What changed in this filing

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Item 1. Business

2024-03-26 compared with 2023-03-31 · 101 added, 115 removed, 121 unchanged (64% of the section changed)

NovaBay Pharmaceuticals, Inc.

develops and sells scientifically-created and clinically-proven eyecare, skincare and wound care products.

Our leading product, Avenova®

Antimicrobial Lid and Lash Solution (“Avenova Spray”), is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid.

Avenova Spray is formulated with our proprietary, stable and pure form of hypochlorous acid and is cleared by the U.S.

Food and Drug Administration (“FDA”) for sale in the United States.

(the “ Company ”) develops and sells scientifically-created and clinically-proven eyecare and wound care products.

Our leading product, Avenova® Antimicrobial Lid and Lash Solution, or Avenova Spray, is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid.

Avenova Spray is formulated with our proprietary, stable and pure form of hypochlorous acid and is cleared by the Food and Drug Administration (the “ FDA ”) for sale in the United States.

Avenova Spray is available direct to consumers primarily through online distribution channels and is also available by prescription and dispensed by eyecare professionals for blepharitis and dry eye disease.

Other eyecare products offered under the Avenova eyecare brand include Novawipes by Avenova, Avenova Lubricant Eye Drops, Avenova Moist Heating Eye Compress, and the i-Chek eyelid and eyelash mirror by Avenova.

Through our subsidiary DERMAdoctor, LLC (“DERMAdoctor”), we offer over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris.

DERMAdoctor branded products are marketed and sold through the DERMAdoctor website, well-known traditional and digital beauty retailers, and a network of international distributors.

We acquired DERMAdoctor in November 2021 (the “DERMAdoctor Acquisition”), and since completing this transaction we have been working to integrate and expand the DERMAdoctor business in order to achieve strategic objectives contemplated by the acquisition, including revenue growth, cost reductions and overall profitability.

We were not able to achieve these objectives in fiscal 2022, as DERMAdoctor’s product revenue declined in 2022 compared tour expectations, while operating costs relating to these products increased.

We continue to work to achieve these objectives, as well as continuing to evaluate additional strategies for our Company and its business to address our capital and liquidity needs as discussed in this Item 1 below under “Our Capital Requirements and Strategic Initiatives”.

Because dry eye is a complex condition, we offer a complementary portfolio of scientifically-developed products for each step of the standard at-home treatment regimen, including the Avenova Eye Health Support antioxidant-rich oral supplement, Avenova Lubricating Eye Drops for instant relief, NovaWipes by Avenova, Avenova Warm Eye Compress to soothe the eyes, and the i-Chek by Avenova to monitor physical eyelid health.

Through our former subsidiary DERMAdoctor, LLC (“ DERMAdoctor ”), the Company offered over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris.

Subsequent to December 31, 2023, on March 25 , 2024, we announced that we had sold DERMAdoctor (the “ DERMAdoctor Divestiture ”).

We acquired DERMAdoctor in November 2021 (the “ DERMAdoctor Acquisition ”) in order to achieve overall revenue growth, cost reductions and profitability.

We were unable to achieve those objectives with DERMAdoctor.

The DERMAdoctor Divestiture immediately streamlined our business by reducing our cash burn and allowing us to focus on pursuing newer and stronger growth opportunities that are better aligned with our core eyecare business.

For example, on March 13, 2024, we announced a co-promotion agreement with Eyenovia, Inc.

(“ Eyenovia ”) to commercialize respective prescription ophthalmic products to eyecare professionals across the US.

We also manufacture and sell our proprietary form of hypochlorous acid for the wound care market through our NeutroPhase and PhaseOne branded products.

NeutroPhase and PhaseOne are used for cleansing and irrigation as part of surgical procedures, as well as treating certain wounds, burns, ulcers and other injuries.

We currently sell these products through distributors.

NeutroPhase and PhaseOne are used for the cleansing and irrigation as part of surgical procedures, as well as treating wounds, burns, ulcers and other injuries.

The Company currently sells these products through distributors.

The Company was incorporated under the laws of the State of California on January 19, 2000, as NovaCal Pharmaceuticals, Inc.

It had no operations until July 1, 2002, on which date it acquired all of the operating assets of NovaCal Pharmaceuticals, LLC, a California limited liability company.

