10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                  

Commission file number 001-33678

NOVABAY PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	68-0454536
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2000 Powell Street, Suite 1150, Emeryville, California 94608

(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (510) 899-8800

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Stock, par value $0.01 per share	NBY	NYSE American

Securities Registered Pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☒	Smaller reporting company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 6, 2023, there were 6,529,302 shares of the registrant’s common stock outstanding.

NOVABAY PHARMACEUTICALS, INC.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets: September 30, 2023 (unaudited) and December 31, 2022	3
	Condensed Consolidated Statements of Operations: Three and nine months ended September 30, 2023 and 2022 (unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity: Three and nine months ended September 30, 2023 and 2022 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows: Nine months ended September 30, 2023 and 2022 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
SIGNATURES		47

Unless the context requires otherwise, all references in this report to “we,” “our,” “us,” the “Company” and “NovaBay” refer to NovaBay Pharmaceuticals, Inc., a Delaware corporation, and its wholly-owned subsidiary, DERMAdoctor, LLC, a Missouri limited liability company.

The Company owns over 40 live trademark registrations in the U.S., as well as trademark registrations and pending applications in many other countries internationally, with our primary trademarks including “Avenova®”, “CelleRx®”, “PhaseOne®”, “NeutroPhase®”, “DERMAdoctor®”, “Kakadu C®”, “AIN’T Misbehavin’®”, “KP Duty®”, and the Company licenses depictions of Dr. Audrey Kunin, some of which are held directly by NovaBay and others by our wholly-owned subsidiary DERMAdoctor.

On November 15, 2022, the Company effected a 1-for-35 reverse stock split of its common stock (the “Reverse Stock Split”). The accompanying financial statements and related notes give retroactive effect to this reverse stock split.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NOVABAY PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value amounts)

	September 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,472		$	5,362
Accounts receivable, net of allowance for credit losses ($3 and $19 at September 30, 2023 and December 31, 2022, respectively)		916			1,973
Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments ($556 and $499 at September 30, 2023 and December 31, 2022, respectively)		3,493			3,437
Prepaid expenses and other current assets		333			560
Total current assets		8,214			11,332
Operating lease right-of-use assets		1,526			1,831
Property and equipment, net		97			119
Goodwill		348			348
Other intangible assets, net		2,166			2,280
Other assets		501			489
TOTAL ASSETS	$	12,852		$	16,399
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Current liabilities:
Accounts payable	$	947		$	1,080
Accrued liabilities		1,869			2,724
Convertible Notes, net		1,270			—
Operating lease liabilities		485			453
Total current liabilities		4,571			4,257
Operating lease liabilities-non-current		1,244			1,588
Total liabilities		5,815			5,845
Commitments & contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized;
Series B Preferred Stock; 6 and 12 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		302			570
Series C Preferred Stock; 1 and 2 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		1,675			2,403
Common stock, $0.01 par value; 150,000 shares authorized, 6,529 and 2,035 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively*		65			20
Additional paid-in capital*		170,675			165,713
Accumulated deficit		(165,680	)		(158,152	)
Total stockholders’ equity		7,037			10,554
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	12,852		$	16,399

* After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NOVABAY PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Sales:
Product revenue, net	$	3,255		$	3,816		$	10,971		$	10,743
Other revenue, net		10			10			28			18
Total sales, net		3,265			3,826			10,999			10,761
Product cost of goods sold		1,427			1,451			4,919			4,735
Gross profit		1,838			2,375			6,080			6,026
Operating expenses:
Research and development		11			41			64			108
Sales and marketing		1,715			1,835			5,086			5,860
General and administrative		1,228			956			5,135			5,049
Total operating expenses		2,954			2,832			10,285			11,017
Operating loss		(1,116	)		(457	)		(4,205	)		(4,991	)
Non-cash gain on changes in fair value of warrant liability		—			2,414			216			4,470
Non-cash gain on changes in fair value of combined derivative liability		—			—			40			—
Non-cash gain on changes in fair value of contingent liability		—			—			—			219
Non-cash loss on modification of common stock warrants		—			(1,922	)		(285	)		(1,922	)
Other expense, net		(641	)		(171	)		(1,298	)		(178	)
Net loss		(1,757	)		(136	)		(5,532	)		(2,402	)
Less: Increase to accumulated deficit due to adjustment to Series B Preferred Stock conversion price		—			(5,657	)		(1,802	)		(5,657	)
Less: Increase to accumulated deficit due to adjustment to Series C Preferred Stock conversion price		—			—			(194	)		—
Net loss attributable to common stockholders	$	(1,757	)	$	(5,793	)	$	(7,528	)	$	(8,059	)
Net loss per share attributable to common stockholders (basic and diluted)*	$	(0.37	)	$	(3.61	)	$	(2.27	)	$	(5.32	)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock (basic and diluted)*		4,692			1,604			3,311			1,514

* After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NOVABAY PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)

	Preferred Stock						Common Stock				Additional Paid- in		Accumulated			Total Stockholders’
	Shares			Amount			Shares*		Amount*		Capital*		Deficit			Equity
Balance at December 31, 2022		14		$	2,973			2,035	$	20	$	165,713	$	(158,152	)	$	10,554
Net Loss		-			-			-		-		-		(1,739	)		(1,739	)
Stock-based compensation expense related to employee and director stock awards		-			-			-		-		75		-			75
Balance at March 31, 2023		14		$	2,973			2,035	$	20	$	165,788	$	(159,891	)	$	8,890
Net Loss		-			-			-		-		-		(2,036	)		(2,036	)
Conversion of Series B Preferred Stock to common stock		(3	)		(121	)		1,897		19		102		-			-
Conversion of Series C Preferred Stock to common stock		(1	)		(728	)		277		2		726		-			-
Modification of common stock warrants		-			-			-		-		285		-			285
Adjustment of Series B Preferred Stock conversion price		-			-			-		-		1,802		(1,802	)		-
Adjustment of Series C Preferred Stock conversion price		-			-			-		-		194		(194	)		-
Reclassification of May 2023 Warrants		-			-			-		-		1,360		-			1,360
Stock-based compensation expense related to employee and director stock awards		-			-			-		-		64		-			64
Vesting of director restricted stock awards		-			-			5		-		-		-			-
Balance at June 30, 2023		10		$	2,124			4,214	$	41	$	170,321	$	(163,923	)	$	8,563
Net Loss		-			-			-		-		-		(1,757	)		(1,757	)
Conversion of Series B Preferred Stock to common stock		(3	)		(147	)		2,315		24		123		-			-
Reclassification of derivative liability		-			-			-		-		169		-			169
Stock-based compensation expense related to employee and director stock awards		-			-			-		-		62		-			62
Balance at September 30, 2023		7		$	1,977			6,529	$	65	$	170,675	$	(165,680	)	$	7,037

