NovaBay Pharmaceuticals, Inc.

NOTE 1.** ORGANIZATION

NovaBay Pharmaceuticals, Inc. (the “Company” or “our,” “we,” or “us”) was historically focused on the development and sale of scientifically-created and clinically-proven eyecare, wound care, and skin care products. We have undergone significant changes to our business and operations as a result of completing the following transactions:

Following the closing of these transactions, we significantly reduced the Company’s assets and operations and significantly reduced our current and expected revenue. We do, however, continue to manufacture our wound care products domestically in the United States and export finished goods to China.

The Company was incorporated under the laws of the State of California on January 19, 2000, as NovaCal Pharmaceuticals, Inc. It had no operations until July 1, 2002, on which date it acquired all of the operating assets of NovaCal Pharmaceuticals, LLC, a California limited liability company. In February 2007, the Company changed its name from NovaCal Pharmaceuticals, Inc. to NovaBay Pharmaceuticals, Inc. In June 2010, the Company changed the state in which it was incorporated pursuant to the Reincorporation and is now incorporated under the laws of the State of Delaware. All references to “the Company” herein refer to the California corporation prior to the date of the Reincorporation and to the Delaware corporation on and after the date of the Reincorporation. The Company is managed asone reportable segment consisting of its ongoing wound care business.

On May 30, 2024, the Company effected the Reverse Stock Split. Except as otherwise specifically noted, all share numbers, share prices, exercise/conversion prices and per share amounts have been adjusted, on a retroactive basis, to reflect the Reverse Stock Split.

Discontinued Operations

Historical financial results related to each of the businesses and assets divested above are now presented as discontinued operations in our unaudited condensed consolidated financial statements (see Note 14, “Avenova Asset Divestiture and Bridge Loan”; Note 15 “PhaseOne Divestiture”; and Note 16, “DERMAdoctor Divestiture”).

Strategic Options and Plan of Dissolution

The Company’s board of directors (the “Board”) unanimously approved each of the transactions above and is now evaluating the strategic options available to the Company. After our consideration of various factors, and the absence of other more favorable strategic options available to us at the time, the Board unanimously determined that the best opportunity available to maximize the remaining value for our Company and to our stockholders was to pursue a voluntary liquidation and dissolution under Delaware law (the “Dissolution”) pursuant to a Plan of Complete Liquidation and Dissolution (the “Plan of Dissolution”) and obtain stockholder approval for the Dissolution at a special meeting of stockholders that was held on April 16, 2025 (the “2025 Special Meeting”). During the period that the Company was seeking stockholder approval of the Dissolution proposal at the 2025 Special Meeting, the Company was also exploring and evaluating other alternative strategic transactions available to the Company, including mergers, reverse mergers, strategic partnerships, investments, licensing and sub-licensing transactions. Stockholders approved the Dissolution at the 2025 Special Meeting. Although stockholder approval of the Dissolution was received, the Board (as part of this approval) was also authorized to subsequently determine, in its discretion, whether or not to proceed with the Dissolution. Accordingly, the Board now retains complete discretion to evaluate and determine if and when the Dissolution should be effected or if another strategic option would instead be available to us that would be a better opportunity to maximize our remaining value for our Company and stockholders and be in the best interests of our Company and stockholders.

If the Board determines to proceed with the Dissolution, then the Company would consider liquidation to be imminent and apply the liquidation basis of accounting pursuant to the accounting principles generally accepted in the United States (“U.S. GAAP”).

Liquidity

Based on our funds available on June 30, 2025, management believes that the Company’s existing cash and cash equivalents will be sufficient to enable the Company to meet its planned operating expenses at least through August 14, 2026; however, there is uncertainty with respect to our strategic direction in the near term. Although the Dissolution was approved by stockholders at the 2025 Special Meeting, it has not been authorized by the Board as the Company is continuing to explore other potential strategic alternatives that may be available to us that could represent a better opportunity for us to maximize our remaining value for our Company and stockholders. As a result, when we do make a determination and pursue our strategic direction in the near term, there may be unknown or potential future claims and liabilities that may arise or changing circumstances that may cause the Company to expend cash significantly faster than currently anticipated because of factors beyond its control.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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 unaudited condensed consolidated financial statements include the accounts of the Company and its former wholly-owned subsidiary, DERMAdoctor, as of and for the six months ended June 30, 2024. All significant intercompany balances and transactions have been eliminated in consolidation. See also Note 16, “DERMAdoctor Divestiture.” The accompanying unaudited condensed consolidated financial statements include only the accounts of the Company for the three and six months ended June 30, 2025.

Financial Statement Reclassification

Certain account balances from prior periods have been reclassified in these unaudited condensed consolidated financial statements to conform to current period classifications. Prior year amounts have been modified in these unaudited condensed consolidated financial statements to properly report amounts under current operations and discontinued operations (see Note 14, “Avenova Asset Divestiture and Bridge Loan”; Note 15, “PhaseOne Divestiture”; and Note 16, “DERMAdoctor Divestiture”).

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 unaudited condensed consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, contract liabilities related to product sales such as product returns, assumptions for valuing warrants, assumptions for valuing derivative liabilities, intangible assets, goodwill, long-lived asset impairments, 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.