In February 2007, the Company changed its name from NovaCal Pharmaceuticals, Inc.

to NovaBay Pharmaceuticals, Inc.

In June 2010, the Company changed the state in which it was incorporated (the “ Reincorporation ”) and is now incorporated under the laws of the State of Delaware.

All references to “the Company” herein refer to the California corporation prior to the date of the Reincorporation and to the Delaware corporation on and after the date of the Reincorporation.

The Company was managed as two reportable segments:

(1) Eyecare and Wound Care and (2) Skincare.

As noted above, on March 25, 2024, we closed the DERMAdoctor Divestiture resulting in the sale of our skincare segment.

Effective November 15, 2022, the Company effected a 1-for-35 reverse split of our outstanding common stock (“Reverse Stock Split”).

Except as otherwise specifically noted, all share numbers, share prices, exercise/conversion prices and per share amounts have been adjusted, on a retroactive basis, to reflect the Reverse Stock Split.

Our Products and Marketing Approach

We are a company focused on the sale of scientifically-created and clinically-proven eyecare and wound care products.

Avenova Branded Eyecare Products

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Avenova Spray offers distinct advantages when compared to alternative lid and lash regimens that contain soaps, bleach, and other impurities, as Avenova Spray removes unwanted microorganisms from the skin without the use of these harmful ingredients.

Avenova Spray’s target market is the millions of Americans who suffer from minor irritation of the skin around the eye (commonly referred to as blepharitis) as well as anyone who suffers from dry eye (commonly described as a gritty sandy sensation while blinking).

Avenova Spray is available both over-the-counter and as a prescription.

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In total, this was our leading sales channel by unit sales and net revenue in 2023.

Prescription Avenova Spray is available at optometrists’

and ophthalmologists’

offices, through our physician dispensed channel, and at most retail pharmacies across all 50 states.

Prescription Avenova Spray is available at optometrists’ and ophthalmologists’ offices, through our physician dispensed channel, and at most retail pharmacies across all 50 states.

Because Avenova Spray can be purchased as both an over-the-counter and prescription product, it is available to a wide range of potential customers and addressable markets.

Making it available over-the-counter capitalizes on a trend to sell pharmaceutical products directly to consumers in response to increased cost shifting to consumers through high-deductible health plans.

Avenova Spray is available on Avenova.com, Amazon.com, Walmart.com, and select other online channels.

Avenova Spray is available on Avenova.com, Amazon.com and Walmart.com.

Support from ophthalmologists and optometrists for Avenova Spray remains strong.

Continuous endorsement of medical professionals for Avenova has created a “doctor recommended”

halo effect around our brand.

Continuous endorsement of medical professionals for Avenova has created a “doctor recommended” halo effect around our brand.

This is a key differentiating factor in a crowded consumer space and is a result of our high quality and reliable efficacy.

Our physician dispensed channel is particularly important in this regard as it gives patients the opportunity to purchase Avenova Spray conveniently and immediately upon recommendation in the doctor’s office.

We believe this also creates repeat Avenova Spray customers who subsequently purchase Avenova Spray and other Avenova branded products through other channels.

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These agreements provide greater control over the patient experience at consistent contract pricing.

Our Partner Pharmacy Program also ensures that proper insurance reimbursement occurs, and that our patients are receiving the best possible price.

In 2021, we added ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical businesses, to our Partner Pharmacy Program.

Our Partner Pharmacy Program also ensures that proper insurance reimbursement occurs, and that our patients receive the best possible price.

Because dry eye is a complex condition, in addition to Avenova Spray, we offer a complementary portfolio of scientifically developed products for each step of the standard at home treatment regimen, including the Avenova Eye Health Support antioxidant-rich oral supplement, Avenova Lubricating Eye Drops for instant relief, NovaWipes by Avenova, Avenova Warm Eye Compress to soothe the eyes, and the i-Chek by Avenova to monitor physical eyelid health.

DERMAdoctor Branded Dermatology Products

Through the DERMAdoctor Acquisition, we added a comprehensive portfolio of dermatological solutions to address common skincare concerns including:

keratosis pilaris, rosacea and eczema, anti-aging, hyperhidrosis, excessive hair, and acne.

