Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 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 (Sta ...

Financial Data and Key Metrics Changes - Net product revenue for Q3 2020 increased by 34% to $2.2 million, up from $1.6 million in the prior-year quarter [20] - Avenova revenue for the quarter increased by 14% to $1.8 million from $1.6 million a year ago, reflecting a record number of quarterly units sold [20][21] - The net loss for Q3 2020 was $3.2 million or $0.08 per share, compared to a net loss of $282,000 or $0.01 per share basic in Q3 2019 [28] Business Line Data and Key Metrics Changes - Avenova's revenue increase was attributed to strong online sales, confirming the effectiveness of the direct-to-consumer channel [11][20] - The introduction of PhaseOne contributed approximately $225,000 to net product revenue in Q3 2020, with no comparable revenue in the prior-year period [22] - Operating expenses for Q3 2020 were $3.7 million, up from $2.9 million in the prior-year period, primarily due to increased sales and marketing expenses [23] Market Data and Key Metrics Changes - Avenova's online sales are expected to be the fastest-growing sales channel, with a successful subscription feature on Amazon [12] - Sales in major metropolitan markets like New York and San Francisco saw a significant recovery in Q3 as these areas reopened [43] Company Strategy and Development Direction - The company is launching CelleRx Clinical Reset, targeting the beauty market and leveraging its hypochlorous acid technology [4][5] - Plans to broaden the distribution channel for Clinical Reset and seek additional products in skincare and beauty markets [32] - Focus on enhancing online sales for Avenova, which holds the greatest growth opportunity [33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty surrounding the COVID-19 pandemic and its potential impact on operations and financial results [2] - The company has regained compliance with NYSE American listing standards and believes it has sufficient funds to support operations through at least the end of 2021 [14][29] Other Important Information - The company is awaiting FDA review for Emergency Use Authorization for a COVID-19 antibody test, which has been a dynamic process [15] - Avenova is promoted as an antimicrobial spray for bacterial dry eye, with a focus on its unique formulation and manufacturing in the USA [17][18] Q&A Session Summary Question: Current marketing strategies for Avenova post-COVID claims removal - Management reverted to pre-pandemic messaging and noted no significant impact on sales after removing COVID-related claims [39] Question: Bulk orders in Q3 and expectations for Q4 - Management mentioned bulk orders were harder to chase down but indicated new distribution channels for Avenova and CelleRx are being pursued [41] Question: Trends in optometrist office reopenings - Sales trends closely followed broader market reopenings, with major metropolitan areas recovering in Q3 [43] Question: Marketing investments for CelleRx launch - Management indicated that while an aggressive marketing campaign is planned, it will be manageable within current resources [48] Question: Plans for launching CelleRx on e-commerce sites - Initially, CelleRx will be available only on cellerx.com, with potential partnerships for exclusive online sales [49]

PART I. FINANCIAL INFORMATION This section presents NovaBay's unaudited condensed consolidated financial statements and management's discussion [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents NovaBay Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, cash flows, and stockholders' equity, along with detailed notes explaining significant accounting policies, fair value measurements, and specific financial accounts for the periods ended September 30, 2020, and December 31, 2019 [Condensed Consolidated Balance Sheets: September 30, 2020 (unaudited) and December 31, 2019](index=4&type=section&id=1.%20Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Cash and cash equivalents | $13,413 | $6,937 | $6,476 | 93.36% | | Total current assets | $16,012 | $9,381 | $6,631 | 70.69% | | TOTAL ASSETS | $17,082 | $11,220 | $5,862 | 52.25% | | Total current liabilities | $3,003 | $5,687 | $(2,684) | -47.19% | | Total liabilities | $3,200 | $10,247 | $(7,047) | -68.77% | | Total stockholders' equity | $13,882 | $973 | $12,909 | 1326.72% | [Condensed Consolidated Statements of Operations and Comprehensive Loss: Three and nine months ended September 30, 2020 and 2019 (unaudited)](index=5&type=section&id=2.%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section details the company's financial performance, including revenues, expenses, and net loss Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Change (YoY) | % Change (YoY) | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------- | :------------- | | Product revenue, net | $2,167 | $1,615 | $552 | 34% | | Total sales, net | $2,170 | $1,615 | $555 | 34% | | Gross profit | $1,634 | $1,214 | $420 | 35% | | Total operating expenses | $3,696 | $2,926 | $770 | 26% | | Operating loss | $(2,062) | $(1,712) | $(350) | 20% | | Non-cash (loss) gain on changes in fair value of warrant liability | $(1,589) | $1,480 | $(3,069) | -207% | | Other income (expense), net | $429 | $(719) | $1,148 | -160% | | Net loss and comprehensive loss | $(3,221) | $(282) | $(2,939) | 1042% | | Net loss per share (basic) | $(0.08) | $(0.01) | $(0.07) | 700% | | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change (YoY) | % Change (YoY) | | :------------------------------------------------ | :----------------------------- | :----------------------------- | :----------- | :------------- | | Product revenue, net | $8,038 | $4,854 | $3,184 | 66% | | Total sales, net | $8,046 | $4,895 | $3,151 | 64% | | Gross profit | $4,889 | $3,750 | $1,139 | 30% | | Total operating expenses | $9,557 | $10,912 | $(1,355) | -12% | | Operating loss | $(4,668) | $(7,162) | $2,494 | -35% | | Non-cash (loss) gain on changes in fair value of warrant liability | $(5,224) | $936 | $(6,160) | -658% | | Other income (expense), net | $605 | $(1,166) | $1,771 | -152% | | Net loss and comprehensive loss | $(9,285) | $(6,972) | $(2,313) | 33% | | Net loss per share (basic) | $(0.28) | $(0.36) | $0.08 | -22.22% | [Condensed Consolidated Statements of Cash Flows: Nine months ended September 30, 2020 and 2019 (unaudited)](index=6&type=section&id=3.%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines cash flows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change (YoY) | % Change (YoY) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------- | :------------- | | Net cash used in operating activities | $(3,276) | $(6,500) | $3,224 | -49.60% | | Net cash used in investing activities | $(5) | $(19) | $14 | -73.68% | | Net cash provided by financing activities | $9,757 | $12,356 | $(2,599) | -21.03% | | Net increase in cash, cash equivalents, and restricted cash | $6,476 | $5,837 | $639 | 10.95% | | Cash, cash equivalents and restricted cash, end of period | $13,888 | $9,495 | $4,393 | 46.27% | [Condensed Consolidated Statements of Stockholders' Equity (Deficit): Three and nine months ended September 30, 2020 and 2019 (unaudited)](index=8&type=section&id=4.%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section details changes in stockholders' equity, including net loss, warrant reclassification, and stock issuances Stockholders' Equity (Deficit) Highlights (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | Change | | :------------------------------------------------ | :----------- | :----------- | :------- | | Balance at period end | $13,882 | $973 | $12,909 | | Reclassification of warrant liability to equity | $9,293 | — | $9,293 | | Issuance of common stock, net of offering costs | $5,220 | — | $5,220 | | Issuance of common stock in connection with exercise of warrants, net | $6,425 | — | $6,425 | [Notes to Condensed Consolidated Financial Statements (unaudited)](index=10&type=section&id=5.%20Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of significant accounting policies, fair value measurements, and specific financial accounts [NOTE 1. ORGANIZATION](index=10&type=section&id=NOTE%201.%20ORGANIZATION) This note describes NovaBay Pharmaceuticals, Inc.'s business, primary products, and financial outlook - NovaBay Pharmaceuticals, Inc. is a medical device company primarily focused on eye care, with Avenova® as its main FDA-cleared product[21](index=21&type=chunk) - During Q2 2020, the company's primary revenue source was from third-party manufactured disposable KN95 facial coverings due to COVID-19 demand, but these are not anticipated to be a significant future revenue source[21](index=21&type=chunk) - Management believes existing cash and cash equivalents, along with cash flows from product sales, will be sufficient to meet operating expenses through at least November 12, 2021[23](index=23&type=chunk) [NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and methods used in preparing the financial statements - Revenue recognition varies by channel: webstore/Amazon sales are recognized upon customer receipt/delivery, while sales to major distribution partners are recognized upon transfer of control (sell-in basis) with contract liabilities for estimated reversals[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - Warrants classified as liabilities are recorded at fair value at each balance sheet date, with changes recognized as non-cash gain or loss in the income statement, using Black-Scholes, Binomial Lattice, or Monte Carlo models[60](index=60&type=chunk) - The company adopted ASU 2018-13 (Fair Value Measurement) effective January 1, 2020, with no material impact, and is evaluating ASU 2016-13 (Credit Losses) for January 1, 2023, and ASU 2019-12 (Income Taxes) for Q1 2021[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) [NOTE 3. FAIR VALUE MEASUREMENTS](index=18&type=section&id=NOTE%203.