Segment Information

The Company has one operating and reportable segment that encompasses the Company’s consolidated ongoing operations, reflecting the integrated nature of its currently limited business. The Company’s chief operating decision maker (“CODM”) is its chief executive officer. The measurement of profit and loss is the segment loss, which is equivalent to the “net loss from continuing operations” as reported on the Company's condensed consolidated statement of operations. The measurement of segment assets is reported on the Company’s condensed consolidated balance sheet as “total assets.” The CODM allocates resources to the Company’s initiatives and assesses performance on a consolidated basis, focused on the maintenance of the Company’s cash resources while meeting its wound care commitments through June 30, 2025, completing commitments under the Avenova Asset Divestiture Transition Services Agreement through May 17, 2025, assessing strategic alternatives on an ongoing basis and maintaining its public company status. The CODM is not regularly provided with disaggregated actual expense information, other than the actual expense information included in the consolidated statements of operations, as the Company’s integrated operating model emphasizes shared resources and centralized decision-making.

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 does not include all disclosures required by U.S. GAAP. The unaudited condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.

The unaudited 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, 2024, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on April 2, 2025 (collectively, the “2024 Annual Report”).

Cash, Cash Equivalents, and Highly Liquid Restricted Cash

The Company considers all highly-liquid instruments with a stated maturity of three 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 June 30, 2025 and December 31, 2024, 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.

Fair Value of Financial Assets and Liabilities

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts payable, accrued liabilities and warrant liabilities. The Company’s cash and cash equivalents, restricted cash, 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 are three levels of inputs that may be used to measure fair value:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable; and

Level 3 – 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 Note 3, “Fair Value Measurements.”

Inventory, Net

Inventory is comprised of finished goods. The Company utilizes a contract manufacturer to produce our products and the price paid to this manufacturer is included in inventory. Inventory is stated at the lower of cost or estimated net realizable value determined by the first-in, first-out method.

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.

Impairment of Long-Lived Assets

The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360,* Property, Plant and Equipment*, which requires that companies consider whether events or changes in facts and circumstances, both internally and externally, may indicate 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 are no 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 are not 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 recorded $0 thousand and $589 thousand in property and equipment impairment losses for the three and six months ended June 30, 2025, respectively, which included $30 thousand for fixed assets including leasehold improvements and $559 thousand for operating lease right-of-use assets. The Company didnot record any impairment losses for the three and six months ended June 30, 2024.

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 typically not 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.

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 was not 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 were not 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.

The Company recorded $559 thousand in impairment losses for the six months ended June 30, 2025 related to operating lease right-of-use assets.

Common Stock Warrants

The Company accounts for common stock purchase warrants issued in connection with its equity offerings in accordance with the provisions of ASC 480,Distinguishing Liabilities from Equity and ASC 815,Derivatives and Hedging (ASC 815).

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 ASC 815, the Company also classifies as liabilities any warrants for 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 Note 3, “Fair Value Measurements,” subheading “Black Scholes Valuation Models and Assumptions” and Note 10, “Common Stock Warrants.”

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 Note 3, “Fair Value Measurements,” subheading “Black Scholes Valuation Models and 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 Note 11, “Stockholders’ Equity (Deficit)”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended March 31, 2024. Prior to a termination, when a conversion price for outstanding Preferred Stock was adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC 820,Fair Value Measurements and Disclosures (“ASC 820”), 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 Ratchet anti-dilution protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price adjustment (but without the Ratchet 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 Note 3, “Fair Value Measurements,” subheading “Black Scholes Valuation Models and Assumptions.”

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 Note 12, “Equity-Based Compensation” for further information regarding stock-based compensation expense and the assumptions used in estimating the expense.

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 than not that some portion or the entire deferred tax asset will not be recognized.

Net (Loss) Income per Share

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

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.

The following table provides a reconciliation of the numerator and denominator used for basic and diluted (loss) earnings per share (in thousands):

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 (in thousands):

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses” (“ASU 2024-03”). ASU 2024-03 is intended to increase transparency and provide investors with more detailed information about the nature of expenses reported on the face of the statements of operations. ASU No. 2024-03 does not change the requirements for the presentation of expenses on the face of the statements of operations. Under ASU No. 2024-03, entities are required to disaggregate, in tabular format, expenses presented on the face of the statements of operations if they include any of the following expense categories: purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation or depletion. For any remaining items within each relevant expense caption, entities must provide a qualitative description of the nature of those expenses. ASU No. 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. While the adoption of ASU 2024-03 is not expected to have an effect on our consolidated financial statements, it is expected to result in incremental disclosures within the notes to our consolidated financial statements. The Company is currently evaluating ASU 2024-03 and does not expect it to have a material effect on the Company’s consolidated financial statements.

NOTE 3. FAIR VALUE MEASUREMENTS

The following tables present the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 2025 and December 31, 2024 (in thousands):

The Company’s cash equivalents and restricted cash held as certificates of deposit are classified within Level 1 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.

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 Note 12, “Equity-Based Compensation” for related Black Scholes valuation assumptions.

Warrant Liabilities

Certain of the Company’s warrants were subject to stockholder approval upon issuance or amendment and prior to exercise. Warrants requiring stockholder approval 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 Note 10, “Common Stock Warrants” for additional information and the definitions of the Company’s warrants.