These products are organized into several product families, including:

(i) Kakadu C®;

(ii) KP Duty®;

(iii) Total Non-scents Antiperspirant;

(iv) Wrinkle Revenge®;

(v) AIN’T Misbehavin’®;

and (vi) Calm, Cool & Corrected®.

DERMAdoctor continues to develop its pipeline of additional new products to address a variety of common skin conditions.

DERMAdoctor products are offered within the large and steadily growing skincare category of the beauty industry.

The skincare market is divided into facial care, hand and body care and sun care.

Within the skincare market, our DERMAdoctor products sell and compete across all major product categories with a wide variety of products at various price points.

Skincare products can also be subdivided into prestige and mass segments.

Prestige products are characterized by higher price points and are typically sold in high-end specialty stores and department stores.

Our marketing strategy for the DERMAdoctor brand is to focus on educating our target consumers about the unique attributes of such products, developing intimate relationships with these consumers and capitalizing on our omni-channel distribution strategy to effectively reach and engage these consumers.

Our target demographic for the DERMAdoctor brand encompasses women between the ages of 25 to 65 who have a college education and an above average household income.

The skincare industry is highly competitive and subject to rapid changes due to consumer preferences and industry trends.

Competition in the skincare industry is generally based on the introduction of new products, pricing of products, quality of products and packaging, brand awareness, perceived value and quality, innovation, in-store presence and visibility, promotional activities, advertising, editorials, e-commerce and mobile-commerce initiatives and other activities.

These products compete with a high volume of new product introductions and existing products by diverse companies across several different distribution channels, including large multinational consumer products companies that have many skincare brands under ownership, as well as standalone skincare brands, including those that may target the latest trends or specific distribution channels.

We expect our DERMAdoctor products to encounter competition for consumer recognition and market share with products that have achieved significant national and international brand name recognition and consumer loyalty, such as those offered by global prestige beauty companies like Avon Products, Inc., Elizabeth Arden, Inc., The Estée Lauder Companies, Inc., L’Oréal Group, Shiseido, Coty, Mary Kay, Inc.

and The Proctor & Gamble Company, each of which have skincare brands.

Subsequent to December 31, 2023, on March 25, 2024, we announced that we had sold DERMAdoctor.

The DERMAdoctor Divestiture immediately streamlined our business and we expect it to reduce our cash burn and allow us to focus on pursuing newer and stronger growth opportunities that are better aligned with our core eyecare business.

NeutroPhase and PhaseOne Branded Wound Care Products

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NeutroPhase and PhaseOne are gentle, non-irritating, and non-sensitizing to skin and new tissue.

PhaseOne is distributed through commercial partners in the United States, and NeutroPhase is distributed in China by Pioneer Pharma (Hong Kong) Company Ltd., who is also a stockholder of our Company.

PhaseOne is distributed through commercial partners in the United States, and NeutroPhase is distributed in China by Chongqing Pioneer Pharma Holdings Limited, who is also a stockholder of our Company.

Customers, Manufacturing and Suppliers

Avenova branded products are available on Amazon.com, Walmart.com, CVS.com and Avenova.com.

Avenova branded products are available on Amazon.com, Walmart.com and Avenova.com.

Online sales now account for the majority of Avenova Spray revenue.

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NeutroPhase and PhaseOne sales rely solely on distribution partners in China and the U.S., respectively.

Our DERMAdoctor products are sold in the United States and internationally (including in China, the Middle East, Europe, Canada, and Central and South America).

Such products are distributed online, through wholesale distribution, in physical store locations and, particularly as relates to international sales, through marketing and distribution agreements with local partners.

For the Avenova Spray, we currently outsource manufacturing to a contract manufacturer with facilities located in the United States.

For our DERMAdoctor products, we also use third-party contract manufacturers and suppliers to obtain substantially all raw materials, components, and packaging products and to manufacture finished products relating to the DERMAdoctor brand.

We utilize several different product fillers and numerous ingredient and packaging suppliers from which we source and contract the manufactures of our DERMAdoctor products.

We believe that we have good relationships with our manufacturers and that our manufacturers have adequate manufacturing capacity to satisfy our demands for all products.

Further, we believe that there are often alternative sources available in the event that one or more of these manufacturers are not available.