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	Preferred Stock						Common Stock				Additional Paid- in			Accumulated			Total Stockholders’
	Shares			Amount			Shares*		Amount*		Capital*			Deficit			Equity
Balance at December 31, 2021		14		$	680			1,365	$	13	$	151,365		$	(141,887	)	$	10,171
Net Loss		-			-			-		-		-			(111	)		(111	)
Reclassification of November 2021 Warrants		-			-			-		-		7,502			-			7,502
Conversion of Series B Preferred Stock to common stock		(1	)		(71	)		104		1		70			-			-
Stock-based compensation expense related to employee and director stock awards		-			-			-		-		184			-			184
Balance at March 31, 2022		13		$	609			1,469	$	14	$	159,121		$	(141,998	)	$	17,746
Net Loss		-			-			-		-		-			(2,155	)		(2,155	)
Conversion of Series B Preferred Stock to common stock		(1	)		(39	)		57		1		38			-			-
Vesting of director restricted stock awards		-			-			3		-		-			-			-
Stock-based compensation expense related to employee and director stock awards		-			-			-		-		154			-			154
Balance at June 30, 2022		12		$	570			1,529	$	15	$	159,313		$	(144,153	)	$	15,745
Net Loss		-			-			-		-		-			(136	)		(136	)
Modification of common stock warrants		-			-			-		-		1,922			-			1,922
Exercise of warrants, net of offering costs		-			-			328		3		283			-			286
Reclassification of common stock warrants to liability		-			-			-		-		(3,825	)		-			(3,825	)
Adjustment of Series B Preferred Stock conversion price		-			-			-		-		5,657			(5,657	)		-
Stock-based compensation expense related to employee and director stock awards		-			-			-		-		(208	)		-			(208	)
Balance at September 30, 2022		12		$	570			1,857	$	18	$	163,142		$	(149,946	)	$	13,784

* After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NOVABAY PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

(In thousands)

	Nine Months Ended September 30
	2023			2022
Operating activities:
Net loss	$	(5,532	)	$	(2,402	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		39			88
Amortization of intangible assets		114			272
Stock-based compensation expense related to employee and director stock awards		201			130
Non-cash loss on modification of common stock warrants		285			1,922
Non-cash gain on changes in fair value of warrant liability		(216	)		(4,470	)
Non-cash gain on changes in fair value of combined derivative liability		(40	)		—
Non-cash gain on changes in fair value of contingent liability		—			(219	)
Accretion of interest and amortization of debt discounts on convertible notes		1,119			—
Changes in operating assets and liabilities:
Accounts receivable		1,057			(465	)
Inventory		(56	)		(848	)
Prepaid expenses and other current assets		227			234
Operating lease right-of-use assets		305			(1,526	)
Other assets		(20	)		(1	)
Accounts payable and accrued liabilities		(988	)		128
Operating lease liabilities		(312	)		1,712
Net cash used in operating activities		(3,817	)		(5,445	)
Investing activities:
Purchases of property and equipment		(17	)		(112	)
Net cash used in investing activities		(17	)		(112	)
Financing activities:
Proceeds from convertible notes and warrant issuances, net of discount		3,000			—
Payment on the convertible notes		(770	)		—
Debt issuance cost		(294	)		—
Proceeds from the exercise of warrants		—			1,703
Payment on the line of credit		—			(105	)
Net cash provided by financing activities		1,936			1,598
Net change in cash, cash equivalents, and restricted cash		(1,898	)		(3,959	)
Cash, cash equivalents and restricted cash, beginning of year		5,846			7,979
Cash, cash equivalents and restricted cash, end of period	$	3,948		$	4,020

	Nine Months Ended September 30,
	2023		2022
Supplemental disclosure of cash flow information:
Interest paid	$	189	$	12

	Nine Months Ended September 30,
	2023		2022
Supplemental disclosure of non-cash information:
Warrant liability transferred to equity	$	1,360	$	7,502
Conversion of Series B Preferred Stock to common stock		268		110
Conversion of Series C Preferred Stock to common stock		728		—
Derivative liability transferred to equity		169		—
Adjustment of Series B Preferred Stock conversion price		1,802		5,657
Adjustment of Series C Preferred Stock conversion price		194		—
Equity transferred to warrant liability		—		3,825
Addition of operating lease, right-of-use asset		—		2,039
Reassessment of operating lease, right-of-use asset		—		164

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NOTE 1. ORGANIZATION

NovaBay Pharmaceuticals, Inc. (the “Company”) develops and sells scientifically-created and clinically-proven eyecare, skincare 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.

Through our subsidiary DERMAdoctor, LLC (“DERMAdoctor”), the Company offers over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris. DERMAdoctor branded products are marketed and sold through the DERMAdoctor website, well-known traditional and digital beauty retailers, and a network of international distributors. We acquired DERMAdoctor in November 2021 (the “DERMAdoctor Acquisition”), and since completing this transaction we have been working to integrate and expand the DERMAdoctor business in order to achieve strategic objectives contemplated by the acquisition, including revenue growth, cost reductions and overall profitability.

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 certain wounds, burns, ulcers and other injuries. The Company currently sells these products through distributors.

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 (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 as two reportable segments: (1) Eyecare and Wound Care and (2) Skincare.

Effective November 15, 2022, the Company effected a 1-for-35 reverse split of our outstanding common stock (“Reverse Stock Split”) (See Note 12, “Stockholders’ Equity” for further details). 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 this 1-for-35 reverse stock split.

Liquidity and Going Concern

Based primarily on the funds available on September 30, 2023 and the 2023 Private Placement, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations, meet its planned operating expenses and to meet the Monthly Redemptions of the Convertible Notes (both as defined below) into at least the second quarter of 2024. The Company has sustained operating losses for the majority of its corporate history and expects that its 2023 expenses will exceed its 2023 revenues, as the Company continues to invest in both its Avenova and DERMAdoctor 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 at least one year from the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (“SEC”). Additionally, changing circumstances may cause 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 and supply chain issues.

The Company’s long-term liquidity needs will be largely determined by the success of 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 on one 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; and/or (4) entering into license agreements to sell new products. The Company may issue securities, including common stock, preferred stock, convertible debt securities and warrants through additional private placement transactions or registered public offerings, which may require 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 the 2023 Private Placement (as defined below) improved the Company’s liquidity in the near term, there is no 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 do not 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 its ability to continue as a going concern. 

- 8-

 

NOTE 2. 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 consolidated financial statements include the accounts of NovaBay Pharmaceuticals, Inc. and its wholly-owned subsidiary, DERMAdoctor, LLC. All intercompany balances and transactions have been eliminated in consolidation.

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, 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 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 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, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023, as amended by Amendment No. 1 to the Annual Report on Form 10-K, which was filed with the SEC on April 28, 2023 (collectively, the “Annual Report”).

Change in Accounting and Revision of Prior Period Financial Statements

During the third quarter of 2022, the Company made an accounting policy change election related to fulfillment fees paid to third-party online retailers such as Amazon. The Company began expensing these fees as incurred as product cost of goods sold in the Company’s condensed consolidated statements of operations. The Company previously recorded revenue net of these fees. The Company believes that making this change is appropriate and preferable as it is more consistent with the practices of comparable companies as the Company increasingly focuses on commercial growth in its direct to consumer on-line channels. Changes to prior period amounts presented in this report have been made to conform to the current period presentation. See additional information under “Revenue Recognition” below. The changes had no impact on operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statements of operations in the periods presented in this report or in previously issued annual and quarterly financial statements. The changes also did not impact cash or ending cash balances in the Company’s unaudited condensed consolidated balance sheets in the periods presented in this report or in previously issued annual and quarterly financial statements.

