Losses and Tax Credit Carryforwards
As of December 31, 2024, we had net operating loss carryforwards for federal and state income tax purposes of $153.7 million and $128.6 million, respectively. The federal net
operating loss carryforwards consist of $94.9 million generated before January 1, 2018, which will begin to expire in 2025 and $59.6 million generated after December 31, 2017, that
will carry forward indefinitely but are subject to an 80% limitation for years following December 31, 2021. The state net operating loss carryforwards will begin to expire in 2028. As
of December 31, 2023, we also had tax credit carryforwards of $0.5 million for federal income tax purposes and $0.1 million for state tax purposes. If not utilized, the federal tax credits
will begin expiring in 2031. The state tax credits have an indefinite carryover period.
Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation.
Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of
carryforwards before they are utilized.
- 31 -
Table of Contents
Inflation
Our costs and operating expenses are subject to fluctuations, particularly historically due to changes in the cost of labor and service providers. As a result of our recent changes
to our business and reduced operations, our future business results will depend, in part, on our continued ability to manage these fluctuations through cost savings projects and
sourcing decisions. Failure to manage these fluctuations could adversely impact our results of operations or cash flows.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements at December 31, 2024 or December 31, 2023 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Seasonality
In connection with the Avenova Asset Sale, the Wound Care Divestiture and the DERMAdoctor Divestiture, the Company disposed of its primary commercial operations. Limited
information for seasonality associated with the Avenova Assets and our wound care products, which were reported as continuing operations for the years ended December 31,
2024 and 2023 is provided below. Additional information about these and our former DERMAdoctor customers, manufacturing and suppliers can be found in our prior filings with
the SEC.
Consistent with our peers in the United States pharmaceutical industry, prescriptions for Avenova Spray experienced seasonality with the first quarter of each year typically being
the lowest revenue quarter. This annual phenomenon is due to consumers facing the need to satisfy health insurance deductibles and changes to copays as each new insurance
year begins. Sales of Avenova Spray through non-prescription channels, along with the other Avenova branded products, experienced less seasonality and more consistent sales
throughout the year.
Our former NeutroPhase and PhaseOne branded products were sold through wholesale distribution relationships with third parties such as Pioneer and Phase One; therefore, we
received periodic large orders that resulted in large chunks of revenue that were received in irregular intervals during the year. We do not expect this seasonality to impact the
manufacture of our wound care products under remaining contractual obligations to our distribution partner in China.
Contractual Obligations
In the normal course of business, we have historically entered into contracts and commitments that obligate us to make payments in the future and we expect to enter into
contracts and commitments on behalf of the Company in connection with pursuing the Dissolution or other strategic alternatives. Information regarding our obligations under
lease and convertible note arrangements are provided in Notes 10 and 13, respectively, in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk consists principally of interest rate risk on our cash and cash equivalents. Our exposure to market risk is limited primarily to interest income sensitivity, which is
affected by changes in interest rates, particularly because our current liquid assets at December 31, 2024 were held in cash and cash equivalents.
Our investment policy restricts our investments to high-quality investments and limits the amounts invested with any one issuer, industry, or geographic area. The goals of our
investment policy are as follows: preservation of capital, assurance of liquidity needs, best available return on invested capital, and minimization of capital taxation. Some of the
securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with an interest rate fixed at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment
will probably decline. To minimize this risk, in accordance with our investment policy, we maintain our cash and cash equivalents in short-term marketable securities, including
money market mutual funds, Treasury bills, Treasury notes, certificates of deposit, commercial paper, and corporate and municipal bonds. The risk associated with fluctuating
interest rates is limited to our investment portfolio. Due to the short-term nature of our investment portfolio, we believe we have minimal interest rate risk arising from our
investments. As of December 31, 2024 and 2023, a 10% change in interest rates would have had an immaterial effect on the value of our investment portfolio. We do not use
derivative financial instruments in our investment portfolio. We do not hold any instruments for trading purposes.
With most of our historical focus on the domestic U.S. market, we have not had any material exposure to foreign currency rate fluctuations.
- 32 -
Table of Contents
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item 8 are set forth below. Our financial information is set forth in Item 7 of this annual report and is hereby incorporated into this Item 8
by reference.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
34
Consolidated Balance Sheets as of December 31, 2024 and 2023
36
Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023
37
Consolidated Statements of Stockholders’(Deficit) Equity for the Years Ended December 31, 2024 and 2023
38
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023
39
Notes to Consolidated Financial Statements
41
- 33 -
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
NovaBay Pharmaceuticals, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of NovaBay Pharmaceuticals, Inc. and subsidiaries (the "Company”) as of December 31, 2024 and 2023, and the
related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes
(collectively referred to as the "consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in
conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1 to the consolidated financial statements, the Company is seeking approval from its stockholders to dissolve and distribute all remaining assets to
stockholders. Management has determined that it is in the best interest of the Company and its stockholders to continue pursuing the voluntary Dissolution pursuant to the Plan
of Dissolution and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB”) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements; and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which they
relate.
- 34 -
Table of Contents
Allowances for Product Returns
Description of the Matter
As described in Note 2 of the consolidated financial statements, when recognizing revenue from product sales, the Company makes an estimate of the amount of consideration the
Company expects to be entitled to receive. Upon recognition of these product sales, the Company records estimates for variable consideration consisting of service fees,
discounts, rebates, and product returns, resulting in a reduction in product revenue. The variable consideration provisions are recorded within accrued liabilities in the same period
that the related revenue is recognized. Liabilities related to the allowance for product returns involve the use of significant assumptions and judgments in their calculation. These
significant assumptions and judgments include historical sales and return rates and inventory levels in the distribution channel, as well as existing return policies with customers.
The Company’s estimated allowance for product returns requires a high degree of judgment and is subject to change based on various quantitative and qualitative factors.
Accordingly, extensive audit effort and a high degree of auditor judgment were needed to evaluate management’s estimates and assumptions used in the determination of the
allowance for product returns. Therefore, we identified the Company’s allowance for product returns as a critical audit matter.
How We Addressed the Matter in Our Audit
We obtained an understanding of and evaluated the design of controls relating to the Company’s processes for estimating the allowance for product returns. We evaluated the
significant accounting policies relating to product returns, as well as management’s application of the policies, for appropriateness and reasonableness.
We obtained the Company’s allowance for product returns analysis and performed testing procedures on the underlying data that was used in management’s development of the
product returns estimate. We compared the significant assumptions used by management to customer contract information, tested the historical returns data used in the analysis,
and reviewed subsequent product return activity. In addition, we performed sensitivity analyses of significant assumptions used in the analysis to determine what changes in
assumptions are particularly sensitive when calculating the amount of the allowance for product returns. Additionally, we tested the mathematical accuracy of management’s
calculation of revenue, net of product sales allowances, and the associated timing of revenue recognition, in the consolidated financial statements.
/s/ WithumSmith+Brown, PC
We have served as the Company’s auditor since 2010.
New York, New York
April 2, 2025
PCAOB ID Number 100
- 35 -
Table of Contents
NOVABAY PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)
December 31,
December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
430 $
2,924
Accounts receivable, net of allowance for credit losses ($3 at December 31, 2024 and 2023)
389
680
Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value
adjustments ($30 and $218 at December 31, 2024 and 2023, respectively)
765
501
Prepaid expenses and other current assets
303
256
Current assets, held-for-sale
48
63
Current assets, discontinued operations
—
2,730
Total current assets
1,935
7,154
Operating lease right-of-use assets
955
1,296
Property and equipment, net
53
87
Other assets
480
478
Other assets, discontinued operations
—
19
TOTAL ASSETS
$
3,423 $
9,034
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Liabilities:
Current liabilities:
Accounts payable
$
623 $
906
Accrued liabilities
1,257
1,169
Bridge Loan
500
—
Unsecured Convertible Notes, net of discounts
65
—
Secured Convertible Notes, net of discounts
—
1,137
Operating lease liabilities
398
368
Current liabilities, discontinued operations
—
698
Total current liabilities
2,843
4,278
Warrant liability
—
334
Operating lease liabilities-non-current
709
1,108
Total liabilities
3,552
5,720
Commitments and contingencies (Note 10)
Stockholders’ (deficit) equity:
Preferred stock, $0.01 par value; 5,000 shares authorized;
Series B Preferred Stock; 1 and 6 shares issued and outstanding at December 31, 2024 and 2023, respectively
6
275
Series C Preferred Stock; 0 and 1 shares issued and outstanding at December 31, 2024 and 2023, respectively
—
1,675
Common stock, $0.01 par value; 150,000 shares authorized, 4,885 and 321 shares issued and outstanding at December 31,
2024 and 2023, respectively
49
3
Additional paid-in capital
183,273
176,210
Accumulated deficit
(183,457)
(174,849)
Total stockholders’ (deficit) equity
(129)
3,314
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
3,423 $
9,034
The accompanying notes are an integral part of these consolidated financial statements.
- 36 -
Table of Contents
NOVABAY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended
December 31,
2024
2023
Sales:
Product revenue, net
$
9,747 $
10,455
Other revenue, net
34
—
Total sales, net
9,781
10,455
Cost of goods sold
3,300
4,371
Gross profit
6,481
6,084
Operating expenses
Research and development
42
34
Sales and marketing
4,034
4,705
General and administrative
7,379
5,447
Loss on divestiture of subsidiary
865
—
Total operating expenses
12,320
10,186
Operating loss
(5,839)
(4,102)
Non-cash gain on changes in fair value of warrant liability
114
272
Extinguishment of Secured Convertible Note
(13)
—
Non-cash (loss) gain on changes in fair value of embedded derivative liability
(18)
40
Accretion of interest and amortization of discounts on convertible notes
(904)
(1,694)
Non-cash loss on modification of common stock warrants
—
(292)
Other expense, net
(550)
(369)
Net loss from continuing operations
$
(7,210) $
(6,145)
Net income from held-for-sale assets (Note 22)
111
404
Net loss from discontinued operations (Note 21)
(124)
(3,899)
Net loss
$
(7,223) $
(9,640)
Less: Increase to accumulated deficit due to adjustment to common stock warrants exercise price
(1,005)
—
Less: Increase to accumulated deficit due to adjustment to Preferred Stock conversion prices
(380)
(7,057)
Net loss attributable to common stockholders
$
(8,608) $
(16,967)
Basic and diluted net loss per share
Loss per share from continuing operations
$
(2.53) $
(110.02)
Loss per share from held-for-sale assets and discontinued operations
(0.00)
(29.12)
Net loss per share attributable to common stockholders (basic and diluted)
$
(2.53) $
(139.14)
Weighted-average shares of common stock used in computing net loss per share attributable to common stockholders (basic
and diluted)
3,396
120
The accompanying notes are an integral part of these consolidated financial statements.
- 37 -
Table of Contents
NOVABAY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(in thousands)
Total
Preferred Stock
Common Stock
Additional
Paid-in
Accumulated
Stockholders’
(Deficit)
Shares
Amount
Shares
Amount
Capital
Deficit
Equity
Balance at December 31, 2022
14 $
2,973
58 $
1 $
165,732 $
(158,152) $
10,554
Net loss
—
—
—
—
—
(9,640)
(9,640)
Conversion of Series B Preferred Stock to common stock
(6)
(295)
183
2
293
—
—
Conversion of Series C Preferred Stock to common stock
(1)
(728)
8
—
728
—
—
Adjustment of Series B Preferred Stock conversion price
—
—
—
—
6,385
(6,385)
—
Adjustment of Series C Preferred Stock conversion price
—
—
—
—
672
(672)
—
Modification of common stock warrants
—
—
—
—
479
—
479
Reclassification of May 2023 Warrants
—
—
—
—
1,360
—
1,360
Reclassification of embedded derivative liability
—
—
—
—
169
—
169
Issuance of common stock in connection with 2023 Warrant Reprice
Transaction, net of offering costs
—
—
72
—
101
—
101
Stock-based compensation expense related to employee and director stock
awards
—
—
—
—
291
—
291
Balance at December 31, 2023
7 $
1,950
321 $
3 $
176,210 $
(174,849) $
3,314
Net loss
—
—
—
—
—
(7,223)
(7,223)
Conversion of Series B Preferred Stock to common stock
(5)
(268)
625
6
262
—
—
Conversion of Series C Preferred Stock to common stock
(1)
(1,676)
205
2
1,674
—
—
Adjustment of Series C Preferred Stock conversion price
—
—
—
—
380
(380)
—
Modification of common stock warrants in connection with 2024 Warrant
Reprice Transaction
—
—
—
—
69
—
69
Issuance of common stock in connection with 2024 Warrant Reprice
Transaction, net of offering costs
—
—
90
1
129
—
130
Reclassification of December 2023 Warrants from liability
—
—
—
—
212
—
212
Reclassification of March 2024 Warrant from liability
—
—
—
—
100
—
100
Reclassification of embedded derivative liability
—
—
—
—
242
—
242
Shares issued for 35:1 reverse stock split due to rounding feature
—
—
107
1
(1)
—
—
Issuance of common stock and pre-funded warrants in the 2024 Public
Offering, net of issuance cost
—
—
1,495
15
2,843
—
2,858
Exercise of pre-funded warrants
—
—
2,042
21
—
—
21
Adjustment to common stock warrant exercise price
—
—
—
—
1,005
(1,005)
—
Stock-based compensation expense related to employee and director stock
awards
—
—
—
—
148
—
148
Balance at December 31, 2024
1 $
6
4,885 $
49 $
183,273 $
(183,457) $
(129)
The accompanying notes are an integral part of these consolidated financial statements.
- 38 -
Table of Contents
NOVABAY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
December 31,
2024
2023
Operating activities:
Net loss
$
(7,223) $
(9,640)
Net income from held-for-sale assets
(111)
(404)
Net loss from discontinued operations
124
3,899
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment
40
51
Stock-based compensation expense related to employee and director stock awards
148
291
Non-cash loss on divestiture of subsidiary
865
—
Non-cash loss on extinguishment of Secured Convertible Note
13
—
Non-cash expense incurred to obtain consent of Secured Convertible Note holders
368
—
Modification of common stock warrants, included in Other expense
69
292
Non-cash gain on changes in fair value of warrant liability
(114)
(272)
Non-cash loss (gain) on changes in fair value of embedded derivative liability
18
(40)
Non-cash right-of-use amortization
341
305
Accretion of interest and amortization of debt discounts on convertible notes
874
1,690
Changes in operating assets and liabilities:
Accounts receivable
291
846
Inventory
(272)
162
Prepaid expenses and other current assets
(48)
11
Other assets
(2)
(6)
Accounts payable and accrued liabilities
(195)
(1,127)
Operating lease liabilities
(369)
(319)
Net cash used in operating activities, continuing operations
(5,183)
(4,261)
Investing activities:
Proceeds from divestiture of subsidiary
1,070
—
Purchases of property and equipment
(6)
(19)
Net cash provided by (used in) investing activities, continuing operations
1,064
(19)
Financing activities:
Proceeds from Warrants Exercise
247
565
Proceeds from issuance of common stock and pre-funded warrants the 2024 Public Offering, net of issuance costs
2,858
—
Proceeds from Bridge Loan
500
—
Proceeds from issuance of Secured Convertible Notes and May 2023 Warrants, net of discounts
—
3,000
Payments on Secured Convertible Notes
(1,990)
(1,474)
Cash debt issuance cost
(115)
(181)
Net cash provided by financing activities, continuing operations
1,500
1,910
Net decrease in cash, cash equivalents, and restricted cash, continuing operations
(2,619)
(2,370)
Net increase in cash and cash equivalents, held-for-sale assets
126
503
Net decrease in cash and cash equivalents, discontinued operations
(206)
(373)
Net decrease in cash, cash equivalents and restricted cash, consolidated
(2,699)
(2,240)
Cash, cash equivalents and restricted cash, beginning of year
3,606
5,846
Less: Cash and cash equivalents of discontinued operations, end of year
—
(206)
Cash, cash equivalents and restricted cash of continuing operations, end of year
$
907 $
3,400
- 39 -
Table of Contents
For the Years Ended
December 31,
2024
2023
Supplemental disclosure of cash flow information:
Interest paid in continuing operations
$
147 $
174
Interest paid in discontinued operations
—
15
For the Years Ended
December 31,
2024
2023
Supplemental disclosure of non-cash information:
Conversions of preferred stock to common stock
$
1,944 $
1,023
Down round feature adjustments related to preferred stock
380
7,057
Down round feature adjustments related to common stock warrants
1,005
—
Issuance of derivative liability in conjunction with Unsecured Convertible Notes
224
—
Warrant liabilities transferred to equity
312
1,360
Embedded derivative liability transferred to equity
242
169
The accompanying notes are an integral part of these consolidated financial statements.
- 40 -
Table of Contents
NOVABAY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024
NOTE 1. ORGANIZATION
NovaBay Pharmaceuticals, Inc. (the "Company” or "our,” "we,” or "us”) has historically been focused on the development and sale of scientifically-created and clinically-proven
eyecare, wound care, and skin care products. We have undergone significant changes to our business and operations as a result of a series of completed transactions summarized
below. Following the closing of each of these transactions, we have significantly reduced our business operations and currently have limited sources of future revenue.
As a result of completing each of the transaction discussed below, we have significantly reduced our business operations and currently have limited sources of future revenue
generation. Our Company was historically focused on the development and sale of scientifically-created and clinically-proven eyecare, wound care, and skin care products. The
Avenova Assets were our leading products formulated with our proprietary, stable and pure form of hypochlorous acid and were cleared by the FDA for sale in the United States.
As described in additional detail below, subsequent to December 31, 2024, on January 17, 2025, we completed the Avenova Asset Sale. See additional discussion under the section
"Recent Developments and Stock Exchange Listing” and subheading "Avenova Asset Sale” below.
Our primary continuing operations were focused on our eyecare products during each of the years ended December 31, 2024 and 2023. However, as described further below, on
September 19, 2024, the Company entered into the Purchase Agreement with PRN, pursuant to which PRN agreed to acquire the Avenova Assets, which transaction constituted
the sale of substantially all of our revenue generating and operating assets. Subsequent to December 31, 2024, we completed the Avenova Asset Sale on January 17, 2025. See
additional information about the Avenova Asset Sale in Note 12, "Avenova Asset Sale and Bridge Note” and Note 23, "Subsequent Events.”
The Company was incorporated under the laws of the State of California on January 19, 2000, as NovaCal Pharmaceuticals, Inc. It had no operations until July 1, 2002, on which
date it acquired all of the operating assets of NovaCal Pharmaceuticals, LLC, a California limited liability company. In February 2007, the Company changed its name from NovaCal
Pharmaceuticals, Inc. to NovaBay Pharmaceuticals, Inc. In June 2010, the Company changed the state in which it was incorporated pursuant to the Reincorporation and is now
incorporated under the laws of the State of Delaware. All references to "the Company” herein refer to the California corporation prior to the date of the Reincorporation and to the
Delaware corporation on and after the date of the Reincorporation. The Company is managed as one reportable segment, eyecare and wound care.
On May 30, 2024, the Company effected the Reverse Stock Split. Except as otherwise specifically noted, all share numbers, share prices, exercise/conversion prices and per share
amounts have been adjusted, on a retroactive basis, to reflect the Reverse Stock Split.
Held-for-Sale Assets
We historically manufactured and sold a proprietary form of hypochlorous acid for the wound care market under the NeutroPhase and PhaseOne brands. Our wound care products
were used for cleansing and irrigation as part of surgical procedures, as well as treating wounds, burns, ulcers and other injuries. Subsequent to December 31, 2024, on January 8,
2025, we completed the Wound Care Divestiture to Phase One. Following the Wound Care Divestiture, we are continuing to manufacture our wound care products under remaining
contractual obligations to our distribution partner in China. We anticipate fulfilling these obligations by the end of the second quarter of 2025. See additional information about the
Wound Care Trademarks and the Wound Care Divestiture in Note 22, "Wound Care Divestiture and Held-for-Sale Assets.”
- 41 -
Table of Contents
Discontinued Operations
Through our former subsidiary DERMAdoctor, the Company also offered over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and
blemishes to dry skin, perspiration and keratosis pilaris. On March 25, 2024, we announced that we had completed the DERMAdoctor Divestiture. See additional information about
DERMAdoctor and the DERMAdoctor Divestiture in Note 21, "DERMAdoctor Divestiture and Discontinued Operations.”
Plan of Dissolution
The Board unanimously approved the Avenova Asset Sale as described above and further determined at the same time that, if the Avenova Asset Sale was completed, that the
best opportunity available to maximize the remaining value for our Company and to our stockholders was to wind-up the Company’s affairs and pursue the Dissolution pursuant to
the Plan of Dissolution that may result in distributions to our stockholders of our remaining asset value, if any remains. The Avenova Asset Sale and the Dissolution were
presented to stockholders at the 2024 Special Meeting that was originally convened on November 22, 2024 and was subsequently adjourned and finally reconvened on January 30,
2025. At the 2024 Special Meeting reconvened on January 16, 2025, we received stockholder approval for the Avenova Asset Sale; however, we did not receive the requisite vote
of stockholders representing a majority of the outstanding shares of our common stock to approve the Dissolution. The Avenova Asset Sale was completed subsequent to
December 31, 2024 on January 17, 2025. With the Company having completed the sale of substantially all of its assets in the Avenova Asset Sale and sold all of its wound care
inventory to Phase One in the Wound Care Divestiture, the Board, upon further analysis of the best opportunity to maximize the remaining value for the Company and its
stockholders, among the other alternatives currently available, determined that it is in the best interest of the Company and its stockholders for the Company to continue pursuing
the voluntary Dissolution pursuant to the Plan of Dissolution.
The ability of the Company to proceed with the Dissolution under Delaware law is subject to the Company first receiving stockholder approval. Accordingly, the Company intends
to hold the New Special Meeting of stockholders where the Company’s stockholders will be asked to, among other items, consider and approve the Dissolution pursuant to the
Plan of Dissolution. If the Company’s stockholders approve the Dissolution on April 16, 2025, and the Board determines to proceed with the Dissolution, then the Company would
consider liquidation to be imminent and apply the liquidation basis of accounting pursuant to the accounting principles generally accepted in the United States ("U.S. GAAP”). See
additional discussion in Note 23, "Subsequent Events.”
Liquidity
Based on our funds available on December 31, 2024, as well as net proceeds of approximately $10.5 million from the Avenova Asset Sale that was completed on January 17, 2025,
management believes that the Company’s existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through April
2, 2026. However, there is uncertainty with respect to our strategic direction, as the Dissolution is subject to stockholder approval and we are also exploring other potential
strategic alternatives that may be available to us, and, as a result, when we do pursue our strategic direction, there may be unknown or potential future claims and liabilities that
may arise or changing circumstances that may cause the Company to expend cash significantly faster than currently anticipated because of factors beyond its control.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and are expressed in U.S. dollars.
- 42 -
Table of Contents
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its former wholly-owned subsidiary, DERMAdoctor, as of and for years ended
December 31, 2024 and 2023. All significant intercompany balances and transactions have been eliminated in consolidation.
See also Note 21, "DERMAdoctor Divestiture and Discontinued Operations” and Note 22, "Wound Care Divestiture and Held-for-Sale Assets.”
Financial Statement Reclassification
Certain account balances from the prior year have been reclassified in these consolidated financial statements to conform to current year classifications. The prior year amounts
have been modified in these consolidated financial statements to properly report amounts under current operations and discontinued operations (see Note 21, "DERMAdoctor
Divestiture and Discontinued Operations” and Note 22, "Wound Care Divestiture and Held-for-Sale Assets”).
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are
not limited to, contract liabilities related to product sales such as product returns, assumptions for valuing warrants, assumptions for valuing derivative liabilities, the fair value of
contingent consideration, intangible assets, goodwill, stock-based compensation, income taxes and other contingencies.
These estimates are based on management’s best estimates and judgment. Actual results may differ from these estimates. Estimates, judgments, and assumptions are continuously
evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Uncertainty about these assumptions, judgments and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in
future periods.
Segment Information
The Company has one operating and reportable segment that encompasses the Company’s consolidated ongoing operations, reflecting the integrated nature of its business that
involves the commercialization of its eyecare and wound care products as of December 31, 2024. The Company’s chief operating decision maker ("CODM”) is its chief executive
officer. The measurement of profit and loss is the segment loss, which is equivalent to the "net loss from continuing operations” as reported on the Company's statement of
operations. The measurement of segment assets is reported on the Company’s balance sheet as "total assets”. The CODM allocates resources and assesses performance on a
consolidated basis, focused on the Company’s cash resources and an assessment of the probability of success of its ongoing commercial activities. The CODM is not regularly
provided with disaggregated actual expense information, other than the actual expense information included in the consolidated statements of operations, as the Company’s
integrated operating model emphasizes shared resources and centralized decision-making.
The Company’s revenue is predominantly generated in the United States and all of the Company’s assets are held in the United States.
- 43 -
Table of Contents
Cash, Cash Equivalents, and Highly Liquid Restricted Cash
The Company considers all highly-liquid instruments with a stated maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates fair value. As of December 31, 2024 and 2023, the Company’s cash and cash equivalents were held in a major financial institution in the United
States.
The following table provides a reconciliation of the cash, cash equivalents, and restricted cash reported in the consolidated balance sheets (in thousands):
December 31,
December 31,
2024
2023
Cash and cash equivalents
$
430 $
3,130
Restricted cash included in other assets
477
476
Cash and cash equivalents, discontinued operations
-
(206)
Total cash, cash equivalents, and restricted cash in the consolidated statements of cash flows
$
907 $
3,400
The restricted cash amount included in other assets on the consolidated balance sheets represents amounts held as certificates of deposit for long-term financing and lease
arrangements as contractually required by our financial institution and landlord.
