NovaBay Pharmaceuticals, Inc.

Company Overview

Business Model: NovaBay Pharmaceuticals, Inc. has undergone a comprehensive business realignment, transitioning from a pharmaceutical company focused on eyecare, wound care, and skin care products to a capital allocation entity. The current strategy centers on acquiring and holding economically productive digital assets to participate in open, decentralized financial networks. The primary objective is to preserve and enhance stockholder value through disciplined engagement in these networks. The core business involves the accumulation, holding, and deployment of operating digital assets for protocol-level services such as staking, governance participation, and validation. The initial focus is on SKY, the protocol token of the decentralized Sky network. The Company does not engage in short-term speculative trading, proprietary trading strategies, margin arrangements, or derivatives transactions referencing digital assets unless expressly authorized. A limited legacy wound care business is still maintained.

Market Position: Following the divestiture of its primary commercial operations, NovaBay Pharmaceuticals, Inc. has shifted its strategic focus entirely. The Company does not currently hold a traditional market position in product sales or services. Its new strategy positions it as a holder and deployer of digital assets within the Sky network ecosystem, aiming for economic participation rather than market share in a traditional product or service industry.

Recent Strategic Developments:

• Business Realignment: During 2025, NovaBay Pharmaceuticals, Inc. completed a comprehensive realignment, divesting its legacy pharmaceutical businesses and adopting a digital asset treasury strategy.
• Avenova Asset Divestiture: Completed on January 17, 2025, the Company sold its Avenova brand eyecare products and related assets to PRN Physician Recommended Nutriceuticals, LLC for approximately $10.6 million, net of adjustments. This constituted the sale of substantially all of its then revenue-generating and operating assets.
• PhaseOne Divestiture: Completed on January 8, 2025, the Company sold its wound care product trademarks, including NeutroPhase, PhaseOne, and OmniPhase, and related inventory to Phase One Health LLC for $500,000.
• Exit China NeutroPhase Product Line: In October 2025, the Company decided to exit its remaining legacy wound care activity, the China NeutroPhase product line, as part of its strategic shift.
• January 2026 Private Placement: On January 16, 2026, the Company completed a private placement, issuing pre-funded warrants to purchase 167,539,227 shares of Common Stock for aggregate gross proceeds of approximately $137.4 million. This consideration included $25.0 million in cash, approximately $51.0 million in USDT and USDS stablecoins, and approximately $61.4 million in 943,599,690 SKY tokens.
• ATM Sales Agreement: On January 20, 2026, the Company entered into an At-The-Market Sales Agreement with Virtu Americas LLC, allowing it to sell up to $100.0 million of common stock.
• Post-Period SKY Acquisitions: Subsequent to the January 2026 Private Placement and through March 16, 2026, the Company deployed approximately $70.7 million in cash to acquire an additional approximately 1.1 billion SKY tokens, bringing total holdings to approximately 2.1 billion SKY tokens.
• Stockholder Approvals: On March 12, 2026, stockholders approved the issuance of shares underlying the January 2026 Pre-Funded Warrants and October 2025 Pre-Funded Warrants, and an amendment to increase authorized common stock from 1.5 billion to 5.0 billion shares.

Geographic Footprint: The Company's principal executive office is located in Emeryville, California. While its former pharmaceutical operations had a domestic U.S. market focus and limited international distribution (e.g., China NeutroPhase product line, now exiting), its new digital asset strategy operates within global blockchain-based networks. Digital asset custody is primarily with U.S.-based service providers.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: Not applicable for continuing operations as no revenue is reported.
• Operating Margin: Not applicable for continuing operations as no revenue is reported.
• Net Margin: Not applicable for continuing operations as no revenue is reported.

Investment in Growth:

• R&D Expenditure: Currently not conducting research and development.
• Capital Expenditures: Not explicitly disclosed for continuing operations.
• Strategic Investments:
  • January 2026 Private Placement: Approximately $137.4 million in cash, stablecoins, and SKY tokens.
  • Post-January 2026 Private Placement SKY Acquisitions: Approximately $70.7 million in cash deployed to acquire additional SKY tokens through March 16, 2026.