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 Note 11, “Stockholders’ Equity (Deficit)”). The applicable Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended March 31, 2024. Prior to its termination, when a conversion price for outstanding Preferred Stock was adjusted under the Ratchet, the Company recorded a deemed dividend as a reduction to income available to common stockholders. In accordance with ASC 820, 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 Ratchet anti-dilution protection feature) and (2) the fair value of the Preferred Stock immediately after the conversion price adjustment (but without the Ratchet anti-dilution protection feature). Fair value was determined using a Black Scholes model as outlined below.

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 Note 9, “Convertible Notes” for additional discussion). Fair value was determined using a Black Scholes model as outlined below.

NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

NOTE 5. PROPERTY AND EQUIPMENT

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

Depreciation expense related to continuing operations was $1 thousand and $8 thousand for the three months ended June 30, 2025 and 2024, respectively, and $3 thousand and $18 thousand for the six months ended June 30, 2025 and 2024, respectively.

During the three months ended June 30, 2025 and 2024, the Company did not dispose of damaged, unusable and fully depreciated property and equipment. During the six months ended June 30, 2025, the Company disposed of damaged, unusable and fully depreciated property and equipment with a cost of approximately $137 thousand withno comparable adjustments for the six months ended June 30, 2024.

Additionally, the Company impaired $30 thousand of its remaining fixed assets due to the uncertainty associated with its operations and its exploration of strategic alternatives during the six months ended June 30, 2025.

NOTE 6. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

NOTE 7. COMMITMENTS AND CONTINGENCIES

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 may enable it to recover a portion of any future payments. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, it has not recorded any liabilities for these agreements as of June 30, 2025 or December 31, 2024.

In the normal course of business, the Company provides indemnification of varying scope under its agreements with other entities, typically its suppliers and others, including in connection with capital raises transactions. Additionally, the Company provided for certain indemnification in conjunction with the Avenova Asset Divestiture (see Note 14, “Avenova Asset Divestiture and Bridge Loan”). 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 any third 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 are 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 has not recorded any liabilities for these agreements as of June 30, 2025 or December 31, 2024.

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. If one 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 may be adversely affected. As of June 30, 2025 and December 31, 2024, there were no 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, may materially 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 will not 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. During the six months ended June 30, 2025, the Company recorded an impairment of right-of-use assets of $559 thousand associated with the lease in the Company’s financial statements due to the uncertainty associated with its operations and its exploration of its strategic options, whether that may involve the Dissolution or a potential strategic alternative transaction.

Lease costs for the three and six months ended June 30, 2025 and 2024 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 June 30, 2025 were as follows (in thousands):

NOTE 8. FINANCING ACTIVITIES

See Notes 2,“Summary of Significant Accounting Policies;”* 3,“Fair Value Measurements;” 9,“Convertible Notes;” 10,“Common Stock Warrants” and 11,“Stockholders’ Equity (Deficit)” for certain defined terms below and additional discussion of financing activities and related accounting policies and fair value estimates.*

2024 Public Offering

On July 26, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Ladenburg Thalmann & Co., Inc., as the sole underwriter (the “Underwriter”), relating to the issuance and sale in a public offering (the “2024 Public Offering”) of: (i)1,158,566 shares of common stock and 2,041,814 pre-funded warrants, in lieu of shares of common stock (the “July 2024 Pre-Funded Warrants”), (ii)3,200,380 Series F-1 warrants to purchase up to 3,200,380 shares of common stock (the “Series F-1 Warrants”), (iii)3,200,380 Series F-2 warrants to purchase up to 3,200,380 shares of common stock (the “Series F-2 Warrants”) and (iv)3,200,380 Series F-3 warrants to purchase up to 3,200,380 shares of common stock (the “Series F-3 Warrants”, and together with the Series F-1 Warrants and Series F-2 Warrants, the “July 2024 Warrants”).

The Series F-1 Warrants had an exercise price of $1.10 per share at issuance, were exercisable immediately upon issuance, and will expire on thefive-year anniversary of the date of issuance. The Series F-2 Warrants had an exercise price of $1.10 per share at issuance, were exercisable immediately upon issuance, and have since expired on thesix-month anniversary of the date of issuance on January 29, 2025. The Series F-3 Warrants had an exercise price of $1.10 per share at issuance, were exercisable immediately upon issuance, and expired on theone-year anniversary of the date of issuance. The July 2024 Pre-Funded Warrants were immediately exercisable at a nominal exercise price of $0.01 per share and could be exercised at any time until the July 2024 Pre-Funded Warrants were exercised in full.

The July 2024 Warrants included a one-time down round feature adjustment where the exercise price was automatically reset to a price equal to the lesser of (i) the then exercise price and (ii)90% of the volume weighted average prices for the five (5) trading days immediately preceding the date that is sixty calendar days after issuance of the July 2024 Warrants as applicable. Such down round feature adjustment was triggered on September 27, 2024, which resulted in a reduced exercise price of $0.66 for all of the July 2024 Warrants.

The exercise price and number of shares of common stock issuable upon exercise of the July 2024 Warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting the common stock and the exercise price. Subject to limited exceptions, a holder may not exercise any portion of its July 2024 Warrants to the extent that the holder would beneficially own more than 4.99% (or, at the election of the holder prior to the date of issuance,9.99%) of the Company’s outstanding common stock after exercise.