While reviewing its accounting policy for fulfillment fees during the third quarter of 2022, the Company identified an error in its previously issued financial statements whereby the Company had been incorrectly presenting revenue net of selling commissions paid to third-party online retailers. During the third quarter of 2022, the Company concluded that these commissions relate to sales activity and began expensing them as incurred as sales and marketing expenses within the Company’s unaudited condensed consolidated statements of operations. The identified error impacted the Company’s previously issued 2022 first and second quarter condensed consolidated financial statements. Management believes that the impact of these adjustments to correct such error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors. However, revisions to prior period amounts presented in this report have been made to conform to the current period presentation. See additional information under “Revenue Recognition” below. The revisions had no impact on operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statements of operations in the periods presented in this report or in previously issued annual consolidated financial statements. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

- 9-

 

Cash, Cash Equivalents, and 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 September 30, 2023 and December 31, 2022, 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):

	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	3,472	$	5,362
Restricted cash included in other assets		476		484
Total cash, cash equivalents, and restricted cash in the condensed consolidated statements of cash flows	$	3,948	$	5,846

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 the three and nine months ended September 30, 2023 and 2022, revenues were derived primarily from sales of Avenova and DERMAdoctor branded products, directly to consumers through Amazon.com, Avenova.com and DERMAdoctor.com.

During the three and nine months ended September 30, 2023 and 2022, revenues from significant product categories were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Avenova Spray	$	2,064	$	1,939	$	5,759	$	5,778
DERMAdoctor		784		1,319		2,645		3,115
NeutroPhase		—		—		1,043		657
Other products		407		558		1,524		1,193
Total product revenue, net		3,255		3,816		10,971		10,743
Other revenue, net		10		10		28		18
Total sales, net	$	3,265	$	3,826	$	10,999	$	10,761

During the three months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 66% and 70% of total Avenova Spray net revenue, respectively. During the nine months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 68% and 73% of total Avenova Spray net revenue, respectively. No other individual distributor comprised greater than 10% of total Avenova Spray net revenue during the three and nine months ended September 30, 2023 or 2022.

As of September 30, 2023 and December 31, 2022, accounts receivable from our major distribution partners and major retailers greater than 10% were as follows:

	September 30,			December 31,
Major distribution partner	2023			2022
Major U.S. Retailer A		26	%		*	%
Avenova Spray Pharmacy Distributor A		20	%		11	%
Major International Retailer A		10	%		*	%
Avenova Spray Pharmacy Distributor B		*	%		30	%
Major U.S. Retailer B		*	%		15	%

* Less than 10%

- 10-

 

The Company relies on seven contract manufacturers to produce its products. The Company does not own any manufacturing facilities and intends to continue to rely on third parties for the supply of finished goods. Contract manufacturers may or 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, convertible notes, derivative liabilities, warrant liabilities, and contingent consideration. The Company’s cash and cash equivalents, 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 Convertible Notes (as defined below) entered into on April 27, 2023 are carried at proceeds, net of discounts, which management believes approximates fair value. Additionally, the derivative liability related to certain embedded features contained within the Convertible Notes, restricted cash, warrant liabilities, and contingent consideration were carried at fair value.

The Company follows 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.

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. Management recorded a reserve for allowance for credit losses of $3 thousand and $19 thousand as of September 30, 2023 and December 31, 2022, respectively.

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 contract manufacturers 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 the first-in, first-out method. At September 30, 2023 and December 31, 2022, management had recorded an allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments of $556 thousand and $499 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 of five to seven years for office and laboratory equipment, three to five years for computer equipment and software, and five to seven years for furniture and fixtures. Leasehold improvements are amortized over the lease term.

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

- 11-

 

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets are measured at their respective fair values as of the acquisition date and may be subject to adjustment within the measurement period, which may be up to one year from the acquisition date. 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 than not that the assets are impaired.

The Company did not record any goodwill or indefinite-lived asset impairment charges during the three and nine months ended September 30, 2023 or 2022.

Valuation of Contingent Consideration Resulting from a Business Combination

In connection with certain acquisitions, including the DERMAdoctor Acquisition, the Company may be required to pay future consideration that is contingent upon the achievement of specified milestone events. The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. Each quarter thereafter, the Company revalues these obligations and records increases or decreases in the fair value within the consolidated statement of operations until such time as the specified milestone achievement period is complete.

Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on the Company’s results of operations in any given period. Actual results may differ from estimates.

DERMAdoctor Acquisition milestone events consist of financial targets for calendar years 2022 and 2023. The financial target was not met for the calendar year 2022. Additionally, we do not expect the financial target to be met for the calendar year 2023. As a result, the liability recorded for potential earn out payments in the Company’s condensed consolidated balance sheets was zero as of September 30, 2023 and December 31, 2022. This amount is subject to change in the event that there are changes to our expectations and related valuation assumptions, which are valued using Level 3 fair value inputs.

Long-Lived Assets 

The Company’s intangible assets that do not 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 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 consolidated statements of operations.

The Company did not record any long-lived asset impairments during the three and nine months ended September 30, 2023 or 2022.

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

- 12-

 

Revenue Recognition

Revenue is recognized from the sale of goods in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when or as the Company’s performance obligations are satisfied by transferring control of the promised goods to customers in an amount that reflects the consideration which the Company expects to receive. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps as prescribed by ASC 606:

i. identify the contract(s) with a customer;

ii. identify the performance obligations in the contract;

iii. determine the transaction price;

iv. allocate the transaction price to the performance obligations in the contract; and

v. recognize revenue when (or as) the entity satisfies performance obligations.

Revenue is generated through the Company’s webstores, Avenova.com and DERMAdoctor.com, for Avenova and DERMAdoctor products. Such direct to consumer sales are recognized upon fulfillment, which generally occurs upon delivery of the related products to a third-party carrier. Shipping and handling costs are expensed as incurred and included in product cost of goods sold in the consolidated statements of operations. The Company presents revenue net of sales taxes and refunds. 

Revenue generated through third-party online retailers, including Amazon, is recognized when control of the goods is transferred to the customer, which generally occurs upon delivery of the products to a third-party carrier.

The Company pays third-party online retailers advertising & promotion fees, selling commissions and fulfillment fees. Advertising & promotion fees are expensed as incurred as sales and marketing expenses within operating expenses in the consolidated statements of operations. Prior to the third quarter of 2022, the Company recorded revenue net of selling commissions and fulfillment fees. Beginning in the third quarter of 2022, as further described below, the Company began expensing selling commissions as sales and marketing expenses in the consolidated statements of operations and fulfillment fees as product cost of goods sold in the consolidated statements of operations.