However, the products manufactured by alternative manufacturers may not be identical to our current products as some of our product formulations, particularly as relates to our DERMAdoctor products, are sometimes owned by that particular manufacturer.

We continually review our manufacturing needs against the capacity of our contract manufacturers to ensure that we are able to meet our production goals, reduce costs, and operate more efficiently.

Our DERMAdoctor branded products were sold in the United States and internationally (including in China, the Middle East, Europe and Canada).

Such products were distributed online, through wholesale distribution, in physical store locations and, particularly as relates to international sales, through marketing and distribution agreements with local partners.

For Avenova Spray, we currently outsource manufacturing to a contract manufacturer with facilities located in the United States.

For our DERMAdoctor branded products, we also used third-party contract manufacturers and suppliers to obtain substantially all raw materials, components, and packaging products and to manufacture finished products relating to the DERMAdoctor brand.

We utilized several different product fillers and numerous ingredient and packaging suppliers from which we sourced and contracted the manufacture of our DERMAdoctor branded products.

We believe that we have a good relationships with our Avenova Spray manufacturer and that our manufacturer has adequate manufacturing capacity to satisfy our demands.

Further, we believe that there are alternative sources available in the event our manufacturer is not available.

We continually review our manufacturing needs against the capacity of our contract manufacturer to ensure that we are able to meet our production goals, reduce costs, and operate more efficiently.

Intellectual Property

We believe that our intellectual property has substantial value and has contributed significantly to the success of our business.

We believe that our patents and other proprietary rights are important to our business.

We rely on patents, trademarks, trade secrets and know-how to maintain our competitive position.

We own over 40 live trademark registrations in the U.S., as well as trademark registrations and pending applications in many other countries internationally, with our primary trademarks including “Avenova®”, “CelleRx®”, “PhaseOne®”, “NeutroPhase®”, “DERMAdoctor®”, “Kakadu C®”, “AIN’T Misbehavin’®”, “KP Duty®”

and depictions of Dr.

Audrey Kunin, some of which are held directly by NovaBay and others by our wholly-owned subsidiary DERMAdoctor.

The Company owns live trademark registrations in the U.S., as well as trademark registrations and pending applications in many other countries internationally, with our primary trademarks including “Avenova®”, “CelleRx®”, “PhaseOne®”, and “NeutroPhase®”, which are held directly by NovaBay.

“DERMAdoctor®”, “Kakadu C®”, “AIN’T Misbehavin’®”, and “KP Duty®” are held directly by our former wholly-owned subsidiary DERMAdoctor.

The DERMAdoctor trademark registrations and pending applications were sold as part of the DERMAdoctor Divestiture.

We seek to protect our intellectual property rights by a variety of means, including obtaining patents, maintaining trade secrets and proprietary know-how and technological innovation to operate, without infringing on the proprietary rights of others and to prevent others from infringing on our proprietary rights.

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Research and Development

DERMAdoctor focuses a significant portion of its product development efforts on creating new products and improving existing products based on feedback and suggestions from its consumers.

Many of these suggestions are the catalyst for new DERMAdoctor product development, as well as product extensions.

DERMAdoctor’s testing activities are performed by laboratories with ISO 17025 accreditation and FDA registration.

The finished products DERMAdoctor develops, including packaging, must meet adequate quality control, and performance tests before they are marketed.

For the years ended December 31, 2022 and 2021, we incurred total research and development expenses of approximately $174 thousand and $44 thousand, respectively.

We are currently not conducting substantial research and development.

A majority of our research and development activities are focused on compliance with ongoing regulatory and maintenance requirements related to our existing products.

For the years ended December 31, 2023 and 2022, we incurred total research and development expenses of approximately $68 thousand and $174 thousand, respectively.

Avenova Branded Products

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This annual phenomenon is due to consumers facing the need to satisfy health insurance deductibles and changes to copays as each new insurance year begins.

Sales of Avenova Spray through non-prescription channels, along with the other Avenova branded products, experience less seasonality with demands, with more consistent sales throughout the year.

Sales of Avenova Spray through non-prescription channels, along with the other Avenova branded products, experience less seasonality and more consistent sales throughout the year.

Dermatology/Skincare Products

Our DERMAdoctor products are sold through wholesale distribution relationships with third parties such as Costco and others;

therefore, we may receive periodic large orders that result in large chunks of revenue that are received in irregular intervals during the year.