In addition, the Company granted the Underwriter a 45-day option to purchase up to 477,272 additional shares of common stock and/or 477,272 Series F-1 Warrants to purchase up to 477,272 shares of common stock,477,272 Series F-2 Warrants to purchase up to 477,272 shares of common stock and 477,272 Series F-3 Warrants to purchase up to 477,272 shares of common stock, or any combination thereof, as determined by the Underwriter, at the public offering price, less underwriting discounts and commissions, in each case solely to cover over-allotments, if any.

The Underwriter partially exercised this option on July 26, 2024, for (i)336,832 shares of common stock, (ii)336,832 Series F-1 Warrants to purchase up to 336,832 shares of common stock, (iii)336,832 Series F-2 Warrants to purchase up to 336,832 shares of common stock and (iv)336,832 Series F-3 Warrants to purchase up to 336,832 shares of common stock.

The 2024 Public Offering closed on July 29, 2024, and the Company received gross proceeds of $3.9 million, without taking into account any underwriting discounts and commissions. A portion of the proceeds were used towards repaying the Secured Convertible Notes, which were repaid in full during the third quarter of 2024.

2024 Warrant Reprice Transaction

In June 2024,* *the Company entered into a warrant reprice transaction (the “2024 Warrant Reprice Transaction”) with certain existing holders of (i) warrants issued in September 2022 to purchase common stock, (ii) Series A-1 Warrants issued in November 2022 to purchase common stock, (iii) Series B-1 Warrants issued in May 2023 to purchase common stock, and (iv) Series B-2 Warrants issued in May 2023 to purchase common stock (collectively (i) through (iv), the “Participant Warrants”). The participants agreed to exercise a portion of their Participant Warrants at a reduced exercise price of $2.50 per share. Participant Warrants were exercised for an aggregate of 90,381 shares of common stock, resulting in gross proceeds of approximately $0.2 million.

The Company also issued participants in the 2024 Warrant Reprice Transaction a new June 2024 Warrant to purchase a number of shares of common stock equal to 100% of the shares of common stock exercised. The June 2024 Warrants are substantially similar to the Participant Warrants, except that the June 2024 Warrants will (i) be initially exercisable on the six-month anniversary of the date of issuance; (ii) have an exercise price of $2.57 per share; and (iii) have a term of five (5) years and six (6) months from the date of the closing of the 2024 Warrant Reprice Transaction.

The Company incurred total issuance costs of $96 thousand in conjunction with the 2024* *Warrant Reprice Transaction. The Company incurred a $69 thousand non-cash loss on the modification of common stock warrants which was recorded in “Other expense, net” in the unaudited condensed consolidated statements of operations during the quarter ended June 30, 2024.

NOTE 9. CONVERTIBLE NOTES

Unsecured Convertible Notes

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 (as defined below) entered into a First Amendment (the “First Amendment”) to the Company’s Security Agreement, dated April 27, 2023 (the “Security Agreement”), to remove all of the DERMAdoctor 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”).

The Company issued $525 thousand aggregate principal amount of unsecured convertible notes (the “Unsecured Convertible Notes”) in conjunction with the 2024 Subsidiary Guarantee Termination. The 2024 Subsidiary Guarantee Termination was executed with certain holders of the Secured Convertible Notes in order to close the DERMAdoctor Divestiture (see Note 16, “DERMAdoctor Divestiture”). The Unsecured Convertible Notes are due March 25, 2026 and bear no stated interest.

The Unsecured Convertible Notes may be converted or redeemed for a conversion price equal to $4.90 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. As of June 30, 2025, the Unsecured Convertible Notes were convertible for up to 107,146 shares of common stock.

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 $159 thousand as of March 31, 2024 in accordance with a Black Scholes valuation model. See also Note 3, “Fair Value Measurements,” subheading “Black Scholes Valuation Models and Assumptions.” Upon stockholder approval on May 28, 2024, the embedded call option no longer required liability treatment and was reclassified to equity. The fair value of the embedded derivative liability was determined to be $242 thousand as of May 28, 2024. The change of $83 thousand in fair value between March 31, 2024 and May 28, 2024 was recorded as a non-cash loss on change in fair value of embedded derivative liability in the unaudited condensed consolidated statements of operations. See also Note 3, “Fair Value Measurements,” subheading “Black Scholes Valuation Models and

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. The effective interest rate on the Unsecured Convertible Notes is 144%. During the three months ended June 30, 2025 and 2024, interest expense recognized, including amortization of the issuance costs and debt discount, was $55 thousand and $14 thousand, respectively, which was included in “Other expense, net” in the unaudited condensed consolidated statements of operations. During the six months ended June 30, 2025 and 2024, interest expense recognized, including amortization of the issuance costs and debt discount, was $93 thousand and $15 thousand, respectively, which was included in “Other expense, net” in the unaudited condensed consolidated statements of operations.

Secured Convertible Notes

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 a May 2023 private placement (the “2023 Private Placement”). The Secured Convertible Notes were issued with a $300 thousand original issue discount.

Beginning June 1, 2023, the Company was required to start making a monthly redemption of 1/18th of the original principal amount of the Secured Convertible Notes. Each monthly redemption reduced the outstanding principle of the Secured Convertible Note by $183 thousand.

The Secured Convertible Notes also provided 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 were outstanding. In connection with the 2024 Warrant Reprice Transaction (see Note 11, “Stockholders’ Equity (Deficit)”), the Company made such a payment totaling $45 thousand in cash against the Secured Convertible Notes. In connection with the 2024 Public Offering (see Note 11, “Stockholders’ Equity (Deficit)”), the Company repaid the remaining balance of the Secured Convertible Notes with a payment totaling $433 thousand in cash. Upon full repayment, the Company was released from any further obligations under the Secured Convertible Notes with the lenders.

