NovaBay Pharmaceuticals Inc

NOTE1. ORGANIZATION

NovaBay Pharmaceuticals, Inc. (“our,” “we,” “us” or 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. 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.

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 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.

Through our former subsidiary DERMAdoctor, LLC (“DERMAdoctor”), the Company offered over30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris. On* March 25, 2024,*we announced that we had sold DERMAdoctor (the “DERMAdoctor Divestiture”).

The Company operated in principallytwo 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.

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

Discontinued Operations

On* March 25, 2024,the Company completed the DERMAdoctor Divestiture for an aggregate sale price of $1.1 million. The Company recognized a loss on the DERMAdoctor Divestiture amounting to $0.9 million in the period ended March 31, 2024,*which is recorded in loss on divestiture of subsidiary in the unaudited condensed consolidated statements of operations.

In connection with the DERMAdoctor Divestiture, the Company has entered into Transition Services Agreement with New Age Investments, LLC to provide for a customary and orderly transition of the business, including warehousing services provided by New Age Investments, LLC and fulfillment services provided by the Company, which shall be included in continuing operations in subsequent periods.

Going Concern

The Company has sustained operating losses for the majority of its corporate history and expects that its2024 expenses will exceed its2024 revenues, as the Company continues to invest in its commercialization efforts. Additionally, the Company expects to continue incurring operating losses and negative cash flows until revenues reach a level sufficient to support ongoing growth and operations. Accordingly, the Company has determined that its planned operations raise substantial doubt about its ability to continue as a going concern for a period of at leasttwelve months from the date of issuance of these unaudited condensed consolidated financial statements. Additionally, changing circumstances* maycause 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, global pandemics and international conflicts (e.g., the conflicts between Israel and Hamas, Russia and Ukraine, and China and Taiwan).

The Company’s long-term liquidity needs will be largely determined by the success of our commercialization efforts. To address the Company’s current liquidity and capital needs, the Company has and continues to evaluate different plans and strategic transactions to fund operations, including: (1) raising additional capital through debt and equity financings or from other sources; (2) reducing spending on operations, including reducing spending onone or more of its sales and marketing programs or restructuring operations to change its overhead structure; (3) out-licensing rights to certain of its products or product candidates, pursuant to which the Company would receive cash milestones or an upfront fee; (4) entering into license agreements to sell new products; and/or (5) the divestiture of certain business or product lines and related assets. The Company* mayissue securities, including common stock, preferred stock, convertible debt securities and warrants through additional private placement transactions or registered public offerings, which mayrequire the filing of a Form S-1 or Form S-3 registration statement with the Securities and Exchange Commission (“SEC”). While the Company believes that the proceeds from the2023* Private Placement and the2023 Warrant Reprice Transaction (both as defined in Note9, “Financing Activities”) and the DERMAdoctor Divestiture improved the Company’s liquidity in the near term, there isno assurance that the Company will be successful in executing additional capital raising strategies at levels necessary to address the Company’s ongoing and future cash flow and liquidity needs. Accordingly, the Company continues to evaluate different plans and strategies to address the Company’s capital and liquidity needs, as well as evaluating potential other strategic alternatives and transactions. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. These unaudited condensed consolidated financial statements donot include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that* may*result from uncertainty related to the Company’s ability to continue as a going concern.

-7-

NOTE2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and are expressed in U.S. dollars. In management’s opinion, the unaudited condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of NovaBay Pharmaceuticals, Inc. and its former wholly-owned subsidiary, DERMAdoctor, LLC, as of and for thethree months ended* March 31, 2024.All significant intercompany balances and transactions have been eliminated in consolidation. As of March 25, 2024,the Company divested its wholly-owned subsidiary pursuant to the DERMAdoctor Divestiture. The financial results for DERMAdoctor have been presented as discontinued operations in the accompanying condensed consolidated financial statements. For thethree* months ended* March 31, 2024,*all gains and losses on disposition, along with the sales, costs and expenses attributable to discontinued operations, have been aggregated in the captions entitled “Loss on divestiture of subsidiary” and “Net loss from discontinued operations” in our unaudited condensed consolidated statements of operations.

Financial Statement Reclassification

Certain account balances from prior periods have been reclassified in these condensed consolidated financial statements to conform to current period classifications. The prior year amounts have been modified in these financial statements to properly report amounts under current operations and discontinued operations (see Note17, “Divestiture and Discontinued Operations”).

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results* maydiffer significantly from those estimates. Significant estimates made by management include, but arenot* limited to, contract liabilities related to product sales such as product returns, assumptions for valuing warrants, assumptions for valuing derivative liabilities, the fair value of contingent consideration, intangible assets, goodwill, stock-based compensation, income taxes and other contingencies.

These estimates are based on management’s best estimates and judgment. Actual results* may*differ from these estimates. Estimates, judgments, and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions, judgments and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Unaudited Condensed Consolidated Interim Financial Information

The accompanying unaudited condensed consolidated financial statements and related disclosures have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only recurring adjustments, necessary for a fair presentation.

The year-end condensed consolidated balance sheet data was derived from the audited consolidated financial statements but doesnot include all disclosures required by U.S. GAAP. The unaudited condensed consolidated results of operations for any interim period arenot necessarily indicative of the results to be expected for the full year or for any other future year or interim period.

The condensed consolidated financial statements and notes included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended* December 31, 2023,included in the Company’s Annual Report on Form10*-K for the year ended* December 31, 2023,which was filed with the SEC on March 26, 2024and amended on March 29, 2024 (collectively, the“2023* Annual Report”).

-8-

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly-liquid instruments with a stated maturity ofthree months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value. As of* March 31, 2024and December 31, 2023,*the Company’s cash and cash equivalents were held in a major financial institution in the United States.

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash reported in the condensed consolidated balance sheets (in thousands):

The restricted cash amount included in other assets on the condensed consolidated balance sheets represents amounts held as certificates of deposit for long-term financing and lease arrangements as contractually required by our financial institution and landlord.

Concentrations of Credit Risk and Major Partners

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains deposits of cash, cash equivalents and restricted cash with a major financial institution in the United States.

The Company has a significant amount of its cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of*$250,000.* Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

During thethree months ended* March 31, 2024and2023,* revenues from significant product categories were as follows (in thousands):

During thethree months ended* March 31, 2024and2023,* revenues were derived primarily from sales of Avenova branded products, directly to consumers through Amazon.com and Avenova.com. Sales of Avenova Spray via Amazon comprised 74% and 75% of total Avenova Spray net revenue during thethree months ended* March 31, 2024and2023,* respectively.

As of* March 31, 2024and December 31, 2023,accounts receivable from continuing operations from our major distribution partners and major retailers greater than10%* were as follows:

• Less than10%

-9-

The Company relies onone contract manufacturer to produce its products. The Company doesnot have any manufacturing facilities and intends to continue to rely onthird parties for the supply of finished goods. Our contract manufacturer* mayor may**not* be able to meet the Company’s needs with respect to timing, quantity or quality. In particular, it is possible that the Company* may*suffer from unexpected delays in light of the global supply chain issues.

Fair Value of Financial Assets and Liabilities

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, warrant liabilities, and contingent consideration. The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

The Company follows Accounting Standards Codification (“ASC”)820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis. Under this standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. There arethree levels of inputs that* may*be used to measure fair value:

Level1 – quoted prices in active markets for identical assets or liabilities;

Level2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable; and

Level3 – inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

See additional information in Note3, “Fair Value Measurements”.

