NovaBay Pharmaceuticals, Inc.

For information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A included in our 2024 Annual Report.

The Company is supplementing the risk factors previously disclosed in our 2024 Annual Report with the following risk factors.

Risks Related to Our Proposed Strategy Focusing on Assets Within Emerging Decentralized Financial Infrastructure and Network-Based Markets

We are considering shifting a portion of our business strategy by evaluating opportunities within emerging decentralized financial infrastructure and network-based markets, which may include select blockchain based assets and we may be unable to successfully implement this new strategy.

We are considering shifting a portion of our business strategy by evaluating opportunities within emerging decentralized financial infrastructure and network-based markets, which may include select blockchain-based assets, including through staking, restaking, liquid staking and other decentralized finance activities. The Company’s review of such opportunities is preliminary in nature, and there can be no assurance that any particular transaction, investment, or strategic initiative will be pursued or consummated. These evaluations remain subject to ongoing diligence, market conditions, regulatory considerations, and approval by the Board, as appropriate. Any potential activity in this area would be conducted in a manner consistent with the Company’s existing compliance framework and applicable laws and regulations. This strategic shift would require specialized employee skillsets and operational, technical and compliance infrastructure to support stablecoin and related staking activities. This would also require that we implement different security protocols and treasury management practices. Further, there is ongoing scrutiny and limited formal guidance from regulatory agencies, including NYSE and the SEC, with respect to the treatment of similar strategies from other public companies. There is no assurance that we will be able to execute this strategy by building out the needed infrastructure within the timeframe that we currently anticipate. Errors by key management could result in significant loss of funds and reduced rewards. As a result, our shift towards blockchain-based assets could have a material adverse effect on our business and financial condition.

Our potential shift towards a business strategy focused on emerging decentralized financial infrastructure and blockchain-based assets would require substantial changes in our day-to-day operations and exposes us to significant operational risks.

Our potential shift towards a strategy focused on emerging decentralized financial infrastructure and blockchain-based assets, including staking, restaking, liquid staking, and other decentralized finance activities, exposes us to significant operational risks. They may also require that we maintain constant up time to ensure that we are eligible for staking rewards and to avoid penalties. In addition, the decentralized financial infrastructure and network-based markets ecosystem rapidly evolves, with frequent upgrades and protocol changes that may require significant adjustments to our operational setup. The upgrades and protocol changes may require that we incur unanticipated costs. We may also need to employ third-party service providers in our operations, which may introduce risks outside of our control, including significant cybersecurity risks. Any of these operational risks could materially and adversely affect our ability to execute our strategy, prevent us from realizing positive returns and severely hurt our financial condition.

Adverse changes in the regulatory treatment of blockchain-based assets could materially impair the value and liquidity of our future holdings and negatively impact our business, financial condition, and results of operations going forward.

The legal and regulatory framework governing blockchain-based assets in the United States and in foreign jurisdictions is rapidly evolving and remains highly uncertain. Federal, state, and foreign regulators continue to issue new rules and take enforcement actions that directly or indirectly affect the classification, transferability, custody, and tax treatment of blockchain-based assets. Should any such asset we purchase, or the activities of any party critical to the blockchain ecosystem (including exchanges, validators, or custodians), be deemed to violate securities, commodities, anti-money-laundering, sanctions, consumer-protection, or other applicable laws, we could become subject to significant fines, penalties, registration requirements, trading restrictions, or forced divestiture of such blockchain-based assets. Any such development could cause a precipitous decline in the market price of such assets, impair our ability to monetize or otherwise use our blockchain-based asset treasury, and adversely impact the market price of our securities.

Risks Related to Blockchain-Based Assets

The blockchain-based asset trading platforms on which assets within emerging financial infrastructure and network-based markets trade are relatively new and largely unregulated or may not be complying with existing regulations.

The blockchain-based assets that we are evaluating primarily trade on blockchain-based asset trading platforms and decentralized finance protocols which are relatively new and, in many ways, are not subject to, or may not comply with, regulation in relevant jurisdictions in a manner similar to other regulated trading platforms, such as national securities exchanges or designated contract markets. While many of these relatively new trading platforms provide the public with information regarding their ownership structure, management teams, private key management, hot/cold storage policies, on-chain activities, capitalization, corporate practices and regulatory compliance, many other relatively new trading platforms do not. In particular, those located outside the United States may be subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions.

The trading platforms on which the blockchain-based assets that we are evaluating trade may be unpredictable and susceptible to attacks.

Significant trading may occur on systems and platforms with minimum predictability. Spot markets may impose daily, weekly, monthly or customer-specific transaction or withdrawal limits or suspend withdrawals entirely, rendering the exchange of blockchain-based assets for fiat currency difficult or impossible. Further, participation in spot markets requires users to take on credit risk by transferring blockchain-based assets from a personal account to a third-party’s account.

Additionally, tools to detect and deter fraudulent or manipulative trading activities (such as market manipulation, front-running of trades, and wash-trading) may not be available to or employed by such trading platforms or may not exist at all. As a result, the marketplace may lose confidence in, or may experience problems relating to, these venues and the blockchain-based assets that trade on these venues. No trading platform on which blockchain-based assets trade is immune from these risks. The closure or temporary shutdown of such trading platforms due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in blockchain-based assets and other assets within emerging financial infrastructure and network-based markets and can slow down the mass adoption of it. Further, trading platform failures can have an adverse effect on blockchain-based markets and the price of blockchain-based assets and could therefore have a negative impact on the performance of our Common Stock.

The trading prices of many blockchain-based assets have experienced extreme volatility in recent periods and may continue to do so. Extreme volatility in the future, including further declines in trading prices, could have a material adverse effect on the value of our common stock and the common stock could lose all or substantially all of its value.

The trading prices of many blockchain-based assets have experienced extreme volatility in recent periods and may continue to do so. For instance, there were steep increases in the value of certain blockchain-based assets over the course of 2021, and multiple market observers asserted that blockchain-based assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2022. Prices of such blockchain-based assets continued to fluctuate widely throughout 2023 and through this date.

Extreme volatility in the future could have a material adverse effect on the value of our common stock and our common stock could lose all or substantially all of its value. Furthermore, negative perception and a lack of stability and standardized regulation in the blockchain-based economy may reduce confidence in the blockchain-based economy and may result in greater volatility in the price of blockchain-based assets, including a depreciation in value.