The discounts and debt issuance costs were amortized to interest expense using the effective interest rate method over the term of the Secured Convertible Notes. The effective interest rate on the Secured Convertible Notes was 173%. During the quarter 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.

NOTE 10. COMMON STOCK WARRANTS

See Notes 2,“Summary of Significant Accounting Policies;”* 3,“Fair Value Measurements;” 8,“Financing Activities;” and 11,“Stockholders’ Equity (Deficit)” for certain defined terms below and additional discussion of financing activities and related accounting policies and fair value estimates.*

July 2024 Pre-Funded Warrants

In July 2024, in conjunction with the 2024 Public Offering, the Company issued 2,041,814 July 2024 Pre-Funded Warrants (in lieu of shares of common stock (see additional discussion in Note 8, “Financing Activities”). The July 2024 Pre-Funded Warrants were classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, were immediately exercisable, did not embody an obligation for us to repurchase our shares, and permitted the holders to receive a fixed number of shares of common stock upon exercise.

As of June 30, 2025, all of the July 2024 Pre-Funded Warrants had been exercised, resulting in the Company issuing 2,041,814 shares of common stock. In connection with such exercises, the Company received net proceeds of approximately $20 thousand during the third quarter of 2024.

July 2024 Warrants

In July 2024, in conjunction with the 2024 Public Offering, the Company issued new July 2024 Warrants.

The July 2024 Warrants were classified as a component of permanent equity. The July 2024 Warrants down round feature adjustment was triggered on September 27, 2024, resulting in a reduced exercise price of $0.66 per share for all of the July 2024 Warrants.

In January 2025, Series F-2 Warrants were exercised for 402,727 shares of common stock. The remaining Series F-2 Warrants exercisable for 3,134,485 shares of common stock expired unexercised on January 29, 2025.

In March 2025, the Company entered into three (3) separate confidential settlement and release agreements (collectively, the “Settlement Agreements”) with each of Sabby Volatility Warrant Master Fund, Ltd. (“Sabby”), Bigger Capital Fund, LP (“Bigger”) and District 2 Capital Fund LP (“District 2,” and together with Sabby and Bigger, the “Warrant Holders”) to settle certain disputed matters relating to the July 2024 Warrants held by each of the Warrant Holders. In connection with the Settlement Agreements, Series F-3 Warrants were exercised for 527,784 shares of common stock. Additionally, in conjunction with the Settlement Agreements, Series F-1 Warrants and Series F-3 Warrants exercisable for 1,272,725 and 744,941 shares of common stock, respectively, were repurchased by the Company for $1.8 million. The repurchase of these warrants was recorded as a reduction of additional paid-in capital in the Company’s unaudited condensed consolidated balance sheet during the quarter ended March 31, 2025.

The Settlement Agreements include a “most favored nations” provision for each of the Warrant Holders that would increase the amount paid to the Warrant Holders if any other holder of the Company’s common stock receives a higher amount per underlying warrant, as well as a mutual release of all claims by the Company and the Warrant Holders against each other, without any admission of liability by either party. For more information on the Settlement Agreements, please see the Company’s Form 8-K filed on March 11, 2025.

During the three months ended June 30, 2025, the Company repurchased Series F-1 Warrants exercisable for 212,400 shares of common stock and Series F-3 Warrants exercisable for 212,400 shares of common stock for $0.2 million.

June 2024 Warrants

In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company issued new common stock purchase warrants (the “June 2024 Warrants”) exercisable for 90,381 shares of common stock for $2.57 per share through December 17, 2029. The June 2024 Warrants were classified as a component of permanent equity.

March 2024 Warrant

In March 2024, the Company executed the First Amendment and Subsidiary Guarantee Consent as part of the 2024 Subsidiary Guarantee Termination with holders of the Secured Convertible Notes (see Note 9, “Convertible Notes”) in order to satisfy a closing condition for the DERMAdoctor Divestiture (see Note 16, “DERMAdoctor Divestiture”). In exchange for the consent of each holder, the option, at the holder’s election, to receive upon the closing of the DERMAdoctor Divestiture either, a new common stock warrant (the “March 2024 Warrant”), or a new unsecured convertible note (see Note 9, “Convertible Notes”). One holder elected the option to receive a March 2024 Warrant exercisable for 28,572 shares of common stock for $4.90 per share.

The March 2024 Warrant was initially classified as a liability from the date of issuance until Company stockholder approval on May 28, 2024, at which time it was reclassified to equity.

December 2023 Warrants

In December 2023, the Company issued new common stock purchase warrants (the “December 2023 Warrants”) exercisable for 72,256 shares of common stock for $8.75 per share through June 21, 2029.

The December 2023 Warrants were initially classified as liabilities from the date of issuance until Company stockholder approval was received on May 28, 2024, at which time it was reclassified to equity.