Allowance for Credit Losses

The Company maintains an allowance for estimated losses resulting from the inability of its customers to meet their financial obligations to the Company. The Company recognizes an allowance for credit losses based on factors such as historical experience, contract terms and general and market business conditions. The Company’s future collection experience can differ significantly from historical collection trends due to such factors as changing customer circumstances and uncertain economic and industry trends. The allowance is re-evaluated on a regular basis and adjusted as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the allowance. Management recorded a reserve for allowance for credit losses of $3 thousand as of* March 31, 2024and December 31, 2023.*

Inventory

Inventory is comprised of (1) raw materials and supplies, such as bottles, packaging materials, labels, boxes and pumps; (2) goods in progress, which are normally filled but unlabeled bottles; and (3) finished goods. The Company utilizes a contract manufacturer to produce our products and the price paid to these manufacturers is included in inventory. Inventory is stated at the lower of cost or estimated net realizable value determined by thefirst-in,first-out method. At* March 31, 2024and December 31, 2023,*management had recorded an allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments of $229 thousand and $264 thousand, respectively.

Property and Equipment, net

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets offive toseven years for office and laboratory equipment, three tofive years for computer equipment and software, andfive toseven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term.

The costs of normal maintenance, repairs, and minor replacements are expensed as incurred.

-10-

Business Combinations, Goodwill and Indefinite-Lived Intangible Assets

We account for*** *business combinations using the acquisition method of accounting, in accordance with ASC805, Business Combinations. The acquisition method requires that identifiable assets acquired and liabilities assumed are recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. Intangible assets are measured at their respective fair values as of the acquisition date. Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination.

Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely thannot that the assets are impaired.

Goodwill is evaluated for impairment byfirst performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, that the fair value of the reporting unit* maymore likely thannot* be less than carrying amount, or if significant adverse changes in the Company’s future financial performance occur that could materially impact fair value, a quantitative goodwill impairment test would be required. Additionally, management can elect to forgo the qualitative assessment and perform the quantitative test. If the qualitative assessment indicates that the quantitative analysis should be performed, or if management elects to bypass a qualitative assessment, the Company then evaluates goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill. The quantitative assessment for goodwill requires management to estimate the fair value of the Company’s reporting units using either an income or market approach or a combination thereof.

Management makes critical assumptions and estimates in completing impairment assessments of goodwill and indefinite-lived intangible assets. The Company’s cash flow projections look several years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions, probability of success, market competition, inflation and discount rates.

The Company didnot record any goodwill or indefinite-lived asset impairment charges during thethree months ended* March 31, 2024or2023.*

Valuation of Contingent Consideration Resulting from a Business Combination

In connection with the DERMAdoctor acquisition, the Company was subject to paying consideration that was contingent upon the achievement of specified milestone events. The Company recorded this contingent consideration at its fair value on the acquisition date. Each quarter thereafter, the Company revalued the contingent consideration and recorded changes in fair value within the condensed consolidated statements of operations. The DERMAdoctor acquisition milestone events consisted of financial targets for calendar years2022 and2023 which werenot met. As a result, the liability recorded for potential earn out payments in the Company’s condensed consolidated balance sheets waszero as of* March 31, 2024and December 31, 2023.*

Long-Lived Assets

The Company’s intangible assets that donot have indefinite lives (primarily trade secrets / product formulations) are amortized over their estimated useful lives. All of the Company’s intangible assets subject to amortization and other long-lived assets, are reviewed for impairment in accordance with ASC360,** Property, Plant and Equipment, which requires that companies consider whether events or changes in facts and circumstances, both internally and externally,* mayindicate that an impairment of long-lived assets held for use are present. The Company reviews long-lived assets for impairment at least annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may**not* be fully recoverable or that the useful lives of these assets areno longer appropriate. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows arenot expected to be sufficient to recover the carrying amount of the asset, the assets are written down to their estimated fair values and the loss is recognized in the condensed consolidated statements of operations.

The Company didnot record any long-lived asset impairments during thethree months ended* March 31, 2024or2023.*

Leases

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typicallynot readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets* may*be required for items such as initial direct costs paid or incentives received.

-11-

The Company has elected to combine lease and non-lease components as a single component. This will potentially result in the initial and subsequent measurement of the balances of the right-of-use assets and lease liability for leases being greater than if the policy election wasnot applied. Leases include variable components (e.g., common area maintenance) that are paid separately from the monthly base payment based on actual costs incurred and therefore werenot included in the right-of-use assets and lease liability but are reflected as an expense in the period incurred.

The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized in the condensed consolidated balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.

Common Stock Warrants

The Company accounts for the issuance of common stock purchase warrants issued in accordance with the provisions of ASC480, Distinguishing Liabilities from Equity, and ASC815, Derivatives and Hedging (ASC815).

The Company classifies as equity any warrants that (i) require physical share settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement (physical share settlement or net-share settlement). The Company classifies as liabilities any warrants that (i) require net-cash settlement, (ii) give the counterparty a choice of net-cash physical settlement or net-share settlement. In accordance with ASC815, the Company also classifies as liabilities any warrants during the period which the shares underlying the contract are subject to stockholder approval before the warrant can be exercised.

For warrants that are classified as liabilities, the Company records the fair value of the warrants upon issuance and at each balance sheet date with changes in the estimated fair value recorded as a non-cash gain or loss in the condensed consolidated statements of operations. The fair values of these warrants are determined using the Black-Scholes option pricing model. These values are subject to a significant degree of management’s judgment. See Note3, “Fair Value Measurements”, subheading “Black Scholes Valuation Model Assumptions” and Note11, “Common Stock Warrants”, subheading “Summary of Common Stock Warrant Liabilities”.

Amendments to warrant terms are recorded as a non-cash gain or loss on modification of common stock warrants. The gain or loss represents the decrease or increase in the fair value of the amended warrants when comparing the value immediately before and after amendment using the Black-Scholes option pricing model. See Note3, “Fair Value Measurements”, subheading “Black Scholes Valuation Model Assumptions”.

Preferred Stock

Terms of the Company’s outstanding Preferred Stock historically included a Ratchet whereby the applicable conversion price could be adjusted (as defined and described in Note12, “Stockholders’ Equity”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended* March 31, 2024.When a conversion price was adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC820,* the deemed dividend was measured as the difference between (1) the fair value of the Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). These fair values were determined using the Black-Scholes option pricing model. These values are subject to a significant degree of management’s judgment. See also Note3, “Fair Value Measurements”, subheading “Black Scholes Valuation Model Assumptions”.

-12-

Revenue Recognition

The Company’s product revenue recognition policies are established in accordance with ASC606, Revenue from Contracts with Customers, in accordance with the followingfive steps:

Revenue is recognized in accordance with the amount of consideration which the Company expects to receive.

Revenue generated from end consumers throughthird-party online retailers, such as Amazon, as well as the Company’s web store (Avenova.com) is recognized on a “sell-through” basis when control of the goods is transferred to the consumer, which generally occurs upon delivery of the products to the party fulfilling the consumer’s order. Revenue is recorded net of any discounts and estimates for refunds and product returns. Fees paid tothird-party online retailers and fulfillment parties are recorded as incurred in the Company’s condensed consolidated statements of operations. Fulfillment and shipping and handling fees are recorded as product cost of goods sold. Selling commissions and advertising and promotion fees are recorded as sales and marketing expenses.

