NovaBay Pharmaceuticals DERMAdoctor Transaction Conference Call Speakers: Justin M. Hall NovaBay CEO Dr. Audrey Kunin DERMAdoctor co-founder & Chief Product Officer September 29, 2021 - DERMAdoctor® ltle Official! We're thrilled to announce that DERMAdoctor NYSE American: NBY | Novabay.com | Avenova.com | Cellerx.com | Dermadoctor.com | Forward-Looking Statements This presentation contains forward-looking statements, within the meaning of applicable U.S. securities laws, which statements can, in some cases, ...

Financial Data and Key Metrics Changes - Avenova product revenue for Q2 2021 was $1.9 million, up 65% year-over-year, with total net sales of $2.1 million for the quarter [27] - Gross margin for Q2 2021 was 71%, significantly up from 49% in the prior year [29] - Net loss for Q2 2021 was $1.9 million or $0.04 per share, an improvement from a net loss of $4.5 million or $0.15 per share in the previous year [33] - Year-to-date Avenova revenue for the first six months of 2021 was $3.5 million, representing a 29% increase over the prior year [34] Business Line Data and Key Metrics Changes - Avenova OTC sales reached a record $1.3 million in Q2 2021, up 117% from the prior year [28] - Total operating expenses for Q2 2021 were $3.4 million, compared to $3.0 million for the same period last year [29] - Sales and marketing expenses increased to $1.8 million in Q2 2021 from $1.4 million in Q2 2020, primarily due to higher spending on marketing programs for Avenova and CelleRx [30] Market Data and Key Metrics Changes - Avenova is now available in over half of CVS's 10,000 stores nationwide, enhancing consumer access [40] - The partnership with ImprimisRx is expected to significantly impact Avenova's market presence, particularly in the prescription channel [41] Company Strategy and Development Direction - The company is focusing on expanding its DTC channel, which is seen as the highest growth potential for Avenova [10] - NovaBay plans to launch complementary eye care products and is negotiating opportunities to broaden its product portfolio through acquisitions or licensing [25][42] - The company aims to leverage its established presence and strong balance sheet to pursue strategic transactions for profitable growth [43] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future growth and profitability prospects, citing successful digital marketing campaigns and strong brand loyalty [39] - The company is confident in its ability to execute on initiatives to drive adoption of Avenova and CelleRx, with sufficient funds to meet operating needs into 2022 [37] Other Important Information - The company has eliminated warrant liabilities, which positively impacted the financial results for Q2 2021 [32] - Avenova is positioned as the number one physician-recommended antimicrobial lid and lash spray, with a patented pharmaceutical-grade formulation [20] Q&A Session Summary Question: Can you quantify the opportunity with ImprimisRx? - Management indicated that it is hard to quantify the opportunity but emphasized the importance of having a nationwide pharmacy partner to streamline availability [48][49] Question: What are your marketing strategies for new and repeat customers? - Management stated that they constantly change marketing messages and platforms to engage both new and returning customers effectively [52][53] Question: Where is Avenova located in CVS stores? - Avenova is located in the ophthalmic section with other eye drops, typically right outside the pharmacy [58] Question: Are there alternative channels for CelleRx? - Management expressed interest in exploring brick-and-mortar opportunities but emphasized the importance of market research before expanding [60][61] Question: What other products are being considered for expansion? - Management hinted at upcoming announcements regarding new products and emphasized the importance of complementary products to Avenova [64][66]