Concentrations of Credit Risk and Major Partners
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains
deposits of cash, cash equivalents and restricted cash with a major financial institution in the United States.
The Company has a significant amount of its cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss
incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.
During the years ended December 31, 2024 and 2023, revenues from significant product categories were as follows (in thousands):
For the Years Ended
December 31,
2024
2023
Avenova Spray
$
8,673 $
7,805
NeutroPhase
-
1,377
Other products
1,074
1,273
Total product revenue, net
9,747
10,455
Other revenue, net
34
-
Total sales, net
$
9,781 $
10,455
During the years ended December 31, 2024 and 2023, revenues were derived primarily from sales of Avenova branded products, directly to consumers through Amazon.com and
Avenova.com. Sales of Avenova Spray via Amazon comprised 73% and 67% of total Avenova Spray net revenue during the years ended December 31, 2024 and 2023,
respectively.
- 44 -
Table of Contents
As of December 31, 2024 and 2023, accounts receivable from our major distribution partners and major retailers greater than 10% were as follows (in thousands):
December 31,
December 31,
Major distribution partner
2024
2023
Major U.S. Retailer A
$
194 $
148
Avenova Spray Pharmacy Distributor A
46
*
Avenova Spray Pharmacy Distributor B
39
93
Avenova Spray Pharmacy Distributor C
39
*
Chongqing Pioneer Pharma Holdings Limited
*
243
* Less than 10%
The Company relies on one contract manufacturer to produce its products. The Company does not have any manufacturing facilities and intends to continue to rely on third
parties for the supply of finished goods. Our contract manufacturer may or may not be able to meet the Company’s needs with respect to timing, quantity or quality. In particular, it
is possible that the Company may suffer from unexpected delays in light of the global supply chain issues.
Fair Value of Financial Assets and Liabilities
The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, warrant liabilities, and
contingent consideration. The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities are carried at cost, which
management believes approximates fair value due to the short-term nature of these instruments.
The Company follows Accounting Standards Codification ("ASC”) 820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at fair
value on a recurring basis and nonrecurring basis. Under this standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable
inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable
inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best
information available in the circumstances. There are three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets for identical assets or liabilities;
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable; and
Level 3 – inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
See additional information in Note 3, "Fair Value Measurements.”
Allowance for Credit Losses
The Company has maintained an allowance for estimated losses resulting from the inability of its customers to meet their financial obligations to the Company. The Company has
recognized an allowance for credit losses based on factors such as historical experience, contract terms and general and market business conditions. The Company’s future
collection experience can differ significantly from historical collection trends due to such factors as changing customer circumstances and uncertain economic and industry trends.
The allowance has been re-evaluated by us on a regular basis and adjusted as needed, however, as a result of recent changes to our business and operations this practice is being
reevaluated going forward. Once a receivable is deemed to be uncollectible, such balance is then charged against the allowance. Management recorded a reserve for allowance for
credit losses of $3 thousand as of December 31, 2024 and 2023.
- 45 -
Table of Contents
Inventory
Inventory is comprised of (1) raw materials and supplies, such as bottles, packaging materials, labels, boxes and pumps; (2) goods in progress, which are normally filled but
unlabeled bottles; and (3) finished goods. The price paid to contract manufacturers to produce our products is included in inventory. Inventory is stated at the lower of cost or
estimated net realizable value determined by the first-in, first-out method. At December 31, 2024 and 2023, management had recorded an allowance for excess and obsolete
inventory and lower of cost or estimated net realizable value adjustments of $30 thousand and $218 thousand, respectively.
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related
assets of five to seven years for office and laboratory equipment, three to five years for computer equipment and software, and five to seven years for furniture and fixtures.
Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term.
The costs of normal maintenance, repairs, and minor replacements are expensed as incurred.
Business Combinations, Goodwill and Indefinite-Lived Intangible Assets
We account for business combinations using the acquisition method of accounting, in accordance with ASC 805, Business Combinations. The acquisition method requires that
identifiable assets acquired and liabilities assumed are recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the
acquired business. Intangible assets are measured at their respective fair values as of the acquisition date. Goodwill represents the excess of the consideration transferred over the
estimated fair value of assets acquired and liabilities assumed in a business combination.
Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely than not
that the assets are impaired.
Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on
qualitative factors, that the fair value of the reporting unit may more likely than not be less than carrying amount, or if significant adverse changes in the Company’s future
financial performance occur that could materially impact fair value, a quantitative goodwill impairment test would be required. Additionally, management can elect to forgo the
qualitative assessment and perform the quantitative test. If the qualitative assessment indicates that the quantitative analysis should be performed, or if management elects to
bypass a qualitative assessment, the Company then evaluates goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill.
The quantitative assessment for goodwill requires management to estimate the fair value of the Company’s reporting units using either an income or market approach or a
combination thereof.
Management makes critical assumptions and estimates in completing impairment assessments of goodwill and indefinite-lived intangible assets. The Company’s cash flow
projections look several years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions, probability of
success, market competition, inflation and discount rates.
- 46 -
Table of Contents
During the fourth quarter of 2023, the Company performed its annual goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C. The Company’s annual
impairment analysis included a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing the qualitative assessment, the
Company reviewed events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of goodwill. The Company
performed a Step 0 goodwill impairment analysis and determined that the fair value of the reporting unit may more likely than not be less than carrying amount, which necessitated
the Company performing the quantitative impairment test. After performing the quantitative impairment test in accordance with ASC 350-20-35-3C, the Company determined that
goodwill related to its DERMAdoctor reporting unit was fully impaired as of December 31, 2023 which resulted in goodwill impairment charges of $0.3 million during the year ended
December 31, 2023, which is reflected in the net loss from discontinued operations caption in the Company’s consolidated statements of operations. The Company did not perform
its annual goodwill impairment analysis in the fourth quarter of 2024 because the DERMAdoctor business had been fully impaired as of December 31, 2023 and was subsequently
disposed of pursuant to the DERMAdoctor Divestiture.
During the fourth quarter of 2023 the Company also performed its indefinite-lived intangible asset impairment assessment. The Company evaluated, on the basis of the weight of
the evidence, the significance of all identified events and circumstances that could affect the significant inputs used to determine the fair value of the Company’s indefinite-lived
intangible assets, to determine whether it is more likely than not that the Company’s indefinite-lived intangible assets were impaired. After assessing the totality of events and
circumstances, and their potential effect on significant inputs to the fair value calculation, the Company determined that it is more likely than not that its indefinite-lived intangible
assets related to its DERMAdoctor reporting unit were impaired. As such, the Company performed a quantitative impairment test on its indefinite-lived intangible assets. Based on
the quantitative impairment test, the Company determined that its indefinite-lived trade name intangible asset should be fully impaired as of December 31, 2023, which resulted in a
$1.1 million impairment charge being recorded during the year ended December 31, 2023, which is reflected in the net loss from discontinued operations caption in the Company’s
consolidated statements of operations. The Company did not perform its annual indefinite-lived intangible asset impairment analysis in the fourth quarter of 2024 because the
DERMAdoctor business had been fully impaired as of December 31, 2023 and was subsequently disposed of pursuant to the DERMAdoctor Divestiture.
Valuation of Contingent Consideration Resulting from a Business Combination
As part of the Company’s acquisition of the DERMAdoctor business in 2021, the Company was subject to paying consideration that was contingent upon the achievement of
specified milestone events. The Company recorded this contingent consideration at its fair value on the acquisition date. Each quarter thereafter, the Company revalued the
contingent consideration and recorded changes in fair value within the consolidated statements of operations. Contingent consideration was dependent upon financial targets for
calendar years 2022 and 2023 which were not met. As a result, the liability recorded for potential earn out payments in the Company’s consolidated balance sheets was zero as of
December 31, 2023.
Long-Lived Assets
The Company’s intangible assets that do not have indefinite lives (primarily trade secrets / product formulations) are amortized over their estimated useful lives. All of the
Company’s intangible assets subject to amortization and other long-lived assets, are reviewed for impairment in accordance with ASC 360, Property, Plant and Equipment, which
requires that companies consider whether events or changes in facts and circumstances, both internally and externally, may indicate that an impairment of long-lived assets held
for use are present. The Company reviews long-lived assets for impairment at least annually or whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the
carrying amount of the asset, the assets are written down to their estimated fair values and the loss is recognized in the consolidated statements of operations.
- 47 -
Table of Contents
In connection with the above-mentioned DERMAdoctor reporting unit impairments, discussed in the goodwill and indefinite-lived intangible assets caption above, the Company
determined that all of the DERMAdoctor business definite long-lived intangible assets and property and equipment were also impaired. As such, the Company recorded an
impairment charge in the year ended December 31, 2023 of $1.0 million, for the impairment of long-lived intangible assets which is reflected in the caption net loss from discontinued
operations in the Company’s consolidated statements of operations; $0.1 million for the impairment of a right-of-use asset which is reflected in the caption net loss from
discontinued operations in the Company’s consolidated statements of operations in the year ended December 31, 2023; and of $2 thousand, net in the year ended December 31,
2023, for property and equipment which is reflected in the net loss from discontinued operations caption in the Company’s consolidated statements of operations. The Company
did not perform an analysis for impairment of long-lived intangible assets in the fourth quarter of 2024 because the DERMAdoctor business had been fully impaired as of December
31, 2023 and was subsequently disposed of pursuant to the DERMAdoctor Divestiture.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease
liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease
contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis over a
similar term, an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets may be required for items such as initial direct
costs paid or incentives received. Additionally, the Company determined that a right-of-use asset related to the DERMAdoctor business had been fully impaired as of December
31, 2023. Accordingly, the Company recorded an impairment charge of $0.1 million which is reflected in the caption net loss from discontinued operations in the Company’s
consolidated statements of operations in the year ended December 31, 2023.
The Company has elected to combine lease and non-lease components as a single component. This will potentially result in the initial and subsequent measurement of the
balances of the right-of-use assets and lease liability for leases being greater than if the policy election was not applied. Leases include variable components (e.g., common area
maintenance) that are paid separately from the monthly base payment based on actual costs incurred and therefore were not included in the right-of-use assets and lease liability
but are reflected as an expense in the year incurred.
The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized in the consolidated balance sheet as right-of-use assets, operating
lease liabilities current and operating lease liabilities non-current.
Common Stock Warrants
The Company accounts for common stock purchase warrants issued in connection with its equity offerings in accordance with the provisions of ASC 480, Distinguishing
Liabilities from Equity, and ASC 815, Derivatives and Hedging (ASC 815).
The Company classifies as equity any warrants that (i) require physical share settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement (physical
share settlement or net-share settlement). The Company classifies as liabilities any warrants that (i) require net-cash settlement, (ii) give the counterparty a choice of net-cash
physical settlement or net-share settlement. In accordance with ASC 815, the Company also classifies as liabilities any warrants for which the shares underlying the contract are
subject to stockholder approval before the warrant can be exercised.
For warrants that are classified as liabilities, the Company records the fair value of the warrants upon issuance and at each balance sheet date with changes in the estimated fair
value recorded as a non-cash gain or loss in the consolidated statements of operations. The fair values of these warrants are determined using the Black-Scholes option pricing
model. These values are subject to a significant degree of management’s judgment. See Note 3, "Fair Value Measurements,” subheading "Black Scholes Valuation Models and
Assumptions” and Note 14, "Common Stock Warrants and Warrant Liabilities,” subheading "Summary of Common Stock Warrant Liabilities.”
- 48 -
Table of Contents
Amendments to warrant terms are recorded as a non-cash gain or loss on modification of common stock warrants. The gain or loss represents the decrease or increase in the fair
value of the amended warrants when comparing the value immediately before and after amendment using the Black-Scholes option pricing model. See Note 3, "Fair Value
Measurements,” subheading "Black Scholes Valuation Models and Assumptions.”
Preferred Stock
Terms of the Company’s outstanding Preferred Stock historically included a Ratchet whereby the applicable conversion price could be adjusted (as defined and described in Note
15, "Stockholders’ Equity”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended March 31, 2024. When a
conversion price was adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC
820, Fair Value Measurements and Disclosures ("ASC 820”), the deemed dividend was measured as the difference between (1) the fair value of the Preferred Stock immediately
prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price
adjustment (but without the anti-dilution protection feature). These fair values were determined using the Black Scholes option pricing model. These values are subject to a
significant degree of management’s judgment. See also Note 3, "Fair Value Measurements,” subheading "Black Scholes Valuation Models and Assumptions.”
Revenue Recognition
The Company’s product revenue recognition policies are established in accordance with ASC 606, Revenue from Contracts with Customers, in accordance with the following five
steps:
i.
identify the contract(s) with a customer;
ii.
identify the performance obligations in the contract;
iii. determine the transaction price;
iv. allocate the transaction price to the performance obligations in the contract; and
v.
recognize revenue when (or as) the entity satisfies performance obligations.
Revenue is recognized in accordance with the amount of consideration which the Company expects to receive.
Revenue generated from end consumers through third-party online retailers, such as Amazon, as well as the Company’s web store (Avenova.com) is recognized on a "sell-
through” basis when control of the goods is transferred to the consumer, which generally occurred upon delivery of the products to the party fulfilling the consumer’s order.
Revenue is recorded net of any discounts and estimates for refunds and product returns. Fees paid to third-party online retailers and fulfillment parties are recorded as incurred in
the Company’s consolidated statements of operations. Fulfillment and shipping and handling fees are recorded as product cost of goods sold. Selling commissions and advertising
and promotion fees are recorded as sales and marketing expenses.
Revenue generated through major pharmacy distributors is recognized on a "sell-in” basis when control of the goods is transferred to the distributor, which generally occurs upon
delivery of the products to the distributor. Revenue is recorded net of consideration for contract liabilities for distributor services, discounts, rebates, and product returns. The
Company estimates returns and other contract liabilities based on historical data which is updated quarterly. Payment for products sold is typically due 60 days after delivery to the
distributor.
Revenue generated from end consumers through the Company’s partner pharmacies is recognized on a "sell-through” basis when control of the goods is transferred to the
consumer.
Revenue generated from other retailers is recognized on a "sell-through” basis, net of estimated future product returns, when control of the goods is transferred to the retailer,
which generally occurs upon delivery of the products to a third-party carrier who is delivering the products to the retailer.
The Company defers recognition for pre-payments until the Company’s performance obligations are satisfied.
- 49 -
Table of Contents
Cost of Goods Sold
Cost of goods sold includes third-party manufacturing costs, shipping and handling costs, third-party fulfillment fees, and other costs associated with products sold. Cost of
goods sold also includes any necessary allowances for excess and obsolete inventory as well as lower of cost and estimated net realizable value.
Research and Development Costs
The Company charges research and development costs to expense as incurred. These costs include all costs associated with research, development and regulatory activities.
Patent Costs
Patent costs are expensed in the period in which they are incurred. Patent expenses are included in general and administrative expenses in the consolidated statements of
operations.
Advertising Costs
Advertising costs are expensed in the period in which the costs are incurred. Advertising costs are included in sales and marketing expenses in the consolidated statements of
operations. Advertising expenses were $0.7 million and $1.1 million, respectively, for the years ended December 31, 2024 and 2023.
Stock-Based Compensation
The Company’s stock-based compensation includes grants of stock options and restricted stock units ("RSUs”) to employees, consultants and non-employee directors. The
expense associated with these grants is recognized in the Company’s consolidated statements of operations based on their fair values as they are earned under the applicable
vesting terms. For stock options granted, the fair value of the stock options is estimated using a Black-Scholes option pricing model. The Company accounts for RSUs issued to
employees and non-employees (directors, consultants and advisory board members) based on the fair market value of the Company’s common stock on the date of issuance. See
Note 16, "Equity-Based Compensation” for further information regarding stock-based compensation expense and the assumptions used in estimating the expense.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance is recognized if it is more likely than not that some portion or the entire deferred tax asset will not be recognized.
Net Loss per Share
The Company computes net loss per share by presenting both basic and diluted loss per share ("EPS”) as shown in the Company’s consolidated statements of operations.
Basic EPS is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS
gives effect to all dilutive potential common shares outstanding during the period, including stock options and warrants, using the treasury stock method. In computing diluted
EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options or warrants. Potentially dilutive
common share equivalents are excluded from the diluted EPS computation in net loss periods if their effect would be anti-dilutive.
- 50 -
Table of Contents
For the years ended December 31, 2024 and 2023, the Series B Preferred Stock and Series C Preferred Stock were excluded from the computation of diluted net loss per share as their
inclusion on an "if converted” basis would have been anti-dilutive. The Series B Preferred Stock and Series C Preferred Stock were considered anti-dilutive because such securities
did not have a contractual obligation to participate in losses of the Company.
The following outstanding preferred stock, stock options and stock warrants were excluded from the diluted EPS computation as their effect would have been anti-dilutive:
As of December 31,
2024
2023
Common stock equivalent of Series B Non-Voting Convertible Preferred Stock (the "Series B Preferred Stock”)
15,065
640,800
Common stock equivalent of Series C Non-Voting Convertible Preferred Stock (the "Series C Preferred Stock”)
-
125,371
Stock options
6,859
3,568
Stock warrants
10,836,275
210,927
10,858,199
980,666
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB”) in the form of Accounting Standard Updates ("ASUs”) to the FASB ASC. We
consider the applicability and impact of all ASUs and any not listed below were assessed and determined to be not applicable or are expected to have a minimal impact on our
consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, "Disaggregation of Income Statement Expenses” ("ASU 2024-03”). ASU 2024-03 requires disclosure of the nature of expenses
included in the income statement in response to longstanding requests from investors for more information about an entity’s expenses. The new standard requires disclosures
about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2024-03 will be
effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. The
Company is currently evaluating ASU 2024-03 and does not expect it to have a material effect on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures” ("ASU 2023-09”). ASU 2023-09 requires disclosure of
specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is
equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). ASU 2023-09 will be effective for the
annual reporting periods in fiscal years beginning after December 15, 2024. The Company is currently evaluating ASU 2023-09 and does not expect it to have a material effect on the
Company’s consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures” ("ASU 2023-07”) which is intended to provide enhanced segment
disclosures. The standard requires disclosures about significant segment expenses and other segment items and identifying the CODM and how they use the reported segment
profitability measures to assess segment performance and allocate resources. These enhanced disclosures are required for all entities on an interim and annual basis, even if they
have only a single reportable segment. The standard is effective for years beginning after December 15, 2023, and interim periods within annual periods beginning after December
15, 2024. The adoption of this standard did not have a significant impact on Company’s financial statements or related disclosures.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” ("ASU 2016-13”). The
amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.
ASU 2016-13 is effective for the Company for annual and interim reporting periods beginning January 1, 2023. The Company adopted the new standard effective January 1, 2023,
and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
- 51 -
Table of Contents
NOTE 3. FAIR VALUE MEASUREMENTS
The following tables presents the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2024 and 2023 (in thousands):
Fair Value Measurements Using
Quoted
Prices in
Active
Markets
Significant
for
Other
Significant
Balance at
Identical
Observable
Unobservable
December
Items
Inputs
Inputs
31, 2024
(Level 1)
(Level 2)
(Level 3)
Assets
Restricted cash held as a certificate of deposit
$
477 $
477 $
— $
—
Fair Value Measurements Using
Quoted
Prices in
Active
Markets
Significant
for
Other
Significant
Balance at
Identical
Observable
Unobservable
December
Items
Inputs
Inputs
31, 2023
(Level 1)
(Level 2)
(Level 3)
Assets
Restricted cash held as a certificate of deposit
$
476 $
476 $
— $
—
Liabilities
Warrant liability
$
334 $
— $
334 $
—
The Company’s cash equivalents and restricted cash held as certificates of deposit are classified within Level 1 of the fair value hierarchy because they are valued using quoted
market prices in active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
The Secured Convertible Notes and Unsecured Convertible Notes (see Note 13, "Convertible Notes”) are carried at proceeds, net of discounts, which management believes
approximates fair value. As a result of certain call and put options within the Secured Convertible Notes and Unsecured Convertible Notes, the Company recorded an embedded
derivative liability on its consolidated balance sheets with a corresponding debt discount which is netted against the face value of the Secured Convertible Notes and Unsecured
Convertible Notes. The fair value of the embedded derivatives were calculated using the Black Scholes valuation model using Level 2 inputs of the fair value hierarchy.
The fair value of the December 2023 Warrants issued in conjunction with the 2023 Warrant Reprice Transaction as well as the accounting for the warrant amendment and preferred
stock conversion price adjustments that resulted from the 2023 Warrant Reprice Transaction were classified within Level 2. The fair value of the March 2024 Warrant issued in
conjunction with the 2024 Subsidiary Guarantee Termination was classified within Level 2.
- 52 -
Table of Contents
See Note 14, "Common Stock Warrants and Warrant Liabilities,” subheading "Summary of Common Stock Warrant Liabilities,” for a reconciliation of the beginning and ending
balances for the warrant liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2024 and 2023.
Black Scholes Valuation Models and Assumptions
The Company utilizes a Black Scholes model for various valuations as outlined throughout this annual report. The following tables summarize the assumptions utilized for
valuations impacting results for the years ended December 31, 2024 and 2023. See also Note 16, "Equity-Based Compensation” for related Black Scholes valuation assumptions.
Warrant Liabilities
Various of the Company’s warrants have been subject to stockholder approval upon issuance or amendment and prior to exercise. Warrants requiring stockholder approval are
recorded as a liability at fair value upon issuance or amendment and continue to be recorded as a liability at fair value at each reporting date until stockholder approval occurs at
which time they are transferred to stockholders’ equity at their fair value on the date of approval. Fair value was determined using a Black Scholes model as outlined below. See
Note 14, "Common Stock Warrants and Warrant Liabilities” for additional information and the definitions of the Company’s warrants.
May 2023
Warrants
May 2023
Warrants
Measurement event
Issuance
Stockholder Approval
Date
May 1, 2023
June 9, 2023
Total Value
$1.6 million
$1.4 million
Gain (Loss)
not applicable
$0.2 million
Assumptions:
Exercise price
$
45.50
$
45.50
Market price
$
25.20(a) $
23.80
Volatility
80.1%
77.6%
Risk-free rate
3.60
-
4.04%
3.92
-
4.59%
Dividend yield
0.0%
0.0%
Term (years)
2.1
-
5.1
2.0
-
5.0
December
2023
Warrants
December
2023
Warrants
Measurement event
Reporting Date
Stockholder Approval
Date
December 31, 2023
May 28, 2024
Total Value
$0.3 million
$0.2 million
Gain (Loss)
$56 thousand
$(51 thousand)
Assumptions:
Exercise price
$
8.75 $
8.75
Market price
$
7.14 $
4.94
Volatility
79.3%
83.9%
Risk-free rate
3.85%
4.56%
Dividend yield
0.0%
0.0%
Term (years)
5.5
5.1
- 53 -
Table of Contents
March
March
2024
2024
Warrant
Warrant
Measurement event
Reporting Date
Stockholder Approval
Date
March 31, 2024
May 28, 2024
Total Value
$0.1 million
$0.1 million
Gain (Loss)
$21 thousand
$(28 thousand)
Assumptions:
Exercise price
$
4.90 $
4.90
Market price
$
3.66 $
4.94
Volatility
86.9%
83.9%
Risk-free rate
4.21%
4.56%
Dividend yield
0.0%
0.0%
Term (years)
5.5
5.3
(a) Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.
Warrant Modifications
Amendments to warrant terms are recorded as a non-cash gain (or loss) on modification of common stock warrants. The gain or loss represents the decrease or increase in the fair
value of the amended warrants when comparing the value immediately before and after amendment using the Black Scholes option pricing model. Fair value was determined using a
Black Scholes model as outlined below.
July 2020, November 2021,
September 2022 & November 2022
Warrants
Measurement event
Prior to amendment
After amendment
Date
April 27, 2023
April 27, 2023
Total Value
$0.3 million
$0.5 million
Loss
not applicable
$0.2 million
Assumptions:
Exercise price
$
220.50
$
52.50
Market price
$
25.20(a) $
25.20(a)
Volatility
80.1%
80.1%
Risk-free rate
3.59
-
4.73%
3.59
-
4.73%
Dividend yield
0.0%
0.0%
Term (years)
1.1
-
5.6
1.1
-
5.6
- 54 -
Table of Contents
May 2023 Warrants
Measurement event
Prior to amendment
After amendment
Date
December 21, 2023
December 21, 2023
Total Value
$56 thousand
$0.2 million
Loss
not applicable
$0.1 million
Assumptions:
Exercise price
$
45.50 $
8.75
Market price
$
8.07 $
8.07
Volatility
79.3%
79.3%
Risk-free rate
3.92
-
4.62%
3.92
-
4.62%
Dividend yield
0.0%
0.0%
Term (years)
1.5
-
4.5
1.5
-
4.5
September 2022, November 2022,
and May 2023 Warrants
Measurement event
Prior to amendment
After amendment
Date
June 14, 2024
June 14, 2024
Total Value
$66 thousand
$0.1 million
Loss
not applicable
$70 thousand
Assumptions:
Exercise price
$
8.75-52.50 $
2.50
Market price
$
2.51 $
2.51
Volatility
89.3%
89.3%
Risk-free rate
4.27
-
5.08%
4.27
-
5.08%
Dividend yield
0.0%
0.0%
Term (years)
1.0
-
4.4
1.0
-
4.4%
(a) Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.
Warrant Down Round Feature Adjustment
Terms of the Company’s outstanding 2024 July Warrants included a down round feature adjustment whereby the applicable exercise price was automatically adjusted (see Note 11,
"Financing Activities”). When the exercise price was adjusted, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In
accordance with ASC 820, the deemed dividend is measured as the difference between (1) the fair value of the 2024 July Warrants immediately prior to the conversion price
adjustment and (2) the fair value of the 2024 July Warrants immediately after the conversion price adjustment. Fair value was determined using a Black Scholes model, as outlined
below.