Revenue generated through major pharmacy distributors is recognized on a “sell-in” basis when control of the goods is transferred to the distributor, which generally occurs upon delivery of the products to the distributor. Revenue is recorded net of consideration for contract liabilities for distributor services, discounts, rebates, and product returns. The Company estimates returns and other contract liabilities based on historical data which is updated quarterly. Payment for product supply is typically due 30 days after delivery to the distributor.

Revenue generated from end consumers through the Company’s partner pharmacies is recognized on a “sell-through” basis when control of the goods is transferred to the consumer.

Revenue generated from other retailers is recognized on a “sell-through” basis, net of estimated future product returns, when control of the goods is transferred to the retailer, which generally occurs upon delivery of the products to athird-party carrier who is delivering the products to the retailer.

The Company defers recognition for pre-payments until the Company’s performance obligations are satisfied.

-13-

Cost of Goods Sold

Cost of goods sold includesthird-party manufacturing costs, shipping and handling costs,third-party fulfillment fees, and other costs associated with products sold. Cost of goods sold also includes any necessary allowances for excess and obsolete inventory as well as lower of cost and estimated net realizable value.

Research and Development Costs

The Company charges research and development costs to expense as incurred. These costs include all costs associated with research, development and regulatory activities.

Patent Costs

Patent costs are expensed in the period in which they are incurred. Patent expenses are included in general and administrative expenses in the condensed consolidated statements of operations.

Advertising Costs

Advertising costs are expensed in the period in which the costs are incurred. Advertising costs are included in sales and marketing expenses in the condensed consolidated statements of operations. Advertising expenses were $0.2 million and $0.3 million, respectively, for thethree months ended* March 31, 2024and2023,* respectively.

Stock-Based Compensation

The Company’s stock-based compensation includes grants of stock options and restricted stock units (“RSUs”) to employees, consultants and non-employee directors. The expense associated with these grants is recognized in the Company’s condensed consolidated statements of operations based on their fair values as they are earned under the applicable vesting terms. For stock options granted, the fair value of the stock options is estimated using a Black-Scholes option pricing model. The Company accounts for RSUs issued to employees and non-employees (directors, consultants and advisory board members) based on the fair market value of the Company’s common stock on the date of issuance. See Note13, “Equity-Based Compensation” for further information regarding stock-based compensation expense and the assumptions used in estimating the expense.

-14-

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely thannot that some portion or the entire deferred tax asset willnot be recognized.

Net Loss per Share

The Company computes net loss per share by presenting both basic and diluted earnings (loss) per share (“EPS”) as shown in the Company’s condensed consolidated statements of operations.

Basic EPS is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period, including stock options and warrants, using the treasury stock method. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options or warrants. Potentially dilutive common share equivalents are excluded from the diluted EPS computation in net loss periods if their effect would be anti-dilutive.

For thethree months ended* March 31, 2024and2023,* the Series B Preferred Stock and Series C Preferred Stock were excluded from the computation of diluted net loss per share as their inclusion on an “if converted” basis would have been anti-dilutive. The Series B Preferred Stock and Series C Preferred Stock were considered anti-dilutive because such securities didnot have a contractual obligation to participate in losses of the Company.

The following outstanding preferred stock, stock options and stock warrants were excluded from the diluted EPS computation as their effect would have been anti-dilutive:

-15-

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements that could affect our business, results of operations, financial condition, and liquidity, see Note2, “Summary of Significant Accounting Policies” included in our2023 Annual Report. The Company continues to evaluate the potential impact of adopting the new accounting guidance on its consolidated financial position, results of operations and cash flows.

NOTE3. FAIR VALUE MEASUREMENTS

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of* March 31, 2024and December 31, 2023 (*in thousands):

The Company’s cash equivalents and restricted cash held as certificates of deposit are classified within Level1 of the fair value hierarchy because they are valued using quoted market prices in active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The Secured Convertible Notes (see Note10, “Convertible Notes”) are carried at proceeds, net of discounts, which management believes approximates fair value. As a result of certain call and put options within the Secured Convertible Notes, the Company recorded an embedded derivative liability on its condensed consolidated balance sheet with a corresponding debt discount which is netted against the face value of the Secured Convertible Notes. The fair value of the embedded derivative liability was classified within Level2 of the fair value hierarchy because the stock price used in the related Black Scholes valuation model (see subheading “Black Scholes Valuation Models and Assumptions” below) was adjusted for the dilutive effect of the2023 Private Placement. The fair value of the* May 2023Warrants issued in conjunction with the2023* Private Placement as well as the accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the2023 Private Placement used the same stock price and were classified within Level3.

-16-

The Unsecured Convertible Notes (see Note10, “Convertible Notes”) are carried at proceeds, net of discounts, which management believes approximates fair value. As a result of certain call and put options within the Unsecured Convertible Notes, the Company recorded an embedded derivative liability on its unaudited condensed consolidated balance sheet with a corresponding debt discount which is netted against the face value of the Unsecured Convertible Notes. The fair value of the embedded derivative liability was classified within Level2 of the fair value hierarchy.

The fair value of the* December 2023Warrants issued in conjunction with the2023* Warrant Reprice Transaction as well as the accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the2023 Warrant Reprice Transaction were classified within Level2.

See Note11, “Common Stock Warrants”, subheading “Summary of Common Stock Warrant Liabilities”, for a reconciliation of the beginning and ending balances for the warrant liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level2) during thethree months ended* March 31, 2024and2023.*

There wereno transfers in or out of Level1, Level2 or Level3 assets and liabilities for thethree months ended* March 31, 2024and2023.*

Black Scholes Valuation Models and Assumptions

The Company utilizes a Black Scholes model for various valuations as outlined throughout this report. The following tables summarize the assumptions utilized for valuations impacting results for the periods reported. See also Note13, “Equity-Based Compensation” for related Black Scholes valuation assumptions.

Warrant Liabilities

Various of the Company’s warrants have been, or are, subject to stockholder approval upon issuance or amendment and prior to exercise. Currently, the Company’s* December 2023Warrants and March 2024Warrant are subject to stockholder approval prior to exercise. The warrants are recorded as a liability at fair value upon issuance or amendment and continue to be recorded as a liability at fair value at each reporting date until stockholder approval occurs at which time they are transferred to stockholders’ equity at their fair value on the date of approval. Fair value was determined using a Black Scholes model as outlined below. See Note11,* “Common Stock Warrants” for additional information and the definitions of the Company’s warrants.

-17-

Warrant Modifications

Amendments to warrant terms are recorded as a non-cash gain (or loss) on modification of common stock warrants. The gain or loss represents the decrease or increase in the fair value of the amended warrants when comparing the value immediately before and after amendment using the Black-Scholes option pricing model. Fair value was determined using a Black Scholes model as outlined below.

-18-

Preferred Stock Conversion Price Adjustments

Terms of the Company’s outstanding Preferred Stock historically included a Ratchet whereby the applicable conversion price could be adjusted (see Note12, “Stockholders’ Equity”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended* March 31, 2024.When a conversion price was adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC820,* the deemed dividend is measured as the difference between (1) the fair value of the Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). Fair value was determined using a Black Scholes model as outlined below.

-19-

Bifurcatable Derivatives

Upon issuance in* March 2024,the Unsecured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an embedded derivative liability at fair value (see Note10,* “Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.