%20FAIR%20VALUE%20MEASUREMENTS) This note details the valuation methodologies and classifications for assets and liabilities measured at fair value - Restricted cash and deposits are classified as Level 1 fair value measurements, while warrant liabilities and the TLF Bio Innovation consulting service liability are classified as Level 3, requiring significant management judgment[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The warrant liability significantly decreased by **$9.1 million** due to the amendment and exercise of 2019 Domestic and Foreign Warrants, and by **$197 thousand** from the modification of 2019 Ladenburg Warrants in July 2020[72](index=72&type=chunk) - The embedded derivative liability related to the Convertible Note was fully settled in September 2020[74](index=74&type=chunk) [NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=21&type=section&id=NOTE%204.%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) This note provides a breakdown of prepaid expenses and other current assets, including insurance and sales rebates Prepaid Expenses and Other Current Assets (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Prepaid insurance | $314 | $94 | | Prepaid inventory | $84 | — | | Prepaid sales rebates | $63 | $401 | | Total prepaid expenses and other current assets | $695 | $886 | [NOTE 5. INVENTORY](index=21&type=section&id=NOTE%205.%20INVENTORY) This note details the composition of inventory, including raw materials, finished goods, and reserves for obsolescence Inventory Composition (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Raw materials and supplies | $172 | $185 | | Finished goods | $807 | $554 | | Less: Reserve for excess and obsolete inventory | $(194) | $(247) | | Total inventory, net | $785 | $492 | [NOTE 6. PROPERTY AND EQUIPMENT](index=21&type=section&id=NOTE%206.%20PROPERTY%20AND%20EQUIPMENT) This note presents the net value of property and equipment, along with associated depreciation and amortization expenses Property and Equipment, Net (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Total property and equipment, at cost | $668 | $670 | | Less: accumulated depreciation and amortization | $(592) | $(560) | | Total property and equipment, net | $76 | $110 | - Depreciation and amortization expense for the nine months ended September 30, 2020, was **$40 thousand**, down from **$50 thousand** in the prior year[80](index=80&type=chunk) [NOTE 7. ACCRUED LIABILITIES](index=22&type=section&id=NOTE%207.%20ACCRUED%20LIABILITIES) This note details various accrued liabilities, including settlement obligations and contract liabilities Accrued Liabilities (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------------------ | :----------- | :----------- | | Settlement liability related to John McGovern case | $502 | — | | Avenova contract liabilities | $380 | $822 | | Employee payroll and benefits | $246 | $463 | | TLF Bio Innovation consulting service liability | $109 | — | | Total accrued liabilities | $1,655 | $1,778 | [NOTE 8. COMMITMENTS AND CONTINGENCIES](index=22&type=section&id=NOTE%208.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's legal, contractual, and other contingent obligations and potential liabilities - The company accrued a **$502 thousand** liability for an interim arbitration award to its former Interim President & CEO, John McGovern, with the arbitration ongoing for additional damages[86](index=86&type=chunk) - The EmeryStation lease and sublease were terminated as of August 31, 2020, resulting in a **$54 thousand** gain recorded in Q3 2020[90](index=90&type=chunk) - Under an agreement with TLF Bio Innovation, the company recorded a **$109 thousand** consulting expense and related liability for potential warrant issuance upon the probable achievement of the first milestone for the CelleRx relaunch[95](index=95&type=chunk) - An international distribution agreement with Microprofit for SARS-CoV-2 Test Kits includes potential warrant issuance to Microprofit officers upon FDA approval, but this issuance was not deemed probable as of September 30, 2020[97](index=97&type=chunk) [NOTE 9. RELATED PARTY NOTE PAYABLE](index=26&type=section&id=NOTE%209.%20RELATED%20PARTY%20NOTE%20PAYABLE) This note details the repayment of a promissory note to a related party and associated interest expenses - The **$1.0 million** promissory note payable to Pioneer Pharma (Hong Kong) Company Ltd., a related party, was fully repaid in May 2020 using proceeds from the ATM program[100](index=100&type=chunk) - The remaining interest payable of **$104 thousand** as of September 30, 2020, was settled through the delivery of NeutroPhase units in October 2020[100](index=100&type=chunk) Interest Expense Related to Promissory Note (in thousands) | Period | 2020 | 2019 | | :-------------------------------- | :--- | :--- | | Three Months Ended Sep 30 | $0 | $45 | | Nine Months Ended Sep 30 | $75 | $175 | [NOTE 10. CONVERTIBLE NOTE](index=26&type=section&id=NOTE%2010.%20CONVERTIBLE%20NOTE) This note describes the full repayment of the secured convertible promissory note and related interest expenses - The Secured Convertible Promissory Note with Iliad Research and Trading, L.P., with an original principal of **$2.2 million**, was fully repaid prior to September 30, 2020[103](index=103&type=chunk) - The embedded derivative liability related to the Convertible Note was fully settled in September 2020[74](index=74&type=chunk)[103](index=103&type=chunk) Interest Expense Related to Convertible Note (in thousands) | Period | 2020 | 2019 | | :-------------------------------- | :--- | :--- | | Three Months Ended Sep 30 | $16 | $293 | | Nine Months Ended Sep 30 | $215 | $615 | [NOTE 11. WARRANT LIABILITY](index=29&type=section&id=NOTE%2011.%20WARRANT%20LIABILITY) This note details the classification, fair value changes, and exercise of various warrant liabilities - As of September 30, 2020, the total warrant liability was **$20 thousand**, consisting of 38,000 October 2015 Warrants, which are classified as liabilities due to potential cash settlement provisions[125](index=125&type=chunk) - In July 2020, the 2019 Domestic Warrants and 2019 Foreign Warrants were exercised at a reduced price of **$0.99 per share**, generating approximately **$6.8 million** in gross proceeds, and were reclassified to equity[139](index=139&type=chunk) - The 2019 Ladenburg Warrants were also amended in July 2020, reducing their exercise price to **$0.99 per share** and reclassifying them to equity, meaning they will no longer be adjusted to fair value[123](index=123&type=chunk)[124](index=124&type=chunk)[139](index=139&type=chunk) Outstanding Warrants Summary (in thousands, except price) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Warrants Outstanding | 7,105 | 8,588 | | Weighted Average Exercise Price | $1.63 | $1.09 | [NOTE 12. STOCKHOLDERS' EQUITY (DEFICIT)](index=35&type=section&id=NOTE%2012.%20STOCKHOLDERS'%20EQUITY%20(DEFICIT)) This note outlines changes in stockholders' equity, including authorized shares, stock issuances, and warrant exercises - The number of authorized shares of common stock was increased from **50,000,000** to **75,000,000** in May 2020 after stockholder approval[133](index=133&type=chunk) - During Q2 2020, **5,836,792 shares** of common stock were issued under the At-the-Market (ATM) Program, generating **$5.6 million** in net proceeds[142](index=142&type=chunk) - In July 2020, the exercise of 2019 Domestic and Foreign Warrants at a reduced price of **$0.99 per share** resulted in aggregate gross proceeds of approximately **$6.8 million**[139](index=139&type=chunk) [NOTE 13. EQUITY-BASED COMPENSATION](index=40&type=section&id=NOTE%2013.%20EQUITY-BASED%20COMPENSATION) This note details the unrecognized compensation cost, stock-based expense, and option grants for employees and directors - As of September 30, 2020, total unrecognized compensation cost related to unvested stock options and restricted stock units was approximately **$1,167 thousand**, expected to be recognized over a weighted average vesting period of **2.81 years**[164](index=164&type=chunk) Stock-Based Compensation Expense (in thousands) | Period | 2020 | 2019 | | :-------------------------------- | :--- | :--- | | Three Months Ended Sep 30 | $176 | $106 | | Nine Months Ended Sep 30 | $359 | $343 | - The company granted **1,156,000 options** to employees and directors and **100,000 options** to non-employees during the nine months ended September 30, 2020[166](index=166&type=chunk)[177](index=177&type=chunk) [NOTE 14. REVENUE](index=46&type=section&id=NOTE%2014.%20REVENUE) This note provides a breakdown of revenue by product, highlighting contributions from Avenova, KN95 Masks, and other products Revenue Recognized (in thousands) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $8,046 | $4,895 | | Avenova | $4,509 | $4,645 | | KN95 Masks | $3,081 | — | | Other products | $448 | $209 | - Avenova Direct, launched in June 2019, generated **$2.4 million** in revenue for the nine months ended September 30, 2020, a significant increase from **$0.4 million** in the prior year[197](index=197&type=chunk) - Prescription Avenova revenue decreased from **$3.6 million** in the nine months ended September 30, 2019, to **$1.6 million** in the same period of 2020[194](index=194&type=chunk) [NOTE 15. EMPLOYEE BENEFIT PLAN](index=48&type=section&id=NOTE%2015.