NovaBay(NBY) - 2025 Q2 - Quarterly Report

Report Information This section details the filing specifics, registrant information, stock listing, and company classification - Filed as a Quarterly Report (Form 10-Q) for the period ended June 30, 2025[2] - Registrant: NOVABAY PHARMACEUTICALS, INC., incorporated in Delaware, with IRS Employer Identification No. 68-0454536[2][3] Common Stock Listing Information | Title of Each Class | Trading Symbol(s) | Name of Each Exchange On Which Registered | | :------------------ | :---------------- | :--------------------------------------- | | Common Stock, par value $0.01 per share | NBY | NYSE American | - The registrant is a Non-accelerated filer and a Smaller reporting company[5] - As of August 12, 2025, 5,823,497 shares of common stock were outstanding[5] PART I FINANCIAL INFORMATION This part presents the Company's unaudited financial statements and management's analysis of its financial condition and operational results Item 1. Financial Statements This section presents the Company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with comprehensive notes detailing accounting policies, fair value measurements, and specific financial activities like divestitures and financing Condensed Consolidated Balance Sheets This section presents the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $5,344 | $430 | | Total current assets | $6,115 | $1,935 | | TOTAL ASSETS | $6,911 | $3,423 | | Total current liabilities | $2,144 | $2,843 | | Total liabilities | $2,666 | $3,552 | | Total stockholders' equity (deficit) | $4,245 | $(129) | Condensed Consolidated Statements of Operations This section outlines the Company's financial performance over specific periods, including revenues, expenses, and net income or loss Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating expenses | $1,891 | $1,617 | $5,181 | $3,908 | | Operating loss | $(1,891) | $(1,617) | $(5,181) | $(3,908) | | Net loss from continuing operations | $(1,964) | $(2,149) | $(5,294) | $(4,998) | | Net income from discontinued operations, net of taxes | $42 | $564 | $11,042 | $199 | | Net (loss) income | $(1,922) | $(1,585) | $5,748 | $(4,799) | | Basic (loss) earnings per share attributable to common stockholders | $(0.33) | $(1.37) | $1.03 | $(5.57) | | Diluted (loss) earnings per share attributable to common stockholders | $(0.33) | $(1.37) | $1.01 | $(5.57) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) This section details changes in the Company's equity over time, reflecting net income, warrant activities, and other capital adjustments Changes in Stockholders' Equity (in thousands) | Item | Balance at Dec 31, 2024 | Net Income (Loss) | Warrant Exercises | Warrant Repurchases | Stock-based Compensation | Balance at Jun 30, 2025 | | :-------------------------------- | :---------------------- | :---------------- | :---------------- | :------------------ | :----------------------- | :---------------------- | | Total Stockholders' Equity (Deficit) | $(129) | $5,748 (Net Income) | $614 | $(1,994) | $6 | $4,245 | - Net income for the six months ended March 31, 2025, was $7,670 thousand, contributing to the increase in equity[18] - Exercise of Series F-2 and F-3 Warrants generated $266 thousand and $348 thousand, respectively, in additional paid-in capital[18] - Repurchase of warrants resulted in a reduction of $1,990 thousand and $4 thousand in additional paid-in capital during the periods[18] Condensed Consolidated Statements of Cash Flows This section reports the Company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities, continuing operations | $(4,315) | $(3,379) | | Net cash used in investing activities, continuing operations | $0 | $(2) | | Net cash used in financing activities, continuing operations | $(1,882) | $(1,089) | | Net increase in cash and cash equivalents, discontinued operations | $11,111 | $2,091 | | Net increase (decrease) in cash, cash equivalents, and restricted cash, consolidated | $4,914 | $(2,379) | | Cash, cash equivalents and restricted cash, end of period | $5,821 | $1,227 | - Proceeds from warrant exercises contributed $614 thousand in 2025, up from $226 thousand in 2024[21] - Warrant repurchases amounted to $(1,989) thousand in 2025, with no comparable activity in 2024[21] - Payment on Bridge Note was $(507) thousand in 2025[21] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the financial statements, covering accounting policies and specific