Prior to the third quarter of 2022, to determine its accounting for fulfillment fees, the Company evaluated principal versus agent considerations with respect to the obligation to ship its product to the customer. The Company assessed whether the nature of the Company’s obligation is as a principal in providing the fulfillment service or as an agent in promising to arrange for a third party to provide the fulfillment service. The Company concluded that it is an agent with respect to the shipping service as the Company does not control the service itself and, therefore, its obligation is that of a promise to arrange for the service. This determination involved significant judgement. In accordance with this conclusion, prior to the third quarter of 2022, the Company recorded revenue net of fulfillment fees. Beginning in the third quarter of 2022, the Company made an accounting policy change election, as a practical expedient, to account for the shipping fees as a fulfillment activity and began expensing them as incurred within product cost of goods sold in the Company’s consolidated statements of operations. Management believes the resulting accounting changes are preferable as they conform the Company’s practice to a majority of comparable filers and other similar sales channels. Changes to amounts presented for prior periods have been made to conform to these changes. These changes did not impact operating loss, net loss or loss per share in the Company’s condensed consolidated statements of operations in the periods presented in this report or in previously issued annual consolidated financial statements. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

Prior to the third quarter of 2022, the Company also recorded revenue net of selling commissions. During the third quarter of 2022, the Company concluded that these commissions relate to a sales activity and began expensing them as incurred as sales and marketing expenses within the Company’s consolidated statements of operations. The Company determined that its treatment prior to the third quarter of 2022 was an error. The identified error impacted the Company's previously issued 2022 and 2021 quarterly, and 2021 and 2020 annual consolidated financial statements. Management believes that the impact of this error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

- 13-

 

The Company also generates Avenova Spray revenue through major pharmacy distribution partners. Product supply of Avenova Spray is the only performance obligation contained in these arrangements, and the Company recognizes product revenue upon transfer of control to its major distribution partners at the amount of consideration that the Company expects to be entitled to, generally upon delivery to the distributor on a “sell-in” basis. Upon recognition of product sales, contract liabilities are recorded for invoiced amounts that are subject to reversal, including product revenue allowances for cash consideration paid to customers for services, discounts, rebate programs, and product returns. The Company derives its rate of return and other contract liabilities from historical data and updates its assumptions quarterly. Payment for product supply is typically due 30 days after control transfers to the distributor.

Revenue for products sales to Costco is recognized upon transfer of control at the amount of consideration that the Company expects to be entitled to, generally upon delivery to Costco. Upon recognition of product sales, contract liabilities are recorded for invoiced amounts that are subject to reversal, including discounts and product returns. The Company derives its rate of return from historical data and updates its return rate assumption quarterly. Payment for product supply is typically due 30 days after control transfers to Costco.

Revenue generated through the Company’s partner pharmacies is recognized when control of the product transfers to the end customer.

Revenue for product sales to other retailers is generally recognized upon transfer of control to the retailer, which generally occurs upon delivery of the products to a third-party carrier, net of estimated future product returns.

The Company may be required to defer recognition of revenue for upfront payments until it performs its obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt. Deferred revenue was $103 thousand and $4 thousand as of September 30, 2023 and December 31, 2022, respectively, which is recorded within Accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

Cost of Goods Sold

Cost of goods sold includes third-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 allowance for excess and obsolete inventory along with 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, including submissions to the FDA.

Patent Costs

Patent costs, including legal expenses, 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 $0.3 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively. Advertising expenses were $0.9 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Stock-Based Compensation

The Company’s stock-based compensation includes grants of stock options and RSUs to employees, consultants and non-employee directors. The expense associated with these grants is recognized in the Company’s unaudited 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. See Note 13, “Equity-Based Compensation” for further information regarding stock-based compensation expense and the assumptions used in estimating that expense. 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 as of the date of issuance.

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

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.

The Company classifies as equity any contracts 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 assets or liabilities any contracts that (i) require net-cash settlement, (ii) give the counterparty a choice of net-cash physical settlement or net-share settlement or (iii) do not become exercisable until the occurrence of a contingent event.

For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value 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.

Net Loss per Share

The Company computes net loss per share by presenting both basic and diluted earnings (loss) per share (“EPS”).

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 sets forth the calculation of basic EPS and diluted EPS (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
Numerator	2023			2022*			2023			2022*
Net loss	$	(1,757	)	$	(136	)	$	(5,532	)	$	(2,402	)
Less: Increase in accumulated deficit due to Series B Preferred Stock conversion price		—			(5,657	)		(1,802	)		(5,657	)
Less: Increase in accumulated deficit due to Series C Preferred Stock conversion price		—			—			(194	)		—
Net loss attributable to common stockholders (basic and diluted)	$	(1,757	)	$	(5,793	)	$	(7,528	)	$	(8,059	)
Denominator
Weighted average shares of common stock outstanding (basic and diluted)		4,692			1,604			3,311			1,514
Net loss per share (basic and diluted)	$	(0.37	)	$	(3.61	)	$	(2.27	)	$	(5.32	)

* After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

For the three and nine months ended September 30, 2023 and 2022, Series B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”) and the Series C Non-Voting Convertible Preferred Stock (the “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 did not 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 (in thousands):

	As of September 30,
	2023		2022
Series B Preferred Stock		4,736		1,845
Series C Preferred Stock		845		—
Stock options		148		136
Stock warrants		7,382		65
		13,111		2,046

- 15-

 

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements that could affect our business, results of operations, financial condition, and liquidity, see Note 2, “Summary of Significant Accounting Policies” included in the 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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for the Company for annual and interim reporting periods beginning January 1, 2023. The Company adopted the new standard effective January 1, 2023, and the adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

NOTE 3. FAIR VALUE MEASUREMENTS 

The Company’s cash equivalents 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. The types of investments that are generally classified within Level 1 of the fair value hierarchy include money market securities and certificates of deposit.

As a result of certain call and put options within the Convertible Notes entered into in April 2023, the Company recorded a combined embedded derivative liability on its consolidated balance sheet with a corresponding debt discount which is netted against the face value of the Convertible Notes. The fair value of the embedded derivative liability was classified within Level 2 of the fair value hierarchy because the stock price used in the related Black Sholes valuation model is adjusted for the dilutive effect of the 2023 Private Placement. This price was also used in the fair value models used by the Company to value the 2023 Warrants issued in conjunction with the 2023 Private Placement as well as in accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the 2023 Private Placement. This price is based on observable inputs but is not a quoted price in an active market and involves uncertainties. If factors or assumptions utilized in determining this price change, the estimated fair values for which it was used could be materially different. See Notes 9, “Convertible Note”; 11, “Warrant Liability”; and Note 12, “Stockholder’s Equity” for further discussion of related fair value calculations.