Product Performance - Avenova, the company's leading product, has achieved record unit sales quarter over quarter, with a significant increase in consumer usage [176]. - The launch of over-the-counter Avenova in Q2 2019 expanded the addressable market, allowing consumers to purchase without a prescription, contributing to its strong sales performance [177]. - Avenova is now the leading product by unit sales and net revenue, despite a lower average net selling price compared to prescription Avenova [180]. - Avenova revenue increased by 65% to $1.9 million for the three months ended June 30, 2021, driven by a higher number of overall units sold, particularly over-the-counter units [209]. - Avenova revenue increased by 29% to $3.5 million for the six months ended June 30, 2021, reflecting continued growth in unit sales [222]. Financial Performance - Product revenue, net decreased by $1.9 million, or 47%, to $2.1 million for the three months ended June 30, 2021, primarily due to the absence of KN95 Masks sales which generated $2.8 million in the same period of 2020 [208]. - For the six months ended June 30, 2021, product revenue, net decreased by $1.9 million, or 33%, to $3.9 million, again due to the absence of KN95 Masks sales [221]. - Gross profit decreased by $0.4 million to $1.5 million for the three months ended June 30, 2021, mainly due to the lack of KN95 Masks sales in 2021 [213]. - Gross profit for the six months ended June 30, 2021, decreased by $0.4 million to $2.9 million, primarily due to the discontinuation of KN95 Masks sales [224]. - Operating loss for the three months ended June 30, 2021, was $1.9 million, an increase of 74% compared to the prior year [207]. Expenses and Cash Flow - Total operating expenses increased by $0.4 million, or 12%, to $3.4 million for the three months ended June 30, 2021, primarily due to higher sales and marketing expenses [207]. - Sales and marketing expenses increased by $0.5 million, or 16%, to $3.5 million for the six months ended June 30, 2021, from $3.0 million for the same period in 2020 [227]. - Net cash used in operating activities was $3.4 million for the six months ended June 30, 2021, compared to $1.9 million for the same period in 2020 [233][234]. - Net cash provided by financing activities was $1.8 million for the six months ended June 30, 2021, compared to $3.7 million for the same period in 2020 [236][237]. - As of June 30, 2021, cash and cash equivalents were $10.3 million, down from $12.0 million as of December 31, 2020 [232]. Inventory and Allowances - The company recorded an allowance for excess and obsolete inventory of $0.2 million as of June 30, 2021 [190]. - The balance of product revenue allowances was $902,000 as of June 30, 2021, reflecting various discounts, rebates, and returns [197]. Strategic Initiatives - The company introduced two complementary products, Warm Eye Compress and i-Chek Illuminated Eye Examination Mirror, to enhance the Avenova user experience [185]. - The company continues to focus on digital marketing and public relations initiatives to promote Avenova directly to consumers [180]. - The rebranded CelleRx® Clinical Reset™ was launched into the beauty industry, leveraging new consumer-focused messaging [182]. Other Financial Information - The company had no off-balance sheet arrangements as of June 30, 2021 [239]. - Contractual cash commitments as of June 30, 2021 totaled $317 thousand, with $295 thousand for facility leases and $22 thousand for equipment leases [241][242]. - The company recognized other income of $2 thousand for the six months ended June 30, 2021, down from $176 thousand for the same period in 2020 [231]. - The company may consider raising additional capital through debt and equity financings due to changing circumstances affecting cash flow [232]. - The company does not expect inflation to have a material impact on its business in the near future [238].

NovaBay Pharmaceuticals, Inc. (NYSE:NBY) Q1 2021 Earnings Conference Call May 6, 2021 4:30 PM ET Company Participants Jody Cain - Investor Relations-LHA Justin Hall - President and Chief Executive Officer Andy Jones - Chief Financial Officer Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Ed Woo - Ascendiant Capital Operator Hello and welcome to the NovaBay Pharmaceuticals First Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instruct ...