May 2023 Warrants

In May 2023, the Company issued the following new common stock purchase warrants (collectively, the “May 2023 Warrants”):

In December 2023, the Company amended certain May 2023 Warrants to reduce their exercise prices to $8.75 per share. Immediately after amendment, the following May 2023 Warrants were exercised (while any unexercised May 2023 Warrants maintained an exercise price of $45.50 per share):

In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company amended certain May 2023 Warrants to reduce their exercise prices to $2.50 per share. Immediately after amendment, the following May 2023 Warrants were exercised (while any unexercised May 2023 Warrants maintained an exercise price of $8.75 per share):

November 2022 Warrants

In November 2022, the Company issued the following common stock purchase warrants (collectively, the “November 2022 Warrants”):

In May 2023, the Company amended certain November 2022 Warrants to reduce their exercise prices from $220.50 per share to $52.50 per share as follows:

In May 2024, all November 2022 Series A-2 Warrants for 14,741 shares of common stock remained unexercised and expired.

In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company amended certain November 2022 Warrants to reduce their exercise prices from $52.50 per share to $2.50 per share as follows:

September 2022 Warrants

In September 2022, the Company issued new common stock purchase warrants (the “September 2022 Warrants”) exercisable for 9,371 shares of common stock for an initial exercise price of $220.50 per share through September 11, 2028.

In May 2023, the Company amended certain September 2022 Warrants exercisable for 6,819 shares of common stock to reduce their exercise prices from $220.50 per share to $52.50 per share.

In June 2024, in conjunction with the 2024 Warrant Reprice Transaction, the Company amended certain September 2022 Warrants exercisable for 5,104 shares of common stock to reduce their exercise prices from $52.50 per share to $2.50 per share.

November 2021 Warrants

In November 2021, the Company issued new common stock purchase warrants (the “November 2021 Warrants”) exercisable for 30,616 shares of common stock for an initial exercise price of $649.25 per share through March 9, 2023.

In September 2022, the Company amended all November 2021 Warrants to reduce their exercise prices from $649.25 per share to $220.50 per share and extend their termination date to September 11, 2028. Immediately after amendment, November 2021 Warrants were exercised for 7,654 shares of common stock.

In May 2023, the Company amended certain November 2021 Warrants exercisable for 15,308 shares of common stock to reduce their exercise prices from $220.50 per share to $52.50 per share.

July 2020 Warrants

In July 2020, the Company issued new common stock purchase warrants (the “July 2020 Warrants”) exercisable for 5,635 shares of common stock for an initial exercise price of $2,021.25 per share through January 22, 2026.

In September 2022, the Company amended certain July 2020 Warrants exercisable for 3,921 shares of common stock to reduce their exercise prices from $2,021.25 to $220.50 per share. Immediately after amendment, July 2020 Warrants were exercised for 1,715 shares of common stock.

In May 2023, in conjunction with the 2023 Private Placement, the Company amended certain July 2020 Warrants exercisable for 2,206 shares of common stock to reduce their exercise prices from $220.50 per share to $52.50 per share.

Summary of Common Stock Warrant Activity and Outstanding

Activity related to common stock warrants outstanding at June 30, 2025 and 2024 were as follows:

The exercise of 527,784 Series F-3 Warrants and repurchase of Series F-1 Warrants and Series F-3 Warrants of 1,272,725 and 744,941, respectively, between December 31, 2024 and March 31, 2025, were pursuant to the Settlement Agreements that we entered into in March 2025 to settle certain disputed matters relating to the July 2024 Warrants held by each of the Warrant Holders. During the three months ended June 30, 2025, the Company repurchased an additional 212,400 of Series F-1 Warrants and 212,400 of Series F-3 Warrants. See Note 10, “Common Stock Warrants” for additional information.

Common stock warrants outstanding as of June 30, 2025 were as follows:

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) during the period ended June 30, 2024. There wereno warrant liabilities outstanding during the period ended June 30, 2025. See additional information per Note 3, “Fair Value Measurements,” subheading “Black Scholes Valuation Models and Assumptions.”

NOTE 11. STOCKHOLDERS’** EQUITY (DEFICIT)**

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.

Preferred Stock

There were two series of preferred stock of the Company outstanding during the quarter ended March 31, 2024 – 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”). Only Series B Preferred Stock was outstanding during the quarter ended June 30, 2025. The rights and preferences of the Series B Preferred Stock and Series C Preferred Stock are identical. The Preferred Stock does not 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. The Preferred Stock had anti-dilution protection (the “Ratchet”) in the event that the Company sells or grants 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. These Ratchet provisions of the Company’s outstanding Preferred Stock terminated during the quarter ended March 31, 2024.

Series B Preferred Stock

The Company issued 15,000 shares of Series B Preferred Stock in November 2021 in connection with a private placement transaction. For both periods ending June 30, 2025 and June 30, 2024,131 shares of Series B Preferred Stock remained outstanding. As of June 30, 2025, outstanding shares of Series B Preferred Stock were convertible into 15,065 shares of common stock at a conversion price of $8.75.

On January 29, 2024, the Ratchet of the Series B Preferred Stock expired with no 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 $8.75 until all remaining Series B Preferred Stock has been converted.

Series C Preferred Stock

The Company issued 3,250 shares of Series C Preferred Stock in November 2022 in connection with a private placement transaction. As of June 30, 2025, no shares of Series C Preferred Stock remained outstanding.

Common Stock

See Notes 8, “Financing Activities” and 10, “Common Stock Warrants” for a description of common stock and common stock warrant-related transactions during the three and six months ended June 30, 2025 and 2024.