Business Segment Analysis

NovaBay Pharmaceuticals, Inc. operates as one operating and reportable segment encompassing its consolidated operations, primarily focused on its digital asset strategy. The Company has divested its former product-focused businesses, which are now reported as discontinued operations.

Digital Asset Strategy (Current Operating Segment)

Financial Performance:

• Revenue: Not yet generating traditional revenue from this segment as of December 31, 2025. Future income is expected from protocol-defined incentives, rewards, or service-based fees from digital asset deployment.
• Operating Margin: Not applicable as no revenue is reported.
• Key Growth Drivers: Accumulation and deployment of SKY tokens for staking, governance participation, and validation within the Sky network. Expansion of the Sky Protocol, tooling, and ecosystem services.

Product Portfolio:

• Major product lines and services: Holding and deploying SKY tokens.
• New product launches or major updates: The strategy contemplates evaluating additional digital assets over time that meet similar economic and risk criteria, subject to approval by the Digital Asset Strategy Advisory Committee and Board of Directors.

Market Dynamics:

• Competitive positioning within segment: The Company's strategy is focused on participation in open digital financial networks rather than direct competition in a product market.
• Key customer types and market trends: The SKY ecosystem includes open-source developers, node operators, wallet providers, custodians, trading venues, market makers, data and analytics providers, payment facilitators, and software and hardware vendors.

Discontinued Operations (Historical Context)

Avenova Asset Divestiture (Eyecare):

• Revenue (2024): $9,781 thousand
• Operating Income (2024): $2,445 thousand
• Net Income from Discontinued Operations (2025, partial year): $10,509 thousand (includes $10,700 thousand gain on divestiture)
• Net Income from Discontinued Operations (2024): $2,445 thousand
• Key Growth Drivers: Historically, development and commercialization of Avenova products.

PhaseOne Divestiture (Wound Care Trademarks):

• Revenue (2024): $258 thousand
• Operating Income (2024): $71 thousand
• Net Income from Discontinued Operations (2025, partial year): $530 thousand (includes $500 thousand gain on divestiture)
• Net Income from Discontinued Operations (2024): $71 thousand
• Key Growth Drivers: Historically, wound care product trademarks including NeutroPhase, PhaseOne, and OmniPhase.

DERMAdoctor Divestiture (Skin Care):

• Revenue (2024, partial year): $717 thousand
• Operating Loss (2024, partial year): $(118) thousand
• Net Loss from Discontinued Operations (2024, partial year): $(989) thousand (includes $(871) thousand loss on divestiture)
• Key Growth Drivers: Historically, skin care products.

China NeutroPhase Product Line (Wound Care):

• Net Income from Discontinued Operations (2025, partial year): $42 thousand
• Key Characteristics: Limited manufacturing and sales for export to China through a distribution relationship with Chongqing Pioneer Pharma Holdings Limited, with a decision to exit in October 2025.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $2.0 million in 2025 for warrants.
• Dividend Payments: $4.8 million one-time special cash dividend ($4.00 per share) paid on September 29, 2025.
• Future Capital Return Commitments: No specific future commitments disclosed.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $7,958 thousand
• Total Debt: $67 thousand (Unsecured Convertible Notes, net of discounts)
• Net Cash Position: $7,891 thousand
• Credit Rating: Not disclosed.
• Debt Maturity Profile: Unsecured Convertible Notes due March 25, 2026.

Cash Flow Generation (from continuing operations):

• Operating Cash Flow: $(8,430) thousand (2025)
• Free Cash Flow: Not explicitly disclosed.

Operational Excellence

Production & Service Model: The Company's operational philosophy has shifted to the accumulation, holding, and deployment of operating digital assets within blockchain networks. This involves supporting protocol-level services such as staking, governance participation, and validation. The Company utilizes institutional-grade custody solutions and security infrastructure for its digital assets, including internally controlled wallet infrastructure for private key management and on-chain transactions. Limited production and sales for the China NeutroPhase product line may continue during a transition period as this legacy activity winds down.