Upon issuance in* May 2023,the Secured Convertible Notes contained a lender’s conversion option which represented an embedded call option requiring bifurcation as an embedded derivative liability at fair value (see Note10,* “Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.

-20-

NOTE4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in thousands):

NOTE5. INVENTORY

Inventory consisted of the following (in thousands):

NOTE6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

Depreciation expense related to continuing operations was $12 thousand and $13 thousand for thethree months ended* March 31, 2024and2023,* respectively. The Company recordedno depreciation expense during thethree months ended* March 31, 2024and2023,* andno property and equipment as of* March 31, 2024and December 31, 2023*related to discontinued operations.

-21-

NOTE7. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

NOTE8. COMMITMENTS AND CONTINGENCIES

Indemnification Agreements

As permitted under Delaware law and in accordance with its bylaws, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and* mayenable it to recover a portion of any future payments. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, it hasnot* recorded any liabilities for these agreements as of* March 31, 2024or December 31, 2023.*

In the normal course of business, the Company provides indemnification of varying scope under its agreements with other entities, typically its clinical research organizations, investigators, clinical sites, suppliers, and others. Pursuant to these agreements, it generally indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified parties in connection with the use or testing of its products or product candidates or with any U.S. patent or any copyright or other intellectual property infringement claims by anythird party with respect to its products. The term of these indemnification agreements is generally perpetual. The potential future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, costs related to these indemnification provisions have been immaterial. The Company also maintains various liability insurance policies that limit its exposure. As a result, it believes the fair value of these indemnification agreements is minimal. Accordingly, the Company hasnot recorded any liabilities for these agreements as of* March 31, 2024or December 31, 2023.*

Legal Matters

From time to time, the Company is subject to various legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. The ultimate outcome of any litigation or other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, the Company accrues its best estimate for the ultimate resolution of the matter. Ifone or more legal matters are resolved against the Company in a reporting period for an amount above expectations, the Company’s financial condition and operating results for that period* maybe adversely affected. As of March 31, 2024and December 31, 2023,there wereno* legal matters that, in the opinion of management, would ultimately result in liability that would have a material adverse effect on the Company’s financial position, results of operations or cash flows. Any outcome, whether favorable or unfavorable,* maymaterially and adversely affect the Company due to legal costs and expenses, diversion of management attention and other factors. The Company cannot provide assurance that additional contingencies of a legal nature or contingencies having legal aspects willnot* be asserted against it in the future, and these matters could relate to prior, current, or future transactions or events.

Leases

The Company leases office space for its corporate headquarters located in Emeryville, California. The current lease term expires on* July 31, 2027.*

-22-

Lease costs for thethree months ended* March 31, 2024and2023* were as follows (in thousands):

The Company has measured its operating lease liabilities as the present value of minimum lease payments using its incremental borrowing rate over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate for operating leases from continuing operations are summarized as follows:

Future lease payments under non-cancelable leases as of* March 31, 2024*were as follows (in thousands):

-23-

NOTE9. FINANCING ACTIVITIES

See Notes2,* “Summary of Significant Accounting Policies”;3, “Fair Value Measurements”;10, “Convertible Notes”;11, “Common Stock Warrants” and12, “Stockholders’ Equity*”* for certain defined terms below and additional discussion of financing activities and related accounting policies and fair value estimates.*

2024 Subsidiary Guarantee Termination

On* March 24, 2024,in connection with completing certain required conditions to close the DERMAdoctor Divestiture, the Company and the holders of the Secured Convertible Notes entered into a First Amendment (the “First Amendment”) to the Company’s Security Agreement, dated April 27, 2023 (the “Security Agreement”), to remove the Membership Units and any assets of DERMAdoctor as collateral for the Company’s obligations pursuant to the Secured Convertible Notes and for DERMAdoctor to be removed as a party to the Security Agreement, and a Consent and Release (the “Subsidiary Guarantee Consent”), to terminate the Subsidiary Guarantee, dated April 7, 2023 (the “Subsidiary Guarantee”) (collectively, the “2024 Subsidiary Guarantee Termination”). To obtain the secured parties’ consent that resulted in the reduction of the collateral available to secure the obligations under the Secured Convertible Notes and as consideration for the secured parties taking the necessary actions to execute and deliver the First Amendment and the Subsidiary Guarantee Consent, the Company provided each secured party the option, at the Secured Party’s election, to receive only upon the closing of the DERMAdoctor Divestiture either a March 2024Warrant (see Note11,* “Common Stock Warrants”) or an Unsecured Convertible Note (see Note10 “Convertible Notes”).

The Company issued, based on the secured parties’ elections, (i) a* March 2024Warrant to a secured party that is exercisable for an aggregate of 1,000,000 shares of Common Stock and (ii) Unsecured Convertible Notes tofour* secured parties that have an aggregate principal amount of $525,000 or will be convertible into an aggregate of 3,750,000 shares of Common Stock.

The Company incurred total issuance costs of $130 thousand in conjunction with the2024 Subsidiary Guarantee Termination. The Company allocated $19 thousand of the issuance costs to the Unsecured Convertible Notes which was recorded as a discount in the Company’s condensed consolidated balance sheets. The remaining $111 thousand was allocated to the embedded derivative liability and warrant liability and expensed as “Other expense, net” in the Company’s condensed consolidated statements of operations, during thethree months ended* March 31, 2024.*

2023 Warrant Reprice Transaction

In* December 2023,** the Company entered into a warrant reprice transaction (the “2023 Warrant Reprice Transaction”) whereby the price terms of certain May 2023Warrants exercisable for 2,528,848 shares of common stock were amended and exercised. The price of the amended and exercised May 2023Warrants was reduced from $1.30 to $0.25. The Company also issued to participants in the2023* Warrant Reprice Transaction, the* December 2023*Warrants exercisable for 2,528,848 shares of common stock.

The2023 Warrant Reprice Transaction resulted in gross proceeds of approximately $0.6 million. The Company allocated the gross proceeds between the common stock and* December 2023** Warrants issued to participants by applying the relative fair value allocation methodology. The Company allocated $0.2 million in gross proceeds to the common stock and $0.4 million to the December 2023** Warrants which were classified as a liability upon issuance and as of March 31, 2024.*

The Company incurred total issuance costs of $0.2 million in conjunction with the*2023** *Warrant Reprice Transaction. The Company allocated $0.1 million of the issuance costs to the common stock which was recorded as a reduction of additional paid-in capital in the Company’s condensed consolidated balance sheets. The remaining $0.1 million was allocated to the warrant liability and expensed as “Other expense, net” in the Company’s condensed consolidated statements of operations.

2023 Private Placement

In* May 2023,the Company closed a private placement (the “2023 Private Placement”) with existing accredited institutional investors of the Company that provided for the issuance and sale of $3.3 million aggregate principal amount of the Secured Convertible Notes and the May 2023*Warrants exercisable for up to 5,076,928 shares of common stock.

The Company received gross proceeds of $3.0 million from the2023 Private Placement. The Company allocated the proceeds from the2023 Private Placement between the* May 2023Warrants, an embedded derivative liability, and the Secured Convertible Notes by applying the residual fair value methodology. The Companyfirst* allocated $1.6 million to the* May 2023*Warrants and $0.2 million to the embedded derivative liability with the residual $1.2 million allocated to the Secured Convertible Notes. The embedded derivative liability was subsequently reclassified to equity upon stockholder approval.

