NovaBay(US:NBY)2023-03-31 20:11Financial Performance - The company has sustained operating losses for the majority of its corporate history, with expenses exceeding revenues in fiscal 2022 as it continues to invest in Avenova and DERMAdoctor commercialization efforts [74]. - As of December 31, 2022, the company had cash and cash equivalents of $5.4 million and an accumulated deficit of $158.2 million, indicating a need for additional capital to fund operations beyond Q3 2023 [75]. - The company recorded a goodwill and intangible asset impairment charge of $6.7 million related to the DERMAdoctor business for the year ended December 31, 2022, significantly increasing net losses for the year [79]. - In fiscal 2022, there was a decline in sales from retail partners and wholesale customers for DERMAdoctor products in Q4 compared to Q4 2021, with expectations of continued challenges in 2023 due to inflationary pressures [87]. - The company reported a net loss of $10,608,000 for the year ended December 31, 2022, compared to a net loss of $5,824,000 in 2021, indicating an increase in losses of approximately 82% year-over-year [233]. - The net loss attributable to common stockholders for the year ended December 31, 2022, was $16.27 million, resulting in a net loss per share of $(10.10) [312]. - The company’s accumulated deficit increased from $141,887,000 in 2021 to $158,152,000 in 2022, reflecting ongoing financial challenges [224]. Cash Flow and Liquidity - Current cash resources are insufficient to fund operations at the expected level beyond Q3 2023, necessitating additional funding or substantial revenue growth [74]. - The company is exploring various strategic transactions to address liquidity needs, including raising additional capital and reducing operational spending [245]. - As of December 31, 2022, total cash, cash equivalents, and restricted cash amounted to $5,846,000, a decrease from $7,979,000 in 2021 [253]. - Cash and cash equivalents decreased from $7,504,000 in 2021 to $5,362,000 in 2022, a reduction of 28.6% [224]. Business Operations and Strategy - The company is evaluating its business plan and may need to implement cost reduction measures or pursue strategic transactions, including potential divestitures [74]. - The company has shifted its marketing strategy for DERMAdoctor products from brick-and-mortar retail to online direct-to-consumer sales, which has helped mitigate some impacts from the COVID-19 pandemic [76]. - The company plans to continue investing in its Avenova and DERMAdoctor commercialization efforts, which may lead to ongoing operating losses and negative cash flows [244]. Regulatory and Compliance Risks - The company does not anticipate its products will be reimbursed by federal healthcare programs such as Medicare and Medicaid in the future [63]. - The company’s products are subject to extensive government regulation, including FDA requirements for pre-clinical and clinical testing, safety, and efficacy [52]. - The company faces risks related to compliance with various federal and state laws, including anti-kickback and false claims laws, which could adversely affect its operations [59]. - Non-compliance with FDA regulations could lead to significant regulatory actions, including halting manufacturing, which would adversely affect net sales and market share [108]. - Avenova Spray's FDA-clearance is subject to limitations, which may hinder successful commercialization and revenue generation [109]. Competition and Market Conditions - The company faces substantial competition in both the eyecare and skincare markets, with competitors having greater financial and marketing resources, which may hinder the company's ability to compete effectively [80][82]. - Adverse U.S. or international economic conditions, including recession or inflation, could negatively affect consumer spending on discretionary premium products, impacting net sales and profitability [91]. Inventory and Supply Chain Management - The company must manage inventory levels carefully to meet demand; mismanagement could lead to excess inventory or stockouts, negatively impacting revenues and working capital [88]. - The company is dependent on third parties for raw materials and manufacturing, and any failure by these suppliers could disrupt operations and adversely affect financial results [86]. - The Company relies on seven contract manufacturers for product production, which may be affected by global supply chain issues [259]. Employee and Operational Structure - As of December 31, 2022, the company had a total of 33 employees, with 29 full-time and 4 part-time employees [68]. - The principal executive office is located in Emeryville, California, occupying approximately 7,675 rentable square feet, with a lease expiring on July 31, 2027 [69]. - DERMAdoctor has a lease for 19,136 square feet in Riverside, Missouri, which commenced on October 1, 2019, and expires on December 31, 2024 [70]. Financial Reporting and Accounting - The company adopted ASU 2020-06 effective January 1, 2022, which simplified the accounting for convertible instruments without a material impact on financial statements [313]. - The Company will adopt ASU 2016-13 effective January 1, 2023, which requires financial assets to be presented at the net amount expected to be collected [314]. - The Company accounts for income taxes under the asset and liability method, recognizing deferred tax assets and liabilities based on enacted tax rates [303]. Intellectual Property and Legal Risks - The company relies on patents, trade secrets, and know-how to maintain its competitive position, but faces risks from potential patent litigation [124]. - Intellectual property litigation could result in substantial damages and divert management's attention, negatively impacting business operations [125]. - The company may be subject to product liability claims, which could lead to costly litigation and significant liabilities [126].