NovaBay Pharmaceuticals, Inc.

Company Overview

Business Model: NovaBay Pharmaceuticals, Inc. historically focused on the development and sale of scientifically-created and clinically-proven eyecare, wound care, and skin care products. Its Avenova branded eyecare products, formulated with a proprietary, stable, and pure form of hypochlorous acid, were FDA cleared and represented the Company's leading products. The Company also manufactured and sold proprietary hypochlorous acid for the wound care market under the NeutroPhase and PhaseOne brands, used for cleansing and irrigation in surgical procedures and treating various injuries. Through its former subsidiary, DERMAdoctor, LLC, the Company offered dermatologist-developed products for common skin concerns.

Following a series of divestitures, NovaBay Pharmaceuticals, Inc. has significantly reduced its business operations and currently has limited sources of future revenue generation. Its remaining operations include fulfilling contractual obligations for the manufacture and delivery of wound care products to a distribution partner in China, anticipated to conclude by the end of the second quarter of 2025, and providing transition services to PRN Physician Recommended Nutriceuticals, LLC for four months following the Avenova Asset Sale. The Company is currently pursuing a voluntary liquidation and dissolution or evaluating other strategic alternatives.

Market Position: Historically, Avenova Spray benefited from strong endorsement by ophthalmologists and optometrists, establishing a "doctor recommended" brand image. Its formulation, free from toxic chemicals, provided a competitive advantage over alternative lid and lash regimens. In the wound care market, NeutroPhase and PhaseOne products, despite competing in a crowded space, differentiated themselves by being gentle, non-irritating, and non-sensitizing due to their non-toxic chemical composition. The Company's current market position is minimal following the divestiture of its primary commercial operations.

Recent Strategic Developments:

• DERMAdoctor Divestiture: On March 25, 2024, NovaBay Pharmaceuticals, Inc. completed the sale of its former wholly-owned subsidiary, DERMAdoctor, LLC.
• Avenova Asset Sale: Subsequent to December 31, 2024, on January 17, 2025, the Company completed the sale of its Avenova branded eyecare products and related assets to PRN Physician Recommended Nutriceuticals, LLC for a cash purchase price of $11.5 million, subject to a post-closing working capital adjustment and a $500,000 escrow for indemnification obligations. NovaBay Pharmaceuticals, Inc. also entered into a Transition Services Agreement to provide support to PRN Physician Recommended Nutriceuticals, LLC for four months.
• Wound Care Divestiture: Subsequent to December 31, 2024, on January 8, 2025, the Company completed the sale of its Wound Care Trademarks (NeutroPhase, PhaseOne, and OmniPhase) and wound care inventory to Phase One Health LLC for $500,000. Limited transition services were provided until January 10, 2025.
• Company Dissolution and Other Strategic Alternatives: The Board of Directors is pursuing a voluntary liquidation and dissolution under Delaware law, subject to stockholder approval at a new special meeting on April 16, 2025. Concurrently, the Company is evaluating other strategic alternatives, including mergers, reverse mergers, strategic partnerships, and licensing transactions, with Lucid Capital Markets, LLC engaged as a financial advisor on March 4, 2025.
• Settlement Agreements with Certain Warrant Holders: In March 2025, NovaBay Pharmaceuticals, Inc. settled disputes with Sabby Volatility Warrant Master Fund, Ltd., Bigger Capital Fund, LP, and District 2 Capital Fund LP, involving warrant exercises and the Company's purchase of unexercised warrants for an aggregate net payment of $1,466,511. The warrant holders committed to vote in favor of the Dissolution.
• NYSE American Notices: NovaBay Pharmaceuticals, Inc. received notifications in April and May 2024 regarding non-compliance with NYSE American LLC Exchange's minimum stockholders' equity requirements. A plan of compliance was accepted through October 18, 2025, but delisting remains a possibility due to asset sales and non-compliance.

Geographic Footprint: Historically, NovaBay Pharmaceuticals, Inc.'s revenue was predominantly generated in the United States, with Avenova Spray available through online channels, physician offices, and retail pharmacies. Internationally, Avenova Spray was distributed in Australia, and NeutroPhase wound care products were distributed in China by Chongqing Pioneer Pharma Holdings Limited. All of the Company's remaining assets are held in the United States.