Supply Chain Architecture: Key Suppliers & Partners:

• Custodial and Infrastructure Service Providers: Fireblocks, Inc. (software-as-a-service platform for secure digital asset storage, management, and administration), Payward Financial, Inc. (Kraken) (Wyoming Special Purpose Depository Institution for institutional digital asset custody services).
• Third-party disaster recovery service provider: Station70 (facilitates key recovery for Fireblocks).
• Execution Providers: Affiliated or vetted third-party execution providers for SKY acquisitions and dispositions.
• Legacy Distribution Partner: Chongqing Pioneer Pharma Holdings Limited (for China NeutroPhase product line, now exiting).

Facility Network:

• Principal Executive Office: 2000 Powell Street, Suite 1150, Emeryville, California 94608 (7,675 rentable square feet, lease expires July 31, 2027). The Company is exploring options to reduce costs, including subleasing.
• Manufacturing/Research & Development/Distribution: Not applicable for the current digital asset strategy. The Company is currently not conducting research and development.

Operational Metrics: Not explicitly disclosed for the new digital asset strategy.

Market Access & Customer Relationships

Go-to-Market Strategy: The Company's strategy is focused on capital allocation through digital asset acquisition and deployment, rather than traditional product or service sales. Its approach anticipates holding digital assets for extended periods, periodically monetizing a portion for operating expenses or portfolio rebalancing, and evaluating opportunities to generate liquidity or yield from digital assets.

Customer Portfolio: Not applicable in a traditional sense for the digital asset treasury strategy. The Company interacts with participants within the SKY ecosystem, including open-source developers, node operators, wallet providers, custodians, trading venues, market makers, data and analytics providers, payment facilitators, and software and hardware vendors.

Geographic Revenue Distribution: Not applicable for the current digital asset strategy. Historically, the Company's revenue was primarily from the domestic U.S. market, with some international exposure through the now-exiting China NeutroPhase product line.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The Company operates within the nascent and evolving blockchain-based asset industry, specifically focusing on the Sky network. This decentralized protocol, built around the USDS stablecoin and managed by Sky ecosystem governance, consists of open-source, self-executing smart contracts deployed on the Ethereum blockchain. The market for digital assets is characterized by high volatility, speculative trading, and significant retail participation. Competitive Positioning Matrix: The Company's strategy is to acquire and hold digital assets for economic participation within the Sky network, rather than competing directly in a product or service market. Therefore, traditional competitive positioning metrics are not directly applicable. Direct Competitors: Not explicitly identified as the Company's business model is a digital asset treasury strategy rather than direct competition in a product or service market. Emerging Competitive Threats: The Company faces threats from the emergence or growth of other digital assets, including those backed by private or public sector entities (e.g., central bank digital currencies), which could reduce demand for SKY. Stablecoins like USDS also face significant competitive and regulatory challenges from more established issuers and emerging products. Competitive Response Strategy: The Company monitors regulatory developments and adjusts its counterparties, controls, and policies accordingly. It also continuously evaluates and adjusts its strategy for the impact of volatility, technology, operational, and governance risks inherent to open-source networks, market structure risks, and evolving regulatory frameworks.

Risk Assessment Framework

Strategic & Market Risks

• Blockchain-Based Strategy Implementation: No assurance of successful implementation or achieving anticipated scale or profitability for the new blockchain-based asset strategy.
• Sky Network Risks: The value and utility of SKY and USDS are highly dependent on the performance, stability, and continued adoption of the Sky Protocol, which is subject to technical, market, governance, regulatory, and operational risks. Failures in collateralization, liquidation mechanisms, or governance could materially impair the ecosystem.
• Price Volatility of SKY: SKY is a highly volatile asset, and substantial price decreases could materially adversely affect the Company's financial results and stock price.
• Regulatory Uncertainty: The classification of SKY as a "security" and the Company's potential status as an "investment company" under the Investment Company Act of 1940 are uncertain, posing risks of regulatory scrutiny, fines, and operational restrictions. Evolving U.S. federal, state, and international regulations could impact digital asset markets.
• Competition from Other Digital Assets: The emergence of other digital assets, including central bank digital currencies, could negatively impact SKY's price and the Company's business.
• Stablecoin Challenges: USDS faces significant competitive and regulatory challenges, and a material de-pegging event could undermine confidence in the Sky ecosystem and the value of SKY.
• Interest Rate Sensitivity: The digital asset strategy's income generation (e.g., staking) is sensitive to prevailing interest rates and market conditions, potentially leading to underperformance or unsustainability.
• Political or Economic Crises: Large-scale sales of blockchain-based assets due to geopolitical events could reduce values.