%20EMPLOYEE%20BENEFIT%20PLAN) This note describes the company's 401(k) plan and the absence of employer contributions during the reported periods - The company has a 401(k) plan for eligible employees but made no contributions during the three and nine months ended September 30, 2020, or 2019[199](index=199&type=chunk) [NOTE 16. RELATED PARTY TRANSACTIONS](index=50&type=section&id=NOTE%2016.%20RELATED%20PARTY%20TRANSACTIONS) This note details revenue and expenses arising from transactions with related parties, including NeutroPhase and China Kington Related Party Revenue (in thousands) | Category | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | NeutroPhase | $173 | $209 | | Licensing | — | $41 | | Total related party revenue | $173 | $250 | Related Party Expenses (in thousands) | Category | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Commissions to China Kington | $201 | $326 | | Board Director Bob Wu consulting fee | $50 | $50 | | Total related party expenses | $251 | $376 | - The company paid TLF Bio Innovation **$188 thousand** in cash fees and recorded **$109 thousand** in consulting service expense related to potential warrant issuance during the nine months ended September 30, 2020[204](index=204&type=chunk)[205](index=205&type=chunk) [NOTE 17. PAYCHECK PROTECTION PROGRAM](index=52&type=section&id=NOTE%2017.%20PAYCHECK%20PROTECTION%20PROGRAM) This note describes the receipt and expected forgiveness of the PPP Loan and its recognition as other income - The company received a **$901 thousand** PPP Loan in May 2020 and used the entire amount for qualifying expenses, expecting full forgiveness[208](index=208&type=chunk) - For the nine months ended September 30, 2020, **$901 thousand** was recognized as other income in the condensed consolidated statements of operations and comprehensive loss[209](index=209&type=chunk) [NOTE 18. SUBSEQUENT EVENTS](index=52&type=section&id=NOTE%2018.%20SUBSEQUENT%20EVENTS) This note reports the company's recent regaining of compliance with NYSE American minimum stockholders' equity requirements - On October 13, 2020, the company was notified by NYSE American that it had regained compliance with the minimum stockholders' equity requirements[210](index=210&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=52&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on NovaBay's financial performance and condition, highlighting the strategic focus on Avenova and the upcoming CelleRx relaunch, the temporary impact of KN95 Mask sales, and detailed comparisons of financial results for the three and nine months ended September 30, 2020 and 2019. It also discusses liquidity, capital resources, and key accounting policies [Overview](index=54&type=section&id=Overview) This section provides a strategic overview of NovaBay's core products, distribution channels, and future product launches - NovaBay is primarily focused on commercializing Avenova, an FDA-cleared eye care product, through four main distribution channels: Avenova Direct, retail pharmacies, Partner Pharmacy Program, and Buy-and-Sell[213](index=213&type=chunk)[214](index=214&type=chunk) - Avenova Direct has become the leading product by unit sales and net revenue, despite a lower average net selling price, and experienced its highest unit sales and net revenue since launch in Q3 2020[215](index=215&type=chunk)[216](index=216&type=chunk) - The company plans to launch a rebranded CelleRx as 'CelleRx Clinical Reset' into the beauty industry in Q4 2020, leveraging its pharmaceutical pedigree with consumer-focused marketing[217](index=217&type=chunk) - Sales of KN95 Masks, significant in Q2 2020 due to the COVID-19 pandemic, decreased in Q3 2020 and are not expected to be a significant future revenue source as the company refocuses on its core eyecare business[219](index=219&type=chunk) [Critical Accounting Policies and Estimates](index=54&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses key accounting policies and estimates, including revenue recognition, inventory valuation, and warrant classification - The company recorded no reserves for accounts receivable at September 30, 2020, compared to **$51 thousand** at December 31, 2019[222](index=222&type=chunk) - Inventory is valued at the lower of cost or estimated net realizable value, with an allowance for excess and obsolete inventory of **$194 thousand** at September 30, 2020, down from **$247 thousand** at December 31, 2019[223](index=223&type=chunk) - Revenue recognition policies vary by product and distribution channel, including recognition upon customer receipt for webstore/Amazon sales, transfer of control for major distribution partners, and delivery to end customers for partner pharmacies and bulk KN95 Mask orders[227](index=227&type=chunk)[228](index=228&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - Common stock purchase warrants are classified as liabilities if they require net-cash settlement or give the counterparty a choice of settlement, with fair value changes recorded as non-cash gains or losses[241](index=241&type=chunk)[242](index=242&type=chunk) [Results of Operations](index=58&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, comparing revenues, expenses, and net loss for the reported periods [Comparison of the Three Months Ended September 30, 2020 and 2019](index=58&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030%2C%202020%20and%202019) This section compares the company's financial results for the three months ended September 30, 2020, and 2019 - Product revenue, net, increased by **$0.6 million (34%)** to **$2.2 million**, driven by a **$0.2 million** increase in Avenova revenue and **$0.2 million** from PhaseOne sales[245](index=245&type=chunk) - Gross profit increased by **$0.4 million (35%)** to **$1.6 million**, primarily due to increased sales of Avenova and PhaseOne[249](index=249&type=chunk) - Research and development expenses increased by **$76 thousand (155%)** to **$125 thousand**, mainly due to regulatory expenses for the Microprofit Agreement[250](index=250&type=chunk) - A non-cash loss of **$1.6 million** on changes in fair value of warrant liability was recorded in Q3 2020, compared to a **$1.5 million** gain in Q3 2019, significantly impacting net loss[253](index=253&type=chunk) - Other income, net, was **$429 thousand**, primarily from **$432 thousand** recognized under the PPP Loan program[255](index=255&type=chunk) [Comparison of the Nine Months Ended September 30, 2020 and 2019](index=61&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030%2C%202020%20and%202019) This section compares the company's financial results for the nine months ended September 30, 2020, and 2019 - Product revenue, net, increased by **$3.2 million (66%)** to **$8.0 million**, primarily due to **$3.1 million** from KN95 Mask sales, with no comparable revenue in 2019[258](index=258&type=chunk) - Avenova revenue decreased by **$0.1 million** to **$4.5 million**, as a lower average net selling price partially offset an increase in Avenova Direct unit sales[259](index=259&type=chunk) - Sales and marketing expenses decreased by **$1.9 million (29%)** to **$4.7 million**, mainly due to reduced sales representative headcount and lower travel expenses, partially offset by increased digital advertising for Avenova Direct and CelleRx relaunch costs[263](index=263&type=chunk) - A non-cash loss of **$5.2 million** on changes in fair value of warrant liability was recorded, compared to a **$0.9 million** gain in the prior year, contributing to a higher net loss[265](index=265&type=chunk) - Other income, net, was **$605 thousand**, including **$901 thousand** recognized from the PPP Loan, partially offset by interest expenses from related party notes[267](index=267&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=62&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) This section assesses the company's cash position, liquidity, and sources and uses of capital - Cash and cash equivalents increased to **$13.4 million** as of September 30, 2020, from **$6.9 million** at December 31, 2019[269](index=269&type=chunk) - Management believes existing cash and cash flows from product sales will be sufficient to meet operating expenses through at least November 12, 2021[269](index=269&type=chunk) - Net cash used in operating activities decreased by **49.6%** to **$3.3 million** for the nine months ended September 30, 2020, compared to **$6.5 million** in the prior year[270](index=270&type=chunk)[271](index=271&type=chunk) - Net cash provided by financing activities was **$9.8 million**, including **$5.2 million** from the ATM Program and **$7.1 million** from warrant exercises, offset by debt repayments[274](index=274&type=chunk) [Net Operating Losses and Tax Credit Carryforwards](index=64&type=section&id=Net%20Operating%20Losses%20and%20Tax%20Credit%20Carryforwards) This section details the company's federal and state net operating loss and tax credit carryforwards - As of December 31, 2019, the company had federal net operating loss (NOL) carryforwards of **$111.0 million** and state NOL carryforwards of **$90.5 million**[276](index=276&type=chunk) - Federal tax credit carryforwards were **$1.3 million** and state tax credits were **$0.3 million** as of December 31, 2019[276](index=276&type=chunk) - The ability to utilize these NOL and tax credit carryforwards may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code[277](index=277&type=chunk)[308](index=308&type=chunk) [Inflation](index=64&type=section&id=Inflation) This section addresses the impact of inflation on the company's business and operating results - Management does not believe inflation has had a material impact on the business and operating results during the periods presented, nor is it expected to in the near future[278](index=278&type=chunk) [Off-Balance Sheet