Financial Performance

Revenue Analysis

Profitability Metrics (from continuing operations for 2024):

• Gross Margin: 66.26%
• Operating Margin: -59.69%
• Net Margin: -73.71%

Investment in Growth:

• R&D Expenditure: $42 thousand (0.43% of revenue)
• Capital Expenditures: $6 thousand
• Strategic Investments: Not applicable in the context of growth, as the Company is pursuing a wind-down or strategic alternatives.

Business Segment Analysis

Eyecare Products (Avenova branded)

Financial Performance:

• Revenue: $9,747 thousand (2024) (includes Avenova Spray and other eyecare products)
  • Avenova Spray Revenue: $8,673 thousand (+11.1% YoY from $7,805 thousand in 2023)
  • Other Products Revenue: $1,074 thousand (-15.6% YoY from $1,273 thousand in 2023)
• Key Growth Drivers: The increase in eyecare product revenue was primarily driven by a continued overall increase in Avenova Spray sales through online channels.

Product Portfolio:

• Major product lines: Avenova Spray (proprietary hypochlorous acid antimicrobial solution).
• Complementary products: Avenova Eye Health Support (oral supplement), Avenova Lubricating Eye Drops, NovaWipes by Avenova, Avenova Warm Eye Compress, and i-Chek by Avenova.

Market Dynamics:

• Competitive positioning: Strong medical professional endorsement and formulation without toxic chemicals differentiated Avenova Spray in the consumer market.
• Key customer types: Direct consumers (via Amazon.com, Avenova.com, Walmart.com), optometrists, ophthalmologists, and retail pharmacies.
• Market trends: Online sales constituted the majority of Avenova Spray revenue.
• Current Status: This business was divested on January 17, 2025, through the Avenova Asset Sale.

Wound Care Products (NeutroPhase and PhaseOne branded)

Financial Performance:

• Revenue: $0 thousand (2024) (-100% YoY from $1,377 thousand in 2023). The decrease was due to a $1.4 million reduction in NeutroPhase sales to Chongqing Pioneer Pharma Holdings Limited.
• Current Status: This business was significantly reduced following the Wound Care Divestiture on January 8, 2025. NovaBay Pharmaceuticals, Inc. is continuing to manufacture wound care products under remaining contractual obligations to its distribution partner in China, with fulfillment anticipated by the end of the second quarter of 2025.

Product Portfolio:

• Major product lines: Proprietary hypochlorous acid solutions for wound care, used for cleansing and irrigation in surgical procedures and treatment of various injuries.

Market Dynamics:

• Competitive positioning: Positioned against older, lower-priced products by emphasizing non-toxic chemical composition, making them gentle and non-irritating.
• Key customer types: Historically sold through wholesale distribution relationships with third parties, including Chongqing Pioneer Pharma Holdings Limited in China and Phase One Health LLC in the U.S.

DERMAdoctor Products (Discontinued Operations)

Financial Performance:

• Revenue: $717 thousand (2024) (-79.8% YoY from $3,552 thousand in 2023).
• Net Loss from discontinued operations: -$124 thousand (2024) (compared to -$3,899 thousand in 2023).
• Current Status: This business was divested on March 25, 2024.

Product Portfolio:

• Over 30 dermatologist-developed products targeting common skin concerns such as aging, blemishes, dry skin, perspiration, and keratosis pilaris.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: In March 2025, NovaBay Pharmaceuticals, Inc. purchased the remaining unexercised portions of specified warrants from Sabby Volatility Warrant Master Fund, Ltd., Bigger Capital Fund, LP, and District 2 Capital Fund LP for an aggregate of $1,814,848 as part of settlement agreements.
• Dividend Payments: NovaBay Pharmaceuticals, Inc. has not paid cash dividends on its common stock since inception and does not anticipate paying cash dividends or repurchasing shares in the foreseeable future, unless in connection with a potential strategic transaction.
• Future Capital Return Commitments: If the Dissolution proceeds, estimated aggregate liquidating distributions to stockholders are between $0.7 million and $5.6 million, or $0.13 and $0.97 per share (based on 5,831,269 shares outstanding as of March 18, 2025). The timing of any distributions is uncertain, with initial distributions anticipated 9 to 12 months from the effective time of the Dissolution.