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2023 (in thousands):

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets		Other		Significant
	Balance at		for Identical		Observable		Unobservable
	September 30,		Items		Inputs		Inputs
	2023		(Level 1)		(Level 2)		(Level 3)
Assets
Restricted cash held as a certificate of deposit	$	324	$	324	$	—	$	—
Deposit held as a certificate of deposit		152		152		—		—
Total assets	$	476	$	476	$	—	$	—

The following table presents the Company’s cash equivalent assets measured at fair value on a recurring basis as of December 31, 2022 (in thousands):

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets		Other		Significant
	Balance at		for Identical		Observable		Unobservable
	December 31,		Items		Inputs		Inputs
	2022		(Level 1)		(Level 2)		(Level 3)
Assets
Restricted cash held as a certificate of deposit	$	332	$	332	$	—	$	—
Deposit held as a certificate of deposit		152		152		—		—
Total assets	$	484	$	484	$	—	$	—

- 16-

 

NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

	September 30,		December 31,
	2023		2022
Prepaid inventory	$	93	$	211
Prepaid insurance		73		146
Prepaid dues and subscriptions		65		43
Prepaid marketing costs		26		24
Prepaid patents		4		12
Tenant allowance		—		11
Other		72		113
Total prepaid expenses and other current assets	$	333	$	560

NOTE 5. INVENTORY

Inventory consisted of the following (in thousands):

	September 30,			December 31,
	2023			2022
Raw materials and supplies	$	1,031		$	1,273
Finished goods		3,018			2,663
Less: Reserve for excess and obsolete inventory		(556	)		(499	)
Total inventory, net	$	3,493		$	3,437

NOTE 6. PROPERTY AND EQUIPMENT 

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

	September 30,			December 31,
	2023			2022
Office and laboratory equipment	$	20		$	20
Furniture and fixtures		157			157
Computer equipment and software		429			412
Leasehold improvements		152			152
Total property and equipment, at cost		758			741
Less: accumulated depreciation		(661	)		(622	)
Total property and equipment, net	$	97		$	119

Depreciation expenses were $13 thousand and $29 thousand for the three months ended September 30, 2023 and 2022, respectively, and $39 thousand and $88 thousand for the nine months ended September 30, 2023 and 2022, respectively.

- 17-

  

NOTE 7. OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):

	Balance at September 30, 2023
			Accumulated
	Gross		Amortization			Impairment			Net
Indefinite-lived intangible assets
Trade names	$	2,080	$	—		$	(970	)	$	1,110
Amortizable intangible assets
Customer relationships	$	290	$	(57	)	$	(172	)	$	61
Trade secrets / product formulations		2,890		(480	)		(1,415	)		995
Total other intangible assets	$	5,260	$	(537	)	$	(2,557	)	$	2,166

	Balance at December 31, 2022
			Accumulated
	Gross		Amortization			Impairment			Net
Indefinite-lived intangible assets
Trade names	$	2,080	$	—		$	(970	)	$	1,110
Amortizable intangible assets
Customer relationships	$	290	$	(48	)	$	(172	)	$	70
Trade secrets / product formulations		2,890		(375	)		(1,415	)		1,100
Total other intangible assets	$	5,260	$	(423	)	$	(2,557	)	$	2,280

In the fourth quarter of 2022, the Company determined that certain of its indefinite-lived and long-lived amortizable intangible assets related to its DERMAdoctor business were impaired. As such, the Company recorded an intangible asset impairment charge of $2.6 million in the fourth quarter of 2022, which was reflected in the “Goodwill, Intangible and Other Asset Impairment” caption in the Company’s consolidated statements of operations. The Company did not record any intangible asset impairment charges for the three and nine months ended September 30, 2023 or 2022.

Amortization expenses were $38 thousand and $90 thousand for the three months ended September 30, 2023 and 2022, respectively, and $114 thousand and $272 thousand for the nine months ended September 30, 2023 and 2022, respectively. Based on the amortizable intangible assets as of September 30, 2023, future amortization expenses are expected to be as follows (in thousands):

2023	$	38
2024		153
2025		152
2026		153
Thereafter		560
Total	$	1,056

NOTE 8. ACCRUED LIABILITIES 

Accrued liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2023		2022
Contract liabilities (see Note 14)	$	1,042	$	1,807
Employee payroll and benefits		422		261
Marketing costs		40		104
Accrued interest on Convertible Notes		38		—
Inventory purchases		—		101
Other		327		451
Total accrued liabilities	$	1,869	$	2,724

- 18-

 

NOTE 9. CONVERTIBLE NOTE

On April 27, 2023, the Company entered into a Securities Purchase Agreement with existing accredited institutional investors (the “Purchasers”) of the Company that provided for the issuance and sale in a private placement (the “2023 Private Placement”) of (i) $3.3 million aggregate principal amount  (the “Aggregate Principal Amount”) of Original Issue Discount Senior Secured Convertible Debentures Due November 1, 2024 (the “Convertible Notes”) that may be converted or redeemed into up to an aggregate of 2,538,464 shares of common stock (the “Conversion Shares”), (ii) a new long-term Series B-1 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2028 (“Series B-1 Warrants”), and (iii) a new short-term Series B-2 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2025 (“Series B-2 Warrants” and, together with the Series B-1 Warrants, the “May 2023 Warrants”). The May 2023 Warrants have an exercise price of $1.30 per share. The 2023 Private Placement closed on May 1, 2023 and the Company received gross proceeds of $3.0 million, before deducting placement agent fees and other offering expenses. Ladenburg served as the Company’s exclusive placement agent in the 2023 Private Placement and received a fee equal to 8% of the total gross proceeds and were reimbursed for certain related expenses.

Due to the number of shares of common stock that may be issued upon conversion or redemption of the Convertible Notes and the exercise of the May 2023 Warrants, the Company was required to obtain stockholder approval for the issuance of these shares of common stock in accordance with Section 713(a) and 713(b) of the NYSE American Company Guide (the “Stockholder Approval”). The Company received Stockholder Approval at its 2023 Annual Meeting of Stockholders on June 9, 2023, and, as a result, the Convertible Notes and the May 2023 Warrants are currently convertible or exercisable, as applicable, in accordance with their respective terms.

The Convertible Notes are convertible by the holder, in whole or in part, into shares of common stock at a conversion price equal to $1.30 per share (“Conversion Price”) at any time, subject to certain limitations upon conversion. The Convertible Notes are subject to a limitation upon conversion into shares of common stock to the extent that, after giving effect to such conversion, the holder of a Convertible Note (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% or 9.99% of the outstanding common stock. The Company is required to make a monthly redemption of the Convertible Notes (“Monthly Redemption”), which began on June 1, 2023, equal to 1/18th of the Aggregate Principal Amount multiplied by 1.10 in cash; or, as provided in the Convertible Notes, in shares of common stock at the election of the Company under certain conditions as defined in the agreement with a conversion rate equal to the lower of (i) the Conversion Price or (ii) 90% of the Company’s average volume-weighted average price over 10 trading days. At the election of the holders, the Convertible Notes also provide for a mandatory redemption by the Company of a portion of the principal amount of the Convertible Notes after completing a subsequent financing. The redemption amount of the Convertible Notes shall be equal to at least 20% of the gross proceeds received by the Company in such subsequent financing.