The Company incurred total issuance costs of $0.7 million in conjunction with the2023 Private Placement, including a $0.4 million non-cash loss on the warrant modification. The Company allocated $0.3 million of the issuance costs to the Secured Convertible Notes which was recorded as a discount in the Company’s condensed consolidated balance sheets. The remaining $0.4 million was allocated to the embedded derivative liability and warrant liability and expensed as “Other expense, net” in the Company’s condensed consolidated statements of operations.

-24-

NOTE10. CONVERTIBLE NOTES

Unsecured Convertible Note

In* March 2024,the Company issued $525 thousand aggregate principal amount unsecured convertible notes (the “Unsecured Convertible Notes”) in conjunction with the2024* Subsidiary Guarantee Termination. The2024 Subsidiary Guarantee Termination was executed with certain holders of the Secured Convertible Notes in order to close the DERMAdoctor Divestiture (see additional discussion in Note9, “Financing Activities” and Note17, “Divestiture and Discontinued Operations”). The Unsecured Convertible Notes are due* March 25, 2026and bearno* stated interest.

The Unsecured Convertible Notes* maybe converted or redeemed for a conversion price equal to $0.14 per share at any time beginning on the date that the Company’s stockholders approve the conversion of up to the aggregate principal amount of all of the Unsecured Convertible Notes. Any such conversion is at the election of individual holders up to the amount of outstanding principal at the time of conversion subject to certain limitations such as beneficial ownership limitations. Upon stockholder approval, the Unsecured Convertible Notes will be convertible for up to 3,750,000 shares of common stock. If stockholder approval isnot* obtained by* September 25, 2024,*the Unsecured Convertible Notes will become immediately due and payable.

Upon issuance in* March 2024,the lender’s conversion option under the Unsecured Convertible Notes represented an embedded call option requiring bifurcation as an embedded derivative liability because the common stock underlying the option required stockholder approval before the option could be exercised. The fair value of the embedded derivative was determined to be $224 thousand as of the date of issuance in accordance with a Black Scholes valuation model. See also Note3,* “Fair Value Measurements”, subheading “Black Scholes Valuation Model Assumptions”. Upon stockholder approval of conversion of the notes, the embedded call option willno longer require liability treatment and will be reclassified to equity. The fair value of the embedded derivative liability was determined to be $159 thousand as of* March 31, 2024.The change of $65 thousand in fair value between the date of issuance and as of March 31, 2024was recorded as a non-cash gain on change in fair value of embedded derivative liability in the condensed consolidated statements of operations. See also Note3,* “Fair Value Measurements”, subheading “Black Scholes Valuation Model Assumptions”.

The discount to the note recorded for the embedded derivative liability upon issuance and debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Unsecured Convertible Notes, assuming that the Unsecured Convertible Notes will be redeemed for cash of $525 thousand at time of maturity as of* March 25, 2026.During thethree* month period ended* March 31, 2024,the effective interest rate on the Unsecured Convertible Notes was 144%. During thethree* month period ended* March 31, 2024,*interest expense recognized, including amortization of the issuance costs and debt discount, was nominal, which was included in other expense, net in the condensed consolidated statements of operations.

Secured Convertible Note

In* May 2023,the Company issued $3.3 million aggregate principal amount Original Issue Discount Senior Secured Convertible Debentures (the “Secured Convertible Notes”) in conjunction with the2023* Private Placement (see Note9, “Financing Activities”). The Secured Convertible Notes were issued with a $300 thousand original issue discount. The Secured Convertible Notes are due* November 1, 2024.*

The Secured Convertible Notes* maybe converted or redeemed for a conversion price equal to $1.30 per share at any time at the election of the holder up to the amount of outstanding principal at the time of conversion subject to certain limitations such as beneficial ownership limitations. Upon issuance, the Secured Convertible Notes were convertible for up to 2,538,464 shares of common stock. As of March 31, 2024,*the Secured Convertible Notes were convertible for up to 1,030,944 shares of common stock.

Beginning* June 1, 2023,the Company was required to start making a monthly redemption of1/18th of the original principal amount of the Secured Convertible Notes. Each monthly redemption reduces the outstanding principle of the Secured Convertible Note by $183 thousand and maybe made in cash or, under limiting conditions, in stock at the election of the Company. Monthly redemption in cash requires a total payment of $193 thousand. Monthly redemption in stock requires the issuance of shares equal to $193 thousand divided by the lower of (i) $1.30 or (ii)90% of the Company’s common stock’s average volume-weighted average price over 10 trading days prior to the redemption. The conditions allowing for redemption in stock havenot* been met through* March 31, 2024*and the Company has made all monthly redemption payments in cash.

-25-

The Secured Convertible Notes also provide for a redemption equal to up to 20% of the gross proceeds received by the Company from any financing completed while the Secured Convertible Notes are outstanding. In connection with the2023 Warrant Reprice Transaction (see Note12, “Stockholders’ Equity”), the Company made such a payment totaling $126 thousand in cash against the Secured Convertible Notes.

If any event of default occurs, the outstanding principal amount of the Secured Convertible Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing thereof become immediately due and payable in cash at the holder’s election. After any event of default, the Secured Convertible Notes will also accrue interest at a rate up to 18% per year. The Secured Convertible Notes are secured obligations of the Company including a security interest, a lien upon and a right of set-off against all of the Company’s assets as collateral security. DERMAdoctor was released of such obligations in connection with the DERMAdoctor Divestiture.

Upon issuance in* May 2023,the lender’s conversion option under the Secured Convertible Notes represented an embedded call option requiring bifurcation as an embedded derivative liability because the common stock underlying the option required stockholder approval before the option could be exercised. The fair value of the embedded derivative was determined to be $209 thousand as of the date of issuance. After stockholder approval of the underlying common stock, the embedded call optionno* longer required liability treatment and was reclassified to equity. The fair value of the embedded derivative liability was determined to be $169 thousand upon stockholder approval. The change of $40 thousand in fair value between the date of issuance and stockholder approval was recorded as a non-cash gain on change in fair value of embedded derivative liability in the consolidated statements of operations. See also Note3, “Fair Value Measurements”, subheading “Black Scholes Valuation Model Assumptions”.

The lender’s subsequent financing redemption option and certain events of default also represent embedded call options and the Company’s monthly share redemption option represents an embedded put option. The fair value of these options was determined to be immaterial upon issuance and at each subsequent reporting date.

The Company allocated $1.2 million of gross proceeds from the2023 Private Placement to the Secured Convertible Notes.

The difference between the $1.2 million allocated to the Secured Convertible Notes and the $3.3 million aggregate principal amount represent discounts for the portion of proceeds allocated to the embedded derivative liability and the* May 2023Warrants (See Note11,* “Common Stock Warrants”) as well as the $0.3 million original issue discount. The Company also allocated $0.3 million of debt issuance costs to the Secured Convertible Notes.

The discounts and debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Secured Convertible Notes, assuming that the Secured Convertible Notes will be redeemed for cash of $193 thousand per month beginning in* June 2023.The effective interest rate on the Secured Convertible Notes was 173%. During thethree* months ended* March 31, 2024,*interest expense recognized, including amortization of the issuance costs and debt discount, was $0.4 million, which was included in other expense, net in the condensed consolidated statements of operations.

The Secured Convertible Notes are presented as follows as of* March 31, 2024 (*in thousands):

The Secured Convertible Notes, net, are classified as short term in the Company’s condensed consolidated balance sheets.