transactions NOTE 1. ORGANIZATION This note describes the Company's business, recent divestitures, and strategic direction, including a potential voluntary liquidation and dissolution - Company historically focused on eyecare, wound care, and skin care products, but has undergone significant changes[22] - Divested primary eyecare business (Avenova Asset Divestiture) on January 17, 2025, PhaseOne trademark on January 8, 2025, and primary skin care business (DERMAdoctor Divestiture) on March 12, 2024[25][29] - Stockholders approved a voluntary liquidation and dissolution on April 16, 2025, but the Board retains discretion to proceed or pursue other strategic alternatives (mergers, partnerships, etc.)[26][28] - Management believes existing cash and cash equivalents are sufficient to meet planned operating expenses through at least August 14, 2026, despite strategic uncertainty[28] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and estimation methods used in preparing the Company's unaudited condensed consolidated financial statements - Unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP[31] - Financial statements include accounts of the Company and former subsidiary DERMAdoctor for six months ended June 30, 2024, but only the Company for three and six months ended June 30, 2025[32] - Significant estimates include product returns, warrant/derivative valuations, asset impairments, stock-based compensation, and income taxes[34] - The Company has one operating and reportable segment focused on its ongoing wound care business, cash maintenance, Avenova Asset Divestiture commitments, and strategic alternatives[36] - FASB issued ASU 2024-03 on disaggregation of income statement expenses, effective for annual periods after December 15, 2026, which the Company is evaluating[66] NOTE 3. FAIR VALUE MEASUREMENTS This note describes the Company's fair value measurements for financial instruments, categorizing them by input levels and detailing valuation methodologies - Financial instruments measured at fair value include cash and cash equivalents, restricted cash, accounts payable, accrued liabilities, and warrant liabilities[44] - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs); cash equivalents and restricted cash are classified within Level 1[45][67] - Black-Scholes model used for valuing warrant liabilities, preferred stock conversion price adjustments, and bifurcatable derivatives, with assumptions for exercise price, market price, volatility, risk-free rate, dividend yield, and term[68][69][71][74] NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS This note provides a detailed breakdown of the Company's prepaid expenses and other current assets, including escrow funds and various prepaid items Prepaid Expenses and Other Current Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Other receivables | $3 | $76 | | Avenova Asset Divestiture Escrow | $134 | $0 | | Dues & subscriptions | $48 | $67 | | Prepaid taxes & licenses | $66 | $65 | | Prepaid insurance | $42 | $48 | | Other | $11 | $16 | | Total prepaid expenses and other current assets | $304 | $272 | NOTE 5. PROPERTY AND EQUIPMENT This note details the Company's property and equipment, net of accumulated depreciation and impairment, and outlines related depreciation and disposal activities Property and Equipment, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total property and equipment, at cost | $581 | $718 | | Less: Impairment | $(30) | $0 | | Less: Accumulated depreciation | $(540) | $(674) | | Total property and equipment, net | $11 | $44 | - Depreciation expense for continuing operations was $3 thousand for the six months ended June 30, 2025, down from $18 thousand in the prior year[78] - The Company disposed of approximately $137 thousand of damaged, unusable, and fully depreciated property and equipment during the six months ended June 30, 2025[79] - An impairment of $30 thousand was recorded for remaining fixed assets due to operational uncertainty and strategic exploration[80] NOTE 6. ACCRUED LIABILITIES This note presents a breakdown of the Company's accrued liabilities, including amounts due for working capital, payroll, taxes, and professional services Accrued Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Avenova Asset working capital due to PRN | $16 | $0 | | Employee payroll and benefits | $592 | $360 | | Taxes | $241 | $0 | | Warrant repurchases | $5 | $0 | | Professional services | $2 | $99 | | Interest | $79 | $37 | | Other | $85 | $85 | | Total accrued liabilities | $1,020 | $581 | NOTE 7. COMMITMENTS AND CONTINGENCIES This note outlines the Company's indemnification obligations, legal proceedings, and lease commitments, including a significant impairment of right-of-use assets - Company indemnifies officers and directors, and other entities (suppliers, capital raise partners), with potential future payments being unlimited but historically immaterial[82][83] - No legal matters as of June 30, 2025, or December 31, 2024, are expected to result in a material adverse effect on financial position, results of operations, or cash flows[84] - Recorded an impairment of right-of-use assets of $559 thousand during the six months ended June 30, 2025, related to its corporate headquarters lease, due to strategic uncertainties[85][53] Future Lease Payments (in thousands) | Year | Amount | | :--- | :----- | | 2025 | $240 | | 2026 | $444 | | 2027 | $290 | | Total future minimum lease payments | $974 | | Less: Imputed interest | $(43) | | Total | $931 | NOTE 8. FINANCING ACTIVITIES This note details the Company's financing activities, including public offerings, warrant issuances and repricings, and the associated proceeds and non-cash losses - 2024 Public Offering (July 2024) included issuance of 1,158,566 shares of common stock, 2,041,814 pre-funded warrants, and 3,200,380 each of Series F-1, F-2, and F-3 warrants[88] - Gross proceeds from the 2024 Public Offering were $3.9 million, used partly to repay Secured Convertible Notes[95] - July 2024 Warrants had a down round feature, triggered on September 27, 2024, reducing the exercise price to $0.66[91] - 2024 Warrant Reprice Transaction (June 2024) involved exercising Participant Warrants at a reduced price of $2.50 per share, generating $0.2 million, and issuing new June 2024 Warrants[96] - A $69 thousand non-cash loss on modification of common stock warrants was recorded in Q2 2024 due to the 2024 Warrant Reprice Transaction[98] NOTE 9. CONVERTIBLE NOTES This note details the Company's convertible note issuances, including principal amounts, conversion terms, embedded derivatives, effective interest rates, and repayment activities - Issued $525 thousand aggregate principal amount of Unsecured Convertible Notes on March 24, 2024, due March 25, 2026, with no stated interest[100] - Unsecured Convertible Notes are convertible at $4.90 per share, representing up to 107,146 shares of common stock as of June 30, 2025[101] - An embedded call option in the Unsecured Convertible Notes was bifurcated as a derivative liability ($159 thousand fair value at March 31, 2024) and reclassified to equity upon stockholder approval on May 28, 2024 ($242 thousand fair value)[102] - The effective interest rate on the Unsecured Convertible Notes is 144%[103] - Secured Convertible Notes, issued in May 2023 for $3.3 million, were fully repaid in the third quarter of 2024, including a $433 thousand payment from 2024 Public Offering proceeds[104][106] NOTE 10. COMMON STOCK WARRANTS This note details the Company's common stock warrants, covering exercise activities, repurchases, down round features, and outstanding warrant statistics - All 2,041,814 July 2024 Pre-Funded Warrants were exercised by June 30, 2025, issuing common stock and generating $20 thousand[111] - July 2024 Warrants (Series F-1, F-2, F-3) exercise price was reduced to $0.66 per share on September 27, 2024, due to a down round feature[113] - In January 2025, 402,727 Series F-2 Warrants were exercised, while 3,134,485 expired unexercised[113] - In March 2025, 527,784 Series F-3 Warrants were exercised, and 1,272,725 Series F-1 and 744,941 Series F-3 Warrants were repurchased for $1.8 million through settlement agreements[114] - As of June 30, 2025, 4,328,813 common stock warrants were outstanding with a weighted average exercise price of $2.53[133] Common Stock Warrants Outstanding at June 30, 2025 | Series | Exercise Price | Expiration Date | Warrants | | :-------------------- | :------------- | :-------------- | :------- | | July 2020 Warrants | $2,021.25 | January 22, 2026 | 1,714 | | July 2020 Warrants | $52.50 | January 22, 2026 | 2,206 | | TLF Warrants | $822.96 | January 15, 2026 | 13 | | November 2021 Warrants | $220.50 | September 11, 2028 | 7,654 | | November 2021 Warrants | $52.50 | September 11, 2028 | 15,308 | | September 2022 Warrants | $220.50 | September 11, 2028 | 2,552 | | September 