Arrangements](index=64&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements as of the reporting date - The company had no off-balance sheet arrangements as of September 30, 2020[279](index=279&type=chunk) [Seasonality](index=64&type=section&id=Seasonality) This section describes the seasonal patterns affecting the company's business, particularly in the first quarter - The company's business experiences seasonality, with the first quarter typically being the lowest revenue quarter due to consumers satisfying health insurance deductibles and changes to copays[280](index=280&type=chunk) [Contractual Obligations](index=64&type=section&id=Contractual%20Obligations) This section outlines the company's future cash commitments from facility and equipment leases Contractual Cash Commitments (in thousands) as of September 30, 2020 | Contractual Obligations | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | | :---------------------- | :--------------- | :-------- | :-------- | :---------------- | :---- | | Facility leases | $435 | $185 | $0 | $0 | $620 | | Equipment leases | $16 | $17 | $0 | $0 | $33 | | Total | $451 | $202 | $0 | $0 | $653 | [Recent Events](index=65&type=section&id=Recent%20Events) This section reports the company's recent regaining of compliance with NYSE American listing requirements - On October 13, 2020, the company was notified by NYSE American that it had regained compliance with the minimum stockholders' equity requirements[284](index=284&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=65&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) NovaBay's primary market risk is interest rate risk associated with its cash and cash equivalents. The company has no material exposure to foreign currency rate fluctuations due to its predominant focus on the domestic U.S. market - The company's market risk consists principally of interest rate risk on its cash and cash equivalents[285](index=285&type=chunk) - There is no material exposure to foreign currency rate fluctuations due to the company's focus on the domestic U.S. market[285](index=285&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=65&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2020, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2020[288](index=288&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2020[289](index=289&type=chunk) PART II. OTHER INFORMATION This section provides additional information, including risk factors, exhibits, and official signatures [ITEM 1A. RISK FACTORS](index=66&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details various risks that could materially and adversely affect NovaBay's business, financial condition, or results of operations. These risks span liquidity concerns, factors related to common stock ownership, and operational challenges including the impact of COVID-19, regulatory compliance, competition, and intellectual property protection [Risks Relating to Our Liquidity](index=66&type=section&id=Risks%20Relating%20to%20Our%20Liquidity) This section addresses risks associated with the company's ability to achieve and maintain sustained profitability - The company has a history of net losses and may never achieve or maintain sustained profitability, requiring significant revenue generation from products like Avenova and the relaunched CelleRx[293](index=293&type=chunk) [Risks Relating to Owning Our Common Stock](index=66&type=section&id=Risks%20Relating%20to%20Owning%20Our%20Common%20Stock) This section outlines risks related to common stock ownership, including delisting, price fluctuations, and dilution - The company faces a risk of delisting from NYSE American if it fails to maintain minimum stockholders' equity standards, despite regaining compliance on October 13, 2020[294](index=294&type=chunk)[295](index=295&type=chunk) - The price of common stock may fluctuate substantially due to various factors, including new product announcements, competitor actions, and general economic conditions[296](index=296&type=chunk)[298](index=298&type=chunk) - Large stockholders, such as China Pioneer (**12.7% ownership**) and China Kington, may exert significant influence over corporate matters, potentially not aligning with the interests of other stockholders[299](index=299&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) - Potential future warrant issuances (Microprofit Warrants for **12% of outstanding common stock** and TLF Bio Warrants for up to **2 million shares**) could dilute the ownership percentages of existing stockholders[305](index=305&type=chunk)[307](index=307&type=chunk) [Risks Relating to Our Business](index=70&type=section&id=Risks%20Relating%20to%20Our%20Business) This section covers operational risks, including the impact of COVID-19, regulatory compliance, competition, and intellectual property - The COVID-19 pandemic has adversely affected the business, causing a slowdown in Avenova sales in Q2 2020 and potentially in the future, and increasing reliance on work-from-home policies[309](index=309&type=chunk) - There is no assurance that the PPP Loan will be fully forgiven, and a default could trigger immediate repayment of all outstanding amounts[311](index=311&type=chunk)[312](index=312&type=chunk) - The Test Kits may not gain market acceptance or receive necessary FDA Regulatory Approvals, potentially preventing the realization of anticipated revenue[313](index=313&type=chunk)[314](index=314&type=chunk) - The company relies on third-party manufacturers for its products, including Avenova and Test Kits, which poses risks related to timing, quantity, quality, and supply chain delays, especially due to COVID-19[35](index=35&type=chunk)[327](index=327&type=chunk) - Revenue generated from KN95 Masks and Test Kits is likely temporary and not expected to be a long-term source of revenue beyond the current COVID-19 pandemic[317](index=317&type=chunk) - Future success is largely dependent on the successful commercialization of Avenova and its continued FDA clearance as a medical device, with risks of FDA requiring drug approval or additional clinical trials[318](index=318&type=chunk)[319](index=319&type=chunk)[321](index=321&type=chunk) - The company operates in an intensely competitive medical device market, facing larger competitors with greater resources, which could render its products obsolete or uncompetitive[346](index=346&type=chunk)[347](index=347&type=chunk) - None of the company's products are reimbursed by federal healthcare programs, and reliance on non-governmental payors may lead to reduced or limited reimbursement[349](index=349&type=chunk) - The current patent portfolio, particularly the lack of a composition of matter patent for Neutrox, leaves the company vulnerable to competitors developing similar products[361](index=361&type=chunk) - The company is subject to ongoing FDA obligations, potential product recalls, and strict limitations on marketing claims, with risks of enforcement actions for off-label promotion or non-compliance[322](index=322&type=chunk)[324](index=324&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk) - Compliance with complex U.S. healthcare fraud and abuse and health information privacy and security laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA) is critical, as violations could result in severe penalties[368](index=368&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk) - Significant disruptions of information technology systems or breaches of information security could adversely affect business operations, leading to loss of confidential information, financial harm, and reputational damage[373](index=373&type=chunk) [ITEM 6. EXHIBITS](index=86&type=section&id=ITEM%206.%20EXHIBITS) This section provides a comprehensive list of all exhibits filed with or incorporated by reference into the 10-Q report. These exhibits include various corporate documents, financial agreements, compensation plans, and regulatory filings, offering detailed supporting information for the report's content - Exhibits include organizational documents (Amended and Restated Certificate of Incorporation, Bylaws), various warrant forms (October 2015, 2019 Domestic, 2019 Foreign, Microprofit, TLF Bio, New Warrant), and indemnity agreements[377](index=377&type=chunk) - Key agreements listed are the ATM Offering Agreement, PPP Loan Promissory Note, Services Agreement with TLF Bio Innovation, International Distribution Agreement with Shenzhen Microprofit Biotech, and Intermediary Distribution Agreement with Chongqing Pioneer Pharma Holdings Limited[378](index=378&type=chunk)[380](index=380&type=chunk) - The section also includes certifications from the Principal Executive Officer and Principal Financial Officer, as well as XBRL instance and taxonomy documents[380](index=380&type=chunk) [SIGNATURES](index=90&type=section&id=SIGNATURES) The report is officially signed on behalf of NovaBay Pharmaceuticals, Inc. by Justin Hall, President and Chief Executive Officer, and Andrew Jones, Chief Financial Officer, on November 12, 2020, affirming its submission in accordance with the Securities Exchange Act of 1934 - The report was signed by Justin Hall, President and Chief Executive Officer, and Andrew Jones, Chief Financial Officer, on November 12, 2020[383](index=383&type=chunk)

NovaBay Pharmaceuticals, Inc. (NYSE:NBY) Q2 2020 Earnings Conference Call August 6, 2020 4:30 PM ET Company Participants Yvonne Briggs - Vice President, LHA Justin Hall - President & Chief Executive Officer Andrew Jones - Chief Financial Officer & Treasurer Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Operator Welcome to the NovaBay Pharmaceuticals Conference Call. At this time all participants are in a listen-only mode. Following management's prepared remarks we'll hold a Q&A session. [O ...