As of* March 31, 2024,*the Company’s contractual maturity of the principal balance of the Secured Convertible Notes was as follows (in thousands):

-26-

NOTE11. COMMON STOCK WARRANTS

See Notes2,* “Summary of Significant Accounting Policies”;3, “Fair Value Measurements”;9, “Financing Activities”; and12, “Stockholders’ Equity*”* for certain defined terms below and additional discussion of financing activities and related accounting policies and fair value estimates.*

**** March 2024Warrant**

In* March 2024,the Company executed the First Amendment and Subsidiary Guarantee Consent as part of the2024* Subsidiary Guarantee Termination with holders of the Secured Convertible Notes (see Note10, “Convertible Notes”) in order to close the DERMAdoctor Divestiture (see additional discussion in Note9, “Financing Activities” and Note17, “Divestiture and Discontinued Operations”). In exchange for the consent of each holder, the option, at the holder’s election, to receive upon the closing of the DERMAdoctor sale either, a new common stock warrant (the “**** March 2024Warrant**”), or a new unsecured convertible note (see additional discussion in Note17, “Divestiture and Discontinued Operations”). One holder elected the option to receive aMarch2024 Warrant exercisable for 1,000,000 shares of common stock for $0.14 per share.

Upon issuance, the* March 2024Warrant was subject to stockholder approval prior to exercise. Stockholder approval hadnot* occurred as of* March 31, 2024.*This warrant was recorded as a liability at fair value upon issuance and will continue to be recorded as a liability at fair value at each reporting date until stockholder approval occurs.

**** December 2023Warrants**

In* December 2023,in conjunction with the2023* Warrant Reprice Transaction, the Company issued new common stock purchase warrants (the “**** December 2023Warrants**”) exercisable for 2,528,848 shares of common stock for $0.25 per share through* June 21, 2029.Upon issuance, the December 2023Warrants were subject to stockholder approval prior to exercise. Stockholder approval hadnot* occurred as of* March 31, 2024.*These warrants were recorded as a liability at fair value upon issuance and will continue to be recorded as a liability at fair value at each reporting date until stockholder approval occurs.

**** May 2023Warrants**

In* May 2023,in conjunction with the2023* Private Placement, the Company issued the following new common stock purchase warrants (collectively, the “**** May 2023Warrants**”):

In* December 2023,in conjunction with the2023* Warrant Reprice Transaction, the Company amended certain* May 2023Warrants to reduce their exercise prices to $0.25. Immediately after amendment, the following May 2023Warrants were exercised (while any unexercised May 2023*Warrants maintained an exercise price of $1.30):

For the amendment in* December 2023,the Company recognized a $0.2 million loss on modification of common stock warrants related to the May 2023*Warrants.

**** November 2022Warrants**

In* November 2022,in conjunction with the2022* Private Placement, the Company issued the following common stock purchase warrants (collectively, the “**** November 2022Warrants**”):

In* May 2023,in conjunction with the2023* Private Placement, the Company amended certain* November 2022*Warrants to reduce their exercise prices from $6.30 to $1.50 as follows:

For the amendment in* May 2023,the Company recognized a $0.1 million loss on modification of common stock warrants related to the November 2022*Warrants.

-27-

**** September 2022Warrants**

In* September 2022,in conjunction with the warrant reprice transaction (the “2022 Warrant Reprice Transaction”), the Company issued new common stock purchase warrants (the “*** September 2022Warrants**”) exercisable for 327,860 shares of common stock for $6.30 per share through* September 11, 2028.*

In* May 2023,in conjunction with the2023* Private Placement, the Company amended certain* September 2022*Warrants exercisable for 238,574 shares of common stock to reduce their exercise prices from $6.30 to $1.50.

For the amendment in* May 2023,the Company recognized a $46 thousand loss on modification of common stock warrants related to the September 2022*Warrants.

**** November 2021Warrants**

In* November 2021,in conjunction with a private placement transaction, the Company issued the new common stock purchase warrants (the “*** November 2021Warrants**”) exercisable for 1,071,434 shares of common stock for $18.55 per share through* March 9, 2023.*

In* September 2022,in conjunction with the2022* Warrant Reprice Transaction, the Company amended all* November 2021Warrants to reduce their exercise prices from $18.55 to $6.30 and extend their termination date to September 11, 2028.Immediately after amendment, November 2021*Warrants were exercised for 267,860 shares of common stock.

In* May 2023,in conjunction with the2023* Private Placement, the Company amended certain* November 2021*Warrants exercisable for 535,716 shares of common stock to reduce their exercise prices from $6.30 to $1.50.

For the amendments in* September 2022and May 2023,the Company recognized a loss on modification of common stock warrants related to the November 2021*Warrants of $1.5 million and $0.1 million, respectively.

**** July 2020Warrants**

In* July 2020,in conjunction with a private placement transaction, the Company issued the new common stock purchase warrants (the “*** July 2020Warrants**”) exercisable for 197,105 shares of common stock for $57.75 per share through* January 22, 2026.*

In* September 2022,in conjunction with the2022* Warrant Reprice Transaction, the Company amended certain* July 2020Warrants exercisable for 137,145 shares of common stock to reduce their exercise prices from $57.75 to $6.30. Immediately after amendment, July 2020*Warrants were exercised for 60,000 shares of common stock.

In* May 2023,in conjunction with the2023* Private Placement, the Company amended certain* July 2020*Warrants exercisable for 77,145 shares of common stock to reduce their exercise prices from $6.30 to $1.50.

For the amendments in* September 2022and May 2023,the Company recognized a loss on modification of common stock warrants related to the July 2020*Warrants of $0.4 million and $14 thousand, respectively.

Summary of Common Stock Warrant Activity and Outstanding

Activity related to common stock warrants outstanding during thethree months ended* March 31, 2024and2023* were as follows:

-28-

Common stock warrants outstanding as of* March 31, 2024*were as follows:

The March 2024Warrant will be initially exercisable on the later of (A) thesix* (6) month anniversary of the date of issuance or (B) the date immediately following the date on which Company stockholders approve the exercise of the* March 2024Warrant into shares of Common Stock and have a term of exercise offive* (5) years from the date that the* March 2024*Warrant becomes exercisable.

Summary of Common Stock Warrant Liabilities

The following is a reconciliation of the beginning and ending balances for warrant liabilities measured at fair value on a recurring basis (in thousands). See additional information per Note3, “Fair Value Measurements”, subheading “Black Scholes Valuation Model Assumptions.”

-29-

NOTE12. STOCKHOLDERS’** EQUITY**

Authorized Share Capital

Under the Company’s Amended and Restated Certificate of Incorporation, as amended, the Company is authorized to issue up to 150,000,000 shares of common stock and up to 5,000,000 shares of preferred stock with rights and preferences as* may*be approved by the Company’s Board of Directors.

Preferred Stock

There weretwo series of preferred stock of the Company outstanding during thethree months ended* March 31, 2024and2023* – the Series B Non-Voting Convertible Preferred Stock (“Series B Preferred Stock”) and the Series C Non-Voting Convertible Preferred Stock (“Series C Preferred Stock”) (and combined, the “Preferred Stock”). The rights and preferences of the Series B Preferred Stock and Series C Preferred Stock are nearly identical. The Preferred Stock doesnot have any preemptive rights or a preference upon any liquidation, dissolution or winding-up of the Company. Each share of Preferred Stock is convertible into $1,000 of common stock at the conversion price per share applicable at the time of conversion. Until its expiration (as described in more detail below), the Preferred Stock had anti-dilution protection (the “Ratchet”) in the event that the Company sold or granted any of its common stock or any other securities, subject to certain limited exceptions, that would entitle the holder thereof to acquire common stock at an effective price per share that is lower than the then applicable conversion price of the Preferred Stock.