2022 Warrants | $52.50 | September 11, 2028 | 1,715 | | November 2022 A-1 Warrants | $220.50 | November 20, 2028 | 2,268 | | December 2023 Warrants | $8.75 | June 21, 2029 | 72,256 | | March 2024 Warrant | $4.90 | March 24, 2029 | 28,572 | | June 2024 Warrants | $2.57 | December 17, 2029 | 90,381 | | July 2024 F-1 Warrants | $0.66 | July 30, 2029 | 2,052,087 | | July 2024 F-3 Warrants | $0.66 | July 29, 2025 | 2,052,087 | NOTE 11. STOCKHOLDERS' EQUITY (DEFICIT) This note outlines the Company's authorized capital, outstanding preferred stock, conversion terms, and the expiration of anti-dilution provisions - Authorized to issue up to 150,000,000 shares of common stock and 5,000,000 shares of preferred stock[137] - As of June 30, 2025, 131 shares of Series B Preferred Stock remained outstanding, convertible into 15,065 shares of common stock at $8.75[139] - The Ratchet (anti-dilution protection) provision of the Series B Preferred Stock expired on January 29, 2024[140] - No shares of Series C Preferred Stock remained outstanding as of June 30, 2025[141] NOTE 12. EQUITY-BASED COMPENSATION This note describes the Company's equity incentive plans, available shares for awards, and the stock-based compensation expense recognized for the periods - The 2007 Omnibus Incentive Plan expired in March 2017, but outstanding awards are still governed by its terms[143] - The 2017 Omnibus Incentive Plan allows for awards of up to 66,243 shares, with 14,317 shares available for future awards as of June 30, 2025[144] - No stock options or restricted stock were granted to employees or directors during the three and six months ended June 30, 2025[150] Stock-Based Compensation Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $4 | $55 | | Six Months Ended June 30 | $6 | $115 | NOTE 13. EMPLOYEE BENEFIT PLAN This note outlines the Company's 401(k) plan for eligible employees, including matching contribution details and the associated expenses - Company has a 401(k) plan for eligible employees[154] - Matching contributions are 100% of the first 3% deferred, plus 50% of the next 2% deferred[154] 401(k) Contributions from Continuing Operations (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $6 | $11 | | Six Months Ended June 30 | $17 | $23 | NOTE 14. AVENOVA ASSET DIVESTITURE AND BRIDGE LOAN This note details the Avenova Asset Divestiture, covering purchase price, escrow, working capital adjustments, and its reporting as discontinued operations - Avenova Asset Divestiture completed on January 17, 2025, selling eyecare products to PRN Physician Recommended Nutriceuticals, LLC[155] - Base purchase price was $11.5 million, with $0.5 million Bridge Loan discharged and $0.5 million deposited into escrow[155][156] - Net working capital adjustment reduced proceeds, resulting in a final gain of $10.7 million on the divestiture recorded in Q1 2025[156] - Results related to Avenova Assets are reported as discontinued operations[158] Net Income from Discontinued Operations (Avenova Asset) (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $40 | $494 | | Six Months Ended June 30 | $10,510 | $1,051 | Net Cash from Discontinued Operations (Avenova Asset) (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(432) | $1,134 | | Investing activities (Proceeds from divestiture) | $11,000 | $0 | | Net increase in cash and cash equivalents | $10,568 | $1,134 | NOTE 15. PHASEONE DIVESTITURE This note describes the PhaseOne Divestiture, including the sale of wound care trademarks, the recorded gain, and the reporting of results as discontinued operations - PhaseOne Divestiture completed on January 8, 2025, selling wound care trademarks to Phase One Health LLC for $500,000[161] - Recorded a net gain of $0.5 million from the PhaseOne Divestiture in Q1 2025[161] - Results related to Wound Care Trademarks are reported as discontinued operations[162] Net Income from Discontinued Operations (PhaseOne) (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $2 | $(6) | | Six Months Ended June 30 | $532 | $137 | Net Cash from Discontinued Operations (PhaseOne) (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $43 | $49 | | Investing activities (Proceeds from divestiture) | $500 | $0 | | Net increase in cash and cash equivalents | $543 | $49 | NOTE 16. DERMADOCTOR DIVESTITURE This note details the DERMAdoctor Divestiture, including the sale of membership units and the reporting of its results as discontinued operations - DERMAdoctor