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents NovaBay Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents NovaBay Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, cash flows, and stockholders' equity, along with detailed notes explaining significant accounting policies, fair value measurements, and specific financial accounts [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table presents the company's financial position, detailing total assets, liabilities, and stockholders' equity at June 30, 2020, and December 31, 2019 | Metric | June 30, 2020 (Unaudited) (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :--------------------------------------- | :------------------------------- | | Total Assets | $13,272 | $11,220 | | Total Liabilities | $12,289 | $10,247 | | Total Stockholders' Equity | $983 | $973 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This statement outlines the company's financial performance, including product revenue, gross profit, operating loss, and net loss for the three and six months ended June 30, 2020 and 2019 | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product revenue, net | $3,979 | $1,789 | $5,871 | $3,239 | | Total sales, net | $3,984 | $1,789 | $5,876 | $3,280 | | Gross profit | $1,944 | $1,386 | $3,255 | $2,536 | | Operating loss | $(1,071) | $(1,379) | $(2,606) | $(5,450) | | Non-cash loss on changes in fair value of warrant liability | $(3,772) | $(487) | $(3,635) | $(544) | | Net loss and comprehensive loss | $(4,482) | $(2,501) | $(6,064) | $(6,690) | | Net loss per share (basic and diluted) | $(0.15) | $(0.14) | $(0.21) | $(0.38) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details the cash flows from operating, investing, and financing activities, showing the net change in cash and cash equivalents for the six months ended June 30, 2020 and 2019 | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(6,064) | $(6,690) | | Net cash used in operating activities | $(1,906) | $(5,000) | | Net cash used in investing activities | $0 | $(19) | | Net cash provided by financing activities | $3,744 | $5,504 | | Net increase in cash, cash equivalents, and restricted cash | $1,838 | $485 | | Cash, cash equivalents and restricted cash, end of period | $9,250 | $4,143 | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This statement presents changes in common stock, additional paid-in capital, and accumulated deficit, reflecting the evolution of stockholders' equity from December 31, 2019, to June 30, 2020 | Metric (in thousands) | Balance at December 31, 2019 | Balance at June 30, 2020 | | :------------------------------------------------ | :--------------------------- | :----------------------- | | Common Stock (Shares) | 27,938 | 34,648 | | Common Stock (Amount) | $279 | $346 | | Additional Paid-In Capital | $125,718 | $131,725 | | Accumulated Deficit | $(125,024) | $(131,088) | | Total Stockholders' Equity (Deficit) | $973 | $983 | - Issuance of common stock, net of offering costs, contributed **$5.22 million** to additional paid-in capital during the three months ended June 30, 2020[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed explanations of the company's significant accounting policies, financial statement line items, and other relevant disclosures for a comprehensive understanding of its financial position and performance [NOTE 1. ORGANIZATION](index=10&type=section&id=NOTE%201.%20ORGANIZATION) NovaBay Pharmaceuticals, Inc. focuses on eye care with Avenova®, temporarily expanded into KN95 masks in Q2 2020, and expects sufficient cash for operations through June 2021 - NovaBay's main product is **Avenova®**, an FDA-cleared product for eye care, specifically for blepharitis and dry-eye disease[22](index=22&type=chunk) - In Q2 2020, the company started selling disposable **KN95 facial coverings** as a temporary response to COVID-19 demand[22](index=22&type=chunk)[23](index=23&type=chunk) - Management expects existing cash and cash flows from product sales to cover operating expenses through at least June 30, 2021[24](index=24&type=chunk) [NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details significant accounting policies, including revenue recognition for Avenova and temporary KN95 mask sales, inventory, and warrant liabilities, along with the impact of recent accounting pronouncements Product Revenue by Type (in thousands) | Product (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | KN95 Masks | $2,839 | $0 | $3,012 | $0 | | Avenova | $1,140 | $1,580 | $2,686 | $3,030 | | Other products | $0 | $209 | $173 | $209 | | Total product revenue, net | $3,979 | $1,789 | $5,871 | $3,239 | | Other revenue, net | $5 | $0 | $5 | $41 | | Total sales, net | $3,984 | $1,789 | $5,876 | $3,280 | - The Company does not expect KN95 Masks to provide a long-term source of revenue[34](index=34&type=chunk) Revenue Concentration by Partner | Major distribution or collaboration partner | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Avenova Direct via Amazon | 12% | *% | 21% | *% | | Avenova distributor A | *% | 13% | *% | 18% | | Avenova distributor B | *% | 12% | *% | 15% | | Avenova distributor C | *% | 23% | *% | 19% | - Net loss per share (basic and diluted) was **$(0.15)** for the three months ended June 30, 2020, and **$(0.21)** for the six months ended June 30, 2020[15](index=15&type=chunk)[69](index=69&type=chunk) - The Company adopted ASU 2018-13 (Fair Value Measurement) effective January 1, 2020, with no material impact on financial statements[70](index=70&type=chunk) [NOTE 3. FAIR VALUE MEASUREMENTS](index=18&type=section&id=NOTE%203.%20FAIR%20VALUE%20MEASUREMENTS) This note details fair value measurements for financial assets and liabilities, classifying warrant and embedded derivative liabilities as Level 3 due to unobservable inputs, with a significant increase in warrant liability fair value Fair Value of Liabilities (in thousands) | Liability (in thousands) | June 30, 2020 (Level 3) | December 31, 2019 (Level 3) | | :----------------------- | :---------------------- | :-------------------------- | | Warrant liability | $7,724 | $4,089 | | Embedded derivative liability | $1 | $3 | | Total liabilities | $7,725 | $4,092 | - The fair value of warrant liability and embedded derivative liability increased from **$4.09 million** at December 31, 2019, to **$7.73 million** at June 30, 2020, primarily due to a **$3.77 million** increase in warrant liability[78](index=78&type=chunk) [NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=20&type=section&id=NOTE%204.%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) This note provides a breakdown of prepaid expenses and other current assets, which increased from $886 thousand at December 31, 2019, to $1,116 thousand at June 30, 2020, mainly driven by higher prepaid insurance and receivables from an at-the-market offering Prepaid Expenses and Other Current Assets (in thousands) | Item (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------ | :------------ | :---------------- | | Prepaid insurance | $455 | $94 | | Prepaid sales rebates | $142 | $401 | | Receivables from at-the-marketing offering | $96 | $0 | | Related party receivables | $79 | $0 | | Total prepaid expenses and other current assets | $1,116 | $886 | [NOTE 5. INVENTORY](index=20&type=section&id=NOTE%205.%20INVENTORY) This note details the composition of inventory, which includes raw materials, goods in progress, and finished goods. Net inventory increased from $492 thousand at December 31, 2019, to $626 thousand at June 30, 2020, despite a decrease in the reserve for excess and obsolete inventory Inventory Composition (in thousands) | Item (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------ | :------------ | :---------------- | | Raw materials and supplies | $180 | $185 | | Finished goods | $652 | $554 | | Less: Reserve for excess and obsolete inventory | $(206) | $(247) | | Total inventory, net | $626 | $492 | [NOTE 6. PROPERTY AND EQUIPMENT](index=20&type=section&id=NOTE%206.%20PROPERTY%20AND%20EQUIPMENT) This note provides a breakdown of property and equipment, net of accumulated depreciation. Total net property and equipment decreased from $110 thousand at December 31, 2019, to $84 thousand at June 30, 2020 Property and Equipment (in thousands) | Item (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------ | :------------ | :---------------- | | Total property and equipment, at cost | $664 | $670 | | Less: accumulated depreciation and amortization | $(580) | $(560) | | Total property and equipment, net | $84 | $110 | - Depreciation and amortization expense was **$14 thousand** for Q2 2020 (down from $16 thousand in Q2 2019) and **$28 thousand** for YTD 2020 (down from $33 thousand in YTD 2019)[81](index=81&type=chunk) [NOTE 7. ACCRUED LIABILITIES](index=21&type=section&id=NOTE%207.%20ACCRUED%20LIABILITIES) This note details the components of accrued liabilities, which decreased from $1,778 thousand at December 31, 2019, to $1,282 thousand at June 30, 2020, primarily due to a reduction in Avenova contract liabilities and employee payroll and benefits Accrued Liabilities (in thousands) | Item (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------ | :------------ | :---------------- | | Avenova contract liabilities | $478 | $822 | | Employee payroll and benefits | $237 | $463 | | Consulting service | $210 | $109 | | Total accrued liabilities | $1,282 | $1,778 | [NOTE 8. COMMITMENTS AND CONTINGENCIES](index=21&type=section&id=NOTE%208.%20COMMITMENTS%20AND%20CONTINGENCIES) This note details indemnification agreements, a pending arbitration claim, the termination of Emeryville lease agreements by August 31, 2020, and new distribution and related-party services agreements - The company indemnifies its officers and directors, and also provides indemnification to clinical research organizations, investigators, and suppliers, with the fair value of these agreements deemed minimal due to insurance[84](index=84&type=chunk)[85](index=85&type=chunk) - The company is defending an arbitration claim from a former Interim President & CEO seeking **$370 thousand** in severance and additional damages[86](index=86&type=chunk) - The EmeryStation lease and sublease agreement will terminate as of August 31, 2020, following the landlord's exercise of an early termination right[89](index=89&type=chunk)[208](index=208&type=chunk) - Entered into a services agreement with TLF Bio Innovation Lab LLC (related party) to manage the relaunch of CelleRx, with potential warrants for up to **2 million shares** upon successful completion of conditions[95](index=95&type=chunk) - Signed an international distribution agreement with Shenzhen Microprofit Biotech Co., LTD for SARS-CoV-2 IgG and IgM Antibody Combined Test Kits in the US, with potential warrants for **12% of outstanding common stock** upon FDA approval[96](index=96&type=chunk) [NOTE 9. RELATED PARTY NOTES PAYABLE](index=25&type=section&id=NOTE%209.