Series F-1
Measurement event
Prior to adjustment
After adjustment
Date
September 27, 2024
September 27, 2024
Total value
$1.7 million
$1.9 million
Deemed dividend
not applicable
$0.2 million
Assumptions:
Exercise price
$
1.10 $
0.66
Market price
$
0.71 $
0.71
Volatility
97.1%
97.1%
Risk-free rate
3.55%
3.55%
Dividend yield
0.0%
0.0%
Term (in years)
4.84
4.84
- 55 -
Table of Contents
Series F-2
Measurement event
Prior to adjustment
After adjustment
Date
September 27, 2024
September 27, 2024
Total value
$0.2 million
$0.6 million
Deemed dividend
not applicable
$0.4 million
Assumptions:
Exercise price
$
1.10 $
0.66
Market price
$
0.71 $
0.71
Volatility
97.1%
97.1%
Risk-free rate
4.64%
4.64%
Dividend yield
0.0%
0.0%
Term (in years)
0.34
0.34
Series F-3
Measurement event
Prior to adjustment
After adjustment
Date
September 27, 2024
September 27, 2024
Total value
$0.6 million
$1.0 million
Deemed dividend
not applicable
$0.4 million
Assumptions:
Exercise price
$
1.10 $
0.66
Market price
$
0.71 $
0.71
Volatility
97.1%
97.1%
Risk-free rate
4.10%
4.10%
Dividend yield
0.0%
0.0%
Term (in years)
0.84
0.84
- 56 -
Table of Contents
Preferred Stock Conversion Price Adjustments
Terms of the Company’s outstanding Preferred Stock historically included a Ratchet whereby the applicable conversion price could be adjusted (see Note 15, "Stockholders’
Equity”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended March 31, 2024. When a conversion price was
adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC 820, the deemed
dividend is measured as the difference between (1) the fair value of the Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution
protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). Fair value was
determined using a Black Scholes model as outlined below.
Series B & C Preferred Stock
Measurement event
Prior to Ratchet
After Ratchet
Date
April 27, 2023
April 27, 2023
Total value (b)
$9.6 million
$11.6 million
Deemed dividend
not applicable
$2.0 million
Assumptions:
Exercise price
$
220.50
$
45.50
Market price
$
25.20(a) $
25.20(a)
Volatility
80.1%
80.1%
Risk-free rate
4.91%
4.91%
Dividend yield
0.0%
0.0%
Term (in years)
0.8
0.8
Series B & C Preferred Stock
Measurement event
Prior to Ratchet
After Ratchet
Date
December 21, 2023
December 21, 2023
Total value (b)
$1.7 million
$6.8 million
Deemed dividend
not applicable
$5.1 million
Assumptions:
Exercise price
$
45.50 $
8.75
Market price
$
8.07 $
8.07
Volatility
79.3%
79.3%
Risk-free rate
5.43%
5.43%
Dividend yield
0.0%
0.0%
Term (years)
0.3
0.3
Series C Preferred Stock
Measurement event
Prior to Ratchet
After Ratchet
Date
March 24, 2024
March 24, 2024
Total value (b)
$0.5 million
$0.9 million
Deemed dividend
not applicable
$0.4 million
Assumptions:
Exercise price
$
8.75 $
4.90
Market price
$
4.77 $
4.77
Volatility
79.9%
79.9%
Risk-free rate
5.51%
5.51%
Dividend yield
0.0%
0.0%
Term (in years)
0.1
0.1
(a) Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.
(b) Includes value of incremental shares underlying preferred stock and adjusted for probability of occurrence.
- 57 -
Table of Contents
Bifurcatable Derivatives
Upon issuance in March 2024, the Unsecured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an
embedded derivative liability at fair value (see Note 13, "Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.
Unsecured
Convertible
Notes
derivative
Unsecured
Convertible
Notes
derivative
Measurement event
Issuance
Shareholder Approval
Date
March 25, 2024
May 28, 2024
Total value
$0.2 million
$0.2 million
Gain (Loss)
not applicable
$(82 thousand)
Assumptions:
Exercise price
$
4.90 $
4.90
Market price
$
4.51 $
4.94
Volatility
86.9%
83.9%
Risk-free rate
4.54%
4.94%
Dividend yield
0.0%
0.0%
Term (years)
2.0
1.8
Upon issuance in May 2023, the Secured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an
embedded derivative liability at fair value (see Note 13, "Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.
Secured
Convertible
Notes derivative
Secured
Convertible
Notes derivative
Measurement event
Issuance
Shareholder Approval
Date
April 27, 2023
June 9, 2023
Total value (b)
$0.2 million
$0.2 million
Gain
not applicable
$40 thousand
Assumptions:
Exercise price
$
45.50
$
45.50
Market price
25.20(a) $
23.80
Volatility
80.1%
76.9%
Risk-free rate
4.88%
5.41%
Dividend yield
0.0%
0.0%
Term (years)
0.8
0.7
(a) Adjusted for the dilutive effect of the 2023 Private Placement. See additional discussion above.
(b) Adjusted for probability of occurrence.
- 58 -
Table of Contents
NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following (in thousands):
December 31,
December 31,
2024
2023
Prepaid dues and subscriptions
$
76 $
85
Prepaid taxes & licenses
69
83
Prepaid insurance
48
66
Prepaid inventory
-
73
Other
110
81
Less: Prepaid expenses from discontinued operations included above
-
(132)
Total prepaid expenses and other current assets
$
303 $
256
NOTE 5. INVENTORY
Inventory consisted of the following (in thousands):
December 31,
December 31,
2024
2023
Raw materials and supplies
$
127 $
943
Finished goods
792
2,168
Less: Reserve for excess and obsolete inventory
(106)
(264)
Inventory from held-for-sale assets, net of reserve
(48)
(63)
Less: Inventory from discontinued operations, net of reserve, included above
-
(2,313)
Total inventory, net
$
765 $
501
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
December 31,
December 31,
2024
2023
Office and laboratory equipment
$
20 $
20
Furniture and fixtures
157
157
Computer equipment and software
413
431
Leasehold improvements
152
152
Total property and equipment, at cost
742
760
Less: Accumulated depreciation
(689)
(673)
Total property and equipment, net
$
53 $
87
Depreciation expense related to continuing operations was $40 thousand and $51 thousand for the years ended December 31, 2024 and 2023, respectively. The Company recorded
no depreciation expense during the years ended December 31, 2024 and 2023, and no property and equipment as of December 31, 2024 and 2023 related to discontinued operations.
- 59 -
Table of Contents
During the years ended December 31, 2024 and 2023 the Company disposed of damaged, unusable and fully depreciated property and equipment with a cost of approximately $25
thousand and $68 thousand, respectively.
During the years ended December 31, 2024 and 2023, the Company recorded an impairment charge of $0 and $2 thousand, net, respectively, for the years ended December 31, 2024
and 2023 for DERMAdoctor property and equipment which is reflected in the net loss from discontinued operations caption in the Company’s consolidated statements of
operations.
NOTE 7. GOODWILL
Goodwill is accounted for in accordance with ASC 350, Intangibles-Goodwill and Other. The Company does not amortize goodwill, but rather tests for impairment annually or
more frequently if events or circumstances indicate that an asset may be impaired.
During the fourth quarter of 2023, the Company performed its annual goodwill impairment analysis following the steps laid out in ASC 350-20-35-3C. The Company’s impairment
analysis included a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing a qualitative assessment, the Company reviewed
events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of goodwill. The Company performed a Step 0
goodwill impairment analysis and determined that the fair value of the reporting unit was more likely than not less than the carrying amount, which necessitated the Company
performing the quantitative impairment test. After performing the quantitative impairment test in accordance with ASC 350-20-35-3C, the Company determined that goodwill related
to its DERMAdoctor reporting unit was fully impaired during the year ended December 31, 2023. As such, the Company recorded a goodwill impairment charge in the year ended
December 31, 2023, which is included in net loss from discontinued operations in the Company’s consolidated statements of operations. There was no such goodwill
impairment recorded during the year ended December 31, 2024. The impairment information is discussed in Note 2, "Summary of Significant Accounting Policies.” On March 25,
2024, we closed the DERMAdoctor Divestiture. See additional information in Note 21, "DERMAdoctor Divestiture and Discontinued Operations.”
The following roll-forward presents the Company’s goodwill as of December 31, 2023 (in thousands):
Amount
Balance as of December 31, 2022
$
348
Impairment
348
Balance as of December 31, 2023
$
—
NOTE 8. OTHER INTANGIBLE ASSETS
The following roll-forward presents the Company’s other intangible assets as of December 31, 2023 (in thousands):
Balance at December 31, 2023
Accumulated
Impairments
Gross
Amortization
to Date
Net
Indefinite-lived intangible assets
DERMAdoctor Trade names
$
2,080 $
— $
(2,080) $
—
Amortizable intangible assets
DERMAdoctor Customer relationships
290
(60)
(230)
—
DERMAdoctor Trade secrets / product formulations
2,890
(515)
(2,375)
—
Total other intangible assets
$
5,260 $
(575) $
(4,685) $
—
- 60 -
Table of Contents
The Company determined that its indefinite-lived and long-lived amortizable intangible assets related to its DERMAdoctor business were fully impaired during the year ended
December 31, 2023. As such, the Company recorded an intangible asset impairment charge of $2.1 million in the year ended December 31, 2023 which is included in net loss from
discontinued operations in the Company’s consolidated statements of operations. There was no such intangible asset impairment charge recorded during the year ended
December 31, 2024. The impairment information is discussed in Note 2, "Summary of Significant Accounting Policies.” On March 25, 2024, we closed the DERMAdoctor
Divestiture, resulting in the sale of the indefinite-lived and long-lived amortizable intangible assets. See additional information in Note 21, "DERMAdoctor Divestiture and
Discontinued Operations.”
Amortization expense was $152 thousand during the year ended December 31, 2023 which is included in net loss from discontinued operations. There was no
such expense recorded during the year ended December 31, 2024 as the related assets were fully impaired prior to 2024 and subsequently sold in conjunction with the
DERMAdoctor Divestiture.
NOTE 9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
December 31,
December 31,
2024
2023
Employee payroll and benefits
$
597 $
341
Contract liabilities (see Note 17)
488
946
Other
172
229
Less: Accrued liabilities from discontinued operations included above
-
(347)
Total accrued liabilities
$
1,257 $
1,169
NOTE 10. COMMITMENTS AND CONTINGENCIES
Indemnification Agreements
As permitted under Delaware law and in accordance with its bylaws, the Company indemnifies its officers and directors for certain events or occurrences while the officer or
director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of
potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and may enable it to recover a portion of any
future payments. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, it has not recorded any liabilities for these agreements as of
December 31, 2024 or 2023.
In the normal course of business, the Company provides indemnification of varying scope under its agreements with other entities, typically its clinical research organizations,
investigators, clinical sites, suppliers, and others. Pursuant to these agreements, it generally indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses
suffered or incurred by the indemnified parties in connection with the use or testing of its products or product candidates or with any U.S. patent or any copyright or other
intellectual property infringement claims by any third party with respect to its products. The term of these indemnification agreements is generally perpetual. The potential future
payments the Company could be required to make under these indemnification agreements is unlimited. Historically, costs related to these indemnification provisions have been
immaterial. The Company also maintains various liability insurance policies that limit its exposure. As a result, it believes the fair value of these indemnification agreements is
minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2024 or 2023.
- 61 -
Table of Contents
Legal Matters
From time to time, the Company is subject to various legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. The
ultimate outcome of any litigation or other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues
its best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against the Company in a reporting period for an amount above expectations, the
Company’s financial condition and operating results for that period may be adversely affected. As of December 31, 2024 and 2023, there were no legal matters that, in the opinion of
management, would ultimately result in liability that would have a material adverse effect on the Company’s financial position, results of operations or cash flows. Any outcome,
whether favorable or unfavorable, may materially and adversely affect the Company due to legal costs and expenses, diversion of management attention and other factors. The
Company cannot provide assurance that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against it in the future, and these
matters could relate to prior, current, or future transactions or events.
Leases
The Company leases office space for its corporate headquarters located in Emeryville, California. The current lease term expires on July 31, 2027.
Lease costs for the years ended December 31, 2024 and 2023 were as follows (in thousands):
For the Years Ended
December 31,
2024
2023
Operating lease – expense
$
400 $
403
Operating lease – included in operating cash flow
426
414
The Company has measured its operating lease liabilities as the present value of minimum lease payments using its incremental borrowing rate over the remaining term for each
operating lease. The weighted average remaining lease term and the weighted average discount rate for operating leases from continuing operations are summarized as follows:
For the Years Ended
December 31,
2024
2023
Weighted-average remaining lease term (in years)
2.6
3.6
Weighted-average discount rate
5%
5%
Future lease payments under non-cancelable leases as of December 31, 2024 were as follows (in thousands):
2025
$
439
2026
444
2027
290
Total future minimum lease payments
1,173
Less: Imputed interest
(66)
Total
$
1,107
Reported as:
Operating lease liability
$
398
Operating lease liability- non-current
709
Total
$
1,107
- 62 -
Table of Contents
NOTE 11. FINANCING ACTIVITIES
See Notes 2, "Summary of Significant Accounting Policies;” 3, "Fair Value Measurements;” 13, "Convertible Notes;” 14, "Common Stock Warrants and Warrant Liabilities”
and 15, "Stockholders’ Equity” for certain defined terms below and additional discussion of financing activities and related accounting policies and fair value estimates.
2024 Public Offering
On July 26, 2024, the Company entered into an underwriting agreement with Ladenburg Thalmann & Co., Inc., as the sole underwriter (the "Underwriter”), relating to the issuance
and sale in a public offering of: (i) 1,158,566 shares of common stock and 2,041,814 July 2024 Pre-Funded Warrants, in lieu of shares of common stock, (ii) 3,200,380 Series F-1
Warrants to purchase up to 3,200,380 shares of common stock, (iii) 3,200,380 Series F-2 Warrants to purchase up to 3,200,380 shares of common stock and (iv) 3,200,380 Series F-3
Warrants to purchase up to 3,200,380 shares of common stock.
The Series F-1 Warrants had an exercise price of $1.10 per share at issuance, were exercisable immediately upon issuance, and will expire on the five-year anniversary of the date of
issuance. The Series F-2 Warrants had an exercise price of $1.10 per share at issuance, were exercisable immediately upon issuance, and expired on the six-month anniversary of the
date of issuance. The Series F-3 Warrants had an exercise price of $1.10 per share at issuance, were exercisable immediately upon issuance, and will expire on the one-year
anniversary of the date of issuance. The July 2024 Pre-Funded Warrants were immediately exercisable at a nominal exercise price of $0.01 per share and could be exercised at any
time until the July 2024 Pre-Funded Warrants were exercised in full. As of September 30, 2024, all of the July 2024 Pre-Funded Warrants had been exercised, resulting in the
Company issuing 2,041,814 shares of common stock. In connection with such exercises, the Company received net proceeds of approximately $20 thousand.
The July 2024 Warrants include a down round feature adjustment where the exercise price was automatically reset to a price equal to the lesser of (i) the then exercise price and (ii)
90% of the volume weighted average prices for the five (5) trading days immediately preceding the date that is sixty calendar days after issuance of the July 2024 Warrants as
applicable. Such down round feature adjustment was triggered on September 27, 2024, resulting in a reduced exercise price of $0.66 per share. As a result of the reduced exercise
price, a deemed dividend of $1.0 million was recognized in accordance with a Black Scholes valuation model.
The exercise price and number of shares of common stock issuable upon exercise of the July 2024 Warrants is subject to appropriate adjustment in the event of stock dividends,
stock splits, reorganizations or similar events affecting the common stock and the exercise price. Subject to limited exceptions, a holder may not exercise any portion of its July 2024
Warrants to the extent that the holder would beneficially own more than 4.99% (or, at the election of the holder prior to the date of issuance, 9.99%) of the Company’s outstanding
common stock after exercise.
In addition, the Company granted the Underwriter a 45-day option to purchase up to 477,272 additional shares of common stock and/or 477,272 Series F-1 Warrants to purchase up
to 477,272 shares of common stock, 477,272 Series F-2 Warrants to purchase up to 477,272 shares of common stock and 477,272 Series F-3 Warrants to purchase up to 477,272
shares of common stock, or any combination thereof, as determined by the Underwriter, at the public offering price, less underwriting discounts and commissions, in each case
solely to cover over-allotments, if any.
The Underwriter partially exercised this option on July 26, 2024, for (i) 336,832 shares of common stock, (ii) 336,832 Series F-1 Warrants to purchase up to 336,832 shares of common
stock, (iii) 336,832 Series F-2 Warrants to purchase up to 336,832 shares of common stock and (iv) 336,832 Series F-3 Warrants to purchase up to 336,832 shares of common stock.
The 2024 Public Offering closed on July 29, 2024, and the Company received gross proceeds of $3.9 million. Net proceeds of $2.9 million were recorded as equity after taking into
account underwriting discounts and commissions. A portion of the proceeds were used towards repaying the Secured Convertible Notes, which were repaid in full during the third
quarter of 2024.
- 63 -
Table of Contents
2024 Warrant Reprice Transaction
In June 2024, the Company entered into a warrant reprice transaction (the "2024 Warrant Reprice Transaction”) with certain existing holders of (i) warrants issued in September
2022 to purchase common stock, (ii) Series A-1 warrants issued in November 2022 to purchase common stock, (iii) Series B-1 Warrants issued in May 2023 to purchase common
stock, and (iv) Series B-2 Warrants issued in May 2023 to purchase common stock (collectively (i) through (iv), the "Participant Warrants”). The participants agreed to exercise a
portion of their Participant Warrants at a reduced exercise price of $2.50 per share. Participant Warrants were exercised for an aggregate of 90,381 shares of common stock, resulting
in gross proceeds of approximately $0.2 million.
The Company also issued participants in the 2024 Warrant Reprice Transaction a new June 2024 Warrant to purchase a number of shares of common stock equal to 100% of the
shares of common stock exercised. The June 2024 Warrants are substantially similar to the Participant Warrants, except that the June 2024 Warrants will (i) be initially exercisable
on the six-month anniversary of the date of issuance; (ii) have an exercise price of $2.57 per share; and (iii) have a term of five (5) years and six (6) months from the date of the
closing of the 2024 Warrant Reprice Transaction.
The Company incurred total issuance costs of $96 thousand in conjunction with the 2024 Warrant Reprice Transaction. The Company incurred a $69 thousand non-cash loss on
the modification of common stock warrants which was recorded in "Other expense, net” during the year ended December 31, 2024.
2023 Warrant Reprice Transaction
In December 2023, the Company entered into a warrant reprice transaction (the "2023 Warrant Reprice Transaction”) whereby the price terms of certain May 2023 Warrants
exercisable for 2,528,848 shares of common stock (72,252 shares post-Reverse Stock Split) were amended and exercised. The price of the amended and exercised May 2023 Warrants
was reduced from $1.30 per share ($45.50 per share post-Reverse Stock Split) to $0.25 per share ($8.75 per share post-Reverse Stock Split). The Company also issued to participants
in the 2023 Warrant Reprice Transaction, the December 2023 Warrants exercisable for 2,528,848 shares of common stock (72,252 shares post-Reverse Stock Split).
The 2023 Warrant Reprice Transaction resulted in gross proceeds of approximately $0.6 million. The Company allocated the gross proceeds between the common stock and
December 2023 Warrants issued to participants by applying the relative fair value allocation methodology. The Company allocated $0.2 million in gross proceeds to the common
stock and $0.4 million to the December 2023 Warrants which were classified as a liability upon issuance and at December 31, 2023.
The Company incurred total issuance costs of $0.2 million in conjunction with the 2023 Warrant Reprice Transaction. The Company allocated $0.1 million of the issuance costs to
the common stock which was recorded as a reduction of additional paid-in capital in the Company’s consolidated balance sheets. The remaining $0.1 million was allocated to the
warrant liability and expensed as "Other expense, net” in the Company’s consolidated statements of operations during the year ended December 31, 2023.
2023 Private Placement
In May 2023, the Company closed a private placement (the "2023 Private Placement”) with existing accredited institutional investors of the Company that provided for the
issuance and sale of $3.3 million aggregate principal amount of the Secured Convertible Notes and the May 2023 Warrants exercisable for up to 5,076,928 shares of common stock
(145,056 shares post-Reverse Stock Split).
The Company received gross proceeds of $3.0 million from the 2023 Private Placement. The Company allocated the proceeds from the 2023 Private Placement between the May 2023
Warrants, an embedded derivative liability, and the Secured Convertible Notes by applying the residual fair value methodology. The Company first allocated $1.6 million to the
May 2023 Warrants and $0.2 million to the embedded derivative liability with the residual $1.2 million allocated to the Secured Convertible Notes. The embedded derivative liability
was subsequently reclassified to equity upon stockholder approval.
- 64 -
Table of Contents
The Company incurred total issuance costs of $0.7 million in conjunction with the 2023 Private Placement, including a $0.4 million non-cash loss on the warrant modification. The
Company allocated $0.3 million of the issuance costs to the Secured Convertible Notes which was recorded as a discount in the Company’s consolidated balance sheets. The
remaining $0.4 million was allocated to the embedded derivative liability and warrant liability and expensed as "Other expense, net” in the Company’s consolidated statements of
operations during the year ended December 31, 2023.
NOTE 12. AVENOVA ASSET SALE AND BRIDGE LOAN
On September 19, 2024, the Company entered into an Asset Purchase Agreement, dated September 19, 2024, as amended by Amendment No. 1 to the Asset Purchase Agreement,
dated November 5, 2024 (as so amended, the "Purchase Agreement”) in connection with the Avenova Asset Sale, pursuant to which PRN agreed to acquire the Avenova Assets.
The Purchase Agreement provided for, among other terms, a base purchase price of $11.5 million for the Avenova Assets and for PRN to provide the Company with a $1.0 million
secured promissory note (the "Bridge Loan”).
The Bridge Loan provided for the Company to receive a secured loan of up to $1.0 million from PRN as the lender that could have been funded in two tranches of $0.5 million each
upon the Company providing written notice to PRN on or after November 22, 2024 and on or after December 6, 2024. The amounts borrowed under the Bridge Loan were required to
be used for working capital purposes, bore interest at a rate of 10% per annum and were secured by all of the Company’s assets as collateral. The Bridge Loan matured upon the
earlier of the closing of the Avenova Asset Sale (and repaid from the purchase price), immediately upon termination of the Purchase Agreement, or on February 28, 2025. On
November 22, 2024, the Company requested and received the first tranche of $0.5 million under the Bridge Loan, which remained outstanding as of December 31, 2024. The
Company did not request the second tranche. The Bridge Loan was settled upon closing of the Avenova Asset Sale subsequent to December 31, 2024, on January 17, 2025. See
also Note 23, "Subsequent Events.”
NOTE 13. CONVERTIBLE NOTES
Unsecured Convertible Notes
In March 2024, the Company issued $525 thousand aggregate principal amount of unsecured convertible notes (the "Unsecured Convertible Notes”) in conjunction with the 2024
Subsidiary Guarantee Termination. The 2024 Subsidiary Guarantee Termination was executed with certain holders of the Secured Convertible Notes in order to close the
DERMAdoctor Divestiture (see additional discussion in Note 11, "Financing Activities” and Note 21, "DERMAdoctor Divestiture and Discontinued Operations”). The Unsecured
Convertible Notes are due March 25, 2026 and bear no stated interest.
The Unsecured Convertible Notes may be converted or redeemed for a conversion price equal to $0.14 per share ($4.90 per share post-Reverse Stock Split) at any time at the
election of the holder up to the amount of outstanding principal at the time of conversion subject to certain limitations such as beneficial ownership limitations. Upon issuance and
as of December 31, 2024, the Unsecured Convertible Notes were convertible for up to 3,750,000 shares of common stock (107,146 shares post-Reverse Stock Split).
Upon issuance in March 2024, the lender’s conversion option under the Unsecured Convertible Notes represented an embedded call option requiring bifurcation as an embedded
derivative liability because the common stock underlying the option required stockholder approval before the option could be exercised. The fair value of the embedded derivative
was determined to be $159 thousand as of March 31, 2024 in accordance with a Black Scholes valuation model. See also Note 3, "Fair Value Measurements,” subheading "Black
Scholes Valuation Models and Assumptions.” Upon stockholder approval on May 28, 2024, the embedded call option no longer required liability treatment and was reclassified to
equity. The fair value of the embedded derivative liability was determined to be $242 thousand as of May 28, 2024. The change of $83 thousand in fair value between March 31,
2024 and May 28, 2024 was recorded as a non-cash loss on change in fair value of embedded derivative liability in the consolidated statements of operations. See also Note 3, "Fair
Value Measurements,” subheading "Black Scholes Valuation Models and Assumptions.”
- 65 -
Table of Contents
The discount to the note recorded for the embedded derivative liability upon issuance and debt issuance costs are being amortized to interest expense using the effective interest
rate method over the term of the Unsecured Convertible Notes, assuming that the Unsecured Convertible Notes will be redeemed for cash of $525 thousand at time of maturity as of
March 25, 2026. During the year ended December 31, 2024, the effective interest rate on the Unsecured Convertible Notes was 144%. During the year ended December 31, 2024,
interest expense recognized, including amortization of the issuance costs and debt discount, was $62 thousand, which was included in other expense, net in the consolidated
statements of operations.