Divestiture completed on March 25, 2024, selling 100% of membership units for $1.1 million[166] - Results of DERMAdoctor business are reported as discontinued operations[166] Net Loss from Discontinued Operations (DERMAdoctor) (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $0 | $0 | | Six Months Ended June 30 | $0 | $(989) | Net Cash from Discontinued Operations (DERMAdoctor) (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $0 | $(160) | | Investing activities (Proceeds from divestiture) | $0 | $1,070 | | Net increase in cash and cash equivalents | $0 | $864 | NOTE 17. INCOME TAXES This note presents the Company's income tax benefit or provision, effective tax rate, and the maintenance of a full valuation allowance on deferred tax assets Income Tax (Benefit) Provision (in millions) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $(0.1) | $0 | | Six Months Ended June 30 | $0.2 | $0 | - Effective income tax rate was 4.2% for the six months ended June 30, 2025, compared to 0% in the prior year[168] - The Company continues to maintain a full valuation allowance on its net deferred tax assets[168] NOTE 18. SUBSEQUENT EVENTS This note discloses significant events occurring after the reporting period, specifically the final receipt of funds from the Avenova Asset Divestiture escrow - On July 21, 2025, the Company received the final $134 thousand from the Avenova Asset Divestiture escrow account[170] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results, highlighting the impact of recent divestitures, strategic options under consideration (including dissolution), NYSE American listing compliance, liquidity outlook, critical accounting estimates, and detailed comparisons of financial performance for the three and six months ended June 30, 2025 and 2024 Overview This section provides a high-level summary of the Company's historical business, recent divestitures, and current operational focus on wound care products - Company historically focused on eyecare, wound care, and skin care products[173] - Completed Avenova Asset Divestiture (Jan 17, 2025), PhaseOne Divestiture (Jan 8, 2025), and DERMAdoctor Divestiture (Mar 12, 2024)[173][176] - Significantly reduced operations; expected revenue from continuing operations derived primarily from manufacturing wound care products for export to China[173] Discontinued Operations This section clarifies that historical financial results from recent divestitures are presented as discontinued operations - Historical financial results for Avenova Asset Divestiture, PhaseOne Divestiture, and DERMAdoctor Divestiture are presented as discontinued operations[174] Strategic Options and Plan of Dissolution This section discusses the Board's evaluation of strategic options, including a stockholder-approved voluntary liquidation and dissolution, with discretion for alternatives - Board is evaluating strategic options to maximize remaining value for the Company and stockholders[175] - Stockholders approved a voluntary liquidation and dissolution (the 'Dissolution') on April 16, 2025[175] - The Board retains complete discretion to determine if and when the Dissolution should be effected or if another strategic option (mergers, reverse mergers, partnerships, investments, licensing) would be more beneficial[175][177] NYSE American Notices This section addresses the Company's non-compliance with NYSE American listing standards due to insufficient stockholders' equity and potential delisting - Received NYSE American notices on April 18, 2024, and May 28, 2024, for non-compliance with Section 1003(a)(ii), 1003(a)(iii), and 1003(a)(i) due to insufficient stockholders' equity[178][179] - A plan of compliance was accepted, with a period through October 18, 2025, to regain compliance[180] - The Company has not yet regained compliance and faces potential delisting, which could occur before or after a decision on dissolution or alternative strategic transactions[181] Financial Overview and Outlook This section summarizes the Company's reduced business operations, near-term revenue expectations, liquidity outlook, and strategic uncertainties - Business significantly reduced after Avenova Asset Divestiture and PhaseOne Divestiture in January 2025[182] - Expected near-term revenue from manufacturing wound care products for distribution partner in China[182] - Management believes existing cash and cash equivalents are sufficient to meet planned operating expenses