Historically, sales of DERMAdoctor products that contain sunscreen and antiperspirants are higher in the summer seasons and sales of DERMAdoctor products that contain moisturizers are higher in the fall and winter months.

Our DERMAdoctor branded products were sold through wholesale distribution relationships with third parties such as Costco and others;

therefore, we received periodic large orders that resulted in large chunks of revenue that were received in irregular intervals during the year.

Sales of DERMAdoctor branded products that contained sunscreen and antiperspirants were higher in the summer seasons and sales of DERMAdoctor branded products that contain moisturizers were higher in the fall and winter months.

This seasonality will no longer impact our business after the DERMAdoctor Divestiture effective March 25, 2024.

NeutroPhase and PhaseOne Branded Wound Care Products

Our NeutroPhase and PhaseOne branded products were sold through wholesale distribution relationships with third parties such as Chongqing Pioneer Pharma Holdings Limited and Phase One Health;

therefore, we received periodic large orders that resulted in large chunks of revenue that were received in irregular intervals during the year.

Our Capital Requirements and Strategic Initiatives

In our Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on August 11, 2022 and November 14, 2022, and this annual report on Form 10-K, we reported that based primarily on the funds available as of June 30, 2022, September 30, 2022 and December 31, 2022, respectively, that we expected our expenses will continue to exceed our revenues, as the Company continues to invest in both its Avenova and DERMAdoctor commercialization efforts.

Further, based on the amount of capital and liquidity that we had available at such time, we determined that our planned operations raised substantial doubt about our ability to continue as a going concern.

Additionally, we noted that changing circumstances may cause us to expend cash significantly faster than currently anticipated or planned, and that we may need to spend more cash than expected because of circumstances beyond our control that impact the broader economy such as periods of inflation, supply chain issues, the continuation of the COVID-19 pandemic and international conflicts (e.g., the conflict between Russia and Ukraine).

To help address our need for liquidity and capital to fund our planned operations, we entered into two financing transactions on September 9, 2022, which resulted in our Company raising approximately $5.3 million of gross proceeds, as summarized below.

In connection with these transactions, we completed a 1-for-35 reverse stock split of our common stock that was effective on November 15, 2022 (the “Reverse Stock Split”).

In our Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (“ SEC ”) on May 11, 2023, August 10, 2023 and November 9, 2023, and this annual report on Form 10-K, we reported that we expected our expenses will continue to exceed our revenues, as the Company continues to invest in its commercialization efforts.

Further, based on the amount of capital and liquidity that we had available, we determined that our planned operations raised substantial doubt about our ability to continue as a going concern.

Additionally, we noted that changing circumstances may cause the Company to expend cash significantly faster than currently anticipated, and the Company may need to spend more cash than currently expected because of circumstances beyond its control that impact the broader economy such as periods of inflation, supply chain issues, the national pandemic impacts and international conflicts (e.g., the conflicts between Israel and Hamas, Russia and Ukraine, and China and Taiwan).

To help address our need for liquidity and capital to fund our planned operations, we entered into the financing transactions summarized below during 2023, which resulted in our Company raising approximately $3.6 million in gross proceeds.

2023 Financing Transactions

On September 9, 2022, we entered into certain letter agreements and completed a warrant reprice transaction (the “2022 Warrant Reprice Transaction”) with each holder of the common stock purchase warrants (the “November 2021 Warrants”) that we issued in our November 2021 private placement (the “2021 Private Placement”) and with certain holders of the common stock purchase warrants that we issued in a private placement that was part of a warrant reprice transaction in July 2020 (the “July 2020 Warrants”) (the “Warrant Reprice Transaction”).

The 2022 Warrant Reprice Transaction resulted in gross proceeds of approximately $2.1 million.

Pursuant to the terms of the letter agreements, the November 2021 Warrants (“Amended November 2021 Warrants”) and the July 2020 Warrants (“Amended July 2020 Warrants”) were amended to:

(i) reduce the exercise price;

(ii) provide that such warrants would not be exercisable until a later date, March 9, 2023;

and (iii) in the case of the November 2021 Warrants, extend the termination date to September 11, 2028.