PART I FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited condensed consolidated financial statements for the period ending March 31, 2021 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $14.07 million, driven by a reduction in cash and an increase in total liabilities Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $13,146 | $14,242 | | **Total Assets** | **$14,072** | **$15,238** | | **Total Current Liabilities** | $3,080 | $2,833 | | **Total Liabilities** | **$3,089** | **$2,920** | | **Total Stockholders' Equity** | **$10,983** | **$12,318** | | **Total Liabilities and Stockholders' Equity** | **$14,072** | **$15,238** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Net sales decreased by 4% to $1.81 million, while the net loss slightly improved to $1.52 million for the quarter Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Total sales, net** | $1,807 | $1,892 | | **Gross profit** | $1,352 | $1,311 | | **Total operating expenses** | $2,872 | $2,846 | | **Operating loss** | ($1,520) | ($1,535) | | **Net loss and comprehensive loss** | **($1,518)** | **($1,582)** | | **Net loss per share (basic and diluted)** | **($0.04)** | **($0.06)** | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Total stockholders' equity decreased by $1.34 million during Q1 2021, primarily due to the period's net loss - The company's total stockholders' equity **decreased by $1.34 million** during the first quarter of 2021, mainly driven by the net loss for the period[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to $1.42 million, leading to a $1.44 million decrease in total cash Condensed Consolidated Statements of Cash Flows (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($1,419) | ($865) | | **Net cash used in investing activities** | ($25) | $0 | | **Net cash used in financing activities** | $0 | ($364) | | **Net decrease in cash, cash equivalents, and restricted cash** | ($1,444) | ($1,229) | | **Cash, cash equivalents and restricted cash, end of period** | $10,983 | $6,183 | [Notes to Condensed Consolidated Financial Statements (unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Notes detail accounting policies, the focus on Avenova, and confirm cash sufficiency through May 2022 - The company is primarily focused on its eye care product, **Avenova®**, which is sold through multiple channels including direct-to-consumer online, retail pharmacies, and physician offices[20](index=20&type=chunk)[21](index=21&type=chunk) - Management believes **existing cash and cash equivalents will be sufficient** to meet planned operating expenses at least through May 6, 2022[29](index=29&type=chunk) - The company received a **$0.9 million PPP loan** on May 6, 2020, which it expects to be forgiven in whole[163](index=163&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes a 4% decrease in net sales, a 3% increase in gross profit, and confirms sufficient liquidity - The company's primary focus is on its eye care product, **Avenova**, which is distributed through four main channels: direct-to-consumer, retail pharmacies, a Partner Pharmacy Program, and physician dispensing[167](index=167&type=chunk)[168](index=168&type=chunk) - The company has shifted its focus back to its core eyecare business and **does not expect significant future revenue from PPE sales**, which were a factor in 2020[176](index=176&type=chunk) Results of Operations Comparison (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Dollar Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | **Total sales, net** | $1,807 | $1,892 | ($85) | (4%) | | **Gross profit** | $1,352 | $1,311 | $41 | 3% | | **Operating loss** | ($1,520) | ($1,535) | $15 | (1%) | | **Net loss** | ($1,518) | ($1,582) | $64 | (4%) | - **Avenova revenue increased by 2% to $1.6 million** in Q1 2021, driven by higher over-the-counter unit sales, though this was partially offset by a lower average net selling price[201](index=201&type=chunk) - **Sales and marketing expenses increased by 8% to $1.7 million** due to increased digital advertising for Avenova and CelleRx[204](index=204&type=chunk) - As of March 31, 2021, the company had **$10.5 million in cash and cash equivalents** and believes this is sufficient to fund operations at least through May 6, 2022[209](index=209&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk on cash equivalents, with no material foreign currency exposure - The company's main market risk is **interest rate risk** on its cash and cash equivalents[225](index=225&type=chunk) - There is **no material exposure to foreign currency rate fluctuations** as the primary focus is on the U.S. domestic market[225](index=225&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of the end of the reporting period[228](index=228&type=chunk) - **No changes in internal control over financial reporting** occurred during the quarter ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, internal controls[229](index=229&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) An arbitration with a former officer was settled, resulting in a $0.3 million insurance reimbursement in Q1 2021 - An arbitration with the company's former Interim President & CEO was **settled in December 2020**[85](index=85&type=chunk) - In Q1 2021, the company's insurance carrier determined it was entitled to a **$0.3 million reimbursement** for litigation costs related to the settled arbitration[86](index=86&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K - For information on risk factors, the report refers to the company's **Annual Report on Form 10-K** for the year ended December 31, 2020[232](index=232&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[234](index=234&type=chunk) [Defaults Upon Senior Securities](index=45&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[235](index=235&type=chunk) [Mine Safety Disclosure](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This section is not applicable to the company's operations - Not Applicable[236](index=236&type=chunk) [Other Information](index=45&type=section&id=Item%205.