%20RELATED%20PARTY%20NOTES%20PAYABLE) This note details the $1.0 million promissory note payable to Pioneer Pharma (Hong Kong) Company Ltd., which was fully repaid on May 14, 2020, using proceeds from the ATM program. A remaining interest payable of $104 thousand as of June 30, 2020, will be settled through the delivery of NeutroPhase units - The **$1.0 million** principal balance of the Promissory Note to Pioneer Pharma (Hong Kong) Company Ltd. was repaid on May 14, 2020, using proceeds from the ATM program[98](index=98&type=chunk) - As of June 30, 2020, **$104 thousand** in remaining interest payable will be settled through the delivery of NeutroPhase units[98](index=98&type=chunk) Interest Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense | $27 | $98 | $75 | $130 | [NOTE 10. CONVERTIBLE NOTE](index=25&type=section&id=NOTE%2010.%20CONVERTIBLE%20NOTE) This note details a $2.2 million convertible note with Iliad Research and Trading, L.P., maturing September 26, 2020, including an immaterial Level 3 embedded derivative liability, with $1.2 million repaid year-to-date 2020 - The Convertible Note has an original principal amount of **$2.2 million**, bears **10% interest**, and matures on September 26, 2020[101](index=101&type=chunk) - The embedded derivative liability, including call and put options, was deemed immaterial as of June 30, 2020[107](index=107&type=chunk) - The Lender has redeemed **$200 thousand** of the Convertible Note every month since September 27, 2019[110](index=110&type=chunk) - During the six months ended June 30, 2020, the Company repaid a total of **$1.2 million** in cash against the outstanding balance of the convertible note[110](index=110&type=chunk) Interest Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense | $59 | $302 | $199 | $322 | [NOTE 11. WARRANT LIABILITY](index=28&type=section&id=NOTE%2011.%20WARRANT%20LIABILITY) This note details various warrant issuances, their Level 3 classification, exercise price adjustments, and expirations, with a significant Q2 2020 fair value increase and a July 2020 repricing event generating $6.4 million in net proceeds - All warrants are classified as **Level 3 liabilities** due to potential cash settlement provisions upon specified fundamental transactions[111](index=111&type=chunk)[117](index=117&type=chunk)[121](index=121&type=chunk) - Exercise prices for July 2011, March 2015, and October 2015 Warrants were reduced to **$0.2061 per share** in May 2019 due to price protection provisions[115](index=115&type=chunk) - July 2011 and March 2015 Warrants expired in Q1 2020, and June 2019 Warrants expired on June 17, 2020, without being exercised[115](index=115&type=chunk)[150](index=150&type=chunk)[152](index=152&type=chunk) Outstanding Warrants and Liabilities (in thousands) | Warrant Type (in thousands) | Shares Outstanding (June 30, 2020) | Warrant Liability (June 30, 2020) | | :-------------------------- | :--------------------------------- | :-------------------------------- | | October 2015 Warrants | 38 | $39 | | 2019 Domestic Warrants | 4,199 | $4,567 | | 2019 Foreign Warrants | 2,700 | $2,937 | | 2019 Ladenburg Warrants | 168 | $181 | | Total Outstanding | 7,105 | $7,724 | - Subsequent to June 30, 2020, a Warrant Inducement Transaction reduced the exercise price of 2019 Domestic, Foreign, and Ladenburg Warrants to **$0.99**, generating approximately **$6.4 million** in net proceeds from exercises and leading to the issuance of new warrants[206](index=206&type=chunk) [NOTE 12. STOCKHOLDERS' EQUITY (DEFICIT)](index=32&type=section&id=NOTE%2012.%20STOCKHOLDERS'%20EQUITY%20(DEFICIT)) This note details changes in stockholders' equity, including the conversion of preferred stock, common stock issuances, and warrant-related adjustments. The company increased its authorized common stock to 75 million shares in May 2020 and raised $5.6 million through an At-the-Market (ATM) offering in Q2 2020 - **2.7 million shares** of Series A Preferred Stock automatically converted into common stock in October 2019 after stockholder approval[128](index=128&type=chunk)[129](index=129&type=chunk) - The number of authorized common stock shares was increased from **50 million to 75 million** in May 2020[133](index=133&type=chunk) - During Q2 2020, **5,836,792 shares** of common stock were issued under the At-the-Market (ATM) Program for total net proceeds of **$5.6 million**[139](index=139&type=chunk) - A down round feature was triggered in May 2019, resulting in a **$29 thousand dividend** treated as a reduction to income available to common shareholders[142](index=142&type=chunk) - During Q1 2020, **70,000 March 2015 Warrants** were exercised for **$14 thousand**, and **228,571 June 2019 Warrants** were exercised for **$199 thousand**[149](index=149&type=chunk)[151](index=151&type=chunk) - During Q2 2020, **571,428 June 2019 Warrants** were exercised for **$497 thousand**[152](index=152&type=chunk) [NOTE 13. EQUITY-BASED COMPENSATION](index=35&type=section&id=NOTE%2013.%20EQUITY-BASED%20COMPENSATION) This note describes the company's equity compensation plans (2007 and 2017 Omnibus Incentive Plans) and summarizes stock option and RSU activity. Total unrecognized compensation cost for unvested awards was approximately $743 thousand as of June 30, 2020, expected to be recognized over a weighted average vesting period of 2.32 years - As of June 30, 2020, there were **3,044,090 shares** available for future awards under the 2017 Omnibus Incentive Plan[157](index=157&type=chunk) - During the six months ended June 30, 2020, the company granted **520,000 stock options** and **160,000 RSUs** to employees and directors[159](index=159&type=chunk)[162](index=162&type=chunk)[164](index=164&type=chunk) - Total unrecognized compensation cost related to unvested stock options and RSUs was approximately **$743 thousand** as of June 30, 2020, with a remaining weighted average vesting period of **2.32 years**[160](index=160&type=chunk) Stock-Based Compensation Expense (in thousands) | Expense Category (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $7 | $13 | $14 | $24 | | Sales and marketing | $11 | $27 | $20 | $46 | | General and administrative | $108 | $83 | $149 | $167 | | Total stock-based compensation expense | $126 | $123 | $183 | $237 | [NOTE 14. REVENUE](index=39&type=section&id=NOTE%2014.%20REVENUE) This note explains the company's revenue recognition policies for various channels, including webstore sales, Amazon.com, and distribution partners. It highlights the significant increase in KN95 Mask revenue in 2020 and the successful launch of Avenova Direct, while also noting a decrease in prescription Avenova revenue - Revenue from KN95 Masks was **$2.8 million** for the three months ended June 30, 2020, and **$3.0 million** for the six months ended June 30, 2020, with no comparable revenue in 2019[193](index=193&type=chunk) - Avenova Direct, launched on June 1, 2019, generated **$0.6 million** in revenue for the three months ended June 30, 2020, and **$1.4 million** for the six months ended June 30, 2020[192](index=192&type=chunk) Prescription Avenova Distribution Agreements Revenue (in thousands) | Revenue Source (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Prescription Avenova distribution agreements | $400 | $1,300 | $900 | $2,500 | - The Partner Pharmacy Program increased from **4 to 16 pharmacies**, improving gross-to-net and per-script profitability[191](index=191&type=chunk) [NOTE 15. EMPLOYEE BENEFIT PLAN](index=41&type=section&id=NOTE%2015.%20EMPLOYEE%20BENEFIT%20PLAN) The company maintains a 401(k) plan for all eligible employees but did not make any contributions to the plan during the three and six months ended June 30, 2020, or 2019 - The Company made no contributions to its 401(k) plan during the three and six months ended June 30, 2020, or 2019[194](index=194&type=chunk) [NOTE 16. RELATED PARTY TRANSACTIONS](index=42&type=section&id=NOTE%2016.%20RELATED%20PARTY%20TRANSACTIONS) This note details various transactions with related parties, including the repayment of a promissory note to Pioneer Pharma, sales of NeutroPhase, purchases of KN95 Masks, and consulting fees. It also highlights a receivable from Chongqing Pioneer for shipping costs - The **$1.0 million** principal balance of the Promissory Note to Pioneer Pharma was repaid in Q2 2020[195](index=195&type=chunk) NeutroPhase Sales (in thousands) | Revenue Source (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NeutroPhase sales | $0 | $209 | $173 | $209 | - The company purchased KN95 Masks through an affiliate of China Pioneer, resulting in **$418 thousand** in related party accounts payable as of June 30, 2020[198](index=198&type=chunk) - Related party fees paid to China Kington for brokering warrant exercises were **$29 thousand** in Q2 2020 and **$12 thousand** in Q1 2020[199](index=199&type=chunk) - Paid **$75 thousand** to TLF Bio Innovation Lab (related party) for services related to the CelleRx relaunch during Q2 2020[200](index=200&type=chunk) [NOTE 18. PAYCHECK PROTECTION PROGRAM](index=44&type=section&id=NOTE%2018.%20PAYCHECK%20PROTECTION%20PROGRAM) The company received a $901 thousand loan under the Paycheck Protection Program (PPP) in May 2020, which it expects to be fully forgiven. $469 thousand was recognized as other income in Q2 2020 as qualifying expenses were incurred, with a deferred income liability of $432 thousand remaining - Received a **$901 thousand PPP Loan** on May 6, 2020, maturing May 3, 2022, with a **1.00% interest rate**[203](index=203&type=chunk)[204](index=204&type=chunk) - The company expects the entire loan amount to be forgiven as it intends to use the funds for Qualifying Expenses[204](index=204&type=chunk) - **$469 thousand** was recognized as other income for the three and six months ended June 30, 2020, related to incurred Qualifying Expenses[205](index=205&type=chunk) - A deferred income liability of **$432 thousand** related to the PPP Loan remained as of June 30, 2020[205](index=205&type=chunk) [NOTE 19. SUBSEQUENT EVENTS](index=44&type=section&id=NOTE%2019.