Operational & Execution Risks

• Third-Party Trading Platform Risks: Reliance on third-party trading platforms and over-the-counter brokers for SKY transactions exposes the Company to risks related to data security, anti-money laundering compliance, and sanctions.
• Custody of SKY Tokens: Risks include loss or destruction of private keys, cyberattacks, and operational failures of custodians (Fireblocks, Inc., Payward Financial, Inc. (Kraken)). The Company's SKY holdings are not insured by custodians, and the Company does not maintain separate insurance, leading to a high risk of loss.
• Decentralized Finance (DeFi) Risks: Participation in DeFi applications exposes the Company to smart contract bugs, liquidation risks, governance risks, network congestion, and potential interaction with bad actors.
• Counterparty Non-Performance: Risk of failure by execution partners, custodians, or other counterparties, exacerbated by recent high-profile bankruptcies in the blockchain-based asset industry.
• Irreversibility of Digital Asset Transactions: Incorrect transfers or theft of digital assets are generally irreversible, leading to potential unrecoverable losses.
• Information Technology Systems: Significant disruptions or breaches of IT systems or third-party services could adversely affect business.
• Internal Controls: Failure to maintain an effective system of internal controls over financial reporting could lead to inaccurate financial reporting.
• Business Disruptions: Geopolitical tensions, acts of terrorism, natural disasters, pandemics, and cyberwarfare could materially adversely affect operating results.
• Talent Recruitment and Retention: Inability to recruit or retain skilled personnel in blockchain-based assets or loss of current leadership could materially adversely affect the business.

Financial & Regulatory Risks

• Quarterly Operating Results Fluctuations: Operating results, revenues, and expenses may fluctuate significantly due to SKY price volatility, sales of SKY, regulatory developments, and fixed costs.
• Capital Raising: Inability to raise additional capital when needed or on acceptable terms, with future financings potentially being highly dilutive.
• Liquidity of Digital Assets: Digital asset holdings are less liquid than cash and may not serve as a reliable source of liquidity during market instability.
• Taxation of Blockchain-Based Assets: The tax treatment of utility blockchain-based assets and staking rewards is complex, evolving, and uncertain, potentially leading to unexpected tax liabilities or increased audits.
• Corporate Finance Risks: The blockchain-based asset strategy carries risks such as potential premium collapse, liquidity and macro sensitivity, and dilution fatigue.
• Uninsured Losses: Exposure to potential uninsured losses if digital asset balances exceed custodian's insurance coverage.
• Money Services Business/Money Transmitter Registration: Changes in regulatory interpretations could require registration, leading to increased compliance costs or operational shutdowns.
• Concentration of Holdings: As of March 16, 2026, SKY holdings represent approximately 90% of total assets and approximately 9% of the total supply of SKY, enhancing inherent risks.
• Investor Consent Rights: Investors in the January 2026 Private Placement have consent rights over material changes to the Digital Asset Strategy, potentially influencing decisions that may not always align with all stockholders' interests.

Innovation & Technology Leadership

Research & Development Focus: NovaBay Pharmaceuticals, Inc. is currently not conducting research and development activities. Previous R&D efforts were primarily focused on regulatory compliance and maintenance for its former pharmaceutical products. Core Technology Areas: The Company's strategic shift involves engagement with blockchain-based networks, particularly the Sky Protocol, which is a decentralized, non-custodial software protocol built around the USDS stablecoin and deployed on the Ethereum blockchain. This includes reliance on smart contracts, on-chain governance, and algorithmic mechanisms. Intellectual Property Portfolio: In connection with its divestitures, the Company disposed of its primary trademarks, trade secrets, and know-how related to its former pharmaceutical products. No specific intellectual property strategy for the new digital asset strategy is detailed. Technology Partnerships: The Company partners with Fireblocks, Inc. for digital asset management and wallet infrastructure, and Payward Financial, Inc. (Kraken) for institutional digital asset custody services. Station70 is engaged as a third-party disaster recovery service provider.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company's future success is dependent on its ability to attract, train, assimilate, and retain personnel highly skilled in blockchain-based assets, as well as the continued service of its current leadership. Board Composition: The Board of Directors comprises four members: Paul E. Freiman, Ph.D., Michael Kazley, Swan Sit, and Yenyou (Jeff) Zheng, Ph.D. Dr. Freiman, Ms. Sit, and Dr. Zheng are independent directors. The Board oversees cybersecurity risk and has established a Digital Asset Strategy Advisory Committee for additional oversight of blockchain network participation and digital asset deployment. R01 Fund LP, Framework Ventures IV L.P., and Sky Frontier Foundation each have the right to nominate one individual to the Board, subject to certain ownership thresholds.