Secured Convertible Notes
In May 2023, the Company issued $3.3 million aggregate principal amount Original Issue Discount Senior Secured Convertible Debentures (the "Secured Convertible Notes”) in
conjunction with the 2023 Private Placement (see Note 11, "Financing Activities”). The Secured Convertible Notes were issued with a $300 thousand original issue discount. The
Secured Convertible Notes were originally due November 1, 2024 and were repaid in full during the third quarter of 2024 from the proceeds of the 2024 Public Offering. The
Company paid $13 thousand more than the carrying amount of the Secured Convertible Notes, resulting in a loss on extinguishment that was expensed as "Extinguishment of
Secured Convertible Notes” in the consolidated statements of operations. Upon full repayment, the Company was released from any further obligations under the Secured
Convertible Notes with the lenders.
Prior to being paid off, the Secured Convertible Notes could be converted or redeemed for a conversion price equal to $1.30 per share ($45.50 per share post-Reverse Stock Split) at
any time at the election of the holder up to the amount of outstanding principal at the time of conversion subject to certain limitations such as beneficial ownership limitations.
Upon issuance, the Secured Convertible Notes were convertible for up to 2,538,464 shares of common stock (72,528 shares post-Reverse Stock Split).
Beginning June 1, 2023, the Company was required to start making a monthly redemption of 1/18th of the original principal amount of the Secured Convertible Notes. Each monthly
redemption reduced the outstanding principle of the Secured Convertible Note by $183 thousand and could be made in cash or, under limiting conditions, in stock at the election of
the Company. Monthly redemption in cash required a total payment of $193 thousand. Monthly redemption in stock required the issuance of shares equal to $193 thousand
divided by the lower of (i) $45.50 or (ii) 90% of the Company’s common stock’s average volume-weighted average price over 10 trading days prior to the redemption. The
conditions allowing for redemption in stock were not met and the Company made all monthly redemption payments in cash.
The Secured Convertible Notes also provided for a redemption equal to up to 20% of the gross proceeds received by the Company from any financing completed while the Secured
Convertible Notes were outstanding. In connection with the 2023 Warrant Reprice Transaction (see Note 15, "Stockholders’ Equity”), the Company made such a payment totaling
$126 thousand in cash against the Secured Convertible Notes. In connection with the 2024 Warrant Reprice Transaction (see Note 15, "Stockholders’ Equity”), the Company made
such a payment totaling $45 thousand in cash against the Secured Convertible Notes. In connection with the 2024 Public Offering (see Note 15, "Stockholders’ Equity”), the
Company repaid the remaining balance of the Secured Convertible Notes with a payment totaling $433 thousand in cash.
Upon issuance in May 2023, the lender’s conversion option under the Secured Convertible Notes represented an embedded call option requiring bifurcation as an embedded
derivative liability because the common stock underlying the option required stockholder approval before the option could be exercised. The fair value of the embedded derivative
was determined to be $209 thousand as of the date of issuance. After stockholder approval of the underlying common stock, the embedded call option no longer required liability
treatment and was reclassified to equity. The fair value of the embedded derivative liability was determined to be $169 thousand upon stockholder approval. The change of $40
thousand in fair value between the date of issuance and stockholder approval was recorded as a non-cash gain on change in fair value of embedded derivative liability in the
consolidated statements of operations. See also Note 3, "Fair Value Measurements,” subheading "Black Scholes Valuation Models and Assumptions.”
- 66 -
Table of Contents
The lender’s subsequent financing redemption option and certain events of default also represented embedded call options and the Company’s monthly share redemption option
represented an embedded put option. The fair value of these options was determined to be immaterial upon issuance and at each subsequent reporting date.
The Company allocated $1.2 million of gross proceeds from the 2023 Private Placement to the Secured Convertible Notes.
The difference between the $1.2 million allocated to the Secured Convertible Notes and the $3.3 million aggregate principal amount represented discounts for the portion of
proceeds allocated to the embedded derivative liability and the May 2023 Warrants (See Note 14, "Common Stock Warrants and Warrant Liabilities”) as well as the $0.3 million
original issue discount. The Company also allocated $0.3 million of debt issuance costs to the Secured Convertible Notes.
The discounts and debt issuance costs were amortized to interest expense using the effective interest rate method over the term of the Secured Convertible Notes. The effective
interest rate on the Secured Convertible Notes was 173%. During the year ended December 31, 2024, interest expense recognized, including amortization of the issuance costs and
debt discount, was $0.8 million which was included in other expense, net in the consolidated statements of operations.
NOTE 14. COMMON STOCK WARRANTS AND WARRANT LIABILITIES
See Notes 2, "Summary of Significant Accounting Policies;” 3, "Fair Value Measurements;” 11, "Financing Activities;” and 15, "Stockholders’ Equity” for certain defined
terms below and additional discussion of financing activities and related accounting policies and fair value estimates.
July 2024 Pre-Funded Warrants
In July 2024, in conjunction with the 2024 Public Offering, the Company issued 2,041,814 July 2024 Pre-Funded Warrants (in lieu of shares of common stock (see additional
discussion in Note 11, "Financing Activities”). The July 2024 Pre-Funded Warrants were classified as a component of permanent equity because they are freestanding financial
instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, were immediately exercisable, did not embody an
obligation for us to repurchase our shares, and permitted the holders to receive a fixed number of shares of common stock upon exercise.
As of December 31, 2024, all of the July 2024 Pre-Funded Warrants had been exercised, resulting in the Company issuing 2,041,814 shares of common stock. In connection with
such exercises, the Company received net proceeds of approximately $20 thousand.
July 2024 Warrants
In July 2024, in conjunction with the 2024 Public Offering, the Company issued new July 2024 Warrants.
●
Series F-1 Warrants exercisable for 3,537,212 shares of common stock for an initial exercise price of $1.10 per share through July 30, 2029; and
●
Series F-2 Warrants exercisable for 3,537,212 shares of common stock for an initial exercise price of $1.10 per share through January 29, 2025; and
●
Series F-3 Warrants exercisable for 3,537,212 shares of common stock for an initial exercise price of $1.10 per share through July 29, 2025.
The July 2024 Warrants were classified as a component of permanent equity. The July 2024 Warrants down round feature adjustment was triggered on September 27, 2024,
resulting in a reduced exercise price of $0.66 per share. As a result of the reduced exercise price, a deemed dividend of $1.0 million was recognized in accordance with a Black
Scholes valuation model. See Note 3, "Fair Value Measurements,” subheading "Black Scholes Valuation Models and Assumptions.”
- 67 -
Table of Contents
June 2024 Warrants
In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company issued new common stock purchase warrants (the "June 2024 Warrants”) exercisable for
90,381 shares of common stock for $2.57 per share through December 17, 2029. The June 2024 Warrants were classified as a component of permanent equity.
March 2024 Warrant
In March 2024, the Company executed the First Amendment and Subsidiary Guarantee Consent as part of the 2024 Subsidiary Guarantee Termination with holders of the Secured
Convertible Notes (see Note 13, "Convertible Notes”) in order to satisfy a closing condition for the DERMAdoctor Divestiture (see additional discussion in Note 11, "Financing
Activities” and Note 21, "DERMAdoctor Divestiture and Discontinued Operations”). In exchange for the consent of each holder, the option, at the holder’s election, to receive
upon the closing of the DERMAdoctor Divestiture either, a new common stock warrant (the "March 2024 Warrant”), or a new unsecured convertible note (see additional
discussion in Note 11, "Financing Activities”). One holder elected the option to receive a March 2024 Warrant exercisable for 1,000,000 shares of common stock (28,572 shares
post-Reverse Stock Split) for $0.14 per share ($4.90 per share post-Reverse Stock Split).
The March 2024 Warrant was initially classified as a liability from the date of issuance until Company stockholder approval on May 28, 2024, at which time it was reclassified to
equity.
December 2023 Warrants
In December 2023, in conjunction with the 2023 Warrant Reprice Transaction, the Company issued new common stock purchase warrants (the "December 2023 Warrants”)
exercisable for 2,528,848 shares of common stock (72,256 shares post-Reverse Stock Split) for $0.25 per share ($8.75 per share post-Reverse Stock Split) through June 21, 2029.
The December 2023 Warrants were initially classified as liabilities from the date of issuance until Company stockholder approval was received on May 28, 2024, at which time it was
reclassified to equity.
May 2023 Warrants
In May 2023, in conjunction with the 2023 Private Placement, the Company issued the following new common stock purchase warrants (collectively, the "May 2023 Warrants”):
●
May 2023 Series B-1 Warrants exercisable for 2,538,464 shares of common stock (72,528 shares post-Reverse Stock Split) for an initial exercise price of $1.30 per share
($45.50 per share post-Reverse Stock Split) through June 9, 2028 ("May 2023 B-1 Warrants”); and
●
May 2023 Series B-2 Warrants exercisable for 2,538,464 shares of common stock (72,528 shares post-Reverse Stock Split) for an initial exercise price of $1.30 per share
($45.50 per share post-Reverse Stock Split) through June 9, 2025 ("May 2023 B-2 Warrants”).
In December 2023, in conjunction with the 2023 Warrant Reprice Transaction, the Company amended certain May 2023 Warrants to reduce their exercise prices to $0.25 per share
($8.75 per share post-Reverse Stock Split). Immediately after amendment, the following May 2023 Warrants were exercised (while any unexercised May 2023 Warrants maintained
an exercise price of $1.30 per share ($45.50 per share post-Reverse Stock Split)):
●
May 2023 B-1 Warrants exercisable for 634,616 shares of common stock (18,132 shares post-Reverse Stock Split); and
●
May 2023 B-2 Warrants exercisable for 1,894,232 shares of common stock (54,120 shares post-Reverse Stock Split).
- 68 -
Table of Contents
In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company amended certain May 2023 Warrants to reduce their exercise prices to $2.50 per share.
Immediately after amendment, the following May 2023 Warrants were exercised (while any unexercised May 2023 Warrants maintained an exercise price of $8.75 per share):
●
May 2023 B-1 Warrants exercisable for 54,396 shares of common stock; and
●
May 2023 B-2 Warrants exercisable for 18,408 shares of common stock.
For the amendments in December 2023 and June 2024, the Company recognized a loss on modification of common stock warrants related to the May 2023 Warrants of $170
thousand and $47 thousand, respectively.
November 2022 Warrants
In November 2022, the Company issued the following common stock purchase warrants (collectively, the "November 2022 Warrants”):
●
November 2022 Series A-1 Warrants exercisable for 515,876 shares of common stock (14,741 shares post-Reverse Stock Split) for an initial exercise price of $6.30 per share
($220.50 per share post-Reverse Stock Split) through November 20, 2028 ("November 2022 A-1 Warrants”); and
●
November 2022 Series A-2 Warrants exercisable for 515,876 shares of common stock (14,741 shares post-Reverse Stock Split) for an initial exercise price of $6.30 per share
($220.50 per share post-Reverse Stock Split) through May 20, 2024 ("November 2022 A-2 Warrants”).
In May 2023, in conjunction with the 2023 Private Placement, the Company amended certain November 2022 Warrants to reduce their exercise prices from $6.30 per share ($220.50
per share post-Reverse Stock Split) to $1.50 per share ($52.50 per share post-Reverse Stock Split) as follows:
●
November 2022 A-1 Warrants exercisable for 436,510 shares of common stock (12,473 shares post-Reverse Stock Split); and
●
November 2022 A-2 Warrants exercisable for 436,510 shares of common stock (12,473 shares post-Reverse Stock Split).
In May 2024, all November 2022 Series A-2 Warrants for 14,741 shares of common stock remained unexercised and expired.
In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company amended certain November 2022 Warrants to reduce their exercise prices from $52.50 per
share to $2.50 per share as follows:
●
November 2022 A-1 Warrants exercisable for 12,473 shares of common stock.
For the amendments in May 2023 and June 2024, the Company recognized a loss on modification of common stock warrants related to the November 2022 Warrants of $74
thousand and $16 thousand, respectively.
September 2022 Warrants
In September 2022, in conjunction with the warrant reprice transaction (the "2022 Warrant Reprice Transaction”), the Company issued new common stock purchase warrants (the
"September 2022 Warrants”) exercisable for 327,860 shares of common stock (9,371 shares post-Reverse Stock Split) for an initial exercise price of $6.30 per share ($220.50 per
share post-Reverse Stock Split) through September 11, 2028.
In May 2023, in conjunction with the 2023 Private Placement, the Company amended certain September 2022 Warrants exercisable for 238,574 shares of common stock (6,819 shares
post-Reverse Stock Split) to reduce their exercise prices from $6.30 per share ($220.50 per share post-Reverse Stock Split) to $1.50 per share ($52.50 per share post-Reverse Stock
Split).
In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company amended certain September 2022 Warrants exercisable for 5,104 shares of common stock to
reduce their exercise prices from $52.50 per share to $2.50 per share.
- 69 -
Table of Contents
For the amendment June 2024, the Company recognized a loss on modification of common stock warrants related to the September 2022 Warrants of $7 thousand.
November 2021 Warrants
In November 2021, in conjunction with a private placement transaction, the Company issued new common stock purchase warrants (the "November 2021 Warrants”) exercisable
for 1,071,434 shares of common stock (30,616 shares post-Reverse Stock Split) for an initial exercise price of $18.55 per share ($649.25 per share post-Reverse Stock Split) through
March 9, 2023.
In September 2022, in conjunction with the 2022 Warrant Reprice Transaction, the Company amended all November 2021 Warrants to reduce their exercise prices from $18.55 per
share ($649.25 per share post-Reverse Stock Split) to $6.30 per share ($220.50 per share post-Reverse Stock Split) and extend their termination date to September 11, 2028.
Immediately after amendment, November 2021 Warrants were exercised for 7,654 shares of common stock.
In May 2023, in conjunction with the 2023 Private Placement, the Company amended certain November 2021 Warrants exercisable for 535,716 shares of common stock (15,308
shares post-Reverse Stock Split) to reduce their exercise prices from $6.30 per share ($220.50 per share post-Reverse Stock Split) to $1.50 per share ($52.50 per share post-Reverse
Stock Split).
For the amendment May 2023, the Company recognized a loss on modification of common stock warrants related to the November 2021 Warrants of $0.1 million.
July 2020 Warrants
In July 2020, in conjunction with a private placement transaction, the Company issued new common stock purchase warrants (the "July 2020 Warrants”) exercisable for 197,105
shares of common stock (5,635 shares post-Reverse Stock Split) for an initial exercise price of $57.75 per share ($2,021.25 per share post-Reverse Stock Split) through January 22,
2026.
In September 2022, in conjunction with the 2022 Warrant Reprice Transaction, the Company amended certain July 2020 Warrants exercisable for 137,145 shares of common stock
(3,921 shares post-Reverse Stock Split) to reduce their exercise prices from $57.75 per share ($2,021.25 per share post-Reverse Stock Split) to $6.30 per share ($220.50 per share post-
Reverse Stock Split). Immediately after amendment, July 2020 Warrants were exercised for 60,000 shares of common stock (1,715 shares post-Reverse Stock Split).
In May 2023, in conjunction with the 2023 Private Placement, the Company amended certain July 2020 Warrants exercisable for 77,145 shares of common stock (2,206 shares post-
Reverse Stock Split) to reduce their exercise prices from $6.30 per share ($220.50 per share post-Reverse Stock Split) to $1.50 per share ($52.50 per share post-Reverse Stock Split).
For the amendment in May 2023, the Company recognized a loss on modification of common stock warrants related to the July 2020 Warrants of $14 thousand.
Summary of Common Stock Warrant Activity and Outstanding
The following roll-forward presents the Company’s common stock warrants outstanding as of December 31, 2024 and 2023:
Warrants
Weighted-
Average
Exercise
Price
Outstanding at December 31, 2022
65,886 $
269.54
Warrants granted
217,312
33.28
Warrants exercised
(72,252)
8.75
Warrants expired
—
—
Outstanding at December 31, 2023
210,946 $
50.96
Warrants granted
10,730,589
0.69
Pre-funded Warrants granted
2,041,814
0.01
Warrants exercised
(90,381)
2.50
Pre-funded Warrants exercised
(2,041,814)
0.01
Warrants expired
(14,879)
88.87
Outstanding at December 31, 2024
10,836,275 $
1.41
- 70 -
Table of Contents
Common stock warrants outstanding as of December 31, 2024 were as follows:
Series
Exercise
Price
Expiration Date
Warrants
July 2020 Warrants
$
2,021.25 January 22, 2026
1,714
July 2020 Warrants
$
52.50 January 22, 2026
2,206
TLF Warrants
$
822.96 January 15, 2026
13
November 2021 Warrants
$
220.50 September 11, 2028
7,654
November 2021 Warrants
$
52.50 September 11, 2028
15,308
September 2022 Warrants
$
220.50 September 11, 2028
2,552
September 2022 Warrants
$
52.50 September 11, 2028
1,715
November 2022 A-1 Warrants
$
220.50 November 20, 2028
2,268
December 2023 Warrants
$
8.75 June 21, 2029
72,256
March 2024 Warrant
$
4.90 March 24, 2029
28,572
June 2024 Warrants
$
2.57 December 17, 2029
90,381
July 2024 F-1 Warrants
$
0.66 July 30, 2029
3,537,212
July 2024 F-2 Warrants
$
0.66 January 29, 2025
3,537,212
July 2024 F-3 Warrants
$
0.66 July 29, 2025
3,537,212
Total
10,836,275
Summary of Common Stock Warrant Liabilities
The following roll-forward presents the Company’s warrant liabilities measured at fair value as of December 31, 2024 and 2023 (in thousands). See additional information per Note 3,
"Fair Value Measurements,” subheading "Black Scholes Valuation Models and Assumptions.”
Warrant liabilities as of December 31, 2023
$
334
Decrease in fair value of December 2023 Warrant liability during period
(122)
Fair value of March 2024 Warrant upon issuance
92
Increase in fair value of March 2024 Warrant liability during period
8
Reclassification of December 2023 Warrant liability to equity during period
(212)
Reclassification of March 2024 Warrant liability to equity during period
(100)
Warrant liabilities as of December 31, 2024
$
—
NOTE 15. STOCKHOLDERS' EQUITY
Authorized Share Capital
Under the Company’s Amended and Restated Certificate of Incorporation, as amended, the Company is authorized to issue up to 150,000,000 shares of common stock and up to
5,000,000 shares of preferred stock with rights and preferences as may be approved by the Company’s Board.
- 71 -
Table of Contents
Preferred Stock
There were two series of preferred stock of the Company outstanding during the years ended December 31, 2024 and 2023 – the Series B Non-Voting Convertible Preferred Stock
("Series B Preferred Stock”) and the Series C Non-Voting Convertible Preferred Stock ("Series C Preferred Stock”) (and combined, the "Preferred Stock”). The rights and
preferences of the Series B Preferred Stock and Series C Preferred Stock are identical. The Preferred Stock does not have any preemptive rights or a preference upon any
liquidation, dissolution or winding-up of the Company. Each share of Preferred Stock is convertible into $1,000 of common stock at the conversion price per share applicable at the
time of conversion. The Preferred Stock has anti-dilution protection (the "Ratchet”) in the event that the Company sells or grants any of its common stock or any other securities,
subject to certain limited exceptions, that would entitle the holder thereof to acquire common stock at an effective price per share that is lower than the then applicable conversion
price of the Preferred Stock.
Series B Preferred Stock
The Company issued 15,000 shares of Series B Preferred Stock in November 2021 in connection with a private placement transaction. As of December 31, 2024 and 2023, 131 and
5,607 shares of Series B Preferred Stock remained outstanding, respectively. As of December 31, 2024 and 2023, outstanding shares of Series B Preferred Stock were convertible
into 15,065 and 640,800 shares, respectively, at a conversion price of $8.75.
In accordance with the Ratchet, the Series B Preferred Stock conversion price was reduced as follows (see also Notes 2, "Summary of Significant Accounting Policies” and 3, "Fair
Value Measurements”):
●
In April 2023, from $220.50 to $45.50, as a result of the 2023 Private Placement, resulting in a $1.8 million deemed dividend.
●
In December 2023, from $45.50 to $8.75, as a result of the 2023 Warrant Reprice Transaction, resulting in a $4.5 million deemed dividend.
On January 29, 2024, the Ratchet of the Series B Preferred Stock expired with no further impact because greater than 75% of the originally issued 15,000 Series B Preferred Stock had
been converted into common stock. The Series B Preferred Stock conversion price will remain at $8.75 until all remaining Series B Preferred Stock has been converted.
Series C Preferred Stock
The Company issued 3,250 shares of Series C Preferred Stock in November 2022 in connection with a private placement transaction. As of December 31, 2024 and 2023, zero and
1,097 shares of Series C Preferred Stock remained outstanding, respectively. As of December 31, 2023, outstanding shares of Series C Preferred Stock were convertible into 125,371
shares of common stock at a conversion price of $8.75.
In accordance with the Ratchet, the Series C Preferred Stock conversion price was reduced as follows (see also Notes 2, "Summary of Significant Accounting Policies” and 3, "Fair
Value Measurements”):
●
In April 2023, from $220.50 to $45.50, as a result of the 2023 Private Placement, resulting in a $194 thousand deemed dividend.
●
In December 2023, from $45.50 to $8.75, as a result of the 2023 Warrant Reprice Transaction, resulting in a $0.5 million deemed dividend.
●
In March 2024, from $8.75 to $4.90, as a result of the 2024 First Amendment and the Subsidiary Guarantee Consent, resulting in a $0.4 million deemed dividend.
On March 27, 2024, the Ratchet of the Series C Preferred Stock expired with no further impact because greater than 75% of the originally issued 3,250 Series C Preferred Stock had
been converted into common stock.
Common Stock
See Notes 11, "Financing Activities” and 14, "Common Stock Warrants and Warrant Liabilities” for a description of common stock and common stock warrant-related transactions
during the years ended December 31, 2024 and 2023.
- 72 -
Table of Contents
NOTE 16. EQUITY-BASED COMPENSATION
Equity Compensation Plans
In October 2007, the Company adopted the 2007 Omnibus Incentive Plan (the "2007 Plan”) to provide for the grant of equity awards, such as stock options, unrestricted and
restricted common stock, stock units, dividend equivalent rights, and stock appreciation rights to employees, directors and outside consultants, as determined by the Board. The
2007 Plan expired on March 15, 2017. Upon expiration, new awards cannot be issued pursuant to the 2007 Plan, but outstanding awards continue to be governed by its terms. Stock
options granted under the 2007 Plan expire no later than ten years from the date of grant. All stock options outstanding under the 2007 Plan were fully vested as of December 31,
2021.
In March 2017, the Company adopted the 2017 Omnibus Incentive Plan (the "2017 Plan”), which was approved by stockholders on June 2, 2017, to provide for the grant of equity
awards, such as nonqualified stock options ("NQSOs”), incentive stock options ("ISOs”), restricted stock, performance shares, stock appreciation rights ("SARs”), RSUs and other
share-based awards to employees, directors, and consultants, as determined by the Board. The 2017 Plan does not affect awards previously granted under the 2007 Plan. Upon
adoption, the 2017 Plan allowed for awards of up to 66,243 shares of the Company’s common stock, plus an automatic annual increase in the number of shares authorized for
awards on the first day of each of the Company’s fiscal years beginning January 1, 2018 through January 1, 2027 equal to (i) 4% of the number of shares of common stock
outstanding on the last day of the immediately preceding fiscal year or (ii) such lesser number of shares of common stock as determined by the Board. On June 21, 2024, the number
of shares available for future awards under the 2017 Plan was increased by 12,219 shares. As of December 31, 2024, there were 13,668 shares available for future awards under the
2017 Plan.
Under the terms of the 2017 Plan, the exercise price of NQSOs, ISOs and SARs may not be less than 100% of the fair market value of the Company’s common stock on the date of
grant and, if ISOs are granted to an owner of more than 10% of the Company’s common stock, then not less than 110% of the fair market value of the Company’s common stock on
the date of grant. The term of awards will not be longer than ten years or, in the case of ISOs, no longer than five years with respect to holders of more than 10% of the Company’s
common stock. Stock options granted to employees generally vest over four years, while options granted to directors and consultants typically vest over a shorter period, subject
to continued service. The Company issues new shares of Company common stock to satisfy exercises of options under the 2007 Plan and the 2017 Plan.
Summary of Outstanding Equity Awards
The following table summarizes information about the Company’s stock options and restricted stock outstanding at December 31, 2023, and activity during the year ended
December 31, 2024:
(in thousands, except years
and per share data)
Awards
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2023
4 $
1,145.87
7.3 $
1
Restricted stock units granted
5
—
Options forfeited/cancelled
(2)
526.45
Outstanding at December 31, 2024
7
471.64
8.3
3
Vested and expected to vest at December 31, 2024
7
471.64
8.3
3
Vested and exercisable at December 31, 2024
2
2107.73
4.5
—
- 73 -
Table of Contents
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s
common stock as quoted on the NYSE American as of December 31, 2024 for option awards that have an exercise price that is lower than the market price. There were no stock
option awards exercised during the years ended December 31, 2024 or 2023.
As of December 31, 2024, the total unrecognized compensation cost related to unvested stock options and restricted stock was approximately $48 thousand. This amount is
expected to be recognized as stock-based compensation expense in the Company’s consolidated statements of operations over the remaining weighted average vesting period of
1.15 years.
Equity Awards to Employees and Directors
The Company grants options to purchase common stock to its employees and directors at prices equal to or greater than the market value of the stock on the dates the options are
granted. The Company has estimated the value of stock option awards as of the date of grant by applying the Black-Scholes option pricing model using the single-option valuation
approach. The application of this valuation model involves assumptions that are judgmental and subjective in nature. See Note 2, "Summary of Significant Accounting Policies,”
for a description of the accounting policies that the Company applied to value its stock-based awards.
During the year ended December 31, 2023, the Company granted options to employees and directors to purchase an aggregate of 177 shares of common stock. The Company did
not grant any stock options to employees and directors to purchase shares of the Company’s common stock during the year ended December 31, 2024.