NOTE 12. EQUITY-BASED COMPENSATION

Equity Compensation Plans

In October 2007, the Company adopted the 2007 Omnibus Incentive Plan (the “2007 Plan”) to provide for the grant 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. The 2007 Plan expired on March 15, 2017. Upon expiration, new awards cannot be issued pursuant to the 2007 Plan, but outstanding awards continue to be governed by its terms. Stock options granted under the 2007 Plan expire no later thanten years from the date of grant. All stock options outstanding under the 2007 Plan were fully vested as of December 31, 2024.

In March 2017, the Company adopted the 2017 Omnibus Incentive Plan (the “2017 Plan”), which was approved by stockholders on June 2, 2017, to provide for the grant 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. The 2017 Plan does not affect awards previously granted under the 2007 Plan. Upon adoption, the 2017 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 the first day of each of the Company’s fiscal years beginning January 1, 2018 through January 1, 2027 equal 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. As of June 30, 2025, there were 14,317 shares available for future awards under the 2017 Plan.

Under the terms of the 2017 Plan, the exercise price of NQSOs, ISOs and SARs may not be less than 100% of the fair market value of the Company’s common stock on the date of grant and, if ISOs are granted to an owner of more than 10% of the Company’s common stock, then not less than 110% of the fair market value of the Company’s common stock on the date of grant. The term of awards will not be longer thanten years or, in the case of ISOs, no longer than five years with respect to holders of more than 10% of the Company’s common 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 of Company common stock to satisfy exercises of options under the 2007 Plan and the 2017 Plan.

Summary of Outstanding Equity Awards

The following table summarizes information about the Company’s stock options and restricted stock outstanding at December 31, 2024, and activity during the six months ended June 30, 2025:

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 June 30, 2025 for option awards that have an exercise price that is lower than the market price. There wereno stock option awards exercised during the three and six months ended June 30, 2025 and 2024.

As of June 30, 2025, there wereno unrecognized compensation cost related to unvested stock options and restricted stock.

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 Note 2, “Summary of Significant Accounting Policies,” for a description of the accounting policies that the Company applied to value its stock-based awards.

The Company didnot grant any stock options or shares of restricted stock to employees or directors to purchase shares of the Company’s common stock during the three and six months ended June 30, 2025. During the three and six months ended June 30, 2024, the Company granted 5,148 shares of restricted stock to employees and directors.

For the three months ended June 30, 2025 and 2024, the Company recognized stock-based compensation expense of $4 thousand and $55 thousand, respectively, for prior option awards to employees and directors. For the six months ended June 30, 2025 and 2024, the Company recognized stock-based compensation expense of $6 thousand and $102 thousand, respectively, for prior option awards to employees and directors.

Stock-Based Awards to Non-Employees

During the three and six months ended June 30, 2025 and 2024, the Company didnot grant options or restricted stock to non-employees in exchange for advisory and consulting services. The Company recognized stock-based compensation expense of $13 thousand for the six months ended June 30, 2024 andno stock based compensation expense for the three months ended June 30, 2024, as it relates to non-employees, withno comparable expense for the three and six months ended June 30, 2025.

Summary of Stock-Based Compensation Expense

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

NOTE 13. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) plan covering all eligible employees. The Company provides matching contributions equal to 100% of the first 3% of compensation deferred, plus 50% of the next 2% of compensation deferred. The Company contributed $6 thousand and $11 thousand to the 401(k) plan from continuing operations in the three months ended June 30, 2025 and 2024, respectively. The Company contributed $17 thousand and $23 thousand to the 401(k) plan from continuing operations in the six months ended June 30, 2025 and 2024, respectively.

NOTE 14. AVENOVA ASSET DIVESTITURE AND BRIDGE LOAN

On January 17, 2025, we completed the sale of our eyecare products sold under the Avenova brand and related assets (the “Avenova Assets”) to PRN Physician Recommended Nutriceuticals, LLC, a Delaware limited liability company (“PRN”), which constituted substantially all of our revenue generating and operating assets (the “Avenova Asset Divestiture”). The Avenova Asset Divestiture was consummated pursuant to the Asset Purchase Agreement, dated September 19, 2024, as amended by Amendment No. 1 to the Asset Purchase Agreement, dated November 5, 2024 (as so amended, the “Purchase Agreement”). The Purchase Agreement provided for, among other terms, a base purchase price of $11.5 million for the Avenova Assets and for PRN to provide the Company with up to a $1.0 million secured promissory note (the “Bridge Loan”). Amounts borrowed under the Bridge Loan were required to be used for working capital purposes, bore interest at a rate of 10% per annum and were secured by all of the Company’s assets as collateral. On November 22, 2024, the Company requested and received $0.5 million under the Bridge Loan.

In accordance with the Purchase Agreement, at the closing of the Avenova Asset Divestiture we received the cash purchase price equal to $11.5 million, less (i) the $507,953.72 balance of the Bridge Loan which was discharged with collateral released and (ii) $500,000, which amount was deposited into an escrow account (the “Escrow”) for up to six (6) months to be used for our indemnification obligations under the Purchase Agreement or the payment of the Net Working Capital Adjustment (as defined below) after the closing. The final amount of the purchase price that we received in the Avenova Asset Divestiture was subject to a post-closing working capital adjustment, upward or downward, that was limited to an amount of up to $500,000 (the “Net Working Capital Adjustment”). The Net Working Capital Adjustment was mutually determined by PRN and the Company based upon the difference between the amount of our Net Working Capital (as defined in the Purchase Agreement) immediately prior to the closing and the agreed upon target working capital value of $800,000. The Net Working Capital Adjustment was determined to be $365,566, which reduced the amount of total proceeds that we received from the Avenova Asset Divestiture. We recorded a gain of $10.7 million on the Avenova Asset Divestiture during the quarter ended March 31, 2025, net of the agreed upon Net Working Capital Adjustment.