If any event of default occurs, the outstanding principal amount of the Convertible Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the holder’s election, immediately due and payable in cash. Commencing five days after the occurrence of any event of default that results in the eventual acceleration of the Convertible Notes, the interest rate on the Convertible Notes shall accrue at an interest rate equal to the lesser of 18% per annum and the maximum rate permitted under applicable law. The Convertible Notes are secured obligations of the Company and DERMAdoctor pursuant to the terms of the Security Agreement, dated April 27, 2023 (the “Security Agreement”). Under the terms of the Security Agreement, the holders of the Convertible Notes were granted a security interest, a lien upon and a right of set-off against all of the Company’s and DERMAdoctor’s assets as collateral security for the complete, timely payment, performance and discharge of the obligations under the Convertible Notes. To further secure the Company’s obligations under the Convertible Notes, DERMAdoctor also executed a Subsidiary Guarantee (the “Subsidiary Guarantee”), pursuant to which DERMAdoctor is a guarantor of the Company’s obligations owed to the Convertible Notes holders. 

The lender’s conversion and subsequent financing redemption option and certain events of default represent embedded call options. The Company’s monthly share redemption option represents an embedded put option. Each of the options requires bifurcation.

The Company allocated the proceeds from the 2023 Private Placement between the May 2023 Warrants, combined embedded derivative liabilities, and the Convertible Notes by applying the residual fair value methodology. The Company first allocated $1.6 million to the May 2023 Warrants and $0.2 million to the derivative liabilities with the residual $1.2 million to the Convertible Notes.

A single derivative comprising all bifurcatable features was measured at fair value using the Black Scholes valuation model. The weighted average key assumptions based on probability of occurrence used to value the combined embedded derivative upon issuance were as follows:

Stock price	$	0.72
Equity volatility		80.1	%
Risk-free interest rate		4.88	%
Dividend yield		0.0	%
Remaining term		0.8

The fair value of the combined embedded derivative was $209 thousand as of April 27, 2023.

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As of June 9, 2023, the date of stockholder approval for the shares underlying potential conversion of the Convertible Notes, the fair value of the combined embedded derivative liability was determined to be $169 thousand in accordance with the following key assumptions:

Assumption	As of June 9, 2023
Stock price	$	0.75
Equity volatility		76.9	%
Risk-free interest rate		5.41	%
Remaining term		0.7

The change of $40 thousand in fair value between the date of issuance and June 9, 2023 was recorded as a non-cash gain in the consolidated statements of operations and comprehensive loss. The derivative liability was subsequently reclassified to equity.

The aggregate $300 thousand original issue discount, and the $294 thousand of debt issuance costs that were allocated to the Convertible Notes based on the relative fair value method, were recorded at issuance as an offset to the Convertible Notes on the Company’s unaudited condensed consolidated balance sheet. The Convertible Notes are presented as follows as of September 30, 2023:

(in thousands)
Principal amount	$	2,567
Unamortized discount		(1,136	)
Unamortized debt issuance costs		(161	)
Total Convertible Note, net		1,270

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

The discount and debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Convertible Notes, assuming that the Convertible Notes will be redeemed for cash of $193 thousand per month beginning in June 2023. During both the three and nine months ended September 30, 2023, the effective interest rate on the Convertible Notes was 173%. During the three and nine months ended September 30, 2023, interest expense recognized, including amortization of the issuance costs and debt discount, was $0.7 million and $1.2 million, respectively.

As of September 30, 2023, the Company's contractual maturity of the principal balance of the Convertible Notes was as follows:

(in thousands)
Remainder of 2023	$	550
2024		2,017
Total	$	2,567

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NOTE 10. 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 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 September 30, 2023 or December 31, 2022. 

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 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 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 has not recorded any liabilities for these agreements as of September 30, 2023 or December 31, 2022. 

Legal Matters

From time to time, the Company is subject to various legal proceedings, as well as demands, claims and threatened litigation, that 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 September 30, 2023 and December 31, 2022, 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 expenses legal costs in the period incurred. 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 initial lease term was scheduled to expire on February 28, 2022, but on January 19, 2022, the Company exercised its option to extend the term and amended the lease to extend the term through July 31, 2027.

The Company also leases 19,136 square feet of space located in Riverside, Missouri, which it utilizes for light manufacturing, storage, distribution of products and administrative functions. The lease commenced on October 1, 2019 and expires on December 31, 2024.

In calculating the present value of the minimum lease payments, the Company utilized its incremental borrowing rate. The Company has elected to account for each lease component and its associated non-lease components as a single lease component and has allocated all of the contract consideration across lease components only. 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. The 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 components of lease expense for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Lease Costs	2023		2022		2023		2022
Operating lease cost	$	130	$	120	$	391	$	395
Other information
Operational cash flow used for operating leases	$	145	$	144	$	397	$	399

The Company has measured its operating lease liabilities at its incremental borrowing rate over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate are summarized as follows:

	September 30, 2023			September 30, 2022
Weighted-average remaining lease term (in years)		3.6			5.0
Weighted-average discount rate		5	%		5	%

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Future lease payments under non-cancelable leases as of September 30, 2023 were as follows (in thousands):

2023	$	146
2024		557
2025		439
2026		444
2027		290
Total future minimum lease payments		1,876
Less imputed interest		(147	)
Total	$	1,729
Reported as:
Operating lease liabilities	$	485
Operating lease liabilities- non-current		1,244
Total	$	1,729

NOTE 11. WARRANT LIABILITY

See additional discussion of the terms of the Company’s various warrants and related transactions in Note 12, “Stockholders’ Equity”. Further, many of the defined terms used below are defined in Note 12, “Stockholders’ Equity”.

May 2023 Warrants

The May 2023 Warrants were issued by the Company on May 1, 2023, in connection with the 2023 Private Placement. The May 2023 Warrants were not initially exercisable prior to the Stockholder Approval on June 9, 2023. Under ASC 480, Distinguishing Liabilities from Equity, the May 2023 Warrants were initially classified as liabilities from the date of issuance through the date of approval at which time they were reclassified to equity.

The fair value of the May 2023 Warrants was determined to be $1.6 million as of the date of issuance on May 1, 2023 in accordance with the following key assumptions (see additional discussion in Note 3, “Fair Value Measurements), at which time they were classified as liabilities:

	Series B-1 Warrants			Series B-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.1			2.1
Risk-free interest rate		3.60	%		4.04	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.40		$	0.22

As of June 9, 2022, the date of stockholder approval, the fair value of these May 2023 Warrants, was determined to be $1.4 million in accordance with the following key assumptions, at which time they were reclassified to equity:

	Series B-1 Warrants			Series B-2 Warrants
Stock price	$	0.68		$	0.68
Expected price volatility		77.6	%		77.6	%
Expected term (in years)		5.0			2.0
Risk-free interest rate		3.92	%		4.59	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.36		$	0.18

As a result, the Company recorded a non-cash gain on changes in fair value of warrant liability of $216 thousand.

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September 2022 Warrants

The September 2022 Warrants were issued by the Company on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction. The September 2022 Warrants were not exercisable prior to stockholder approval being received on November 10, 2022. Under ASC 480, Distinguishing Liabilities from Equity, the September 2022 Warrants were classified as liabilities from the date of issuance until Company stockholders approval on November 10, 2022, at which time they were reclassified to equity.