Balance Sheet Position (as of December 31, 2024):

• Cash and Equivalents: $430 thousand
• Total Debt: $565 thousand (comprising $65 thousand in Unsecured Convertible Notes and $500 thousand in Bridge Loan)
• Net Cash Position: -$135 thousand
• Credit Rating: Not disclosed.
• Debt Maturity Profile: Unsecured Convertible Notes are due March 25, 2026. The Bridge Loan matured and was repaid upon the closing of the Avenova Asset Sale on January 17, 2025. Secured Convertible Notes were repaid in full during the third quarter of 2024.

Cash Flow Generation (from continuing operations):

• Operating Cash Flow: -$5,183 thousand (2024)
• Free Cash Flow: -$5,189 thousand (2024) (Operating Cash Flow less Capital Expenditures)
• Cash Conversion Metrics: Not explicitly detailed in the filing.

Operational Excellence

Production & Service Model:

• Historically, Avenova Spray manufacturing was outsourced to a contract manufacturer in the United States. Wound care products relied on distribution partners for sales.
• Current State: NovaBay Pharmaceuticals, Inc.'s business operations are significantly reduced. The Company is continuing to manufacture wound care products under remaining contractual obligations to its distribution partner in China, with fulfillment anticipated by the end of the second quarter of 2025. Additionally, it is providing specified accounting, marketing, sales, customer service, regulatory, and operational support to PRN Physician Recommended Nutriceuticals, LLC for four months following the Avenova Asset Sale.

Supply Chain Architecture:

• Key Suppliers & Partners:
  • Contract manufacturer: For Avenova Spray (US-based, historically had adequate capacity).
  • Distribution partners: Chongqing Pioneer Pharma Holdings Limited (China, for NeutroPhase), Phase One Health LLC (U.S., for PhaseOne, prior to divestiture).
  • Pharmacy distributors: McKesson Corporation, Cardinal Health, and AmerisourceBergen Corporation (for prescription Avenova Spray).
• Current State: Most of these relationships have been divested or are winding down.

Facility Network:

• Principal executive office: Leased approximately 7,675 square feet in Emeryville, California, with the lease expiring on July 31, 2027.
• Current State: Due to significantly reduced business and potential Dissolution, the Company intends to explore options to reduce lease costs, including subleasing.
• Manufacturing, Research & Development, and Distribution: NovaBay Pharmaceuticals, Inc. does not own manufacturing or R&D facilities and historically relied on third-party contract manufacturers and distribution partners.

Market Access & Customer Relationships

Go-to-Market Strategy:

• Distribution Channels (Historical for Avenova):
  • Direct Sales: Primarily through online platforms such as Amazon.com, Avenova.com, and Walmart.com, which accounted for the majority of Avenova Spray revenue.
  • Channel Partners: Prescription Avenova Spray was available through optometrists' and ophthalmologists' offices (physician dispensed channel) and at most retail pharmacies nationwide via agreements with McKesson Corporation, Cardinal Health, and AmerisourceBergen Corporation. The Company also had a Partner Pharmacy Program with select preferred pharmacy networks.
  • International: Avenova Spray was available in Australia through a distribution partner.
• Distribution Channels (Historical for Wound Care):
  • Commercial partners in the United States (Phase One Health LLC).
  • Chongqing Pioneer Pharma Holdings Limited in China.
• Current State: Most of these channels and relationships have been divested.

Customer Portfolio:

• Customer Concentration (Historical, as of December 31, 2024, for accounts receivable):
  • Major U.S. Retailer A: $194 thousand
  • Avenova Spray Pharmacy Distributor A: $46 thousand
  • Avenova Spray Pharmacy Distributor B: $39 thousand
  • Avenova Spray Pharmacy Distributor C: $39 thousand
• Current State: Customer relationships are significantly reduced following the divestitures.