In connection with the closing of the Avenova Asset Divestiture on January 17, 2025, we entered into a Transition Services Agreement, dated January 17, 2025 with PRN, pursuant to which we agreed to provide services to PRN with respect to specified accounting, marketing, sales, customer service, regulatory and operational support for a period of four (4) months after the closing of the Avenova Asset Divestiture (the “PRN Transition Services Agreement”). In exchange for providing such services, PRN and NovaBay agreed upon service fees to be paid to us. We recognized $4 and $16 thousand of revenue under the PRN Transition Services Agreement during the three and six months ended June 30, 2025, respectively, which was included in other expense, net in the Company’s condensed consolidated statement of operations (unaudited).

The accounting requirements for reporting results related to the Avenova Assets as discontinued operations were met during the first quarter of 2025. Accordingly, the unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements reflect the results related to the Avenova Assets as a discontinued operation for the periods presented.

In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities related to the Avenova Assets have been reflected as discontinued operations in the consolidated balance sheets as of December 31, 2024, and consist of the following (in thousands):

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations. Results related to the Avenova Asset for the three and six months ended June 30, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of cash flows. Results related to the Avenova Asset for the six months ended June 30, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of cash flows and consist of the following (in thousands):

NOTE 15. PHASEONE DIVESTITURE

On January 3, 2025, we entered into a Trademark Acquisition Agreement with our distributor, Phase One Health LLC (“Phase One”), that provided for the purchase by Phase One of two of the Company’s wound care trademarks (the “Wound Care Trademarks”) for a purchase price of $500,000 (the “Trademark Acquisition Agreement,” and such sale, the “PhaseOne Divestiture”). In connection with the PhaseOne Divestiture, we also entered into a Transition Services Agreement, dated January 3, 2025, with Phase One (the “Phase One Transition Services Agreement”), pursuant to which we: (i) provided limited transition services to Phase One until January 10, 2025; (ii) sold our existing PhaseOne finished goods inventory from an outstanding purchase order to Phase One for an aggregate payment of $126,000; and (iii) a limited amount of remaining componentry inventory. In addition, the Phase One Transition Services Agreement provided that the existing supplier and distributor relationship between NovaBay and Phase One would be terminated upon the closing of the PhaseOne Divestiture. We completed the PhaseOne Divestiture on January 8, 2025. We recorded a net gain of $0.5 million as a result of the PhaseOne Divestiture during the quarter ended March 31, 2025.

The accounting requirements for reporting results related to the Wound Care Trademarks as discontinued operations were met during the first quarter of 2025. Accordingly, the unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements reflect the results related to the Wound Care Trademarks as a discontinued operation for the years presented.

In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of discontinued operations in the consolidated balance sheets. The assets and liabilities related to the Wound Care Trademarks have been reflected as discontinued operations in the consolidated balance sheets as of December 31, 2024, and consist of the following (in thousands):

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations. Results related to the Wound Care Trademarks for the three and six months ended June 30, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of cash flows. Results related to the Wound Care Trademarks for the six months ended June 30, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of cash flows and consist of the following (in thousands):

NOTE 16. DERMADOCTOR DIVESTITURE

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 “DERMAdoctor Divestiture”). The sale of the membership units closed, and the DERMAdoctor Divestiture occurred, on March 25, 2024. The accounting requirements for reporting the DERMAdoctor business as discontinued operations were met during the first quarter of 2024. Accordingly, the unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements reflect the results of the DERMAdoctor business as a discontinued operation for the years presented.

In accordance with the provisions of ASC 205-20,Presentation of Financial Statements:Discontinued Operations (“ASC 205-20”), the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations. The results of DERMAdoctor’s operations for the three and six months ended June 30, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of cash flows. The results of DERMAdoctor for the six months ended June 30, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of cash flows and consist of the following (in thousands):

NOTE 17. INCOME TAXES

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year, adjusted for any discrete items during the quarter. The Company has recorded an income tax (benefit) provision of ($0.1) million and $0 during the three months ended June 30, 2025, and June 30, 2024, respectively. This results in a cumulative tax provision of $0.2 million and $0 for the six months ended June 30, 2025, and June 30, 2024, respectively. The Company’s effective income tax rate was 4.2% and 0% for the six months ended June 30, 2025, and June 30, 2024, respectively. The Company continues to maintain a full valuation allowance on its net deferred tax assets.

NOTE 18. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the filing date of this Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed consolidated financial statements as of June 30, 2025, and events which occurred subsequently but were not recognized in the condensed consolidated financial statements. Except as described below, there were no subsequent events which required recognition, adjustment to, or disclosure in, the unaudited condensed consolidated financial statements.

Following the Avenova Asset Divestiture, and in accordance with the Purchase Agreement, on July 21, 2025, we received the final amount of $134 thousand that was being held in Escrow in connection with the Avenova Asset Divestiture.