through at least August 14, 2026[182] - Uncertainty exists regarding strategic direction, with potential for unknown future claims and liabilities[182] Critical Accounting Estimates This section highlights key accounting estimates requiring significant management judgment, such as asset impairment and warrant liability fair value - Preparation of financial statements requires estimates, assumptions, and judgments affecting reported amounts[183] - Critical accounting estimates include impairment of long-lived assets, which involves judgment in cash flow projections, economic conditions, probability of success, and discount rates[185] - Fair value of common stock warrant liabilities is determined using the Black-Scholes option pricing model, subject to significant management judgment[186] Results of Operations The Company's results of operations for the three and six months ended June 30, 2025, show an increased operating loss from continuing operations but a significant net income overall for the six-month period due to gains from discontinued operations. General and administrative expenses rose due to strategic initiatives and severance, while non-cash losses related to warrants and derivatives, and convertible note amortization, were absent in 2025 Comparison of the Three Months Ended June 30, 2025 and 2024 This section compares the Company's financial performance for the three months ended June 30, 2025 and 2024, focusing on operating expenses and non-cash items Key Financials (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | Dollar Change | Percent Change | | :-------------------------------------------------- | :--- | :--- | :------------ | :------------- | | General and administrative | $1,891 | $1,617 | $274 | 17% | | Operating loss | $(1,891) | $(1,617) | $(274) | 17% | | Non-cash loss on changes in fair value of warrant liability | $0 | $(80) | $80 | (100)% | | Non-cash loss on changes in fair value of embedded derivative liability | $0 | $(83) | $83 | (100)% | | Accretion of interest and amortization of discounts on convertible notes | $0 | $(300) | $300 | (100)% | | Net loss from continuing operations | $(1,964) | $(2,149) | $185 | (9)% | | Net income (loss) from discontinued operations, net of taxes | $42 | $564 | $(522) | (93)% | | Net income (loss) | $(1,922) | $(1,585) | $(337) | 21% | - General and administrative expenses increased primarily due to outside services costs related to non-recurring strategic initiatives, including divestitures and evaluating dissolution/alternatives[189] Comparison of the Six Months Ended June 30, 2025 and 2024 This section compares the Company's financial performance for the six months ended June 30, 2025 and 2024, detailing operating expenses, impairments, and discontinued operations income Key Financials (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | Dollar Change | Percent Change | | :-------------------------------------------------- | :--- | :--- | :------------ | :------------- | | General and administrative | $4,592 | $3,908 | $684 | 18% | | Impairment of long-lived assets | $589 | $0 | $589 | 100% | | Total operating expenses | $5,181 | $3,908 | $1,273 | 33% | | Operating loss | $(5,181) | $(3,908) | $(1,273) | 33% | | Non-cash gain on changes in fair value of warrant liabilities | $0 | $114 | $(114) | (100)% | | Non-cash (loss) gain on change in fair value of embedded derivative liability | $0 | $(18) | $18 | (100)% | | Accretion of interest and amortization of discounts on convertible notes | $0 | $(733) | $733 | (100)% | | Other expense, net | $(113) | $(453) | $340 | (75)% | | Net loss from continuing operations | $(5,294) | $(4,998) | $(296) | 6% | | Net income from discontinued operations, net of taxes | $11,042 | $199 | $10,843 | 5,449% | | Net income (loss) | $5,748 | $(4,799) | $10,547 | (220)% | - General and administrative expenses increased due to outside services for strategic initiatives and one-time severance costs[197] - Recorded a one-time impairment of $559 thousand for right-of-use assets and $30 thousand for fixed assets due to operational uncertainty[198] - Other expense, net decreased by 75% due to lower issuance costs for March 2024 Warrant and Unsecured Convertible Notes in the prior period[202] Financial Condition, Liquidity and Capital Resources This section analyzes the Company's financial position, liquidity, and capital resources, focusing on cash, divestiture impact, and future operating