Geographic Revenue Distribution:

• Historically, revenue was predominantly generated in the United States. All of the Company's assets are currently held in the United States.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: NovaBay Pharmaceuticals, Inc. historically operated in the pharmaceutical industry, specifically within the eyecare, wound care, and skin care markets. Competitive Positioning Matrix:

Direct Competitors

Primary Competitors (Historical for Wound Care):

• Vashe
• Betadine Surgical Scrub Current State: The Company has divested its primary commercial operations, rendering direct competitive analysis largely irrelevant for its current limited activities.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: NovaBay Pharmaceuticals, Inc. no longer has a significant revenue-generating business following the Avenova Asset Sale and Wound Care Divestiture. There is no guarantee the Dissolution will be completed, and identifying alternative strategic transactions to maximize stockholder value may be difficult, potentially leading to bankruptcy. The amount and timing of distributions to stockholders from the Dissolution are uncertain, and the Board may choose not to proceed with the Dissolution even if approved. Stockholders may be liable to creditors if dissolution reserves are inadequate. Resources may be expended on uncompleted strategic transactions. The Company risks becoming a "shell company," leading to more stringent reporting and trading restrictions. The price of common stock is highly volatile, and delisting from NYSE American is likely. Stockholders may not recognize a tax loss until final distribution.

Operational & Execution Risks

• Supply Chain Vulnerabilities: Historically, reliance on a single contract manufacturer for products posed risks of delays. While most operations are divested, residual risks remain for fulfilling existing contractual obligations.
• Other Operational Risks: NovaBay Pharmaceuticals, Inc. remains liable for claims and expenses related to its prior business operations. It is subject to contingent liabilities from the Avenova Asset Sale (post-closing working capital adjustment, indemnification) and Wound Care Divestiture (indemnification). The Company may face litigation, which is expensive and could divert limited management resources. Disruptions to information technology systems or security breaches could adversely affect remaining operations. The loss of key senior executive management could impair the ability to manage remaining business and the Dissolution process efficiently.

Financial & Regulatory Risks

• Market & Financial Risks: Cash proceeds from divestitures will be used to fund ongoing expenses and liabilities, depleting remaining cash assets. Significant dilution for existing stockholders may occur from the conversion of Series B Preferred Stock and the exercise of outstanding common stock purchase warrants. The potential sale of a substantial number of shares could depress the stock price. The Company does not expect to pay dividends or repurchase stock in the future, except for potential distributions during Dissolution. Future issuance of additional equity securities without stockholder approval could dilute ownership.
• Regulatory & Compliance Risks: NovaBay Pharmaceuticals, Inc. faces NYSE American listing compliance issues related to stockholders' equity, with a risk of delisting. If delisted, its common stock would lose "covered security" status, subjecting it to state-level regulation. If the Company becomes a "shell company," holders of restricted securities may be unable to sell under Rule 144. The Company will continue to incur expenses to comply with Exchange Act reporting requirements until it can exit them.

Innovation & Technology Leadership

Research & Development Focus:

• Historically, R&D activities primarily focused on compliance with ongoing regulatory and maintenance requirements for former products.
• Current State: NovaBay Pharmaceuticals, Inc. is not currently conducting research and development due to the significant reduction in its business and operations.
• R&D Expenditure: $42 thousand (2024), $34 thousand (2023).

Intellectual Property Portfolio:

• Historically, NovaBay Pharmaceuticals, Inc. sought to protect its intellectual property through patents, trade secrets, proprietary know-how, and technological innovation.
• Current State: The Company disposed of its primary trademarks, trade secrets, and know-how in connection with the Avenova Asset Sale, Wound Care Divestiture, and DERMAdoctor Divestiture.

Leadership & Governance

Executive Leadership Team

| Position | Executive | Tenure | | Chief Executive Officer, General Counsel and Chief Compliance Officer | Justin M. Hall, Esq. | Since June 2019 (CEO & CCO), December 2015 (SVP & GC) | | Interim Chief Financial Officer and Treasurer | Tommy Law | Since February 2023 (Interim CFO & Treasurer), December 2019 (joined Company) |

Leadership Continuity: The Company's ability to operate its remaining business and administer the Dissolution process (if approved) depends significantly on the continued service of its senior executive management team, specifically Justin M. Hall and Tommy Law. The loss of either could adversely impact operations and potentially delay or create inefficiencies in the Dissolution process.