Series B Preferred Stock

The Company issued 15,000 shares of Series B Preferred Stock in* November 2021in connection with a private placement transaction. As of March 31, 2024and2023,* 904 and 11,620 shares of Series B Preferred Stock remained outstanding, respectively. As of* March 31, 2024and2023,* outstanding shares of Series B Preferred Stock were convertible into 3,616,000 and 1,847,580 shares of common stock at a conversion price of $0.25 and $6.30, respectively.

In accordance with the Ratchet, the Series B Preferred Stock conversion price was reduced as follows (see also Notes2, “Summary of Significant Accounting Policies” and3, “Fair Value Measurements”):

On* January 29, 2024,the Ratchet of the Series B Preferred Stock expired withno* further impact because greater than 75% of the originally issued 15,000 Series B Preferred Stock had been converted into common stock. The Series B Preferred Stock conversion price will remain at $0.25 until all remaining Series B Preferred Stock has been converted.

Series C Preferred Stock

We issued 3,250 shares of Series C Preferred Stock in* November 2022in connection with the2022* Private Placement (see Note9, “Financing Activities”). As of* March 31, 2024and2023,* 727 and 2,250 shares of Series C Preferred Stock remained outstanding, respectively. As of* March 31, 2024and2023,* outstanding shares of Series C Preferred Stock were convertible into 5,192,961 and 357,750 shares of common stock at a conversion price of $0.14 and$6.30, respectively.

In accordance with the Ratchet, the Series C Preferred Stock conversion price was reduced as follows during thethree months ended* March 31, 2024and2023* (see also Notes2, “Summary of Significant Accounting Policies” and3, “Fair Value Measurements”):

On* March 27, 2024,the Ratchet of the Series C Preferred Stock expired withno* further impact because greater than 75% of the originally issued 3,250 Series C Preferred Stock had been converted into common stock. The Series C Preferred Stock conversion price will remain at $0.14 until all remaining Series C Preferred Stock has been converted.

-30-

Common Stock

See Note9, “Financing Activities” and Note11, “Common Stock Warrants” for a description of common stock and common stock warrant-related transactions during thethree months ended* March 31, 2024and2023.*

NOTE13. EQUITY-BASED COMPENSATION

Equity Compensation Plans

In* October 2007,the Company adopted the2007* Omnibus Incentive Plan (the “2007 Plan”) to provide for the granting of equity awards, such as stock options, unrestricted and restricted common stock, stock units, dividend equivalent rights, and stock appreciation rights to employees, directors and outside consultants, as determined by the Board. The2007 Plan expired on* March 15, 2017.Upon expiration, new awards cannot be issued pursuant to the2007* Plan, but outstanding awards continue to be governed by its terms. Stock options granted under the2007 Plan expireno later thanten years from the date of grant. All stock options outstanding under the2007 Plan were fully vested as of* December 31, 2021.*

In* March 2017,the Company adopted the2017* Omnibus Incentive Plan (the “2017 Plan”), which was approved by stockholders on* June 2, 2017,to provide for the granting of equity awards, such as nonqualified stock options (“NQSOs”), incentive stock options (“ISOs”), restricted stock, performance shares, stock appreciation rights (“SARs”), RSUs and other share-based awards to employees, directors, and consultants, as determined by the Board. The2017* Plan doesnot affect awards previously granted under the2007 Plan. Upon adoption, the2017 Plan allowed for awards of up to 66,243 shares of the Company’s common stock, plus an automatic annual increase in the number of shares authorized for awards on thefirst day of each of the Company’s fiscal years beginning* January 1, 2018through January 1, 2027equal to (i)4% of the number of shares of common stock outstanding on the last day of the immediately preceding fiscal year or (ii) such lesser number of shares of common stock as determined by the Board. On March 31, 2023,the number of shares available for future awards under the2017* Plan was increased by 81,417 shares. As of* March 31, 2024,there were 179,585 shares available for future awards under the2017* Plan.

Under the terms of the2017 Plan, the exercise price of NQSOs, ISOs and SARs* may**not* be less than 100% of the fair market value of the common stock on the date of grant and, if ISOs are granted to an owner of more than 10% of the Company’s stock, thennot less than 110% of the fair market value of the common stock on the date of grant. The term of awards willnot be longer thanten years or, in the case of ISOs,no longer than five years with respect to holders of more than10% of the Company’s stock. Stock options granted to employees generally vest over four years, while options granted to directors and consultants typically vest over a shorter period, subject to continued service. The Company issues new shares to satisfy options under the2007 Plan and the2017 Plan.

Summary of Outstanding Equity Awards

The following table summarizes information about the Company’s stock options and restricted stock outstanding at* December 31, 2023,and activity during thethree* month period ended* March 31, 2024:*

-31-

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock as quoted on the NYSE American as of* March 31, 2024for options that have an exercise price that is lower than the market price. There wereno stock option awards exercised during thethree* months ended* March 31, 2024or2023.* The Company receivedno cash payments for the exercise of stock options during thethree months ended* March 31, 2024and2023.*

As of* March 31, 2024,*total unrecognized compensation cost related to unvested stock options and restricted stock was approximately $0.1 million. This amount is expected to be recognized as stock-based compensation expense in the Company’s condensed consolidated statements of operations over the remaining weighted average vesting period of 1.41 years.

Equity Awards to Employees and Directors

The Company grants options to purchase common stock to its employees and directors at prices equal to or greater than the market value of the stock on the dates the options are granted. The Company has estimated the value of stock option awards as of the date of grant by applying the Black-Scholes option pricing model using the single-option valuation approach. The application of this valuation model involves assumptions that are judgmental and subjective in nature. See Note2, “Summary of Significant Accounting Policies,” for a description of the accounting policies that the Company applied to value its stock-based awards.

During thethree months ended* March 31, 2024,the Company didnot grant any options to employees or directors. During thethree* months ended* March 31, 2023,*the Company granted options to employees or directors to purchase an aggregate of 3,650 shares of common stock.

The weighted-average assumptions used in determining the value of options were as follows:

Expected Price Volatility—This is a measure of the amount by which the stock price has fluctuated or is expected to fluctuate. The computation of expected volatility was based on the historical volatility of our own stock.

Expected Term—This is the period of time over which the options granted are expected to remain outstanding. The expected life assumption is based on the Company’s historical data.

Risk-Free Interest Rate—This is the U.S. Treasury rate for the week of the grant having a term approximating the expected life of the option.

Dividend Yield—The Company hasnot made any dividend payments nor does the Company have plans to pay dividends in the foreseeable future.

Forfeitures are estimated at the time of grant and reduce compensation expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

During thethree months ended* March 31, 2024and2023,* the Company didnot grant restricted stock to employees or directors.

For thethree months ended* March 31, 2024and2023,* the Company recognized stock-based compensation expense of $47 thousand and $75 thousand, respectively, for option awards to employees and directors.

Stock-Based Awards to Non-Employees

During thethree months ended* March 31, 2024and2023,* the Company didnot grant options to non-employees in exchange for advisory and consulting services.