The weighted-average assumptions used in determining the value of options were as follows:
Assumption
For the Year
Ended
December 31,
2023
Expected price volatility
158%
Expected term (in years)
6.45
Risk-free interest rate
2.36%
Dividend yield
0.00%
Weighted-average fair value of options granted during the period
$
9.22
Expected Price Volatility—This is a measure of the amount by which the stock price has fluctuated or is expected to fluctuate. The computation of expected volatility was based
on the historical volatility of our own stock.
Expected Term—This is the period of time over which the options granted are expected to remain outstanding. The expected life assumption is based on the Company’s historical
data.
Risk-Free Interest Rate—This is the U.S. Treasury rate for the week of the grant having a term approximating the expected life of the option.
Dividend Yield—The Company has not made any dividend payments nor does the Company currently have plans to pay dividends in the foreseeable future.
Forfeitures are estimated at the time of grant and reduce compensation expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which
actual forfeitures differ, or are expected to differ, from the previous estimate.
During each of the years ended December 31, 2024 and 2023, the Company granted 5,148 and 150 shares of restricted stock, respectively, to directors.
- 74 -
Table of Contents
For the years ended December 31, 2024 and 2023, the Company recognized stock-based compensation expense of $0.1 million and $0.3 million, respectively, for option awards to
employees and directors.
Stock-Based Awards to Non-Employees
During the year ended December 31, 2023, the Company granted options to purchase an aggregate of 1,032 shares of common stock to non-employees in exchange for advisory
and consulting services. During the year ended December 31, 2024, the Company did not grant options to non-employees.
The Company did not grant restricted stock to non-employees during the years ended December 31, 2024 and 2023.
For the year ended December 31, 2024, the Company recognized stock-based compensation expense of $13 thousand, as it relates to non-employees. For the year ended December
31, 2023, the Company recognized stock-based compensation expense of $40 thousand, as it relates to non-employees.
Summary of Stock-Based Compensation Expense
A summary of the stock-based compensation expense included in results of operations for the options and restricted stock awards discussed above is as follows (in thousands):
For the Years Ended
December 31,
2024
2023
Research and development
$
14 $
21
Sales and marketing
50
96
General and administrative
84
174
Total stock-based compensation expense
$
148 $
291
NOTE 17. DISTRIBUTION AGREEMENTS
Transactions under the Company’s major distribution agreements are recognized upon transfer of control of products sold to its major distribution partners at the amount of
consideration that the Company expects to be entitled to. The Company records contract liabilities for the amounts that are estimated to be subject to significant reversal, including
allowances for services, discounts, rebate programs, and product returns.
Product Sales Discounts and Allowances
The following roll-forward presents the Company’s activities and ending reserve balances for each significant category of discounts and allowance, which constitute variable
consideration, for the year ended December 31, 2024 (in thousands):
Chargebacks,
Discounts for
Prompt
Payment
Other
Customer
Fees
Rebates
Total
Subtotal at December 31, 2023
$
913 $
12 $
21 $
946
Less: discontinued operations
(218)
-
-
(218)
Balance at December 31, 2023
695
12
21
728
Provision related to sales made in:
Current year
79
50
94
223
Payments and customer credits issued
(309)
(51)
(103)
(463)
Balance at December 31, 2024
$
465 $
11 $
12 $
488
- 75 -
Table of Contents
The following roll-forward presents the Company’s activities and ending reserve balances for each significant category of discounts and allowance, which constitute variable
consideration, for the year ended December 31, 2023 (in thousands):
Chargebacks,
Discounts for
Prompt
Payment
Other
Customer
Fees
Rebates
Total
Balance at December 31, 2022
$
1,673 $
53 $
81 $
1,807
Provision related to sales made in:
Current year
716
321
106
1,143
Payments and customer credits issued
(1,476)
(362)
(166)
(2,004)
Balance at December 31, 2023
$
913 $
12 $
21 $
946
Avenova Spray Pharmacy Distribution Agreements and Specialty Pharmacies
Avenova Spray is made available in local pharmacies and major pharmacy retail chains under nationwide distribution agreements with McKesson Corporation, Cardinal Health and
AmerisourceBergen. The Company had also entered into direct agreements with preferred pharmacy networks as part of our Partner Pharmacy Program. During each of the years
ending December 31, 2024 and 2023, the Company earned $0.5 million and $0.7 million, respectively, in sales revenue for its Avenova Spray product from these distribution and
partner pharmacy agreements.
Under these product distribution arrangements, the Company had a contract liability balance of $0.5 million and $0.9 million as of December 31, 2024 and 2023, respectively. The
contract liability is included in accrued liabilities in the consolidated balance sheets.
Over-the-Counter Sales of Avenova Spray
Avenova Spray was offered for sale direct to U.S. customers primarily on Amazon.com, the Company’s website (Avenova.com) and Walmart.com. During the years ended
December 31, 2024 and 2023, the revenue generated from Avenova Spray in these channels was $7.2 million and $6.1 million, respectively.
NOTE 18. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan covering all eligible employees. The Company provides matching contributions equal to 100% of the first 3% of compensation deferred, plus 50%
of the next 2% of compensation deferred. The Company contributed $96 thousand and $122 thousand to the plan in the years ended December 31, 2024 and 2023, respectively.
NOTE 19. INCOME TAXES
For the years ended December 31, 2024 and 2023, loss before provision for income taxes consisted of the following (in thousands):
For the Years Ended
December 31,
2024
2023
United States
$
(7,223) $
(9,640)
International
—
—
$
(7,223) $
(9,640)
- 76 -
Table of Contents
For the years ended December 31, 2024 and 2023, the federal and state income tax provision is summarized as follows (in thousands):
For the Years Ended
December 31,
2024
2023
Current
Federal
$
— $
—
State
—
—
Other
—
—
Total current tax expense
$
— $
—
Deferred
Federal
—
—
State
—
—
Other
—
—
Total deferred tax expense
$
— $
—
Income tax provision
$
— $
—
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company's deferred taxes as of December 31, 2024 and 2023 are as follows (in thousands):
For the Years Ended
December 31,
2024
2023
Deferred tax assets:
Net operating losses
$
40,689 $
36,943
Stock options
573
665
Research and development credits
641
641
Accruals
311
477
Operating lease liabilities
245
368
Property and equipment
18
28
Acquisition assets
-
2,257
Other deferred tax assets
6
6
Total deferred tax assets
42,483
41,385
Deferred tax liabilities:
Operating lease right-of-use assets
(245)
(337)
Total deferred tax liabilities
(245)
(337)
Valuation allowance
(42,238)
(41,048)
Net deferred taxes
$
— $
—
ASC 740, Income Taxes, requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management
assesses that realization is "more likely than not.” Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the
carryforward period. Because of the Company's history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned
future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.
- 77 -
Table of Contents
The valuation allowance increased by $1.2 million and $3.6 million during the years ended December 31, 2024 and 2023, respectively.
Net operating loss and tax credit carryforwards as of December 31, 2024, are as follows (in thousands):
Expiration
Amount
Years
Net operating losses, federal (Post December 31, 2017)
$
59,595
Does Not Expire
Net operating losses, federal (Pre January 1, 2018)
$
94,140
Beginning in 2025
Net operating losses, state
$
128,588
Beginning in 2028
Tax credits, federal
$
542
Beginning in 2031
Tax credits, state
$
125
Indefinite
A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the below years are as follows (in thousands):
For the Years Ended
December 31,
2024
2023
Unrecognized benefit - beginning of period
$
974 $
974
Change during the period
—
—
Unrecognized benefit - end of period
$
974 $
974
The entire amount of the unrecognized tax benefits would not impact our effective tax rate if recognized. Accrued interest and penalties related to unrecognized tax benefits are
classified as income tax expense and were immaterial for the years ended December 31, 2024 and 2023. The Company files income tax returns in the United States and in California.
Other jurisdictions are not significant. The tax years 2005 - 2024 (except 2007 and 2009) remain open in the federal and California jurisdictions. The Company is not currently under
examination by income tax authorities in federal, state or other jurisdictions.
The effective tax rate of the Company's provision (benefit) for income taxes differs from the federal statutory rate as follows:
For the Years Ended
December 31,
2024
2023
Statutory rate
21.0%
21.0%
State tax
3.1%
4.5%
Stock-based compensation expense
(1.4%)
(1.4%)
Change in valuation allowance
(16.5%)
(19.5%)
Warrant/equity expenses
(4.0%)
(3.7%)
Expiration of tax attributes
(2.2%)
—%
Impairment of assets
-%
(0.9%)
Other
-%
(0.1%)
Total
0.0%
0.0%
- 78 -
Table of Contents
NOTE 20. RELATED PARTY TRANSACTIONS
The following table summarizes information about the Company’s related party revenue and cost of goods sold (in thousands):
For the Years Ended
December 31,
2024
2023
Chongqing Pioneer Pharma Holdings Limited:
Revenue
$
- $
1,377
Cost of goods sold
-
1,225
Related party accounts receivable were $0 and $0.2 million as of December 31, 2024 and 2023, respectively.
NOTE 21. DERMADOCTOR DIVESTITURE AND DISCONTINUED OPERATIONS
On March 12, 2024, the Company entered into an agreement to sell 100% of the membership units of DERMAdoctor for a closing purchase price of $1.1 million. The sale of the
membership units closed, and the DERMAdoctor Divestiture occurred, on March 25, 2024. In order to close the sale, the Company was required to obtain the consent of the
holders of the Secured Convertibles Notes (see Note 13, "Convertible Notes”) issued in May 2023 to (i) amend the Security Agreement, dated April 27, 2023 (the "Security
Agreement”) to remove the Membership Units and any assets of DERMAdoctor as collateral for the Company’s obligations pursuant to the Secured Convertible Notes and for
DERMAdoctor to be removed as a party to the Security Agreement and (ii) terminate the Subsidiary Guarantee, dated April 27, 2023 (the "Subsidiary Guarantee”), which
DERMAdoctor entered into in connection with the issuance of the Secured Convertible Notes.
On March 24, 2024, the Company and the secured parties entered into a First Amendment to the Security Agreement, (the "First Amendment and Subsidiary Guarantee
Consent”) to effect an amendment to the Security Agreement and a Consent and Release to terminate the Subsidiary Guarantee. To obtain the secured parties’ consent and as
consideration for the secured parties taking the necessary actions to execute and deliver the First Amendment and the Subsidiary Guarantee Consent, the Company provided each
secured party the option, at the secured party’s election, to receive only upon the closing of the DERMAdoctor Divestiture either: a March 2024 Warrant or the Unsecured
Convertible Notes (see Note 13 "Convertible Notes”).
The accounting requirements for reporting the DERMAdoctor business as discontinued operations were met during the first quarter of 2024. Accordingly, the consolidated
financial statements and notes to the consolidated financial statements reflect the results of the DERMAdoctor business as a discontinued operation for the years presented.
In accordance with the provisions of ASC 205-20, Presentation of Financial Statements: Discontinued Operations ("ASC 205-20”) the Company has separately reported the
assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the
consolidated balance sheets as of December 31, 2023, and consist of the following (in thousands):
Balance at
December 31,
2023
ASSETS
Current assets:
Cash and cash equivalents
$
206
Accounts receivable, net of allowance for credit losses ($0 at December 31, 2023)
79
Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments ($363 at
December 31, 2023)
2,313
Prepaid expenses and other current assets
132
Total current assets, discontinued operations
2,730
Other assets
19
Total assets, discontinued operations
$
2,749
LIABILITIES
Liabilities:
Current liabilities:
Accounts payable
$
224
Accrued liabilities
347
Operating lease liabilities
127
Total current liabilities, discontinued operations
698
Total liabilities, discontinued operations
$
698
- 79 -
Table of Contents
In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in
the consolidated statements of operations. The results of DERMAdoctor’s operations for the years ended December 31, 2024 and 2023 have been reflected as discontinued
operations in the consolidated statements of operations and consist of the following (in thousands):
For the years ended
December 31,
2024
2023
Sales:
Product revenue, net
$
717 $
3,552
Total sales, net
717
3,552
Cost of goods sold
493
2,145
Gross profit
224
1,407
Operating expenses
Research and development
2
34
Sales and marketing
292
1,795
General and administrative
48
883
Goodwill, intangible and other asset impairment
-
2,593
Total operating expenses
342
5,305
Operating loss
(118)
(3,898)
Other expense, net
(6)
(1)
Net loss from discontinued operations
$
(124) $
(3,899)
In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in
the consolidated statements of cash flows. The results of DERMAdoctor for the years ended December 31, 2024 and 2023 have been reflected as discontinued operations in the
consolidated statements of cash flows and consist of the following (in thousands):
For the years ended
December 31,
2024
2023
Operating activities:
Net loss from discontinued operations
$
(124) $
(3,899)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets
—
152
Impairment of goodwill, intangible and other assets
—
2,595
Non-cash right-of-use amortization
—
112
Changes in operating assets and liabilities:
Accounts receivable
(262)
237
Inventory
183
429
Prepaid expenses and other current assets
(4)
162
Other assets
15
(9)
Accounts payable and accrued liabilities
63
(32)
Operating lease liabilities
(31)
(119)
Net cash used in operating activities, discontinued operations
(160)
(372)
Investing activities:
Cash transferred to New Age Investments, LLC
(46)
—
Purchases of property and equipment
—
(1)
Net cash used in investing activities, discontinued operations
(46)
—
Net decrease in cash and cash equivalents, discontinued operations
$
(206) $
(373)
- 80 -
Table of Contents
NOTE 22. WOUND CARE DIVESTITURE AND HELD-FOR-SALE ASSETS
On December 30, 2024, the Board approved a plan to divest our Wound Care Trademarks. In accordance with ASC 205, "Presentation of Financial Statements,” we determined
that the planned divestiture of the Wound Care Trademarks did not represent a strategic shift that will have a major effect on our consolidated financial results, and therefore their
results were not reported as discontinued operations. We applied the criteria in ASC 360-10-45-9, "Property, Plant and Equipment - Long-Lived Assets Classified as Held for
Sale,” to determine whether any of the aforementioned long-lived asset groups should be classified as held-for-sale. Criteria include management commitment to sell the disposal
group in its present condition and the sale being deemed probable of being completed within one year. We concluded that the business met all the requisite criteria as of December
30, 2024.
In accordance with ASC 360-10-45-9, the Company has separately reported held-for-sale assets in the consolidated balance sheets. The assets have been reflected as held-for-sale
in the consolidated balance sheets as of December 31, 2024 and 2023, and consist of the following (in thousands):
Balance at December 31,
2024
2023
ASSETS
Current assets:
Inventory
$
48 $
63
Total current assets, held-for-sale
$
48 $
63
In accordance with ASC 360-10-45-9, the Company has not included results related to the held-for-sale-assets in the results of continuing operation in the consolidated statements
of operations. Results related to the held-for-sale assets for the years ended December 31, 2024 and 2023 have been reflected as net income from held-for-sale assets in the
consolidated statements of operations and consist of the following (in thousands):
For the years ended December 31,
2024
2023
Sales:
Product revenue, net
$
237 $
680
Other revenue, net
21
39
Total sales, net
258
719
Cost of goods sold
147
315
Gross profit
111
404
Net income from held-for-sale assets
$
111 $
404
- 81 -
Table of Contents
In accordance with ASC 360-10-45-9, the Company has not included results related to held-for-sale assets in the results of continuing operations in the consolidated statements of
cash flows. Results related to held-for-sale assets for the years ended December 31, 2024 and 2023 have been reflected as a net increase in cash and cash equivalent, held-for-sale
assets, in the consolidated statements of cash flows and consist of the following (in thousands):
For the years ended December 31,
2024
2023
Operating activities:
Net income from held-for-sale assets
$
111 $
404
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Inventory
15
99
Net cash used in operating activities, held-for-sale assets
126
503
Net decrease in cash and cash equivalents, held-for-sale assets
$
126 $
503
NOTE 23. SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through the filing date of this annual report with the SEC, to ensure that this filing includes appropriate disclosure of events
both recognized in the consolidated financial statements as of December 31, 2024, and events which occurred subsequently but were not recognized in the consolidated financial
statements. Except as described below, there were no subsequent events which required recognition, adjustment to or disclosure in the consolidated financial statements. For more
information and the most recent developments regarding the Avenova Asset Sale, the Wound Care Divestiture, the Dissolution and the Settlement Agreements (as defined in Part
I, Item 1 above), please see the Company’s most recent Current Reports on Form 8-K filed with the SEC and the Special Meeting Proxy Statement and related supplements.
Wound Care Divestiture
Subsequent to December 31, 2024, on January 3, 2025, the Company entered into the Trademark Acquisition Agreement with Phase One that provided for the purchase by Phase
One of the Company’s Wound Care Trademarks for a purchase price of $500,000. In connection with the Wound Care Divestiture, the Company also entered into the Phase One
Transition Services Agreement, dated January 3, 2025, with Phase One, pursuant to which we: (i) provided limited transition services to Phase One until January 10, 2025; (ii) sold
our existing wound care inventory from an outstanding purchase order to Phase One for an aggregate payment of $126,000; and (iii) provided our remaining empty wound care
product bottles to Phase One. The Company completed the Wound Care Divestiture on January 8, 2025. See additional discussion in Note 22, "Wound Care Divestiture and Held-
for-Sale Assets.”
Avenova Asset Sale
Subsequent to December 31, 2024, on January 17, 2025, we completed the sale of the Avenova Assets to PRN, which constituted substantially all of our revenue generating and
operating assets; however, PRN did not purchase any of our other products or assets, including those that related to our wound care, urology or dermatology businesses. In
accordance with the Purchase Agreement, at the closing of the Avenova Asset Sale we received the cash purchase price equal to $11.5 million, less (i) the $507,954 balance of the
Bridge Loan that we entered into with PRN on November 5, 2024 that was paid to PRN and the Bridge Loan was discharged with collateral released and (ii) $500,000, which amount
was deposited into an escrow account for up to six (6) months to be used for our indemnification obligations under the Purchase Agreement or the payment of any Net Working
Capital Adjustment after the closing pursuant to which the final amount of the purchase price that we received in the Avenova Asset Sale is subject to a post-closing adjustment,
upward or downward, that will be limited to an amount of up to $500,000. The Net Working Capital Adjustment will be mutually determined by PRN and us commencing ninety (90)
days after the closing of the Avenova Asset Sale based upon the difference between the amount of our Net Working Capital (as defined in the Purchase Agreement) immediately
prior to the closing and the agreed upon target working capital value of $800,000.
- 82 -
Table of Contents
In connection with the closing of the Avenova Asset Sale, we entered into a Transition Services Agreement, dated January 17, 2025 with PRN, pursuant to which we agreed to
provide services to PRN with respect to specified accounting, marketing, sales, customer service, regulatory and operational support for a period of four (4) months after the
closing of the Avenova Asset Sale. In exchange for providing such services, PRN and NovaBay agreed upon service fees to be paid to us. See additional discussion in Note 12,
"Avenova Asset Sale and Bridge Loan.”
Dissolution and New Special Meeting
In connection with pursuing the Avenova Asset Sale, that would result in the sale of substantially all of the assets of the Company, our Board also unanimously determined at the
time that the best opportunity available to optimize value to our stockholders was to pursue the Dissolution pursuant to the Plan of Dissolution. The Avenova Asset Sale and the
Dissolution were presented to stockholders at the 2024 Special Meeting. At the 2024 Special Meeting, the Company received stockholder approval for the Avenova Asset Sale;
however, the Company did not receive the requisite vote of stockholders representing a majority of the outstanding shares of our common stock to approve the Dissolution.
The ability of the Company to proceed with the Dissolution under Delaware law is subject to the Company first receiving stockholder approval. Accordingly, the Company intends
to hold the New Special Meeting of stockholders on April 16, 2025 where the Company’s stockholders will be asked to, among other items, consider and approve the Dissolution
pursuant to the Plan of Dissolution. Even if the Dissolution is approved by the Company’s stockholders, the Board reserves the right, in its discretion, to no longer pursue and
abandon the Dissolution, if the Board determines that the Dissolution is no longer in the best interest of the Company and its stockholders. See additional information in Note 1,
"Organization” under the subheading "Plan of Dissolution” and in the Company’s definitive proxy statement for the New Special Meeting Filed on March 19, 2025.
Settlement Agreements with Certain Warrant Holders
In March 2025, the Company entered into the Settlement Agreements with the Warrant Holders (as defined in Part I, Item 1 above) to settle certain disputed matters relating to the
Company’s common stock purchase warrants held by each of the Warrant Holders. The disputed matters, among other things, included Sabby (as defined in Part I, Item 1 above)
seeking to exercise certain buyout rights under their warrants, prior to the expiration of such provisions, which certain rights have, in any case, expired on February 22, 2025, thirty
(30) days following the public announcement of the closing of the Avenova Asset Sale on January 23, 2025. The terms of the Settlement Agreements are substantially the same,
except with respect to the financial terms for each of the Warrant Holders. The Settlement Agreement with Sabby provided for Sabby to have exercised certain of its common stock
purchase warrants for 4.99% of the Company’s outstanding common stock and each of Bigger and District 2’s (as defined in Part I, Item 1 above) Settlement Agreements provided
for each of Bigger and District 2 to have exercised their respective common stock purchase warrants for 2.49% of the Company’s outstanding common stock. The remaining
unexercised portion of specified warrants of the Warrant Holders were purchased by the Company for $1.8 million.
In connection with the warrant exercise, the Warrant Holders will own approximately 9% of the Company’s outstanding common stock and have each agreed to certain
commitments in their respective Settlement Agreements with respect to their exercised shares, which commitments include: (i) continuing to remain the record and beneficial owner
of the exercised shares until the Record Date (as defined in Part I, Item 1 above) for the Company’s New Special Meeting, where the Company’s stockholders will be asked to
consider and vote upon whether to approve the Dissolution, (ii) the Voting Commitment (as defined in Part I, Item 1 above); and (iii) limiting the amount of shares of common stock
that each Warrant Holder would sell from the Record Date to until the date of the New Special Meeting. The Settlement Agreements provide for a liquidated damages provision,
stating the Warrant Holders would pay liquidated damages of up to $0.7 million for not honoring the Voting Commitment.
The Settlement Agreements also include a "most favored nations” provision for each of the Warrant Holders that would increase the amount paid to the Warrant Holders if any
other holder of the Company’s common stock receives a higher amount per underlying warrant, as well as a mutual release of all claims by the Company and the Warrant Holders
against each other, without any admission of liability by either party. For more information on the Settlement Agreements, please see the Company’s Form 8-K filed on March 11,
2025.
- 83 -
Table of Contents
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Interim Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Exchange Act.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Assessing the costs and
benefits of such controls and procedures necessarily involves the exercise of judgment by management. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Based upon that evaluation at December 31, 2024, our Chief Executive Officer and our Interim Chief Financial Officer concluded that our disclosure controls and procedures were
effective to ensure, at the reasonable assurance level, that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms and were effective in ensuring that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-
15(f). Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting as of December 31, 2024. Our management utilized the criteria set forth in "Internal Control-Integrated Framework
(2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission to conduct an assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2024. Our management has concluded that, as of December 31, 2024, our internal control over financial reporting was effective based on these criteria.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting which has materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B.
OTHER INFORMATION
During the three months ended December 31, 2024, none of our directors or Section 16 officers adopted, modified or terminated a "Rule 10b5-1 trading arrangement” or "non-Rule
10b5-1 trading arrangement” as each such term is defined in Item 408 of SEC Regulation S-K.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
- 84 -
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors
Our Board is currently comprised of seven directors. The following table sets forth the name and age (as of March 18, 2025) of each director, indicating all positions and offices
with us currently held by the director.
Name
Age
Title
Director Since
Paul E. Freiman, Ph.D.
90
Chairman & Independent Director
May 2002
Justin M. Hall, Esq.
47
Chief Executive Officer, General Counsel and Chief Compliance Officer &
Director
August 2020
Julie Garlikov
54
Independent Director
January 2022
Swan Sit
47
Independent Director
December 2019
Mijia (Bob) Wu, M.B.A.
50
Director
January 2016
Yenyou (Jeff) Zheng, Ph.D.
68
Independent Director
September 2019
Yongxiang (Sean) Zheng
55
Director
January 2022
Below is certain biographical information with respect to our directors:
Dr. Freiman has been an independent pharmaceutical professional and consultant since January 2009. He was also a board member of Chronix Biomedical Inc., a private
molecular diagnosis company, from 2009 until its acquisition by Oncocyte Corporation in April 2021. Dr. Freiman’s prior experience includes serving as the president and chief
executive officer of Neurobiological Technologies, Inc. (OTC: NTII) and a member of its board of directors from April 1997 until 2009. Dr. Freiman’s prior experience also includes
serving as the former chairman and chief executive officer of Syntex from 1989 to 1994. He is credited with much of the marketing success of Syntex’s lead product, Naprosyn, and
was responsible for moving the product to over-the-counter status, marketed as Aleve. Dr. Freiman served as chairman of the board of Neurotrope, Inc. (OTCBB: BLFL) from 2013
until August 2016. Dr. Freiman served as chairman of Penwest Pharmaceutical Co. until 2010 and served on the board of directors of Otsuka American Pharmaceuticals, Inc. and
Otsuka America, Inc. until 2011, NeoPharm, Inc. until 2010 and Calypte Biomedical Corporation until September 2009. Dr. Freiman also served on the board (including as chairman)
of the Pharmaceutical Research and Manufacturers Association of America. He has also served on a number of industry task forces both domestically and internationally. Dr.
Freiman received a B.S. in pharmacy from Fordham University and an honorary doctorate from the Arnold & Marie Schwartz College of Pharmacy.