Additionally, in connection with the 2022 Warrant Reprice Transaction, we issued to certain participants in the 2022 Warrant Reprice Transaction that exercised their Amended November 2021 Warrants and their Amended July 2020 Warrants, new common stock purchase warrants (the “September 2022 Warrants”) to purchase a number of shares of common stock equal to 100% of the number of shares that a participant exercised under its November 2021 Warrant or Amended July 2020 Warrant.

The September 2022 Warrants are exercisable for an aggregate of 327,860 shares of common stock at an exercise price of $6.30 per share and expire on September 11, 2028. 

Concurrent with the 2022 Warrant Reprice Transaction, we entered into a private placement transaction with accredited investors (the “2022 Private Placement”) to sell, pursuant to the Securities Purchase Agreement, dated September 9, 2022 (the “2022 Securities Purchase Agreement”), units consisting of (i) 3,250 shares of Series C Non-Voting Convertible Preferred Stock, par value $0.01 per share (“Series C Preferred Stock”), convertible into an aggregate of 516,750 shares of common stock, (ii) a short-term Series A-1 warrant to purchase common stock (“Short-Term Warrants”), which are exercisable for 515,876 shares of common stock at an exercise price of $6.30 per share for a period of eighteen (18) months after the date of issuance and (iii) a long-term Series A-2 warrant to purchase common stock (“Long-Term Warrants”

and, together with the Short-Term Warrants, the “2022 Warrants”), which are exercisable for 515,876 shares of common stock at an exercise price of $6.30 per share for a period of six (6) years after the date of issuance.

On November 18, 2022, we closed the 2022 Private Placement and received gross proceeds of $3.2 million from the sale of the Series C Preferred Stock and the 2022 Warrants.

On April 27, 2023, the Company entered into the 2023 Private Placement that provided for the issuance and sale of $3.3 million aggregate principal amount of Secured Convertible Notes and the May 2023 Warrants exercisable for 5,076,928 shares of common stock.

The 2023 Private Placement closed on May 1, 2023 and the Company received gross proceeds of $3.0 million, before deducting placement agent fees and other offering expenses.

In connection with the 2023 Private Placement, certain previously issued common stock purchase warrants exercisable for 1,724,455 shares of common stock were amended to lower their exercise price from $6.30 to $1.50 per share.

On December 21, 2023, the Company entered into the 2023 Warrant Reprice Transaction with certain of existing holders of the May 2023 Warrants that were issued in the 2023 Private Placement.

Participants agreed to exercise May 2023 Warrants exercisable for 2,528,848 shares of common stock at a reduced exercise price of $0.25 and were issued the December 2023 Warrants exercisable for 2,528,848 shares of common stock.

The Company received gross proceeds of $0.6 million, before deducting placement agent fees and other offering expenses.

See also Notes 11, “Financing Activities”;

12, “Secured Convertible Notes”;

13, “Common Stock Warrants”;

and 14, “Stockholders’ Equity” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this annual report.

Ongoing Strategic Initiatives

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Further, we are continuing to evaluate our current business plan and potential changes to our business and strategic direction.

If we do not raise additional capital or our revenues do not reach sufficient levels in the near term, then we may need to implement additional cost reduction measures and make changes to our current business plan and strategic direction.

Such changes may include altering our existing operations and/or pursing a strategic transaction, such as a divestiture of certain of a business or product line and related assets.

For example, we announced the closing of our DERMAdoctor Divestiture on March 25, 2024 which provided additional funding from the $1.1 million purchase price and we anticipate this transaction will have a positive impact on both future cash burn and profitability of the Company.

If we do not raise additional capital or our operating losses do not decrease significantly in the near term, then we may need to implement additional cost reduction measures and make changes to our current business plan and strategic direction.

Such changes may include altering our existing operations and/or pursuing a strategic transaction, such as an additional divestiture of a business or product line and/or related assets.

We are continuing to work diligently to improve the capital, liquidity and overall financial condition of our Company.

For additional information regarding the Company’s going concern determination, plans to fund operations and ongoing strategic initiatives, see the sections captioned “Recent Developments”

and “Financial Condition, Liquidity and Capital Resources”

contained in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations and within Note 1, “Organization”

in the Notes to Consolidated Financial Statements contained in Item 8.