The Company didnot grant restricted stock to non-employees during thethree months ended* March 31, 2024.*

For thethree months ended* March 31, 2024and2023,* the Company recognized stock-based compensation expense of $13 thousand and $0, respectively, as it relates to non-employees.

-32-

Summary of Stock-Based Compensation Expense

A summary of the stock-based compensation expense included in results of operations for the options and restricted stock awards discussed above is as follows (in thousands):

NOTE14. DISTRIBUTION AGREEMENTS

Transactions under the Company’s major distribution agreements are recognized upon transfer of control of products sold to its major distribution partners at the amount of consideration that the Company expects to be entitled to. The Company records contract liabilities for the amounts that are estimated to be subject to significant reversal, including allowances for services, discounts, rebate programs, and product returns.

Product Sales Discounts and Allowances

The following table presents activities and ending reserve balances for each significant category of discounts and allowance, which constitute variable consideration, for thethree months ended* March 31, 2024 (*in thousands):

Avenova Spray Pharmacy Distribution Agreements and Specialty Pharmacies

Avenova Spray is made available in local pharmacies and major pharmacy retail chains under nationwide distribution agreements with McKesson Corporation, Cardinal Health and AmerisourceBergen. The Company has also entered into direct agreements with preferred pharmacy networks as part of our Partner Pharmacy Program. During thethree months ended* March 31, 2024and2023,* the Company earned $55 thousand and $92 thousand, respectively, in sales revenue for its Avenova Spray product from these distribution and partner pharmacy agreements.

Under these product distribution arrangements, the Company had a contract liability balance of $0.7 million as of* March 31, 2024and December 31, 2023.*The contract liability is included in accrued liabilities in the condensed consolidated balance sheets.

Over-the-Counter Sales of Avenova Spray

Avenova Spray is offered for sale direct to U.S. customers primarily on Amazon.com, the Company’s website (Avenova.com) and Walmart.com. During thethree months ended* March 31, 2024and2023,* the revenue generated from Avenova Spray in these channels was $1.7 million and $1.6 million, respectively.

-33-

NOTE15. EMPLOYEE BENEFIT PLAN

The Company has a401(k) plan covering all eligible employees. The Company provides matching contributions equal to 100% of thefirst 3% of compensation deferred, plus 50% of the next 2% of compensation deferred. The Company contributed $24 thousand and $23 thousand to the plan from continuing operations in thethree months ended* March 31, 2024and2023,* respectively. The Company contributed $9 thousand to the plan from discontinued operations in thethree months ended* March 31, 2023.*

NOTE16. SEGMENT REPORTING

The Company operates asone reportable segment, Eyecare and Wound Care, which is described in further detail below. This is based on the objectives of the business and how our chief operating decision maker (CODM), the President and Chief Executive Officer, monitors operating performance and allocates resources.

Change in Reportable Segments

The Company previously operated in principallytwo reportable segments, (1) Eyecare and Wound Care and (2) Skincare. During thethree month period ended* March 31, 2024,*in connection with the previously announced strategic shift and upon the DERMAdoctor Divestiture, the Company has ceased to operate the Skincare segment. As a result, the Company changed the level of detail at which our CODM regularly reviews and manages the businesses, resulting in a change to our reportable segments.

We now manage and report our operating results throughone reportable segment: Eyecare and Wound Care. This change allows us to better align our business models, resources, and cost structure to the specific current and future growth of our business, while maintaining the necessary information and transparency to our stockholders. Our historical segment information has been recast to conform to the current segment structure.

-34-

NOTE17. DIVESTITURE AND DISCONTINUED OPERATIONS

On* March 12, 2024,the Company entered into an agreement to sell 100% of the membership units of DERMAdoctor for a closing purchase price of $1.1 million. The sale of the membership units closed, and the DERMAdoctor Divestiture occurred, on March 25, 2024.In order to close the sale, the Company was required to obtain the consent of the holders of the Secured Convertibles Notes (see Note10,* “Convertible Notes”) issued in* May 2023*to (i) amend the Security Agreement to remove the Membership Units and any assets of DERMAdoctor as collateral for the Company’s obligations pursuant to the Secured Convertible Notes and for DERMAdoctor to be removed as a party to the Security Agreement and (ii) terminate the Subsidiary Guarantee, which DERMAdoctor entered into in connection with the issuance of the Secured Convertible Notes.

On* March 24, 2024,the Company and the secured parties entered into a First Amendment to the Security Agreement, to effect an amendment to the Security Agreement and a Consent and Release to terminate the Subsidiary Guarantee. To obtain the secured parties’ consent and as consideration for the secured parties taking the necessary actions to execute and deliver the First Amendment and the Subsidiary Guarantee Consent, the Company provided each secured party the option, at the secured party’s election, to receive only upon the closing of the DERMAdoctor Sale Transaction either: a March 2024Warrant or the Unsecured Convertible Notes (see Note10* “Convertible Notes”).

The accounting requirements for reporting the DERMAdoctor business as discontinued operations were met during thefirst quarter of2024. Accordingly, the condensed consolidated financial statements and notes to the condensed consolidated financial statements reflect the results of the DERMAdoctor business as a discontinued operation for the periods presented.

In accordance with the provisions of ASC205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the condensed consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the condensed consolidated balance sheets as of* December**31,* 2023, and consist of the following (in thousands):

-35-

In accordance with the provisions of ASC205-20, the Company hasnot included in the results of continuing operations the results of operations of the discontinued operations in the condensed consolidated statements of operations. The results of DERMAdoctor’s operations for thethree months ended* March**31,* 2024 and2023 have been reflected as discontinued operations in the condensed consolidated statements of operations and consist of the following (in thousands):

In accordance with the provisions of ASC205-20, the Company hasnot included in the results of continuing operations the results of operations of the discontinued operations in the condensed consolidated statements of cash flows. The results of DERMAdoctor for thethree months ended* March**31,* 2024 and2023 have been reflected as discontinued operations in the condensed consolidated statements of cash flows and consist of the following (in thousands):

NOTE18. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the filing date of this Form10-Q* with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed consolidated financial statements as of March 31, 2024**,* and events which occurred subsequently but werenot recognized in the condensed consolidated financial statements. Except as described below, there wereno subsequent events which required recognition, adjustment to or disclosure in the unaudited condensed consolidated financial statements.

On* April 18, 2024,the Company received a notification from the NYSE American LLC Exchange (“NYSE American”) stating that the Company isnot* in compliance with Section1003(a)(ii) and1003(a)(iii) of the NYSE American Company Guide (requiring stockholders’ equity of*$4.0* million or more if the Company has reported losses from continuing operations and/or net losses inthree of thefour most recent fiscal years and*$6.0* million or more if the Company has reported losses from continuing operations and/or net losses in itsfive most recent fiscal years, respectively). Therefore, the Company has become subject to the procedures and requirements of Section1009 of the NYSE American Company Guide and must submit a plan of compliance by* May 18, 2024addressing how it intends to regain compliance with Section1003*(a)(ii) and1003(a)(iii) of the NYSE American Company Guide by* October 18, 2025.*The Company has submitted its plan of compliance to the NYSE for its review.

Subsequent to thethree month period ended* March 31, 2024,*273 shares of Series B Preferred Stock and 660 shares of Series C Preferred Stock were converted into 1,092,000 and 4,714,380 shares of common stock, respectively.

-36-