Mr. Hall currently serves as NovaBay’s Chief Executive Officer, General Counsel and Chief Compliance Officer, and has served as Chief Executive Officer and Chief
Compliance Officer since June 2019. Mr. Hall served as the Company’s Interim President and Chief Executive Officer from March 2019 to June 2019 and as the Company’s Senior
Vice President and General Counsel beginning in December 2015. Prior to this, he served as the Company’s lead in-house counsel beginning in February 2013. Prior to joining the
Company, Mr. Hall worked as Corporate Counsel at Accuray Incorporated, a radiation oncology company, which he joined in October 2006, where he provided substantive legal
advice on a broad range of complex legal matters with a focus on employment, corporate compliance, and corporate governance. Mr. Hall’s prior experience also includes serving
as an investment advisor at Sagemark Consulting from 2000 to 2006, and a stockbroker at First Security Van Kasper from 1998 to 2001. Mr. Hall received a B.A. in Business
Administration and Management from the University of California, San Diego, and a J.D. from the University of San Diego, School of Law.
Ms. Garlikov currently serves as the Vice President of Global Marketing of CareDx, a leading precision medicine solutions company focused on clinically differentiated,
high-value healthcare solutions for transplant patients and caregivers. She previously served as the Chief Commercial Officer of Sherlock Biosciences, a biotechnology CRISPR
diagnostic company from 2022 to 2024 and was the Vice President of Marketing of Grail, LLC, a biotechnology and pharmaceutical company focused on early cancer detection from
2020 to 2022. Ms. Garlikov has over 25 years of experience in marketing, which includes serving as the Chief Marketing Officer or Leader at GRAIL, New Age and Shaklee, as well
as senior marketing positions at Rodan & Fields, Obagi Medical, Nuvesse Skin Therapies and Allergan. She is a classically trained consumer packaged goods sales and marketing
leader who gained her consumer experience at Procter & Gamble, Johnson & Johnson and PepsiCo and has deep expertise in both health, beauty and eyecare products, as well as
in direct to consumer advertising and digital demand generation. Ms. Garlikov has a Bachelor’s degree from the University of California, Berkley and a Master’s degree in Business
Administration from Columbia University.
- 85 -
Table of Contents
Ms. Sit currently acts as an independent business consultant to various public and private companies. Ms. Sit also serves as a director of Edgewell Personal Care
Company (NYSE: EPC) since September 2020. She previously served as the Vice President of NA Digital Commerce Capabilities, Business Operations and Service and the Vice
President of Global Digital Marketing of Nike, Inc. from 2018 to 2019. Prior to such position, Ms. Sit served as the Vice President of Global Digital of Revlon and Elizabeth Arden,
Inc. from 2015 to 2017 and the Executive Director of Strategy and Planning, Online of The Estée Lauder Companies, Inc. Ms. Sit brings business experience including digital
transformation experience supplemented by management consulting, brand management and advertising. Ms. Sit has built front-end consumer experiences across ecommerce,
omnichannel, mobile, media, social, apps and innovation as well as integrated back-end operations. Ms. Sit received an MBA from Columbia Business School and a B.A. in
Economics from Harvard University.
Mr. Wu has been the Managing Director of China Kington Investment Co. Ltd. (an affiliated entity of China Kington Asset Management, which has a long-standing
relationship with NovaBay) since June 2008. Certain related-party historic transactions between the Company and China Kington are described in the Company’s prior filings with
the SEC. Concurrently, he has served as the Managing Director of Shanghai Ceton Investment Management Co. Ltd. From October 2013 to January 2022, he also served as the
Non-Executive Director of Pioneer. Previously, he served as a Director of UBS AG, Hong Kong Branch in 2007 and Vice President of BNP Paribas Hong Kong from 2005 to 2006. He
was also the Assistant Vice President at ABN AMRO Bank (China) Co., Ltd. from 2002 to 2005. He holds an M.B.A. from Manchester Business School, University of Manchester,
and an Executive M.B.A. from Cheung Kong Graduate School of Business.
Dr. Jeff Zheng has served as the Director of Business Development of, and as a broker with, Craft Capital Management LLC since September 2019. Dr. Jeff Zheng is also
currently an independent director with Mars Acquisition Corp. Prior to that, Dr. Jeff Zheng served as the Director of Business Development of Spartan Securities Group, Ltd. from
2014 to August 2019. Dr. Jeff Zheng’s experience includes providing innovative financial solutions and consulting services for initial public offering underwriting and investment
banking as well as corporate financing solutions with a particular focus on Chinese companies listed overseas. Dr. Jeff Zheng previously served as a financial advisor for various
Canadian public companies including: P & P Ventures Inc. (TSX-V: PPV.H) where he served as president and a director; Damon Capital Corp (TSX-V: DAM.H), where he served as
Chief Financial Officer and a director; and Cantronic Systems Inc. (TSX-V: CTS), where he served as a director and chair of the audit committee. Dr. Jeff Zheng received a Ph.D. in
physics from Flinders University of South Australia.
Mr. Sean Zheng has served as the General Manager of the Investment Department of China Pioneer Pharma Holding Ltd. since January 1, 2024. Prior to joining China
Pioneer Pharma Holding Ltd., he served as the Managing Director of Q3 Medical Devices (Shanghai) Co. Ltd. from November 2021 to December 2023. Prior to joining Q3 Medical,
Mr. Sean Zheng held several leadership positions, including Managing Director of Boill Fund Management (HK) Co., Ltd. and Managing Director and Chief Executive Officer of
Sprott- Zijin Mining fund, a joint venture fund between Zijin Mining Group and Sprott Asset Management LP. From 2007 to 2011, Mr. Sean Zheng served as a director of Dingtian
Asset Management. Mr. Sean Zheng has also been a CFA chartered holder since 2006. Mr. Sean Zheng graduated from Renmin University of China in 1992 and holds a B.S. degree
in Commodity Science. He received his MBA from the University of New South Wales in 2002 and earned a master’s degree of EMBA from China Europe International Business
School (CEIBS) in 2010.
Executive Officers
The following table sets forth the name, age (as of March 18, 2025) and title of our executive officers. Executive officers are elected annually by our Board and serve at the Board’s
discretion.
Name
Age
Title
Justin M. Hall, Esq.
47
Chief Executive Officer, General Counsel and Chief Compliance Officer
Tommy Law
39
Interim Chief Financial Officer and Treasurer
- 86 -
Table of Contents
Set forth below is a description of the background of Mr. Law. Mr. Hall’s background is described above in the section "Board of Directors.”
Mr. Law has served as the Company’s Interim Chief Financial Officer and Treasurer since February 2023. Mr. Law joined the Company in December 2019 and has served
in a variety of positions, including as the Corporate Controller (September 2022 until February 2023). As the Corporate Controller, Mr. Law was responsible for annual and quarterly
filings with the SEC, as well as managing the periodic financial close process. Prior to serving as the Corporate Controller, Mr. Law served the Company as Assistant Controller
(April 2022 to September 2022), Accounting Manager (June 2020 to April 2022) and Senior Accountant (December 2019 to June 2020). Prior to joining the Company, Mr. Law was a
Senior Accountant at KP LLC, a marketing solutions company, from January 2017 to December 2019. Previously, he served as Accounting Manager at Hitachi Solutions America,
Ltd., an information technology company, from 2012 to 2015. Mr. Law received his B.S. in Business Administration, Accounting from San Jose State University.
There is no arrangement or understanding between any director or executive officer and any other person pursuant to which he or she was or is to be selected as a director,
nominee or officer. There are no family relationships among any of our officers or directors.
Code of Ethics and Business Conduct
Our Board has adopted a Code of Ethics and Business Conduct (the "Code of Ethics”) which applies to all directors, officers (including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions) and employees. The full text of our Code of Ethics is available on the Corporate
Governance section of our website at www.novabay.com. We intend to disclose future amendments to certain provisions of the Code of Ethics, and any waivers of provisions of
the Code of Ethics required to be disclosed under the rules of the SEC, at the same location on our website.
Delinquent Section 16(a) Reports
Under the federal securities laws, our directors and officers and any persons holding more than ten percent (10%) of our common stock are required to report their ownership of our
common stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established, and we are required to report in this report any failure to
file by these dates.
In making this statement, we have relied upon examination of the copies of Forms 3, 4 and 5, and amendments to these forms, provided to us and the written representations of our
directors, executive officers and ten percent (10%) stockholders. Based solely on our review of copies of the reports on the Section 16(a) forms filed with the SEC with respect to
the fiscal year ended December 31, 2024, and the written representations received from the reporting persons that no other reports were required, we believe that all directors,
executive officers and persons who own more than ten percent (10%) of our common stock have complied with the reporting requirements of Section 16(a) and have filed all reports
required by such section.
Audit Committee
Our Audit Committee is composed of Dr. Jeff Zheng (Chair), Dr. Freiman and Ms. Sit. Dr. Jeff Zheng qualifies as an "audit committee financial expert” as that term is defined in the
rules and regulations established by the SEC.
- 87 -
Table of Contents
Insider Trading Policy
We have adopted an insider trading policy which prohibits our directors, officers and employees from engaging in transactions in our securities while in the possession of material
non-public information (other than pursuant to a pre-approved trading plan that complies with Rule 10b5-1 under the Exchange Act); trading in the securities of other companies
while in possession of material non-public information that they become aware of in the course or working for the Company; and disclosing material non-public information to
unauthorized persons outside our Company. We have also implemented processes for the Company that we believe are reasonably designed to promote compliance with insider
trading laws, rules, and regulations, and applicable stock exchange listing standards.
Our insider trading policy restricts trading by directors, officers and certain key employees during blackout periods, which generally begin on the 15th calendar day of the last
month of each fiscal quarter and end after the second full business day after the issuance of our quarterly earnings release. Additional blackout periods may be imposed with or
without notice, as the circumstances require.
Our insider trading policy also prohibits our directors, officers and employees from purchasing financial instruments (such as zero-cost collars and forward sale contracts)
designed to hedge or offset any decrease in the market value of our common stock they hold, directly or indirectly. In addition, directors, officers and employees are generally
prohibited from pledging our common stock to secure personal loans or other obligations, including by holding their common stock in a margin account.
ITEM 11. EXECUTIVE COMPENSATION
Summary Executive Compensation Table
The following table shows information regarding the compensation earned during the fiscal years ended December 31, 2024 and December 31, 2023 by (1) our Chief Executive
Officer, General Counsel and Chief Compliance Officer and (2) our interim Chief Financial Officer (collectively, the "NEOs”).
Name and principal
position(s)
Fiscal
year
Salary
($)
Bonus ($)
All other
compensation (1)(2)
($)
Total
($)
Justin M. Hall, Esq.
2024
$
350,000 $
− $
15,177 $
365,177
CEO, GC and Chief
2023
350,000
−
14,146
364,146
Compliance Officer
Tommy Law
2024
$
170,000 $
42,500 $
7,696 $
220,196
Interim Chief Financial Officer
2023
170,000
-
7,696
177,696
(1)
In 2024, the amounts included: (a) individual life insurance premiums paid for by the Company for Mr. Hall and Mr. Law of $1,854 and $896, respectively; and (b)
401(k) plan matching contributions paid for by the Company for Mr. Hall and Mr. Law of $13,323 and $6,800, respectively.
In 2023, the amounts included: (a) individual life insurance premiums paid for by the Company for Mr. Hall and Mr. Law of $1,854 and $896, respectively; and (b)
401(k) plan matching contributions paid for by the Company for Mr. Hall and Mr. Law of $12,292 and $6,800, respectively.
(2)
In connection with the closing of the Avenova Asset Sale, we entered into the PRN Transition Services Agreement with PRN, pursuant to which we agreed to
provide services to PRN with respect to specified accounting, marketing, sales, customer service, regulatory and operational support for a period of four (4) months
after the closing of the Avenova Asset Sale in exchange for agreed upon service fees to be paid to us. As part of the PRN Transition Services Agreement, PRN
entered into a consulting agreement with Tommy Law, our Interim Chief Financial Officer, for certain services with a one-time payment of $85,000 to be made by PRN
to Mr. Law when all such services are complete.
- 88 -
Table of Contents
2024 and 2023 Base Salaries and Target Bonus Amounts
The Compensation Committee of the Board (the "Compensation Committee”) did not recommend any increases to executive salaries or target bonus amounts for 2024 or 2023;
they remained the same as 2022. For Mr. Hall, this was a 2024 base salary of $350,000 and a target bonus percentage of base salary of 50%. For Mr. Law, this was a 2024 base salary
of $170,000 and a target bonus percentage of base salary of 25%.
2024 and 2023 Cash Bonuses
The Board, upon the recommendation of the Compensation Committee, determined not to award any bonuses to its NEOs, excluding Mr. Law, for fiscal year 2024 performance or
fiscal year 2023 performance. Mr. Law did not receive a bonus for fiscal year 2024 performance and $42,500 for fiscal year 2023 performance.
2024 and 2023 Equity Awards
The Board, upon the recommendation of the Compensation Committee, determined not to grant any equity awards for the 2024 fiscal year or 2023 fiscal year to any of its NEOs.
Federal Income Tax Law
Federal income tax law prohibits publicly-held companies, such as the Company, from deducting compensation paid to a NEO that exceeds $1 million during the tax year. Prior to
the adoption of the Tax Cuts and Jobs Act of 2017 ("Tax Act”), to the extent that compensation was based upon the attainment of performance goals set by the Compensation
Committee pursuant to plans approved by the stockholders, the compensation was exempted from the $1 million deduction limit. The Tax Act repealed this exemption, and now
compensation paid to NEOs in excess of $1 million is no longer deductible, even if performance-based. The Compensation Committee intends to continue to use performance
metrics in compensation when it is in the best interests of the Company and its stockholders even if such compensation is not deductible for tax purposes.
- 89 -
Table of Contents
Outstanding Equity Awards at Fiscal Year End
The following table presents the outstanding equity awards held by each of our NEOs as of December 31, 2024. Stock options were granted pursuant to our 2007 Plan thereafter
until its expiration in March 2017, and all awards since then have been pursuant to our 2017 Plan. The options granted under our 2007 Plan and 2017 Plan are not exercisable until
they have vested.
Option Awards
Stock Awards
Name
Grant
date
Number of
securities
underlying
unexercised
options (#)
exercisable(1)
Number of
securities
underlying
unexercised
options (#)
unexercisable(1)
Option
exercise
price
($)
Option
expiration
date
Number of
shares or
units of
stock that
have
not vested
(#)
Market value
of
shares or
units
of stock that
have not vested
($)
Equity
incentive plan
awards:
number of
unearned
shares, units
or
other rights
that have not
vested
(#)
Equity incentive
plan awards:
market or
payout
value of
unearned
shares, units or
other rights
that
have not vested
($)
Justin M. Hall, Esq.
08/20/20
232
– $
1,212.75
08/20/30
– $
–
– $
–
05/31/18
155
– $
2,695.00
05/31/28
– $
–
– $
–
01/25/17
18(3)
– $
4,410.00
01/25/27
– $
–
– $
–
06/06/16
106(4)
– $
3,405.50
06/06/26
– $
–
– $
–
10/01/15
2
– $
8,268.75
10/01/25
– $
–
– $
–
Tommy Law
06/08/20
5
- $
1,097.25 06/08/2030
– $
–
– $
–
08/20/20
21
- $
1,212.75 08/20/2030
– $
–
– $
–
(1)
Unless otherwise noted, each option vests as to 25% of the shares underlying the option on the first anniversary of the grant date, with the remainder vesting every three
months in 12 equal installments thereafter. Options expire ten (10) years from the date of grant.
(2)
Under the performance restricted stock units, the awards would have vested based on the achievement of three performance goals as determined by the Compensation
Committee at the end of the performance period ending December 31, 2023. The Compensation Committee determined that the applicable performance goals for the
performance restricted stock units held by Mr. Hall were not achieved.
(3)
Mr. Hall was granted 117 stock options to vest on January 31, 2018, in direct proportion to the percentage achievement of the stated 2017 corporate goals, as approved
and determined by the Board. Such determination resulted in a 15% payout, or 18 shares vesting.
(4)
Mr. Hall was granted 106 stock options to vest on January 31, 2017, in direct proportion to the percentage achievement of the stated 2016 corporate goals, as approved
and determined by the Board, which was 100%.
- 90 -
Table of Contents
Employment-Related Agreements and Potential Payments upon Termination or Change in Control
On January 31, 2020, the Company entered into an employment agreement with Mr. Hall in connection with his appointment to serve as an executive officer. Mr. Hall’s employment
agreement was subsequently amended by a first amendment on January 26, 2022, a second amendment effective on December 31, 2023, and a third amendment effective on
December 31, 2024.
The principal terms of our Mr. Hall’s current employment agreement is summarized below. Mr. Law, our other NEO, is not currently party to an employment agreement with the
Company.
Justin Hall
Mr. Hall’s employment agreement, as amended, provides for at-will employment and a term commencing on January 31, 2020 and ending on December 31, 2025, unless earlier
terminated in accordance with the terms of the employment agreement. Mr. Hall’s employment agreement originally provided for an annual base salary of two hundred eighty-six
thousand dollars ($286,000), subject to annual review and increases determined by the Compensation Committee and/or Board (such amount, the "Hall Base Salary”).
In addition, Mr. Hall shall be eligible for any bonus plan that is deemed appropriate by the Board. The bonus amount shall be determined by the Board, in its sole discretion, based
upon factors, including: (i) the fulfillment, during the relevant year, of specific milestones and tasks delegated, for such year, to the executive as set by the executive and the
Company’s Board, before the end of the first calendar quarter; (ii) the evaluation of the executive by the Company’s Board; (iii) the Company’s financial, product and expected
progress; and (iv) other pertinent matters relating to the Company’s business and valuation. Any bonus will be payable within two-and-a-half (2 1/2) months following the end of
the year for which the bonus was earned. The Compensation Committee shall have the sole discretion to pay any or all of the annual bonus in the form of equity compensation.
Any such equity compensation shall be issued from the Company’s equity incentive plan, and shall be fully vested upon issuance.
In the event the Company terminates Mr. Hall for cause (as defined in the employment agreement), he shall be entitled to any earned but unpaid wages or other compensation
(including reimbursements of his outstanding expenses and unused vacation) earned through the termination date.
In the event the Company terminates Mr. Hall without cause (including death, disability or for constructive termination) (each as defined in the employment agreement) that is not
in connection with a change of control, provided such termination constitutes a "separation from service” as such term is defined in Section 409A of the Code and, subject to his
execution of a release of claims in favor of the Company, he shall be entitled to an amount equal to the Hall Base Salary in effect on the date of separation from service plus the full
target annual bonus percentage for the current fiscal year (the "Hall Severance Amount”). The Hall Severance Amount will be paid in twelve (12) equal consecutive monthly
installments at the monthly equivalent of the Hall Base Salary rate in effect at the time of his termination, with such installments commencing within sixty (60) days following the
executive’s separation from service. The Hall Severance Amount shall be in addition to Mr. Hall’s earned wages and other compensation (including reimbursements of his
outstanding expenses and unused vacation) through the date his employment is terminated from the Company.
In the event the Company terminates Mr. Hall without cause in connection with a change of control (as defined in the employment agreement), he shall be entitled to a Change of
Control Severance (the "Hall CoC Severance Amount”) in place of the Hall Severance Amount described above. The Hall CoC Severance Amount shall be: (i) an amount equal to
twice the Hall Base Salary and (ii) an amount equal to the cash portion of his target Annual Bonus for the fiscal year in which the termination occurs (with it deemed that all
performance goals have been met at one hundred percent (100%) of budget or plan) multiplied by one hundred fifty percent (150%). For a period of eighteen (18) months, Mr. Hall
may elect coverage for, and the Company shall reimburse him for, the amount of his premium payments for group health coverage, if any, elected by the executive pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA”); provided, however, that Mr. Hall shall be solely responsible for all matters relating to his
continuation of coverage pursuant to COBRA, including (without limitation) his election of such coverage and his timely payment of premiums.
Moreover, all outstanding equity awards held by Mr. Hall will be subject to full accelerated vesting on the date of termination without cause, in both the standard Hall Severance
Amount and the Hall CoC Severance Amount, and the exercise period shall be extended to three (3) years from the date of termination. In order to terminate Mr. Hall for cause (or
for Mr. Hall to resign for constructive termination), the acting party shall give notice to the other party specifying the reason for termination and providing a period of thirty (30)
days to cure the reason specified. If there is no cure within thirty (30) days or the notified party earlier refuses to effect the cure, the termination shall then be deemed effective.
Director Compensation
The compensation and benefits for service as non-employee members of our Board is determined by the Board. Directors employed by the Company, such as Mr. Hall, are not
compensated for service on the Board or any committee of the Board; however, the Company reimburses all directors for any out-of-pocket expenses incurred in connection with
attending meetings of the Board and committees of the Board.
- 91 -
Table of Contents
The Board, upon the recommendation of the Compensation Committee, approved the Non-Employee Director Compensation Program, effective January 1, 2024 (the "2024 Non-
Employee Director Compensation Plan”). Under the 2024 Non-Employee Director Compensation Plan, each director receives his or her annual retainer compensation in cash and
an annual grant of 858 restricted stock units. All cash compensation is payable quarterly on the first (1st) business day of the quarter.
Approved non-employee director compensation for 2024 was as follows:
Board Meetings
Chair of Committees
All Other Committee Members
Chair of the Board: Annual cash compensation of
$52,000 per year.
Chair of the Audit Committee: Annual cash
compensation of $17,500 per year.
Member of the Audit Committee: Annual cash
compensation of $7,500 per year.
Member of the Board: The annual fee consists of: (i)
$40,000 in cash and (ii) 858 restricted stock units
granted. The restricted stock units are granted at the
Company’s Annual Meeting of Stockholders, and
vest on the one year anniversary of the grant date.
Chair of the Compensation Committee: Annual cash
compensation of $13,000 per year.
Member of the Compensation Committee: Annual
cash compensation of $6,000 per year for each
committee.
Chair of the N&CG Committee: Annual cash
compensation of $10,000 per year.
Member of the N&CG Committee: Annual cash
compensation of $5,000 per year for each committee.
Non-employee directors also may be granted
additional awards under our equity incentive plans at
the discretion of our Board.
The compensation received during 2024 by each non-employee director is set forth below:
Name
Fees Earned or
Paid in Cash
($)
Stock
Awards(1)
($)
Total
($)
Paul E. Freiman, Ph.D.
$
72,000 $
4,234 $
76,234
Julie Garlikov
$
40,000 $
4,234 $
44,234
Swan Sit
$
58,500 $
4,234 $
62,734
Mijia (Bob) Wu, M.B.A.
$
40,000 $
4,234 $
44,234
Sean Zheng
$
40,000 $
4,234 $
44,234
Yenyou (Jeff) Zheng, Ph.D.
$
72,000 $
4,234 $
76,234
(1)
These amounts represent the aggregate grant date fair value of $4.94 per share for the 858 restricted stock awards granted to each director as part of his or her annual fee
in fiscal year 2024. The assumptions used to determine the value of restricted stock units are described in Note 16 "Equity-Based Compensation” to the Company’s
consolidated financial statements in this annual report. At December 31, 2024, each of Dr. Freiman, Ms. Garlikov, Ms. Sit, Mr. Wu, Mr. Sean Zheng and Dr. Jeff Zheng had
an aggregate of 5,148 unvested restricted stock units. At December 31, 2024, the aggregate number of vested stock options for each of the non-employee directors who
served in 2024 and held stock options was as follows (with no such director holding any unvested stock options at such time): Dr. Freiman, 99; Ms. Sit, 17; Mr. Wu, 47;
and Dr. Jeff Zheng, 17.
Policies and Practices for Granting Equity Awards
We do not currently grant new awards of stock options, stock appreciation rights or similar option-like equity awards. Accordingly, we have no specific policy or practice on the
timing of grants of such awards in relation to the disclosure of material nonpublic information. In the event we determine to grant new awards of stock options or similar equity
awards in the future, the Compensation Committee will evaluate material nonpublic information into account when determining the timing and terms of such an award and whether
the registrant has timed the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation.
- 92 -
Table of Contents
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table provides information as of December 31, 2024, with respect to shares of our common stock that may be issued under existing equity compensation plans.
Plan category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options and
Rights
Weighted Average
Exercise Price of
Outstanding
Options and
Rights
Number of
Securities
Remaining
Available For
Future Issuance
under Equity
Compensation
Plans (excluding
some securities
reflected in first
column)
Equity compensation plans approved by security holders(1)
6,855 $
471.64
13,668
Equity compensation plans not approved by security holders
—
—
—
Total
6,855 $
471.64
13,668
(1)
Consists of the 2007 Omnibus Incentive Plan and 2017 Omnibus Incentive Plan. No additional option grants are being made under the 2002 Stock Option Plan, 2005 Stock
Option Plan or 2007 Omnibus Incentive Plan. The 2017 Omnibus Incentive Plan became effective on June 2, 2017, and 13,668 shares were reserved for issuance under that
plan at December 31, 2024.
Security Ownership of Certain Beneficial Owners and Management
The following table indicates information as of March 18, 2025 regarding the beneficial ownership of our securities by:
●
each person who is known by us to beneficially own more than five percent (5%) of our securities;
●
our current executive officers;
●
each of our directors; and
●
all of our directors and executive officers as a group.
The percentage of shares beneficially owned is based on 5,816,204 shares of common stock outstanding as of March 18, 2025. Except as indicated in the footnotes to this table, and
as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them and no shares are
pledged.