For additional information regarding the Company’s going concern determination, plans to fund operations and ongoing strategic initiatives, see the sections captioned “Recent Developments” and “Financial Condition, Liquidity and Capital Resources” contained in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and within Note 1, “Organization” in the Notes to Consolidated Financial Statements contained in Item 8.

Financial Statements and Supplementary Data.

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We believe we have obtained the required FDA clearance or approval for each of our current products, if necessary.

The FDA decides whether a device line must undergo either the 510(k) clearance or premarket approval (“PMA”).

The FDA decides whether a device line must undergo either the 510(k) clearance or premarket approval (“ PMA ”).

PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices.

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Devices deemed to pose relatively less risk are placed in either Class I or II, which requires the manufacturer to submit a premarket notification (“ PMN ”) requesting 510(k) clearance, unless an exemption applies.

The PMN must demonstrate that the proposed device is “substantially equivalent”

in intended use and in safety and effectiveness to a legally marketed predicate device, which is a pre-existing medical device to which equivalence can be drawn, that is either in Class I, Class II, or is a Class III device that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for submission of a PMA application.

Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA's general regulatory controls for medical devices, or the “General Controls”, which include compliance with the applicable portions of the FDA's quality system regulations, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials.

The PMN must demonstrate that the proposed device is “substantially equivalent” in intended use and in safety and effectiveness to a legally marketed predicate device, which is a pre-existing medical device to which equivalence can be drawn, that is either in Class I, Class II, or is a Class III device that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for submission of a PMA application.

Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medical devices, or the “General Controls”, which include compliance with the applicable portions of the FDA’s quality system regulations, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials.

Some Class I devices also require premarket clearance by the FDA through the 510(k) PMN process described below.

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None of our products are Class II or Class III medical devices.

All DERMAdoctor products are classified either as a cosmetic or an OTC monograph drug.

All DERMAdoctor branded products were classified either as a cosmetic or an OTC monograph drug.

Pervasive and Continuing FDA Regulation

A host of regulatory requirements apply to our marketed devices, including the quality system regulation (which requires manufacturers to follow elaborate design, testing, control, documentation and other quality assurance procedures), the Medical Reporting Regulations (which require that manufacturers report to the FDA specified types of adverse events involving their products), labeling regulations, and the FDA’s general prohibition against promoting products for unapproved or “off-label” uses.

Unanticipated changes in existing regulatory requirements or adoption of new current Good Manufacturing Practice (“cGMP”) requirements could hurt our business, financial condition, and results of operations.

Unanticipated changes in existing regulatory requirements or adoption of new current Good Manufacturing Practice (“ cGMP ”) requirements could hurt our business, financial condition, and results of operations.

Health Care Fraud and Abuse

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For example, the federal Anti-Kickback Law (42 U.S.C.

§1320a-7b(b)) prohibits anyone from, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the referral of patients for, or the purchase, order or recommendation of, health care products and services reimbursed by a federal health care program (including Medicare and Medicaid).

Recognizing that the federal Anti-Kickback Law is broad and potentially applicable to many commonplace arrangements, the Office of Inspector General within the Department of Health and Human Services, or OIG, has issued regulations, known as the safe harbors, which identify permissible practices.

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For example, the federal False Claims Act (31 U.S.C.

§3729 et seq.) imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program (including Medicaid and Medicare).

Manufacturers, like us, can be held liable under false claims laws, even if they do not submit claims to the government, where they are found to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements with customers that file claims.

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Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, and imprisonment.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created certain criminal statutes relating to health care, including health care fraud and false statements related to healthcare matters.

The Health Insurance Portability and Accountability Act of 1996 (“ HIPAA ”), created certain criminal statutes relating to health care, including health care fraud and false statements related to healthcare matters.

The health care fraud statute prohibits, among others, knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors.

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Trade Regulation

Our products, particularly our DERMAdoctor products, are also subject to regulation by the U.S.

Consumer Product Safety Commission (“CPSC”) and the U.S.

Federal Trade Commission (“FTC”).

Our products, particularly our DERMAdoctor branded products, are or were, as the case may be, also subject to regulation by the U.S.

Consumer Product Safety Commission (“ CPSC ”) and the U.S.

Federal Trade Commission (“ FTC ”).