%20SUBSEQUENT%20EVENTS) Subsequent to June 30, 2020, the company engaged in a Warrant Inducement Transaction in July 2020, repricing existing warrants to $0.99, generating $6.4 million in net proceeds, and issuing new warrants. Additionally, the EmeryStation lease and sublease were terminated effective August 31, 2020 - In July 2020, the company executed a Warrant Inducement Transaction, reducing the exercise price of 2019 Domestic, Foreign, and Ladenburg Warrants to **$0.99 per share**[206](index=206&type=chunk) - The transaction generated approximately **$6.4 million** in aggregate net proceeds from the exercise of these warrants[206](index=206&type=chunk) - New Warrants were issued to purchase **6,898,566 shares** of common stock, exercisable at **$1.65 per share** and expiring in five and a half years[207](index=207&type=chunk) - The EmeryStation lease and sublease agreement were terminated effective August 31, 2020[208](index=208&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=44&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on NovaBay's financial condition, results of operations, and liquidity. It covers the company's strategic focus on Avenova, the impact of COVID-19, critical accounting policies, and a detailed comparison of financial performance for the three and six months ended June 30, 2020, versus 2019 [Overview](index=46&type=section&id=Overview) NovaBay Pharmaceuticals, Inc. focuses on Avenova® sales across multiple channels, experienced Q2 2020 slowdown due to COVID-19 but is recovering, confirmed Avenova kills SARS-CoV-2, and temporarily launched KN95 masks - The company's core business strategy is centered around increasing sales of **Avenova®** in all distribution channels: Avenova Direct, retail pharmacies, Partner Pharmacy Program, and Buy-and-Sell[214](index=214&type=chunk) - Avenova sales experienced a slowdown in Q2 2020 due to decreased patient visits to eyecare specialists caused by the COVID-19 pandemic, but a gradual pickup was observed in June and July[215](index=215&type=chunk) - Independent laboratory testing confirmed that **Avenova kills SARS-CoV-2**, the virus causing COVID-19, which is expected to broaden its appeal[216](index=216&type=chunk) - The company launched the sale of **KN95 Masks** and other personal protection equipment (PPE) in March 2020 as a temporary response to the COVID-19 outbreak[217](index=217&type=chunk) [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses critical accounting policies and estimates, including allowance for doubtful accounts, inventory, revenue recognition, and common stock warrant liabilities, which involve significant management judgment and may lead to differing actual results - No reserves for accounts receivable were recorded at June 30, 2020, compared to **$51 thousand** at December 31, 2019[221](index=221&type=chunk) - Inventory is stated at the lower of cost or estimated net realizable value (FIFO method), with an allowance for excess and obsolete inventory of **$206 thousand** at June 30, 2020, and **$247 thousand** at December 31, 2019[222](index=222&type=chunk)[223](index=223&type=chunk) - Revenue recognition varies by channel: upon shipment for webstore sales, upon fulfillment by Amazon.com, upon transfer of control for distribution partners, and upon delivery for bulk KN95 Mask orders[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk)[231](index=231&type=chunk) - Common stock warrants classified as liabilities are recorded at fair value at each balance sheet date, with changes recognized as non-cash gains or losses, using Black-Scholes or Binomial Lattice models[236](index=236&type=chunk) [Results of Operations](index=50&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2020, versus the corresponding periods in 2019, highlighting significant changes in sales, gross profit, operating expenses, and net loss, largely influenced by the introduction of KN95 Mask sales and non-cash warrant liability adjustments [Comparison of the Three Months Ended June 30, 2020 and 2019](index=50&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202020%20and%202019) For Q2 2020, total sales increased significantly by 123% to $3.98 million, primarily driven by $2.8 million in KN95 Mask sales. Gross profit rose 40% to $1.94 million. However, net loss increased by 79% to $4.48 million, largely due to a $3.8 million non-cash loss on changes in fair value of warrant liability | Metric (in thousands) | Q2 2020 | Q2 2019 | Dollar Change | Percent Change | | :-------------------- | :------ | :------ | :------------ | :------------- | | Total sales, net | $3,984 | $1,789 | $2,195 | 123% | | Product revenue, net | $3,979 | $1,789 | $2,190 | 122% | | Gross profit | $1,944 | $1,386 | $558 | 40% | | Operating loss | $(1,071)| $(1,379)| $308 | (22%) | | Net loss | $(4,482)| $(2,501)| $(1,981) | 79% | - Product revenue increase was primarily due to **$2.8 million** in KN95 Mask sales in Q2 2020, with no comparable revenue in 2019[239](index=239&type=chunk) - Avenova revenue decreased by **$0.5 million** to **$1.1 million**, attributed to a lower average net sales price due to reduced insurance coverage and the launch of Avenova Direct[240](index=240&type=chunk) - Non-cash loss on changes in fair value of warrant liability increased significantly to **$3.8 million** in Q2 2020 from **$0.5 million** in Q2 2019[246](index=246&type=chunk) - Other income (expense), net, shifted from a **$387 thousand expense** in Q2 2019 to a **$362 thousand income** in Q2 2020, primarily due to **$469 thousand** recognized from the PPP loan[248](index=248&type=chunk)[249](index=249&type=chunk) [Comparison of the Six Months Ended June 30, 2020 and 2019](index=52&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) For the six months ended June 30, 2020, total sales increased by 79% to $5.88 million, driven by $3.0 million in KN95 Mask sales. Gross profit increased 28% to $3.26 million. Operating loss decreased by 52% to $2.61 million, and net loss decreased by 9% to $6.06 million, despite a significant non-cash loss on warrant liability changes | Metric (in thousands) | YTD 2020 | YTD 2019 | Dollar Change | Percent Change | | :-------------------- | :------- | :------- | :------------ | :------------- | | Total sales, net | $5,876 | $3,280 | $2,596 | 79% | | Product revenue, net | $5,871 | $3,239 | $2,632 | 81% | | Gross profit | $3,255 | $2,536 | $719 | 28% | | Operating loss | $(2,606) | $(5,450) | $2,844 | (52%) | | Net loss | $(6,064) | $(6,690) | $626 | (9%) | - Product revenue increase was primarily due to **$3.0 million** in KN95 Mask sales in YTD 2020, with no comparable revenue in 2019[251](index=251&type=chunk) - Sales and marketing expenses decreased by **$2.1 million (41%)** to **$3.0 million**, mainly due to reduced sales representative headcount, partially offset by increased Avenova Direct digital advertising[257](index=257&type=chunk) - Non-cash loss on changes in fair value of warrant liability increased to **$3.6 million** in YTD 2020 from **$0.5 million** in YTD 2019[259](index=259&type=chunk) - Other income (expense), net, was an income of **$176 thousand** in YTD 2020, compared to an expense of **$447 thousand** in YTD 2019, primarily due to **$469 thousand** recognized from the PPP loan[261](index=261&type=chunk)[262](index=262&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=53&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's cash increased to $8.8 million by June 30, 2020, with management expecting liquidity to cover operations through June 2021, supported by financing activities and reduced operating cash burn, while holding substantial NOL carryforwards - Cash and cash equivalents were **$8.8 million** as of June 30, 2020, up from **$6.9 million** at December 31, 2019[263](index=263&type=chunk) - Management believes existing cash and cash equivalents, combined with cash flows from product sales, will be sufficient to meet planned operating expenses through at least June 30, 2021[263](index=263&type=chunk) - Net cash used in operating activities decreased to **$1.9 million** for the six months ended June 30, 2020, from **$5.0 million** in the prior year period[264](index=264&type=chunk) - Net cash provided by financing activities was **$3.7 million** for the six months ended June 30, 2020, primarily from **$5.2 million** in ATM Program proceeds and **$0.7 million** from warrant exercises, offset by debt repayments[266](index=266&type=chunk) - As of December 31, 2019, the company had federal net operating loss carryforwards of **$111.0 million** and state net operating loss carryforwards of **$90.5 million**[268](index=268&type=chunk) - The company had no off-balance sheet arrangements as of June 30, 2020[271](index=271&type=chunk) [Contractual Obligations](index=54&type=section&id=Contractual%20Obligations) As of June 30, 2020, the company's total contractual cash commitments were $1.004 million, primarily for facility and equipment leases. Subsequent to the reporting period, the EmeryStation lease and sublease were terminated effective August 31, 2020, which will impact future obligations Contractual Obligations (in thousands) | Contractual Obligations (in thousands) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | | :----------------------------------- | :--------------- | :-------- | :-------- | :---------------- | :---- | | Facility leases | $672 | $295 | $0 | $0 | $967 | | Equipment leases | $16 | $21 | $0 | $0 | $37 | | Total | $688 | $316 | $0 | $0 | $1,004| - The EmeryStation lease and sublease agreement were terminated effective August 31, 2020, impacting future lease commitments[208](index=208&type=chunk)[275](index=275&type=chunk) - The company anticipates collecting **$0.2 million** in sublease rental reimbursement in 2020[275](index=275&type=chunk) [Recent Events](index=56&type=section&id=Recent%20Events) Subsequent to the reporting period, the company completed a Warrant Inducement Transaction in July 2020, repricing certain warrants to $0.99, generating $6.4 million in net proceeds, and issuing new warrants. Additionally, the EmeryStation lease and sublease were terminated effective August 31, 2020 - In July 2020, the company executed a Warrant Inducement Transaction, reducing the exercise price of 2019 Domestic, Foreign, and Ladenburg Warrants to **$0.99 per share**[278](index=278&type=chunk) - The transaction generated approximately **$6.4 million** in aggregate net proceeds from the exercise of these warrants[278](index=278&type=chunk) - New Warrants were issued to purchase **6,898,566 shares** of common stock, exercisable at **$1.65 per share** and expiring in five and a half years[279](index=279&type=chunk) - The EmeryStation lease and sublease agreement were terminated effective August 31, 2020[208](index=208&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=56&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk consists of interest rate risk on its cash and cash equivalents. Due to its focus on the domestic U.S. market for Avenova, it does not have any material exposure to foreign currency rate fluctuations - The company's principal market risk is **interest rate risk** on its cash and cash equivalents[280](index=280&type=chunk) - There is no material exposure to foreign currency rate fluctuations due to the company's focus on the domestic