The fair value of the September 2022 Warrants was determined to be $1.4 million as of the date of issuance on September 9, 2022 in accordance with the following key assumptions, which was recorded as a liability:

Expected price volatility		79.6	%
Expected term (in years)		6.0
Risk-free interest rate		3.43	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	4.55

The fair value of the September 2022 Warrants was determined to be $0.5 million as of the date of approval by Company stockholders on November 10, 2022 in accordance with the following key assumptions, at which time the liability was adjusted and reclassified to equity:

Expected price volatility		79.5	%
Expected term (in years)		5.8
Risk-free interest rate		3.93	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	1.40

November 2021 Warrants

The November 2021 Warrants were issued by the Company on November 2, 2021, in connection with the 2021 Private Placement. The November 2021 Warrants were subsequently amended in September 2022 pursuant to the 2022 Warrant Reprice Transaction.

The November 2021 Warrants were not initially exercisable prior to certain stockholder approval being received on January 31, 2022. Under ASC 480, Distinguishing Liabilities from Equity, the November 2021 Warrants were classified as liabilities from the date of issuance through the date of approval of the increase in authorized shares at which time they were reclassified to equity.

As of December 31, 2021 the fair value of the November 2021 Warrants was determined to be $9.6 million in accordance with the following key assumptions, which was recorded as a liability:

Expected price volatility		87	%
Expected term (in years)		6.0
Risk-free interest rate		1.31	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	8.75

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As of January 31, 2022 upon receipt of stockholder approval, the fair value of the November 2021 Warrants was determined to be $7.5 million in accordance with the following key assumptions, at which time the liability was adjusted and reclassified to equity:

Expected price volatility		91	%
Expected term (in years)		6.0
Risk-free interest rate		1.65	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	7.00

Unexercised November 2021 Warrants exercisable for 803,574 shares of common stock were amended on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction. As a result of the amendment, these November 2021 Warrants were no longer exercisable prior to certain stockholder approval being received on November 10, 2022. Under ASC 480, Distinguishing Liabilities from Equity, the November 2021 Warrants were reclassified as liabilities on the date of amendment and remained recorded as liabilities through the date of approval of the Reverse Stock Split at which time they were reclassified to equity.

The fair value of these November 2021 Warrants was determined to be $3.5 million as of the date of amendment on September 9, 2022 in accordance with the following key assumptions, at which time they were reclassified as liabilities:

Expected price volatility		79.6	%
Expected term (in years)		6.0
Risk-free interest rate		3.43	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	4.55

As of November 10, 2022, the fair value of these November 2021 Warrants, as amended, was determined to be $1.3 million in accordance with the following key assumptions, at which time they were reclassified to equity:

Expected price volatility		79.5	%
Expected term (in years)		5.8
Risk-free interest rate		3.93	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	1.40

Amended July 2020 Warrants

On September 9, 2022, in connection with the 2022 Warrant Reprice Transaction, the Company amended certain July 2020 Warrants. The Amended July 2020 Warrants exercisable for 77,145 shares of common stock were no longer exercisable prior to certain stockholder approval being received on November 10, 2022. Under ASC 480, Distinguishing Liabilities from Equity, these Amended July 2020 Warrants were reclassified as liabilities on the date of amendment and remained recorded as liabilities through the date of approval of certain stockholder approval on November 10, 2022 at which time they were reclassified to equity.

The fair value of these Amended July 2020 Warrants was determined to be $0.3 million as of the date of amendment on September 9, 2022 in accordance with the following key assumptions, at which time they were reclassified as liabilities:

Expected price volatility		79.6	%
Expected term (in years)		3.4
Risk-free interest rate		3.58	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	3.50

As of November 10, 2022, the fair value of these Amended July 2020 Warrants was determined to be $0.1 million in accordance with the following key assumptions, at which time they were reclassified to equity:

Expected price volatility		79.5	%
Expected term (in years)		3.2
Risk-free interest rate		4.15	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	1.05

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NOTE 12. STOCKHOLDERS' EQUITY

Common Stock and Preferred Stock

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).

Reverse Stock Split

Effective November 15, 2022, the Company amended its Certificate of Incorporation to effect a 1-for-35 reverse split of its outstanding common stock. The Reverse Stock Split was approved by the Company’s stockholders on November 10, 2022. As a result of the Reverse Stock Split, every 35 shares of the Company’s pre-reverse split outstanding common stock were combined and reclassified into 1 share of common stock. Proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Split. Any fractional shares of common stock resulting from the Reverse Stock Split were rounded up to the nearest whole share. All stock options outstanding, common stock reserved for issuance under the Company’s equity incentive plans, common stock reserved for issuance under the Series B Preferred Stock and outstanding warrants were adjusted by dividing the number of affected shares of common stock by 35 and, as applicable, multiplying the exercise/conversion price by 35. Except as otherwise specifically noted, all share numbers, share prices, exercise prices and per share amounts have been adjusted, on a retroactive basis, to reflect this 1-for-35 Reverse Stock Split.

2023 Private Placement

On May 1, 2023, the Company closed the 2023 Private Placement, which consisted of issuing the Convertible Notes and the May 2023 Warrants.

For additional information regarding the Convertible Notes, please see Note 9, “Convertible Note”. For additional information regarding the 2023 Warrants and the related warrant liability and valuation, please see Note 11, “Warrant Liability”.

In connection with the 2023 Private Placement, certain Amended November 2021 Warrants, Amended July 2020 Warrants, September 2022 Warrants and 2022 Warrants previously issued to participants exercisable for 1,724,455 shares of common stock were amended in the 2023 Private Placement to lower the exercise price from $6.30 to $1.50 per share, as further described below.

2022 and 2023 Warrant Reprice Transactions, Amended November 2021 Warrants, Amended July 2020 Warrants and September 2022 Warrants

On September 9, 2022, the Company entered into a warrant reprice transaction, which included warrant reprice letter agreements with each of the holders of the November 2021 Warrants and certain holders of the July 2020 Warrants (as defined below) (the “2022 Warrant Reprice Transaction”). Pursuant to the terms of the letter agreements, the November 2021 Warrants and certain July 2020 Warrants were amended to: (i) reduce the exercise price to $6.30; (ii) provide that such warrants would not be exercisable until a later date, which was March 9, 2023; and (iii) in the case of the November 2021 Warrants, extend the termination date to September 11, 2028 (as amended, the “Amended November 2021 Warrants” and the “Amended July 2020 Warrants”, respectively). The Amended November 2021 Warrants expire on September 11, 2028, and the Amended July 2020 Warrants expire on January 22, 2026. As a result of the 2023 Private Placement, (1) a portion of the Amended November 2021 Warrants exercisable for 535,716 shares of common stock have an exercise price of $1.50 and the remaining portion of the Amended November 2021 Warrants exercisable for 267,858 shares of common stock have an exercise price of $6.30 and (2) all of the Amended July 2020 Warrants exercisable for 77,145 shares of common stock have an exercise price of $1.50.