These laws and regulations principally relate to the ingredients, proper labeling, advertising, packaging, marketing, manufacture, safety, shipment and disposal of products.

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The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval and the requirements may differ.

In addition, we export DERMAdoctor products outside of the United States, and those products are subject to several United States statutes and regulations that regulate exportation from the United States.

These products do not require an export license so long as the product is not shipped or otherwise transferred to a comprehensively embargoed country or for a potentially prohibited purpose.

DERMAdoctor has developed, maintains and follows internal controls to ensure that it is not exporting its products to embargoed countries or for prohibited purposes.

In addition, we exported DERMAdoctor branded products outside of the United States, and those products were subject to several United States statutes and regulations that regulate exportation from the United States.

These products did not require an export license so long as the product was not shipped or otherwise transferred to a comprehensively embargoed country or for a potentially prohibited purpose.

DERMAdoctor developed, maintained and followed internal controls to ensure that it did not export its products to embargoed countries or for prohibited purposes.

We must also comply with numerous federal, state, municipal and local laws relating to matters such as health and safety laws and regulations relating to, among other matters, safe working conditions, product stewardship and environmental protection, including those relating to the handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, and the registration and evaluation of chemicals.

We maintain policies and procedures to monitor and control environmental, health and safety risks, and to monitor compliance with applicable environmental, health and safety requirements.

Human Resources

As of December 31, 2022, on a consolidated basis, we had a total of 33 employees, 29 of whom were full-time employees and 4 were part-time employees.

Human Capital

As of December 31, 2023, on a consolidated basis, we had a total of 26 employees, 24 of whom were full-time employees and 2 were part-time employees (which included DERMAdoctor employees no longer with the Company after the DERMAdoctor Divestiture).

None of our employees are represented by labor unions or covered by collective bargaining agreements.

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Our principal executive office is located in Emeryville, California.

We are party to an Office Lease (the “Lease”), dated August 24, 2016, as subsequently amended on January 24, 2022, pursuant to which we lease approximately 7,675 rentable square feet of real property located on the eleventh floor (Suite 1150) at 2000 Powell Street, Emeryville, California 94608 from KBSIII Towers at Emeryville, LLC (the “Landlord”), for our principal executive offices.

The expiration date of the Lease is July 31, 2027, unless earlier terminated pursuant to the provisions of the Lease.

We believe that our office and administration facilities are suitable and adequate for our current operations and its current purpose, but we may require additional space and facilities as our business expands.

Our wholly-owned subsidiary, DERMAdoctor, is party to a lease with Green Bay Packaging Inc., as landlord, and DERMAdoctor, as tenant, dated August 27, 2019 (the “Subsidiary Lease”), for 19,136 square feet of space located at 4346 Belgium Boulevard, Building 2, Riverside, Missouri, which DERMAdoctor utilizes for light manufacturing, storage, distribution of products and administrative functions.

The lease commenced on October 1, 2019 and expires on December 31, 2024.

We are party to an Office Lease (the “ Lease ”), dated August 24, 2016, as subsequently amended on January 24, 2022, pursuant to which we lease approximately 7,675 rentable square feet of real property located on the eleventh floor (Suite 1150) at 2000 Powell Street, Emeryville, California 94608 from KBSIII Towers at Emeryville, LLC (the “ Landlord ”), for our principal executive offices.

The expiration date of the Lease is July 31, 2027, unless terminated earlier pursuant to the provisions of the Lease.

We believe that our office and administration facilities are suitable and adequate for our current operations and their current purpose, but we may require additional space and facilities as our business expands.

Prior to the DERMAdoctor Divestiture, our former wholly-owned subsidiary, DERMAdoctor, was party to a lease with Green Bay Packaging Inc., as landlord, and DERMAdoctor, as tenant, dated August 27, 2019 (the “ Subsidiary Lease ”), for 19,136 square feet of space located at 4346 Belgium Boulevard, Building 2, Riverside, Missouri, which DERMAdoctor utilized for light manufacturing, storage, distribution of products and administrative functions.

The lease commenced on October 1, 2019 and expires on December 31, 2024, although it was assigned and divested from the Company as a part of the DERMAdoctor Divestiture.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our corporate website, located at www.novabay.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our corporate website, located at www.novabay.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our website is not part of this annual report on Form 10-K.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business