Human Capital Strategy

Workforce Composition: As of December 31, 2025, NovaBay Pharmaceuticals, Inc. had a total of 4 employees, consisting of 2 full-time and 2 part-time employees. Talent Management: The Company faces significant competition for qualified employees in the crypto space and its future success depends on its ability to attract, train, assimilate, and retain highly skilled personnel. Diversity & Development: Not explicitly disclosed in the filing.

Environmental & Social Impact

No material information regarding environmental commitments, climate strategy, supply chain sustainability, or social impact initiatives is explicitly disclosed in the provided filing.

Business Cyclicality & Seasonality

Demand Patterns: The Company's new digital asset strategy, which involves staking and other protocol-based economic participation, is highly sensitive to prevailing interest rates, changes in market structure, shifts in risk appetite, and the relative attractiveness of income in decentralized finance (DeFi) protocols or traditional finance. The blockchain-based asset sector is characterized by rapid price swings and inherent cyclicality. Planning & Forecasting: Not explicitly detailed for the new strategy.

Regulatory Environment & Compliance

Regulatory Framework: The legal and regulatory landscape for blockchain-based networks and digital assets, including SKY, is evolving in the United States and internationally. Multiple regulators assert jurisdiction over aspects of digital asset markets, including anti-money laundering, market integrity, consumer protection, tax reporting, commodities, derivatives, and sanctions. The Company monitors these developments and adjusts its policies and controls accordingly. There is a risk of being classified as an "investment company" under the Investment Company Act of 1940 or being required to register as a money services business or money transmitter. Trade & Export Controls: The Company is exposed to risks related to the use of blockchain-based assets for illicit activities, including money laundering, funding criminal/terrorist activities, or circumventing sanctions regimes (e.g., OFAC sanctions). Legal Proceedings: In connection with the January 2026 Private Placement, a class action complaint was received alleging breach of fiduciary duty related to disclosures. The Company denies the allegations and has filed a motion to dismiss. The outcome is uncertain. Historically, the Company has settled disputed matters relating to warrants.

Tax Strategy & Considerations

Tax Profile: The tax treatment of blockchain-based assets is complex, evolving, and subject to differing interpretations by tax authorities. As of December 31, 2025, the Company had federal net operating loss (NOL) carryforwards of approximately $2.9 million (indefinite carryforward, limited to 80% of taxable income) and state NOL carryforwards of approximately $348 thousand (expiring starting 2045). Geographic Tax Planning: The Company files income tax returns in the United States, California, and Florida. Tax Reform Impact: The Company believes it experienced an ownership change in 2025, which is expected to subject its pre-change NOLs to significant limitations under Section 382 of the Internal Revenue Code. Future ownership changes could further limit the utilization of tax attributes. The U.S. federal income tax treatment of rewards from staking SKY remains uncertain.

Insurance & Risk Transfer

Risk Management Framework: The Company maintains cybersecurity insurance coverage for certain losses and liabilities arising from cybersecurity incidents. However, its agreements with digital asset custodians (Kraken and Fireblocks, Inc.) do not provide insurance protection for SKY holdings under their control, and the Company does not maintain separate insurance for potential SKY losses, exposing its holdings to a particularly high risk of loss. Risk Transfer Mechanisms: The Company provides indemnification to its officers and directors (backed by D&O insurance) and has provided limited indemnification to other entities, including PRN Physician Recommended Nutriceuticals, LLC and Phase One Health LLC, in connection with divestitures.