Name and Address of Beneficial Owner (1)
Number of Shares
Beneficially
Owned
Percent of
Class
Beneficial Owners Holding More Than 5%
Poplar Point Capital Management LLC
330 Primrose Road, Suite 400
Burlingame, CA 94010 (2)
620,685
10.7%
Executive Officers and Directors
Justin M. Hall, Esq. (3)
580
*
Tommy Law (4)
26
*
Paul E. Freiman, Ph.D. (5)
172
*
Julie Garlikov (6)
50
*
Swan Sit (7)
92
*
Mijia (Bob) Wu, M.B.A. (8)
122
*
Yenyou (Jeff) Zheng, Ph.D. (9)
92
*
Yongxiang (Sean) Zheng (10)
50
*
All directors and executive officers as a group (8 persons)
1,184
*%
*
Less than one percent (1%).
- 93 -
Table of Contents
(1)
The address for each director and executive officer of NovaBay listed is c/o NovaBay Pharmaceuticals, Inc., 2000 Powell Street, Suite 1150, Emeryville, CA 94608. The
number of shares beneficially owned and percent of class is calculated in accordance with SEC rules. A beneficial owner is deemed to beneficially own shares the
beneficial owner has the right to acquire within sixty (60) days of March 18, 2025. For purposes of calculating the percent of class held by a single beneficial owner, the
shares that such beneficial owner has the right to acquire within sixty (60) days of March 18, 2025 are also deemed to be outstanding; however, such shares are not
deemed to be outstanding for purposes of calculating the percentage ownership of any other beneficial owner.
(2)
Based upon information contained in the Schedule 13G/A (Amendment No. 1) jointly filed by Poplar Point Capital Management LLC, a Delaware limited liability company,
Poplar Point Capital Partners LP, a Delaware limited partnership, Poplar Point Capital GP LLC, a Delaware limited liability company, and Jad Fakhry, a United States citizen
with the SEC on February 6, 2025, with shared voting and dispositive power of all shares and sole voting and dispositive power of no shares.
(3)
Consists of (i) 67 shares of common stock held directly by Mr. Hall and (ii) 513 shares issuable upon the exercise of outstanding options that are exercisable as of March
18, 2025 or within 60 days after such date.
(4)
Consists of 26 shares of common stock issuable upon exercise of outstanding stock options that are exercisable as of March 18, 2025 or within 60 days after such date.
(5)
Consists of (i) 75 shares of common stock held directly by Dr. Freiman; (ii) 2 shares of common stock held by the Paul Freiman and Anna Mazzuchi Freiman Trust, of
which Dr. Freiman and his spouse are trustees (with sole voting power over 1 share, shared voting power over 1 share, sole investment power over no shares and shared
investment power over 2 shares); and (iii) 95 shares of common stock issuable upon exercise of outstanding stock options that are exercisable as of March 18, 2025 or
within 60 days after such date.
(6)
Consists of 50 shares of common stock held directly by Ms. Garlikov as of March 18, 2025.
(7)
Consists of (i) 75 shares of common stock held directly by Ms. Sit and (ii) 17 shares issuable upon exercise of outstanding stock options that are exercisable as of March
18, 2025 or within 60 days after such date.
(8)
Consists of (i) 75 shares of common stock held directly by Mr. Wu and (ii) 47 shares issuable upon exercise of outstanding stock options that are exercisable as of March
18, 2025 or within 60 days after such date.
(9)
Consists of (i) 75 shares of common stock held directly by Dr. Jeff Zheng and (ii) 17 shares issuable upon exercise of outstanding stock options that are exercisable as of
March 18, 2025 or within 60 days after such date.
(10)
Consists of 50 shares of common stock held directly by Mr. Sean Zheng as of March 18, 2025.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Party Transactions
NovaBay’s Audit Committee has the responsibility of reviewing any possible related party transactions. In conducting its review, the Audit Committee applies the principles of the
Code of Ethics and its Conflict of Interest Policy to: (i) the relationship of the related persons to the transaction; (ii) the relationship between the Company and the related persons;
(iii) the importance of the interest to the related persons; and (iv) the amount involved in the transaction. Since December 31, 2022, there has not been any transaction, nor is there
any proposed transaction, in which NovaBay was a participant, and in which a "related party” of NovaBay had or is expected to have a direct or indirect material interest, in which
the amount involved exceeded or will exceed the lesser of $120,000 or one percent (1%) of the average of NovaBay’s total assets at the end of the last two (2) completed fiscal
years, that would require disclosure, except for the following:
2023 Private Placement
On April 27, 2023, the Company entered into the 2023 Private Placement (as defined in Note 11, "Financing Activities”). As a result of the significant number of shares of common
stock that may be issued upon the future conversion or redemption of the Secured Convertible Notes and exercise of the May 2023 Warrants (as defined in Note 14, "Common
Stock Warrants and Warrant Liabilities”) compared to the currently issued and outstanding shares of common stock, the Company was required to obtain stockholder approval in
accordance with the NYSE American Company Guide Rule 713(a) and Rule 713(b), which was obtained on June 9, 2023. In connection with the closing of the 2023 Private
Placement, the Company was required to obtain voting commitments from the Company’s executive officers, directors, more than 10% stockholders, Mr. Fu and Pioneer Pharma
(Hong Kong) Company Limited to support the Company in obtaining the required stockholder approval. As a condition for Mr. Fu and Pioneer Hong Kong delivering their voting
commitments to the Company, the Company entered into warrant amendment agreements with certain other existing Company investors that hold previously-issued Company
common stock purchase warrants that reduced the exercise price of these warrants to $1.30 per share. Mr. Sean Zheng currently serves as the Head of Investment Department of
Pioneer (an affiliate of Pioneer Hong Kong), and Mr. Wu historically served as the Non-Executive Director of Pioneer.
- 94 -
Table of Contents
Consulting Agreement
In connection with the closing of the Avenova Asset Sale, we entered into the PRN Transition Services Agreement with PRN, pursuant to which we agreed to provide services to
PRN with respect to specified accounting, marketing, sales, customer service, regulatory and operational support for a period of four (4) months after the closing of the Avenova
Asset Sale in exchange for agreed upon service fees to be paid to us. As part of the PRN Transaction Services Agreement, PRN entered into a consulting agreement with Tommy
Law, our interim Chief Financial Officer, for certain services with a one-time payment of $85,000 to be made by PRN to Mr. Law when all such services are complete.
Independence of Directors
Our Board has reviewed the independence of our directors using the NYSE American independence standards. Based on this review, we have determined that each of Dr. Freiman,
Ms. Garlikov, Ms. Sit and Dr. Jeff Zheng satisfies the requirements for "independence” as defined in the NYSE American Company Guide. The remaining directors, who are not
independent, do not and will not serve on any committees of the Board as long as they are not independent.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid to Independent Registered Public Accounting Firm
The following table sets forth the fees billed to us for the fiscal years ended December 31, 2023 and 2024 by WithumSmith+Brown, PC ("Withum”) for such years.
2024
2023
Audit Fees
$
474,000 $
370,000
Audit-Related Fees
18,960
14,800
Tax Fees
―
―
All Other Fees
―
―
Total Fees
$
492,960 $
384,800
Audit Fees. Audit fees consisted of fees billed by Withum for professional services rendered in connection with the audit and quarterly reviews of our consolidated
financial statements and other engagements, such as review of documents filed with the SEC, including fees associated with the review of registration statements, comfort letters
and consents.
Audit-Related Fees. Audit-related fees comprise fees for professional services rendered by Withum that are reasonably related to the performance of the audit or review
of our consolidated financial statements that are not reported in "Audit Fees.” In 2024 and 2023, such audit-related fees were related to out-of-pocket expenses incurred in
conjunction with the performance of audits and reviews.
Tax Fees. These are fees for professional services with respect to tax compliance, tax advice and tax planning. There were no such services rendered by Withum in 2024
and 2023 that meet this category description.
All Other Fees. All other fees are the fees for products and services other than those in the above three categories. There were no such services rendered by Withum in
2024 or 2023 that meet this category description.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
All engagements for services by Withum or other independent registered public accounting firms are subject to prior approval by the Audit Committee; however, de minimis non-
audit services may be approved in accordance with applicable SEC rules. The Audit Committee approved all services provided by Withum for the fiscal years ended December 31,
2024 and December 31, 2023.
- 95 -
Table of Contents
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this annual report:
(1) Financial Statements. The financial statements listed in the Index for Item 8 hereof are filed as part of this annual report.
(2) Financial Statement Schedules. All schedules have been omitted because they are not required or the required information is included in our consolidated financial statements
and notes thereto.
(3) Exhibits. The following exhibits are filed as part of this Report:
Incorporation by Reference
Filed
Herewith
Exhibit
Number Exhibit Description
Form
File
Number
Exhibit/
Form 8-K
Item
Reference
Filing
Date
2.1
Membership Unit Purchase Agreement dated September 27, 2021, by and among the
Company, DERMAdoctor, the Founders and the Sellers (as defined therein)
8-K
001-33678
2.1
9/28/2021
2.2
Membership Unit Purchase Agreement dated March 12, 2024, by and among
NovaBay Pharmaceuticals, Inc., DERMAdoctor, LLC and New Age Investments,
LLC
8-K
001-33678
2.1
03/14/2024
2.3*
Asset Purchase Agreement, dated September 19, 2024, by and among NovaBay
Pharmaceuticals, Inc. and PRN Physician Recommended Nutriceuticals, LLC
8-K
001-33678
2.1
9/20/2024
2.4*
Amendment No. 1 to Asset Purchase Agreement, dated as of November 5, 2024,
between PRN Physician Recommended Nutriceuticals, LLC and NovaBay
Pharmaceuticals, Inc.
8-K
001-33678
2.1
11/06/2024
2.5*
Trademark Acquisition Agreement, dated January 3, 2025, by and between
NovaBay Pharmaceuticals, Inc. and Phase One Health, LLC
8-K
001-33678
2.1
1/10/2025
3.1
Amended and Restated Certificate of Incorporation of NovaBay Pharmaceuticals,
Inc.
10-K
001-33678
3.1
3/21/2018
3.2
Amendment to the Amended and Restated Certificate of Incorporation, dated June
4, 2018
8-K
001-33678
3.1
6/04/2018
3.3
Amendment to the Amended and Restated Certificate of Incorporation, as amended,
dated May 27, 2020
8-K
001-33678
3.1
5/28/2020
3.4
Amendment to the Amended and Restated Certificate of Incorporation, as amended,
dated May 24, 2021
8-K
001-33678
3.1
5/24/2021
3.5
Amendment to the Amended and Restated Certificate of Incorporation, as amended,
dated January 31, 2022
8-K
001-33678
3.1
2/1/2022
3.6
Amendment to Amended and Restated Certificate of Incorporation, as amended,
dated November 14, 2022
8-K
001-33678
3.1
11/18/2022
3.7
Amendment to the Amended and Restated Certificate of Incorporation, as amended,
dated May 30, 2024
8-K
001-33678
3.1
5/31/2024
3.8
Certificate of Designation for the Series B Preferred Stock
8-K
001-33678
3.1
11/1/2021
3.9
Certificate of Designation for the Series C Preferred Stock
8-K
001-33678
3.2
11/18/2022
3.10
Bylaws, as amended and restated effective June 13, 2023
8-K
001-33678
3.1
6/14/2023
4.1
Description of Securities
X
4.2
Form of Warrant pursuant to the Services Agreement with TLF Bio Innovation Lab,
LLC, dated May 13, 2020
8-K
001-33678
4.1
5/18/2020
4.3
Form of July 2020 Warrant
8-K
001-33678
4.1
7/21/2020
4.4
Form of Amended July 2020 Warrant
8-K
001-33678
4.1
9/13/2022
4.5
Form of Amended November 2021 Warrant
8-K
001-33678
4.2
9/13/2022
4.6
Form of September 2022 Warrant (2020 participants)
8-K
001-33678
4.3
9/13/2022
4.7
Form of September 2022 Warrant (2021 participants)
8-K
001-33678
4.4
9/13/2022
4.8
Form of Series A-1 Long-Term Warrant
8-K
001-33678
4.5
9/13/2022
4.9
Form of Series A-2 Short-Term Warrant
8-K
001-33678
4.6
9/13/2022
4.10
Form of Original Issue Discount Secured Senior Convertible Debentures
8-K
001-33678
4.1
4/27/2023
4.11
Form of Series B-1 Long-Term Warrant
8-K
001-33678
4.2
4/27/2023
4.12
Form of Series B-2 Short-Term Warrant
8-K
001-33678
4.3
4/27/2023
4.13
Form of Warrant Amendment Agreement
8-K
001-33678
4.4
4/27/2023
- 96 -
Table of Contents
4.14
Form of Series C Common Stock Warrant
8-K
001-33678
4.1
12/21/2023
4.15
Form of Series D Common Stock Warrant
8-K
001-33678
4.2
3/25/2024
4.16
Form of Series E Common Stock Warrant
8-K
001-33678
4.1
6/14/2024
4.17
Form of Unsecured Convertible Notes
8-K
001-33678
4.3
3/25/2024
4.18
Form of Pre-Funded Common Stock Warrant
8-K
001-33678
4.4
7/29/2024
4.19
Form of Series F-1 Common Stock Warrant
8-K
001-33678
4.1
7/29/2024
4.20
Form of Series F-2 Common Stock Warrant
8-K
001-33678
4.2
7/29/2024
4.21
Form of Series F-3 Common Stock Warrant
8-K
001-33678
4.3
7/29/2024
10.1
Director and Officer Indemnity Agreement
10-K
001-33678
10.1
3/29/2022
10.2+
NovaBay Pharmaceuticals, Inc. 2007 Omnibus Incentive Plan (as amended and
restated)
S-8
333-215680
99.1
1/24/2017
10.3+
NovaBay Pharmaceuticals, Inc. 2017 Omnibus Incentive Plan
S-8
333-218469
99.1
6/02/2017
10.4+
NovaBay Pharmaceuticals, Inc. 2017 Omnibus Incentive Plan (Form Agreements to
the 2017 Omnibus Incentive Plan)
S-8
333-218469
99.2
6/02/2017
10.5+
Executive Employment Agreement (Employment Agreement of Justin M. Hall)
8-K
001-33678
10.1
2/6/2020
10.6+
First Amendment to the Executive Employment Agreement with Justin M. Hall,
dated January 26, 2022
8-K
001-33678
10.6
1/28/2022
10.7+
Second Amendment to Executive Employment Agreement with Justin M. Hall,
effective December 31, 2023
8-K
001-33678
10.3
12/11/2023
10.8+
Third Amendment to Executive Employment Agreement with Justin M. Hall,
effective December 31, 2024
8-K
001-33678
10.4
1/22/2025
10.9+
2024 Non-Employee Director Compensation Plan
10-K
001-33678
10.8
3/26/2024
10.10
Office Lease (between the Company and KBSIII Towers at Emeryville, LLC)
8-K
001-33678
10.1
8/26/2016
10.11
First Amendment to Office Lease by and between the Company and KBSIII Towers
at Emeryville, LLC, dated January 24, 2022
8-K
001-33678
10.2
1/28/2022
10.12†
International Distribution Agreement (by and between the Company and Pioneer
Pharma Co. Ltd.)
10-K
001-33678
10.18
3/27/2012
10.13
Form of Exercise Agreement with Holders of 2019 Domestic Warrants
8-K
001-33678
10.1
7/21/2020
10.14
Form of Exercise Agreement with Holders of 2019 Foreign Warrants
8-K
001-33678
10.2
7/21/2020
10.15
Form of Reprice Agreement with Ladenburg
8-K
001-33678
10.3
7/21/2020
10.16
Form of Securities Purchase Agreement, dated October 29, 2021
8-K
001-33678
1.1
11/01/2021
10.17
Form of Registration Rights Agreement, dated October 29, 2021
8-K
001-33678
10.1
11/01/2021
10.18*
Form of 2020 Warrant Reprice Letter Agreement, dated September 9, 2022
8-K
001-33678
10.1
9/13/2022
10.19*
Form of 2021 Warrant Reprice Letter Agreement, dated September 9, 2022
8-K
001-33678
10.2
9/13/2022
10.20
Form of Securities Purchase Agreement, dated September 9, 2022
8-K
001-33678
10.3
9/13/2022
10.21
Form of Registration Rights Agreement, dated November 18, 2022
8-K
001-33678
10.4
9/13/2022
10.22+
Consulting Agreement between the Company and Andrew Jones, dated February
15, 2023
10-K
001-33678
10.33
3/31/2023
10.23
Form of Letter Agreement
8-K
001-33678
10.1
12/21/2023
10.24
Form of Securities Purchase Agreement
8-K
001-33678
10.1
4/27/2023
10.25*
Form of Security Agreement
8-K
001-33678
10.2
4/27/2023
10.26*
Form of First Amendment to the Security Agreement, dated March 24, 2024
8-K
001-33678
10.3
3/25/2024
10.27
Form of Subsidiary Guarantee
8-K
001-33678
10.3
4/27/2023
10.28*
Form of Consent and Release, dated March 24, 2024
8-K
001-33678
10.4
3/25/2024
10.29
Form of Voting Commitment
8-K
001-33678
10.4
4/27/2023
10.30
Form of Registration Rights Agreement
8-K
001-33678
10.5
4/27/2023
10.31
Form of Letter Agreement, dated June 14, 2024
8-K
001-33678
10.1
6/14/2024
10.32*
Underwriting Agreement, dated July 26, 2024, by and between the Company and
Ladenburg Thalmann & Co., Inc.
8-K
001-33678
1.1
7/29/2024
10.33
Warrant Agency Agreement, dated July 29, 2024, by and between the Company and
Equiniti Trust Company, LLC
8-K
001-33678
10.1
7/29/2024
10.34*
Secured Promissory Note, dated as of November 5, 2024, between NovaBay
Pharmaceuticals, Inc., as borrower, and PRN Physician Recommended
Nutriceuticals, LLC, as lender.
8-K
001-33678
10.1
11/06/2024
10.35
Transition Services Agreement, dated as of January 3, 2025, by and between
NovaBay Pharmaceuticals, Inc. and Phase One Health, LLC
8-K
001-33678
10.1
1/10/2025
10.36
Engagement Agreement, dated March 4, 2025, by and between NovaBay
Pharmaceuticals, Inc. and Lucid Capital Markets, LLC
8-K
001-33678
10.1
3/7/2025
10.37*
Settlement and Release Agreement, dated March 5, 2025, by and between NovaBay
Pharmaceuticals, Inc. and Sabby Volatility Warrant Master Fund Ltd.
8-K
001-33678
10.1
3/11/2025
- 97 -
Table of Contents
10.38*
Settlement and Release Agreement, dated March 10, 2025, by and between
NovaBay Pharmaceuticals, Inc. and Bigger Capital Fund, LP
8-K
001-33678
10.2
3/11/2025
10.39*
Settlement and Release Agreement, dated March 10, 2025, by and between
NovaBay Pharmaceuticals, Inc. and District 2 Capital Fund LP
8-K
001-33678
10.3
3/11/2025
19
NovaBay Insider Trading Policy
X
21
Subsidiaries of the Company
X
23.1
Consent of WithumSmith+Brown PC
X
31.1
Certification of the Principal Executive Officer of NovaBay Pharmaceuticals, Inc., as
required by Rule 13a-14(a) or Rule 15d-14(a)
X
31.2
Certification of the Principal Financial Officer of NovaBay Pharmaceuticals, Inc., as
required by Rule 13a-14(a) or Rule 15d-14(a)
X
32.1
Certification by the Chief Executive Officer of NovaBay Pharmaceuticals, Inc., as
required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350)
X
32.2
Certification by the Chief Financial Officer of NovaBay Pharmaceuticals, Inc., as
required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350)
X
97
NovaBay Pharmaceuticals, Inc. Policy for Recoupment of Incentive Compensation
10-K
001-33678
97
3/26/2024
101.INS
Inline XBRL Instance Document
X
101.SCH Inline XBRL Taxonomy Extension Schema Document
X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
X
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
X
104
The Cover Page Interactive Data File, formatted in Inline XBRL (included within the
Exhibit 101 attachments)
X
+
Indicates a management contract or compensatory plan or arrangement.
†
NovaBay Pharmaceuticals, Inc. has been granted confidential treatment with respect to certain portions of this exhibit (indicated by asterisks), which have been separately
filed with the Securities and Exchange Commission.
*
Certain schedules and exhibits were omitted as well as confidential portions of this exhibit by means of marking such portions with brackets because the confidential portions
(i) are not material and the type of information that is typically treated as private or confidential and/or (ii) would be competitively harmful if publicly disclosed.
ITEM 15.
FORM 10-K SUMMARY
None.
- 98 -
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 2, 2025
By: /s/ Justin Hall
Justin Hall
Chief Executive Officer, General Counsel and Director
(principal executive officer)
Date: April 2, 2025
By: /s/ Tommy Law
Tommy Law
Interim Chief Financial Officer
(principal financial officer)
- 99 -
Table of Contents
POWER OF ATTORNEY
We, the undersigned officers and directors of NovaBay Pharmaceuticals, Inc., do hereby constitute and appoint Justin Hall and Tommy Law, and each of them, our true and lawful
attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in person, hereby, ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated:
Signature
Title
Date
/s/ JUSTIN HALL
Chief Executive Officer, General Counsel
and Director
April 2, 2025
Justin Hall
(principal executive officer)
/s/ TOMMY LAW
Interim Chief Financial Officer
April 2, 2025
Tommy Law
(principal financial officer)
/s/ PAUL E. FREIMAN
Chairman of the Board
April 2, 2025
Paul E. Freiman
/s/ JULIE GARLIKOV
Director
April 2, 2025
Julie Garlikov
/s/ SWAN SIT
Director
April 2, 2025
Swan Sit
/s/ MIJIA WU
Director
April 2, 2025
Mijia (Bob) Wu, M.B.A.
/s/ YENYOU ZHENG
Director
April 2, 2025
Yenyou (Jeff) Zheng
/s/ YONGXIANG ZHENG
Director
April 2, 2025
Yongxiang (Sean) Zheng
- 100 -
Exhibit 4.1
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 150,000,000 shares of common stock, $0.01 par value per share ("Common Stock”), and 5,000,000 shares of preferred stock, $0.01
par value per share. A description of material terms and provisions of our Amended and Restated Certificate of Incorporation, as amended ("Certificate of Incorporation”) and
Bylaws, as amended and restated ("Bylaws”) affecting the rights of holders of our capital stock is set forth below. The description is intended as a summary, and is qualified in its
entirety by reference to our Certificate of Incorporation, our Bylaws, and the applicable provisions of the Delaware General Corporation Law ("DGCL”).
On May 30, 2024, we effected a 1-for-35 reverse stock split and 35 shares of our outstanding Common Stock decreased to one share of Common Stock. Similarly, the
number of shares of Common Stock issuable upon the exercise of outstanding stock options or warrants, the conversion of convertible preferred stock, or upon the vesting of
outstanding restricted stock units, decreased on a 1-for-35 basis and the exercise price of each outstanding option and warrant increased proportionately.
Common Stock
Dividend rights. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our Common Stock are
entitled to receive dividends out of funds legally available if our Board of Directors (the "Board”), in its discretion, determines to issue dividends and then only at the times and in
the amounts that our Board may determine.
Voting rights. Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders, except for a
vote on any amendment to the Certificate of Incorporation (including any certificate of designation filed with respect to any series of preferred stock) that relates solely to the terms
of one or more outstanding series of preferred stock, if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other
such series, to vote thereon by law or pursuant to the Certificate of Incorporation (including any certificate of designation filed with respect to any series of preferred stock). Our
Certificate of Incorporation does not provide for the right of stockholders to cumulate votes for the election of directors. Our Certificate of Incorporation establishes a classified
Board, divided into three classes with staggered three-year terms. Only one class of directors is elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year terms.
No preemptive or similar rights. Our Common Stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions. The
rights, preferences and privileges of the holders of our Common Stock are subject to, and may be adversely affected by, the rights of the holders of any series of our preferred
stock outstanding at the time or that we may designate and issue in the future.
Right to receive liquidation distributions. Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to holders of our Common Stock
are distributable ratably among the holders of our Common Stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of
liquidation preferences, if any, on any outstanding shares of our preferred stock.
Anti-takeover effects of provisions of our Certificate of Incorporation, our Bylaws and Delaware law
Our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation provides that our Board is divided into three classes with staggered three-year terms. Only one class of directors is elected at each annual
meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. As a result, in most circumstances, a person can gain control
of our Board only by successfully engaging in a proxy contest at two or more annual stockholder meetings. Because holders of our Common Stock do not have cumulative voting
rights in the election of directors, stockholders holding a majority of the shares of Common Stock outstanding are able to elect all of our directors. Our Board is able to elect a
director to fill a vacancy created by the expansion of the Board or due to the resignation or departure of an existing board member by a majority vote of the Board, even if less than
a quorum. Our Certificate of Incorporation provides that the number of directors will be fixed exclusively by our Board, and that a majority vote of the Board is required to modify
the number of directors. Our Certificate of Incorporation and Bylaws also provide that all stockholder actions must be effected at a duly called meeting of stockholders and not by
written consent, and that only the Board pursuant to a resolution adopted by a majority of the total number of authorized directors may call a special meeting of stockholders. In
addition, our Bylaws include a requirement for the advance notice of nominations for election to the Board or for proposing matters that can be acted upon at a stockholders’
meeting. Our Certificate of Incorporation provides for the ability of the Board to issue, without stockholder approval, up to 5,000,000 shares of preferred stock with terms set by the
Board, which rights could be senior to those of our Common Stock. Our Certificate of Incorporation and Bylaws also provide that approval of at least 66-2/3% of the shares entitled
to vote at an election of directors will be required to adopt, amend or repeal our Bylaws, or repeal the provisions of our Certificate of Incorporation regarding the election of
directors and the inability of stockholders to take action by written consent in lieu of a meeting.