expense sufficiency Cash and Cash Equivalents (in thousands) | Date | Amount | | :---------------- | :----- | | June 30, 2025 | $5,344 | | December 31, 2024 | $430 | - Increase in cash due to net proceeds of approximately $10.5 million from Avenova Asset Divestiture and $0.5 million from PhaseOne Divestiture[203] - Bridge Loan balance of $0.5 million at December 31, 2024, was repaid upon Avenova Asset Divestiture closing[203] - Issued $525 thousand aggregate principal amount of Unsecured Convertible Notes in March 2024[205] - Management believes existing cash and cash equivalents will be sufficient to meet planned operating expenses through at least August 14, 2026, but there is uncertainty regarding strategic direction[206] Net Cash Used in Operating Activities, Continuing Operations This section details net cash used in continuing operating activities, explaining primary drivers and non-cash adjustments for both periods Net Cash Used in Operating Activities, Continuing Operations (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Six Months Ended June 30 | $(4,315) | $(3,379) | - 2025 cash usage primarily from $5.3 million net loss from continuing operations, adjusted for non-cash items like depreciation ($3 thousand), stock-based compensation ($6 thousand), ROU asset amortization ($90 thousand), impairment of long-lived assets ($0.6 million), and convertible note amortization ($46 thousand)[207] - 2024 cash usage primarily from $5.0 million net loss from continuing operations, adjusted for non-cash items including $0.4 million expense for Secured Convertible Note holder consent and $0.7 million convertible note amortization[208] Cash Used in Investing Activities, Continuing Operations This section reports the net cash used in continuing investing activities for the periods presented Net Cash Used in Investing Activities, Continuing Operations (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Six Months Ended June 30 | $0 | $(2) | Cash Used in Financing Activities, Continuing Operations This section outlines net cash used in continuing financing activities, detailing warrant repurchases, Bridge Note repayment, and warrant exercises Net Cash Used in Financing Activities, Continuing Operations (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Six Months Ended June 30 | $(1,882) | $(1,089) | - 2025 cash usage primarily from $2.0 million in warrant repurchases and $0.5 million Bridge Note repayment, offset by $0.6 million from warrant exercises[210] - 2024 cash usage primarily from $1.2 million in Secured Convertible Notes repayments and $0.1 million cash debt issuance cost, offset by $0.2 million from warrant exercises[211] Net Operating Losses and Tax Credit Carryforwards This section details the Company's federal and state net operating loss and tax credit carryforwards, including expiration periods and utilization limitations Net Operating Loss and Tax Credit Carryforwards (as of December 31, 2024, in millions) | Item | Amount | | :-------------------------------- | :----- | | Federal NOL carryforwards | $153.7 | | State NOL carryforwards | $128.6 | | Federal tax credit carryforwards | $0.5 | | State tax credit carryforwards | $0.1 | - Federal NOLs generated before Jan 1, 2018, begin to expire in 2025; those after Dec 31, 2017, carry forward indefinitely but are subject to an 80% limitation[212] - State NOLs begin to expire in 2028; state tax credits have an indefinite carryover period[212] - Utilization of carryforwards may be limited by ownership changes under federal and California tax laws[213] Inflation This section addresses the impact of inflation on the Company's costs and operating expenses, and its strategy for managing these fluctuations - Costs and operating expenses are subject to fluctuations, particularly due to changes in the cost of labor and service providers[214] - Future business results depend on the ability to manage these fluctuations through cost savings projects and sourcing decisions[214] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements as of the reporting dates - No 'off-balance sheet arrangements' as defined in Item 303(b)(1)(ii)(B) of Regulation S-K at June 30, 2025, or December 31, 2024[215] Seasonality This section describes the irregular nature of orders for the Company's NeutroPhase branded product sold in China - NeutroPhase branded product sold in China results in periodic large orders received in irregular intervals[216] Contractual