Board Composition: The Board of Directors comprises seven members: Paul E. Freiman, Ph.D. (Chairman & Independent Director), Justin M. Hall, Esq. (Chief Executive Officer, General Counsel and Chief Compliance Officer & Director), Julie Garlikov (Independent Director), Swan Sit (Independent Director), Mijia (Bob) Wu, M.B.A. (Director), Yenyou (Jeff) Zheng, Ph.D. (Independent Director), and Yongxiang (Sean) Zheng (Director). Four directors (Dr. Freiman, Ms. Garlikov, Ms. Sit, and Dr. Jeff Zheng) are deemed independent under NYSE American standards. The Audit Committee consists of Dr. Jeff Zheng (Chair), Dr. Freiman, and Ms. Sit, with Dr. Jeff Zheng qualifying as an "audit committee financial expert."

Human Capital Strategy

Workforce Composition:

• Total Employees (as of December 31, 2024): 14 (13 full-time, 1 part-time).
• Total Employees (as of April 2, 2025, post-Avenova Asset Sale): 4 (3 full-time, 1 part-time).
• None of the employees are represented by labor unions or covered by collective bargaining agreements. The Company considers its relationship with employees to be good.

Talent Management:

• Acquisition & Retention: Not detailed in the filing for the current operational context.
• Employee Value Proposition: Not detailed in the filing.

Diversity & Development:

• Not detailed in the filing.

Business Cyclicality & Seasonality

Demand Patterns (Historical):

• Seasonal Trends: Historically, prescriptions for Avenova Spray experienced seasonality, with the first quarter typically being the lowest revenue quarter due to consumers satisfying health insurance deductibles and changes to copays. Sales of Avenova Spray through non-prescription channels and other Avenova branded products showed less seasonality.
• Industry Cycles: Former NeutroPhase and PhaseOne branded products, sold through wholesale distribution, resulted in periodic large orders and irregular revenue intervals.
• Current State: NovaBay Pharmaceuticals, Inc. does not expect seasonality to impact the manufacture of its wound care products under remaining contractual obligations to its distribution partner in China, which are anticipated to be fulfilled by the end of the second quarter of 2025.

Planning & Forecasting: Not detailed in the filing for the current operational context.

Regulatory Environment & Compliance

Regulatory Framework:

• Historically, NovaBay Pharmaceuticals, Inc. was subject to extensive government regulation, primarily by the Food and Drug Administration and state and local authorities in the United States, and comparable foreign agencies.
• Current State: Due to significantly reduced business operations, the Company is subject to substantially less government regulation.

Trade & Export Controls:

• Not detailed in the filing for the current operational context.

Legal Proceedings:

• In March 2025, a complaint filed by Sabby Volatility Warrant Master Fund, Ltd. alleging breach of contract was settled and dismissed with prejudice. Similar disputes with Bigger Capital Fund, LP and District 2 Capital Fund LP were also settled.
• As of December 31, 2024, management was not aware of any legal matters that would result in a material adverse effect on the Company's financial position, results of operations, or cash flows. However, the Company acknowledges the potential for future litigation related to prior business operations, divestitures, or the Dissolution process.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 0.0% for both the years ended December 31, 2024, and 2023, primarily due to a full valuation allowance against deferred tax assets.
• Geographic Tax Planning: Not detailed in the filing.
• Tax Reform Impact: Not detailed in the filing.

Net Operating Loss Carryforwards (as of December 31, 2024):

• Federal: $153.7 million ($94.9 million generated before January 1, 2018, beginning to expire in 2025; $59.6 million generated after December 31, 2017, carrying forward indefinitely but subject to an 80% limitation).
• State: $128.6 million (beginning to expire in 2028).

Tax Credit Carryforwards (as of December 31, 2023):

• Federal: $0.5 million (beginning to expire in 2031).
• State: $0.1 million (indefinite carryover period).

Considerations: The Company's ability to utilize its net operating loss carryforwards and tax credits may be limited by Section 382 of the Internal Revenue Code due to past or future ownership changes. A full valuation allowance has been recognized against deferred tax assets due to the Company's history of operating losses.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: NovaBay Pharmaceuticals, Inc. indemnifies its officers and directors for certain events, with exposure limited by a director and officer insurance policy. The Company also maintains various liability insurance policies to limit its exposure for indemnification agreements with other entities (e.g., clinical research organizations, suppliers).
• Risk Transfer Mechanisms: Not explicitly detailed beyond indemnification and insurance.