The foregoing provisions make it difficult for holders of our Common Stock to replace our Board. In addition, the authorization of undesignated preferred stock makes it
possible for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our Company.
Section 203 of the DGCL
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. This section prevents some Delaware corporations from engaging, under
some circumstances, in a business combination, which includes a merger or sale of at least 10% of the corporation’s assets with any ‘interested stockholder’, meaning a
stockholder who (i) owns 15% or more of the corporation’s outstanding voting stock or (ii) is an affiliate or associate of the corporation and was the owner of 15% or more of the
corporation’s outstanding voting stock at any time within the three-year period prior to the determination of interested stockholder status, unless:
●
the transaction is approved by the board of directors of the corporation prior to the time that the interested stockholder became an interested stockholder;
●
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by
persons who are directors and also officers, and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or
●
at or subsequent to such time that the stockholder became an interested stockholder, the business combination is approved by the board of directors of the corporation
and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder
A Delaware corporation may "opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. We do not plan to "opt out” of these
provisions. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Transfer Agent and Registrar
Equiniti Trust Company, LLC, located in Brooklyn, NY, is the transfer agent and registrar for our Common Stock. The transfer agent’s address is 6201 15th Avenue,
Brooklyn NY 11219.
Listing on the NYSE American
Our Common Stock is listed on the NYSE American under the symbol "NBY.”
Exhibit 19
INSIDER TRADING POLICY
I.
PURPOSE
Under the federal securities laws, it is illegal to trade in the Company’s securities while in the possession of material nonpublic information about the Company. It is also
illegal to disclose or give material nonpublic information to others who may trade on the basis of that information or to advise others how to trade while in possession of material
nonpublic information. Any person who possesses material nonpublic information about the Company is deemed to be an "insider.” The category of insiders is NOT limited to
officers and directors.
Insider trading violations are pursued vigorously by the Securities and Exchange Commission (the "SEC”) and the U.S. Attorneys and such violations are punished
severely. While the regulatory authorities concentrate their efforts on the individuals who trade, or who tip inside information to others who trade, the federal securities laws also
impose potential liability on companies and other controlling persons if they fail to take reasonable steps to prevent insider trading by Company personnel. Both the SEC, the New
York Stock Exchange and other stock exchanges which the Company’s securities may be traded are very effective at detecting and pursuing insider trading cases. The SEC has
successfully prosecuted cases against employees trading through foreign accounts, trading by family members and friends, and trading involving only a small number of shares.
The Company has adopted this Insider Trading Policy both to satisfy the Company’s obligation to prevent insider trading and to help Company personnel avoid the
severe consequences associated with violations of the insider trading laws. This Policy Statement is also intended to prevent even the appearance of improper conduct on the part
of anyone employed by or associated with the Company (not just the officers or directors of the Company).
II.
THE PENALTIES
The consequences of an insider trading violation can be extremely serious and severe:
Traders and Tippers. Company personnel (or their tippees) who trade on inside information (or tip inside information to others) are subject to the following penalties,
among other things:
●
A civil penalty of up to three times the profit gained or loss avoided;
●
A criminal fine of up to $5,000,000 (no matter how small the profit from the trade); and
●
A jail term of up to twenty years.
A person who tips information to a person who then trades is subject to the same penalties as the tippee, even if the person did not trade and did not profit from
the tippee’s trading.
Control Persons. The Company and its supervisory personnel, if they fail to take appropriate steps to prevent illegal insider trading, can be subject to the following
penalties:
● A civil penalty of up to $1,000,000 or, if greater, three times the profit gained or loss avoided as a result of the employee’s violation; and
● A criminal penalty of up to $25,000,000.
INSIDER TRADING POLICY
Company-Imposed Sanctions. Compliance with the policies of the Company is a condition of continued employment or service with the Company of each employee,
officer and director. An employee’s failure to comply with the Company’s insider trading policy will subject the employee to Company-imposed sanctions, which may
include dismissal for cause, whether or not the employee’s failure to comply results in a violation of law. The Company reserves the right to determine, in its own
discretion and on the basis of the information available to it, whether this Policy Statement has been violated. The Company may also determine that specific conduct
violates this Policy Statement whether or not the conduct also violates the law. It is not necessary for the Company to wait for the filing or conclusion of a civil or
criminal action against the alleged violator before taking disciplinary action.
III.
STATEMENT OF POLICY
It is the policy of the Company that no director, officer or other employee of the Company who is aware of material nonpublic information relating to the Company may,
directly or through family members or other persons or entities, (a) buy or sell securities of the Company (other than pursuant to a pre-approved trading plan that complies with
SEC Rule 10b5-1), or engage in any other action to take personal advantage of that information, or (b) pass that information on to others outside the Company, including family,
friends and acquaintances. In addition, it is the policy of the Company that no director, officer or other employee of the Company who, in the course of working for the Company,
learns of material nonpublic information about a company with which the Company does business, including a customer or supplier of the Company, may trade in that company’s
securities until the information becomes public or is no longer material.
No Exception for Emergencies. Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency
expenditure) are not excepted from the policy. If the employee, officer or director has material, nonpublic information, the prohibition still applies. The securities laws do not
recognize such mitigating circumstances, and, in any event, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for adhering to
high standards of conduct.
Disclosure of Information to Others. The Company is required under Regulation FD of the federal securities laws to avoid the selective disclosure of material nonpublic
information. The Company has established procedures for releasing material information in a manner that is designed to achieve broad public dissemination of the information
immediately upon its release. You may not disclose such information to anyone outside the Company, including family members and friends, other than in accordance with those
procedures. You may not pass on to others any inside information about the Company or recommend the purchase or sale of the Company’s securities while in the possession of
material nonpublic information (even if that information itself is not disclosed). You also may not discuss the Company or its business in an Internet ‘chat room’ or similar Internet-
based forum.
Contract Personnel (Non-Employees). The Company sometimes utilizes the services of contract personnel who are not employees of the Company. As such, non-
employee personnel may have access to material nonpublic information about the Company. The Company expects all such contract personnel to comply with its policies on the
trading of its securities to the same extent as employees are required to comply with such policies. The Company will take appropriate action against any such personnel and the
organizations for which they are employed if there is a failure to comply with the policies of the Company.
INSIDER TRADING POLICY
Material Information. Material information is any information that a reasonable investor would consider important in making a decision to buy, hold or sell securities.
Any information that could be expected to affect the Company’s stock price, whether it is positive or negative, should be considered material. Some examples of information that
ordinarily would be regarded as material are set forth below but this list is not exhaustive – other information may be deemed material based upon the circumstances:
●
Financial information, including, but not limited to, revenue results, operating income or loss, or net income or loss;
●
Earnings that are inconsistent with the consensus expectations of the investment community or other earnings guidance, projections or budgets;
●
News about a significant contract or cancellation of an existing significant contract;
●
News about significant new services or lines of business;
●
The gain or loss of a significant supplier or information provider;
●
A pending or proposed merger, acquisition, joint venture or tender offer;
●
A pending or proposed acquisition or disposition of a significant asset(s);
●
A change in the Company’s dividend policy or the declaration of a stock split,
●
The implementation, change in or results of a Company stock buy-back;
●
A public or private offering of additional securities, borrowings, credit facilities or other financing transactions;
●
A change in the Board of Directors, senior management or any other major personnel changes;
●
Significant legal exposure due to actual, pending or threatened litigation;
●
Impending bankruptcy or the existence of financial or liquidity problems;
●
Significant change in the progress or results of an ongoing clinical trial; or
●
Status of or significant advance in research regarding the Company’s pharmaceutical compounds.
Twenty-Twenty Hindsight. Remember, anyone scrutinizing your transactions will be doing so after the fact, with the benefit of 20/20 hindsight. As a practical matter,
before engaging in any transaction, you should carefully consider how enforcement authorities and others might view the transaction in hindsight.
When Information is "Public.” If you are aware of material nonpublic information, you may not trade until the information has been disclosed broadly to the marketplace
(such as by press release or an SEC filing) and the investing public has had time to absorb the information fully. To avoid the appearance of impropriety, as a general rule,
information should not be considered fully absorbed by the marketplace until after the second business day after the information is released. If, for example, the Company
were to make an announcement on a Monday, you should not trade in the Company’s securities until Thursday. If an announcement was made on a Friday, Wednesday
generally would be the first eligible trading day after the announcement.
INSIDER TRADING POLICY
Transactions by Family Members. The insider trading policy also applies to your family members who reside with you, anyone else who lives in your household, and
any family members who do not live in your household but whose transactions in Company securities are directed by you or are subject to your influence or control (such as
parents or children who consult with you before they trade in Company securities). You are responsible for the transactions of these other persons, and therefore should make
them aware of the need to confer with you before they trade in the Company’s securities.
Stock Option Exercises. The Company’s insider trading policy does not apply to the exercise of an employee stock option, or to the exercise of a tax withholding right
pursuant to which you elect to have the Company withhold shares subject to an option to satisfy tax withholding requirements. The policy does apply, however, to any sale of
stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option.
Additional Prohibited Transactions. The Company considers it improper and inappropriate for any director, officer or other employee of the Company to engage in
short-term or speculative transactions in the Company’s securities. It therefore is the Company’s policy that directors, officers and other employees may NOT engage in any
of the following transactions:
a)
Short Sales. Short sales of the Company’s securities evidence an expectation on the part of the seller that the securities will decline in value, and therefore signal
to the market that the seller has no confidence in the Company or its short-term prospects. In addition, short sales may reduce the seller’s incentive to improve
the Company’s performance. For these reasons, short sales of the Company’s securities are prohibited by this Policy Statement. In addition, Section 16(c) of the
Exchange Act prohibits officers and directors from engaging in short sales.
b) Publicly-Traded Options. A transaction in options is, in effect, a bet on the short-term movement of the Company’s stock, and therefore creates the appearance
that the director, officer or employee is trading based on inside information. Transactions in options also may focus the director’s, officer’s or employee’s
attention on short-term performance at the expense of the Company’s long-term objectives. Accordingly, transactions in puts, calls or other derivative securities
involving the Company, on an exchange or in any other organized market, are prohibited by this Policy Statement. (Option positions arising from certain types of
hedging transactions are governed by the section below captioned "Hedging Transactions”).
INSIDER TRADING POLICY
c)
Margin Accounts and Pledges. Securities held in a margin account may be sold by the broker without the customer’s consent if the customer fails to meet a
margin call. Similarly, securities pledged (or hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Because a
margin sale or foreclosure sale may occur at a time when the pledgor is aware of material nonpublic information or otherwise is not permitted to trade in Company
securities, directors, officers and other employees are prohibited from holding Company securities in a margin account or pledging Company securities as
collateral for a loan. An exception to this prohibition exists where a person wishes to pledge Company securities as collateral for a loan (not including margin
debt) and clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities.
d) Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, allow a director, officer or
employee to lock in much of the value of his or her stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These
transactions allow the director, officer or employee to continue to own the covered securities, but without the full risks and rewards of ownership. When that
occurs, the director, officer or employee may no longer have the same objectives as the Company’s other stockholders. Therefore, the Company discourages you
from engaging in such transactions. Any person wishing to enter into such an arrangement must first pre-clear the proposed transaction with the Board of
Directors. Any request for pre-clearance of a hedging or similar arrangement must be submitted to the Chief Financial Officer for approval at least one week prior
to the proposed execution of documents evidencing the proposed transaction and must set forth a justification for the proposed transaction.
e)
Post-Termination Transactions. The Policy Statement continues to apply to your transactions in Company securities even after you have terminated service as
an employee, officer or director of the Company. If you are in possession of material nonpublic information when your service terminates, you may not trade in
Company securities until that information has become public or is no longer material.
Quarterly Blackouts; Event Specific Individual and Companywide Blackouts; Cancellation of Existing Orders.
a. Quarterly Blackout Periods. The Company’s announcement of its quarterly financial results almost always has the potential to have a material effect on the market
for the Company’s securities. Therefore, because of the possibility that directors, officers and employees of the Company may be aware of the Company’s quarterly
financial results prior to public release and of the necessity to avoid even the appearance of trading while aware of material nonpublic information, no director, officer or
employee of the Company will be permitted to trade in the Company’s securities during the period beginning on the fifteenth calendar day of the last month of each fiscal
quarter and ending after the second full business day following the Company’s issuance of its quarterly earnings release. The Company’s directors, officers and
employees are strictly prohibited from trading in the Company’s securities during these quarterly blackout periods unless granted a hardship exception from the
Company’s Audit Committee.
INSIDER TRADING POLICY
b . Event Specific Companywide Blackouts. The Company may, on occasion, engage in a major transaction or experience a significant event which would constitute
material inside information. The Company reserves the right to enforce a companywide trading blackout, and, in its sole discretion, may prohibit you from trading in
Company stock during such transaction or event. As such, the Company may require you to cancel existing orders (including good until cancelled orders) and also may
instruct your broker to cancel any such orders. Do not assume that the Company will notify you when it believes you are in possession of inside information. The law
states that you may not trade while in the possession of inside information. Ultimately, the responsibility for adhering to this Policy Statement and avoiding unlawful
transactions rests with the individual employee, officer or director.
c. Event Specific Individual Blackouts. From time to time, an event may occur that is material to the Company and is known by only a few directors or employees. So
long as the event remains material and nonpublic, directors, officers and such other persons as are designated by the Chief Financial Officer may not trade in the
Company’s securities. The existence of an event specific individual blackout will not be announced, other than to those who are aware of the event giving rise to the
blackout. Any person made aware of the existence of an event-specific individual blackout should not disclose the existence of the blackout to any other person. The
failure of the Chief Financial Officer to designate a person as being subject to an event-specific individual blackout will not relieve that person of the obligation not to
trade while aware of material nonpublic information.
d . Hardship Exceptions During Quarterly Blackout Periods. A director or employee who has an unexpected and urgent need to sell Company stock during a
quarterly blackout period in order to generate cash may, in appropriate and very limited rare circumstances, be permitted to sell Company stock even during the quarterly
blackout period. A hardship exception may be granted only by the Audit Committee, at its sole discretion, and such exception must be requested at least two business
days in advance of the proposed trade. A hardship exception may be granted only if the Audit Committee concludes that the Company’s earnings information for the
applicable quarter does not constitute material nonpublic information or if the Company does not have sufficient insight as to the Company’s earnings information as of
that time. It is highly unlikely that a hardship exception will be granted, and under no circumstance will a hardship exception be granted during an event-specific
companywide blackout period or an event-specific individual blackout period.
Company Assistance. Any person who has a question about this Policy Statement or its application to any proposed transaction may obtain additional guidance from the
Company’s Chief Financial Officer. In addition, if you have any doubt as to whether you are in possession of material, nonpublic information or whether a trade may otherwise
violate this Policy Statement, you should contact the foregoing person before trading any securities of the Company.
INSIDER TRADING POLICY
Other Procedures. The Company may change these procedures or adopt such other procedures in the future as the Company considers appropriate or advisable in order
to carry out the purposes of this Policy Statement or to comply with the federal securities laws.
No Third Party Rights. This Policy Statement is not intended to create any rights in third parties with respect to any violation of its terms and is also not intended to
create any legal liability for the Company or any employee, officer or director beyond those for which they are already responsible under applicable securities laws.
Certifications. Please return an executed copy of the attached certification immediately. Additionally, all directors, officers and employees may be requested to annually
certify to the Company, in a form as may be requested by Company, their understanding of, and intent to comply with, this Policy Statement. Directors, executive officers and
certain key employees are also subject to additional restrictions on their transactions in Company securities, which are described in a separate Addendum to this Policy Statement.
Directors, executive officers and such key employees subject to the Addendum should sign the certification attached to that Addendum instead of the one attached hereto.
INSIDER TRADING POLICY
CERTIFICATION
I hereby certify that:
1. I have read and understand Insider Trading Policy (the "Policy”). I understand that the Chief Financial Officer of NovaBay Pharmaceuticals, Inc. (the "Company”)
is available to answer any questions I have regarding the Policy Statement.
2. I agree that I will comply with the Insider Trading Policy for as long as I am subject to the Insider Trading Policy.
3. I agree that the Company may at any time and in its sole discretion issue a prohibition on trading in Company securities and that the Company shall have full power
and authority to cancel any outstanding orders, including "good until cancelled” orders, that I may place, but that the sole responsibility for compliance with the Insider Trading
Policy rests with me. I further agree and represent that I will never trade in Company securities during a quarterly blackout period unless granted a hardship exception from the
Audit Committee or any time while I am in possession of material nonpublic information regarding the Company.
4. This certification constitutes consent for the Company to issue any necessary stop-transfer orders to the Company’s transfer agent to enforce compliance with this
Insider Trading Policy.
Signature:
Name:
Title/Position:
Date:
INSIDER TRADING POLICY
IV.
PURPOSE
As you know, the Company has adopted an Insider Trading Policy (the "Policy”). The Company has also adopted procedures governing transactions in the Company’s
securities by directors and executive officers. Certain of these procedures also apply to non-executive employees who regularly become aware of earnings information or other
material nonpublic information about the Company. This Addendum supplements the Policy and describes these procedures.
V.
PRE-CLEARANCE PROCEDURES
To help prevent inadvertent violations of the federal securities laws and to avoid even the appearance of trading on inside information, directors and executive officers of the
Company and any other persons designated by the Chief Financial Officer as being subject to the Company’s pre-clearance procedures, together with their family members, may
not engage in any transaction involving the Company’s securities (including a stock plan transaction such as an option exercise, gift, loan or pledge or hedge, contribution to a
trust, or any other transfer) without first obtaining pre-clearance of the transaction from the Chief Financial Officer. A request for pre-clearance should be submitted to the Chief
Financial Officer at least two business days in advance of the proposed transaction, unless earlier notice is otherwise required by the Policy Statement (e.g., one week for
hedging transactions). The Chief Financial Officer is under no obligation to approve a trade submitted for pre-clearance, and may in his sole discretion, determine not to permit the
trade.
Any person subject to the pre-clearance requirements who wishes to implement a trading plan under SEC Rule 10b5-1 must first pre-clear the plan with the Chief Financial
Officer. As required by Rule 10b5-1, you may enter into a trading plan only when you are not in possession of material nonpublic information. In addition, you may not enter into a
trading plan during a blackout period or within six months after the cancellation of any existing 10b5-1 plan. Transactions effected pursuant to a pre-cleared trading plan will not
require further pre-clearance at the time of the transaction if the plan specifies the dates, prices and amounts of the contemplated trades, or establishes a formula for determining
the dates, prices and amounts.
VI.
OUR BROKER INTERFACE PROCEDURES
The accelerated reporting obligations for Section 16 reports require tight interface with brokers handling transactions for our executives. We require that you provide a copy of
this Addendum to your broker and such broker must agree that he or she:
(a) Will not enter any orders for you (except for orders under pre-approved Rule 10b5-1 plans) without first:
(1) verifying with the Company that your transaction was pre-cleared; and
(2) complying with the brokerage firm’s compliance procedures (e.g., Rule 144).
(b) Report any transactions immediately to the Chief Financial Officer of the Company via:
INSIDER TRADING POLICY
(1) telephone; and
(2) in writing via e-mail, describing the details of every transaction involving Company stock, including gifts, transfers, pledges, and all 10b5-1 transactions.
VII.
PRE-CLEARANCE DURING BLACKOUT PERIODS.
For certain periods surrounding the Company’s quarterly earnings releases and from time to time because of the occurrence of an event that is material to the Company, the
Company will impose a quarterly blackout period, an event specific companywide blackout period or an event specific individual blackout period on certain directors, officers and
such other persons as are designated by the Chief Financial Officer. Furthermore, the existence of an event specific individual blackout will not be announced, other than to those
who are aware of the event giving rise to the blackout.
Trades will not be pre-cleared during the existence of any blackout period, except to the extent that such person requests pre-clearance to trade during a quarterly blackout
period and has been granted a hardship exception from the Audit Committee. Furthermore, if a person whose trades are subject to pre-clearance requests permission to trade in the
Company’s securities during an event-specific individual blackout, the Chief Financial Officer will inform the requester of the existence of a blackout period, without disclosing the
reason for the blackout. Any person made aware of the existence of an event-specific individual blackout as a result of such a request for pre-clearance should not disclose the
existence of the blackout to any other person.
The Company may on occasion issue interim earnings guidance (outside of a quarterly earnings release) or other potentially material information by means of a press release, a
Form 8-K filed with the SEC or by other means designed to achieve widespread dissemination of the information. In the event that the Company has not imposed an event specific
companywide blackout period or an event specific individual blackout period, you should anticipate that trades are unlikely to be pre-cleared while the Company is in the process
of assembling the information to be released and until the information has been released and fully absorbed by the market.
VIII.
POST-TERMINATION TRANSACTIONS
If you are aware of material nonpublic information when you terminate service as a director, officer or other employee of the Company, you may not trade in Company
securities until that information has become public or is no longer material. In all other respects, the procedures set forth in this Addendum will cease to apply to your transactions
in Company securities upon the expiration of any "blackout period” that is applicable to your transactions at the time of your termination of service.
IX.
GENERAL
a)
Company Assistance. Any person who has a question about the Policy Statement or this Addendum or their application to any proposed transaction may obtain
additional guidance from the Company’s Chief Financial Officer. In addition, if you have any doubt as to whether you are in possession of material, nonpublic information
or whether a trade may otherwise violate the Policy Statement or this Addendum, you should contact the aforesaid person before trading any securities of the Company.
INSIDER TRADING POLICY
Ultimately, however, the responsibility for adhering to the Policy Statement and this Addendum and avoiding unlawful transactions rests with the individual director,
officer and employee.
b) Other Procedures. The Company may change these procedures or adopt such other procedures in the future as the Company considers appropriate in order to carry out
the purposes of the Policy Statement and this Addendum or to comply with the federal securities laws.
c)
No Third Party Rights. Neither the Policy Statement nor this Addendum is intended to create any rights in third parties with respect to any violation of its terms and
neither is intended to create any legal liability for the Company or any employee, officer or director beyond those for which they are already responsible under applicable
securities laws.
d) Certifications. Please return an executed copy of the attached certification immediately. All directors, officers and other key employees subject to the procedures set forth
in this Addendum may be requested to annually certify their understanding of, and intent to comply with, the Policy Statement and this Addendum.
INSIDER TRADING POLICY
CERTIFICATION
(For Executive Officers, Directors and Certain Key Employees)
I hereby certify that:
1. I have read and understand the Insider Trading Policy of NovaBay Pharmaceuticals, Inc. (the "Company”) and the Addendum to such Insider Trading Policy
(collectively, the "Insider Trading Policy”). I understand that the Chief Financial Officer is available to answer any questions I have regarding the Insider Trading Policy.
2. I agree that I will comply with the Insider Trading Policy for as long as I am subject to such policy.
3. I understand that all of my trades must be preapproved by the Company’s Chief Financial Officer or such other person who the Company may designate from time
to time.
4. I agree that the Company may at any time and in its sole discretion issue a prohibition on trading in Company securities, and that the Company shall have full
power and authority to cancel any outstanding orders, including good until cancelled orders, that I may place, but that I have the sole responsibility for compliance with the Insider
Trading Policy. I further agree and represent that I will never trade in Company securities during a quarterly blackout period unless granted a hardship exception from the Audit
Committee or at any time while I am in possession of material nonpublic information regarding the Company.
6. This certification constitutes consent for the Company to issue any necessary stop-transfer orders to the Company’s transfer agent to enforce compliance with the
Insider Trading Policy.
Signature:
Name:
Title/Position:
Date:
Exhibit 21
Subsidiaries of NovaBay Pharmaceuticals, Inc.
NovaBay Pharmaceuticals, Inc. has no subsidiaries.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (Nos. 333-234330, 333-238317, 333-261443, 333-262550, 333-268002, 333-268738,
333-269083, 333-272297,333-272304, 333-280363 and 333-280423), Registration Statements on Form S-3 (Nos. 333-211943, 333-211944, 333-230672, 333-233623, 333-248238 and 333-
254744) and Registration Statements on Form S-8 (Nos. 333-147334, 333-157041, 333-164469, 333-171981, 333-180461, 333-185998, 333-194383, 333-196764, 333-203109, 333-208985,
333-211754, 333-215680, 333-218469, 333-222625, 333-236328, 333-252155, 333-264953,333-271053 and 333-280388) of our report dated April 2, 2025, relating to the consolidated
financial statements of NovaBay Pharmaceuticals, Inc. (the "Company”) as of and for the years ended December 31, 2024 and 2023, which included an explanatory paragraph
related to the Company seeking approval from its stockholders for voluntary dissolution, included in this Annual Report on Form 10-K for the year ended December 31, 2024.
/s/ WithumSmith+Brown, PC
New York, New York
April 2, 2025
Exhibit 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT
RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Justin Hall, certify that:
1. I have reviewed this Form 10-K of NovaBay Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: April 2, 2025
/s/ Justin Hall
Justin Hall
Chief Executive Officer, General Counsel and Director
(principal executive officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT
RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tommy Law, certify that:
1. I have reviewed this Form 10-K of NovaBay Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: April 2, 2025
/s/ Tommy Law
Tommy Law
Interim Chief Financial Officer
(principal financial officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of NovaBay Pharmaceuticals, Inc. (the Company) on Form 10-K for the fiscal year ended December 31, 2024 (the Report), I, Justin Hall, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 2, 2025
/s/ Justin Hall
Justin Hall
Chief Executive Officer, General Counsel
and Director
This Certification is made solely for the purpose of 18 USC Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of NovaBay Pharmaceuticals, Inc. (the Company) on Form 10-K for the fiscal year ended December 31, 2024 (the Report), I, Tommy Law,
Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 2, 2025
/s/ Tommy Law
Tommy Law
Interim Chief Financial Officer
This Certification is made solely for the purpose of 18 USC Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.