%20Other%20Information) The Compensation Committee approved increases to executive and director compensation, including salaries, bonuses, and RSU grants - Based on a compensation survey, the Compensation Committee approved **increases to executive compensation** to better align with peer group medians[238](index=238&type=chunk)[239](index=239&type=chunk) Executive Compensation Adjustments (Effective May 1, 2021) | Executive | Previous Base Salary | New Base Salary | Previous Target Bonus | New Target Bonus | | :--- | :--- | :--- | :--- | :--- | | Justin Hall (CEO) | $286,000 | $350,000 | 40% | 50% | | Andrew Jones (CFO) | $275,000 | $300,000 | 30% | 35% | - The CEO and CFO were granted **500,000 and 250,000 Performance RSUs**, respectively, which vest over a three-year period based on revenue, cash flow, and market capitalization goals[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) - The 2021 Non-Employee Director Compensation Plan was revised (effective July 1, 2021) to **increase annual cash retainers** and to grant 30,000 restricted stock units instead of stock options[246](index=246&type=chunk) [Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including compensation agreements and SEC certifications - The report includes exhibits such as **Performance RSU Award Agreements** for the CEO and CFO, the 2021 Non-Employee Director Compensation Plan, and officer certifications[251](index=251&type=chunk)

Financial Data and Key Metrics Changes - In Q4 2020, total net product revenue was $1.9 million, a 10% increase from $1.7 million in Q4 2019 [20] - Avenova product revenue for Q4 2020 was $1.5 million, down from $1.7 million in Q4 2019, impacted by a $400,000 increase in reserves for potential future product returns [21] - The net loss attributable to common stockholders for Q4 2020 was $1.8 million or $0.04 per share, an improvement from a net loss of $3.5 million or $0.13 per share in Q4 2019 [26] - For the full year 2020, net product revenue increased 51% to $9.9 million from $6.6 million in 2019 [27] - The net loss attributable to common stockholders for 2020 was $11 million or $0.31 per share, compared to a net loss of $10.5 million or $0.48 per share in 2019 [30] Business Line Data and Key Metrics Changes - Avenova unit sales reached an all-time record high in 2020, with online sales up over 200% compared to the previous year [10] - The physician dispensed channel saw a 17% year-over-year growth in unit sales, with two-thirds of total unit sales occurring in the second half of 2020 [13] - The introduction of the Subscribe & Save feature on Amazon.com and Avenova.com has increased repeat customers and recurring revenue [12] Market Data and Key Metrics Changes - Avenova accounted for more than 50% of total revenue in 2020 and over 60% in Q4 2020, primarily through online sales channels [6] - The company expanded consumer access by making Avenova available through CVS and Walmart.com, enhancing its market presence [6][13] Company Strategy and Development Direction - The company plans to focus on driving Avenova consumer sales through CVS brick-and-mortar stores and online channels [33] - New digital media campaigns will be launched to attract new customers and encourage repeat usage of Avenova [34] - The company is evaluating opportunities for growth through acquisition or licensing in the ophthalmic and skincare markets [34] Management's Comments on Operating Environment and Future Outlook - Management highlighted the transformative year of 2020, with a significant increase in product revenue and a focus on online sales strategies [5] - The ongoing COVID-19 pandemic has created uncertainty, but the company is optimistic about the future growth potential of Avenova [3][5] Other Important Information - The company raised over $12 million in net cash proceeds during 2020, which is expected to support operations into 2022 [31] - Operating expenses for 2020 were $12.4 million, down from $14.3 million in 2019, indicating improved cost management [28] Q&A Session Summary Question: Changes in marketing strategies and key performance indicators - Management expressed excitement about new marketing initiatives for Avenova and CelleRx, emphasizing the importance of online marketing for future growth [40][41] Question: Demographics and branding for Avenova - Management discussed the creation of a brand story around Avenova and the potential to target new demographics, particularly in the beauty market [42][44] Question: Recurrence of NeutroPhase revenue - Management indicated that NeutroPhase revenue is episodic and expects a few more orders throughout the year [46] Question: Materiality of new product launches - Management stated that new ancillary products are intended to augment Avenova sales but are not expected to be significant revenue drivers [50][51]

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 ...