Obligations This section refers to disclosures on lease and convertible note obligations and anticipates future contracts related to strategic alternatives - Information regarding obligations under lease and convertible note arrangements is provided in Notes 7 and 9[217] - Expects to enter into further contracts and commitments related to pursuing dissolution or other strategic alternatives[217] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's market risk is primarily limited to interest rate sensitivity on its cash and cash equivalents, which are held in short-term marketable securities. Its investment policy focuses on capital preservation, liquidity, and return, minimizing interest rate risk. There is no material exposure to foreign currency fluctuations or derivative financial instruments for trading - Market risk consists principally of interest rate risk on cash and cash equivalents[218] - Investment policy restricts investments to high-quality, short-term marketable securities (money market funds, Treasury bills, CDs, commercial paper, bonds) to minimize interest rate risk[219] - A 10% change in interest rates would have an immaterial effect on the investment portfolio[219] - No derivative financial instruments are used for trading purposes, and no material exposure to foreign currency rate fluctuations[219][220] Item 4. Controls and Procedures Management, including the CEO and Interim CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025. There were no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as evaluated by management, including the CEO and Interim CFO - CEO and Interim CFO evaluated disclosure controls and procedures as of June 30, 2025[221] - Concluded that disclosure controls and procedures were effective to ensure information required by the Exchange Act is recorded, processed, summarized, and reported timely[223] Changes in Internal Control Over Financial Reporting This section states that there were no material changes in the Company's internal control over financial reporting during the current quarter - No material changes in internal control over financial reporting during the current quarter[224] PART II OTHER INFORMATION This part provides additional information beyond the financial statements, covering legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings As of June 30, 2025, the Company was not involved in any legal proceedings that, in management's opinion, would result in a material adverse effect on its financial position, results of operations, or cash flows - No legal matters as of June 30, 2025, that would result in a material adverse effect on the Company's financial position, results of operations, or cash flows[227] Item 1A. Risk Factors The Company, as a smaller reporting company, refers readers to the risk factors discussed in Part I, Item 1A of its 2024 Annual Report, as it is not required to provide updated quarterly information under this item - Refers to risk factors in Part I, Item 1A of the 2024 Annual Report[228] - As a smaller reporting company, it is not required to provide updated quarterly information under this Item[228] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported - No unregistered sales of equity securities or use of proceeds were reported[229] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[230] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable to the Company[231] Item 5. Other Information During the three months ended June 30, 2025, none of the Company's directors or Section 16 officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement - No directors or Section 16 officers adopted, modified, or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2025[232] Item 6. Exhibits The report includes an Exhibit Index detailing various documents filed with or incorporated by reference, such as purchase agreements, certificates of incorporation, bylaws, warrant forms, and certifications - The Exhibit Index lists documents including purchase agreements (e.g., Avenova, DERMAdoctor, PhaseOne), certificates of incorporation, bylaws, various warrant forms, and certifications (CEO, CFO)[233][235][236][237] SIGNATURES This section confirms the official signing of the report by the Company's authorized officers on the specified date - Report signed on August 14, 2025[240] - Signed by Justin Hall (Chief Executive Officer, General Counsel and Director) and Tommy Law (Interim Chief Financial Officer)[240]