U.S. market[280](index=280&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=56&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2020, and concluded they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2020[283](index=283&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2020[285](index=285&type=chunk) [PART II OTHER INFORMATION](index=58&type=section&id=PART%20II%20OTHER%20INFORMATION) This section outlines significant risk factors, including liquidity, stock ownership, tax attributes, and business operations, along with other information such as recent events and exhibits [ITEM 1A. RISK FACTORS](index=58&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details significant risks including liquidity concerns, potential delisting, stock price volatility, large stockholder influence, and dilution. Business risks encompass COVID-19 impacts, temporary KN95/Test Kit revenues, Avenova commercialization challenges, third-party manufacturing reliance, intense competition, regulatory hurdles, intellectual property, and product liability [Risks Relating to Our Liquidity](index=58&type=section&id=Risks%20Relating%20to%20Our%20Liquidity) The company has a history of net losses and may never achieve or maintain sustained profitability, requiring significant revenue generation from Avenova and a successful CelleRx relaunch to avoid adverse impacts on its stock price - The company has historically incurred net losses and may never achieve or maintain sustained profitability[288](index=288&type=chunk) - Achieving and maintaining profitability requires generating significant revenues, particularly from Avenova sales and a successful relaunch of CelleRx[288](index=288&type=chunk) [Risks Relating to Owning Our Common Stock](index=58&type=section&id=Risks%20Relating%20to%20Owning%20Our%20Common%20Stock) Risks include potential delisting from NYSE American if minimum stockholders' equity standards are not met, substantial stock price fluctuations, and the significant influence of large stockholders (Mr. Jian Ping Fu and Pioneer Hong Kong) who collectively own over 30% of common stock. Future warrant issuances could also dilute existing stockholders - The company's stockholders' equity is below NYSE American minimum requirements, and failure to regain compliance could lead to delisting[289](index=289&type=chunk) - The market price of the common stock is likely to be volatile due to industry, company-specific, and general economic factors[291](index=291&type=chunk)[294](index=294&type=chunk) - Large stockholders, Mr. Jian Ping Fu (**15.3%**) and Pioneer Hong Kong (**15.0%**), could exercise significant influence over corporate matters, potentially not in the best interest of other stockholders[293](index=293&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - Anti-takeover provisions in the company's charter documents and Delaware law could deter or delay attempts by stockholders to effect changes in control[295](index=295&type=chunk)[296](index=296&type=chunk) - The company does not anticipate paying cash dividends or repurchasing stock, meaning return on investment is limited to stock price appreciation[297](index=297&type=chunk) - Potential issuance and exercise of Microprofit Warrants (**12% of outstanding common stock**) and TLF Bio Warrants (up to **2 million shares**) could dilute existing stockholders[301](index=301&type=chunk)[303](index=303&type=chunk) [Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.](index=62&type=section&id=Our%20ability%20to%20use%20our%20net%20operating%20loss%20carryforwards%20and%20certain%20other%20tax%20attributes%20may%20be%20limited.) The company's ability to utilize its substantial net operating loss (NOL) carryforwards and tax credits may be limited by Section 382 of the Internal Revenue Code due to past or future ownership changes, potentially resulting in increased future tax liability - The company's ability to use its pre-change net operating loss (NOL) carryforwards and other tax attributes may be limited by Section 382 of the Internal Revenue Code due to past or future ownership changes[304](index=304&type=chunk) - Such limitations could result in the expiration of carryforwards before utilization and potentially increase future tax liability[304](index=304&type=chunk) [Risks Relating to Our Business](index=62&type=section&id=Risks%20Relating%20to%20Our%20Business) This section details business risks including COVID-19 impacts, PPP loan forgiveness uncertainty, temporary KN95/Test Kit revenues, Avenova commercialization challenges, reliance on third-party manufacturers, intense competition, regulatory limitations, intellectual property protection, product liability, and healthcare law compliance - The COVID-19 pandemic has adversely affected Avenova sales and operations, with future impacts remaining highly uncertain[305](index=305&type=chunk)[306](index=306&type=chunk) - There is no assurance that the company will obtain full forgiveness for its PPP Loan, potentially leading to repayment liability[307](index=307&type=chunk) - Revenue generated from KN95 Masks and potential Test Kits is likely temporary and not expected to be a long-term source of income[313](index=313&type=chunk) - Future success is largely dependent on the successful commercialization of Avenova, which faces regulatory, market, and competitive uncertainties[314](index=314&type=chunk)[316](index=316&type=chunk) - Avenova and CelleRx are FDA 510(k) cleared medical devices, not approved drugs, which limits promotional claims and affects insurance reimbursement, posing a risk of FDA enforcement for off-label promotion[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[328](index=328&type=chunk) - The company relies on third-party manufacturers for its products, posing risks related to production yields, quality control, and compliance with cGMP and QSR regulations[323](index=323&type=chunk)[324](index=324&type=chunk)[327](index=327&type=chunk) - The medical device market is intensely competitive, with larger competitors potentially developing more effective or affordable products, risking obsolescence or uncompetitiveness for NovaBay's products[342](index=342&type=chunk)[343](index=343&type=chunk) - The company faces challenges in protecting its intellectual property, including the risk of patents being challenged, invalidated, or circumvented, and the potential for costly infringement claims[352](index=352&type=chunk)[353](index=353&type=chunk)[357](index=357&type=chunk) - Product liability lawsuits, even without merit, could result in costly litigation, reduced sales, significant liabilities, and harm to the company's reputation[349](index=349&type=chunk)[351](index=351&type=chunk) - The company is subject to complex U.S. healthcare fraud and abuse and health information privacy and security laws, with potential for severe penalties for non-compliance[364](index=364&type=chunk)[366](index=366&type=chunk) [ITEM 5. OTHER INFORMATION](index=78&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section provides an update on the termination of the EmeryStation office lease and sublease. On August 4, 2020, the landlord exercised its right to terminate the Master Lease, and consequently, the Sublease Agreement also terminated, both effective August 31, 2020 - On August 4, 2020, the EmeryStation landlord exercised its early termination right for the Master Lease[371](index=371&type=chunk)[373](index=373&type=chunk) - Both the Master Lease and the Sublease Agreement for the EmeryStation premises will terminate as of August 31, 2020[372](index=372&type=chunk)[373](index=373&type=chunk) [ITEM 6. EXHIBITS](index=78&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with or incorporated by reference into the report, including organizational documents, various warrant forms, incentive plans, employment agreements, lease agreements, and other significant contracts such as recent distribution and financing agreements - The exhibit index includes organizational documents (Amended and Restated Certificate of Incorporation, Bylaws)[378](index=378&type=chunk) - Various warrant forms (e.g., October 2015, 2019 Domestic, 2019 Foreign, New Warrants) and equity incentive plans (2007 and 2017 Omnibus Incentive Plans) are listed[378](index=378&type=chunk)[379](index=379&type=chunk) - Key agreements such as the International Distribution Agreement with Shenzhen Microprofit Biotech Co., Ltd., the Intermediary Distribution Agreement with Chongqing Pioneer Pharma Holdings Limited, the At the Market Offering Agreement, and the Paycheck Protection Program Promissory Note are included[382](index=382&type=chunk) [SIGNATURES](index=83&type=section&id=SIGNATURES) The report is officially signed on behalf of NovaBay Pharmaceuticals, Inc. by Justin Hall, President and Chief Executive Officer, and Andrew Jones, Chief Financial Officer, on August 6, 2020, confirming its submission in accordance with the Securities Exchange Act of 1934 - The report was signed by Justin Hall, President and Chief Executive Officer, and Andrew Jones, Chief Financial Officer[386](index=386&type=chunk) - The signing date for the report was August 6, 2020[385](index=385&type=chunk)[386](index=386&type=chunk)

NovaBay Pharmaceuticals, Inc. (NYSE:NBY) Q1 2020 Earnings Conference Call May 7, 2020 4:30 PM ET Company Participants Yvonne Briggs - Vice President, LHA Justin Hall - President and Chief Executive Officer Andrew Jones - Chief Financial Officer and Treasurer Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Edward Woo - Ascendiant Capital Markets, LLC Operator Welcome to the NovaBay Pharmaceuticals Conference Call. At this time, all participants are in a listen-only mode. Following management? ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 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 ...

NovaBay Pharmaceuticals, Inc. (NYSE:NBY) Q4 2019 Earnings Conference Call March 26, 2020 4:30 PM ET Company Participants Jody Cain - IR Justin Hall - President and CEO Jason Raleigh - CFO Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Edward Woo - Ascendiant Capital Operator Welcome to the NovaBay Pharmaceuticals 2019 Fourth Quarter and Full Years' Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a Q&A se ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 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 jurisd ...

NovaBay Pharmaceuticals, Inc. (NYSE:NBY) Q3 2019 Results Conference Call November 7, 2019 4:30 PM ET Company Participants Jody Cain - Investor Relations Justin Hall - President and Chief Executive Officer Jason Raleigh - Chief Financial Officer Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Edward Woo - Ascendiant Capital Operator Welcome to the NovaBay Pharmaceuticals Third Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. Following management's prepar ...