As a result of the 2022 Warrant Reprice Transaction amendments to the Amended November 2021 Warrants and the Amended July 2020 Warrants, the Company recorded a non-cash loss on modification of common stock warrants in the amount of $1.9 million. The loss represents the increase in fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants as a result of the 2022 Warrant Reprice Transaction modification. The increase in fair value was calculated as the difference in value immediately before and after modification using the Black-Scholes option pricing model. The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $3.3 million immediately prior to the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Expected price volatility		79.6	%		79.6	%
Expected term (in years)		5.4			3.4
Risk-free interest rate		3.43	%		3.58	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	3.15		$	0.70

The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $5.2 million immediately after the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Expected price volatility		79.6	%		79.6	%
Expected term (in years)		6.0			3.4
Risk-free interest rate		3.43	%		3.58	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	4.55		$	3.50

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As a result of the amendments to the September 2022 Warrants as part of the 2023 Private Placement, the Company allocated $46 thousand between other expenses and Convertible Notes debt issuance cost. The $46 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model.

The fair value of the September 2022 Warrants was determined to be $48 thousand immediately prior to the modification in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		5.4
Risk-free interest rate		3.59	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	0.20

The fair value of the September 2022 Warrants was determined to be $94 thousand immediately after the modification in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		5.4
Risk-free interest rate		3.59	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	0.39

As of September 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

As a result of the amendments to the Amended November 2021 Warrants and the Amended July 2020 Warrants as part of the 2023 Private Placement, the Company allocated $117 thousand between other expenses and Convertible Notes debt issuance cost. The $117 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model. The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $112 thousand immediately prior to the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.4			2.7
Risk-free interest rate		3.59	%		3.88	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.20		$	0.06

The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $230 thousand immediately after the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.4			2.7
Risk-free interest rate		3.59	%		3.88	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.39		$	0.24

As of September 30, 2023, the Amended November 2021 Warrants were exercisable for an aggregate of 803,574 shares of common stock and the Amended July 2020 Warrants were exercisable for an aggregate of 77,145 shares of common stock.

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Additionally, in connection with the 2022 Warrant Reprice Transaction, the Company issued to certain participants in the 2022 Warrant Reprice Transaction that exercised their Amended November 2021 Warrants and their Amended July 2020 Warrants, new common stock purchase warrants (the “September 2022 Warrants”) to purchase a number of shares of common stock equal to 100% of the number of shares that a participant exercised under its November 2021 Warrant or Amended July 2020 Warrant, as applicable. As a result of the 2023 Private Placement, a portion of the September 2022 Warrants exercisable for 238,574 shares of common stock have an exercise price of $1.50 and the remaining portion of the September 2022 Warrants exercisable for 89,286 shares of common stock have an exercise price of $6.30. The September 2022 Warrants expire on September 11, 2028. As of September 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

The 2022 Warrant Reprice Transaction resulted in gross proceeds of approximately $2.1 million. The Company allocated the gross proceeds between the common stock issued for the Amended November 2021 Warrants and the Amended July 2020 Warrants exercised, and the September 2022 Warrants issued to participants by applying the relative fair value allocation methodology. The Company allocated $0.7 million in gross proceeds to the common stock issued for the Amended November 2021 Warrants and the Amended July 2020 Warrants exercised, and $1.4 million to the September 2022 Warrants which were classified as a liability. For additional information regarding the warrant liability and valuation, please see Note 11, “Warrant Liability”.

Ladenburg Thalmann & Co. Inc. (“Ladenburg”) served as the Company’s warrant solicitation agent for the 2022 Warrant Reprice Transaction in exchange for a fee equal to 8% of the total gross proceeds. The Company incurred total issuance costs of $529 thousand in conjunction with the 2022 Warrant Reprice Transaction. The Company allocated $166 thousand of the issuance costs to the warrant liability which was expensed in the Company’s condensed consolidated statements of operations during the third quarter of 2022. The remaining $363 thousand was recorded as a reduction of common stock and additional paid in capital in the Company’s condensed consolidated balance sheets.

Series C Preferred Stock, Series A-1 Warrants and Series A-2 Warrants

Concurrent with the 2022 Warrant Reprice Transaction on September 9, 2022, the Company entered into a private placement transaction with accredited investors (the “2022 Private Placement”), a private placement transaction with certain accredited investors to sell units that consisted of: (1) 3,250 shares of  Series C Preferred Stock convertible into an aggregate of 516,750 shares of common stock, (2) series A-2 warrants to purchase common stock, which are exercisable for 515,876 shares of common stock through May 20, 2024 (the “Series A-2 Warrants”), and (3) series A-1 warrants to purchase common stock, which are exercisable for 515,876 shares of common stock through November 20, 2028 (the “Series A-1 Warrants” and, together with the Series A-2 Warrants, the “2022 Warrants”). The closing of the 2022 Private Placement was subject to receiving certain stockholder approvals (as obtained on November 10, 2022), effecting the Reverse Stock Split, as well as the satisfaction of other customary closing conditions. On November 18, 2022, the Company closed the 2022 Private Placement and received gross proceeds of $3.2 million from the sale of the Series C Preferred Stock and the 2022 Warrants. As a result of the 2023 Private Placement, a portion of the 2022 Warrants exercisable for 873,020 shares of common stock have an exercise price of $1.50 and the remaining portion of the September 2022 Warrants exercisable for 158,732 shares of common stock have an exercise price of $6.30.

The Series C Preferred Stock does not have any preemptive rights or a preference upon any liquidation, dissolution or winding-up of NovaBay. The Series C Preferred Stock does, however, have anti-dilution protection 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 Series C Preferred Stock.

Each share of the Series C Preferred Stock that the Company issued in the 2022 Private Placement had a purchase price of $1,000 per share and was initially convertible at a conversion price of $6.30 into 159 shares of common stock. On April 27, 2023, the Company entered into the 2023 Private Placement where the May 2023 Warrants were issued with an exercise price of $1.30 per share, which exercise price was lower than the then effective $6.30 conversion price of the Series C Preferred Stock. This triggered the Series C Preferred Stock anti-dilution feature, resulting in the automatic adjustment to the conversion price for each outstanding share of the Series C Preferred Stock to $1.30, and each outstanding share of Series C Preferred Stock became convertible into 770 shares of common stock. As a result of the change, the Company recorded a $194 thousand deemed Series C Preferred Stock dividend. The deemed dividend was recorded as a reduction to income available to common stockholders in the basic earnings per share (EPS) calculation in the second quarter of 2023. In accordance with ASC 820, the deemed dividend was measured as the difference between (1) the fair value of the Series C Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Series C Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). The fair value of the Series C Preferred Stock was determined to be $0.9 million immediately prior to the conversion price adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	5.35

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The fair value of the Series C Preferred Stock was determined to be $1.1 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.61

As of September 30, 2023, the Series A-1 Warrants were exercisable into 515,876 shares of common stock and the Series A-2 Warrants were exercisable into 515,876 shares of common stock. As of September 30, 2023, 2,153 shares of the Series C Preferred Stock had been converted into common stock. Each of the remaining 1,097 shares of the Series C Preferred Stock, as of September 30, 2023, were convertible into 770 shares of common stock at a conversion price of $1.30.

As a result of the 2023 Private Placement transaction, amendments to the Series A-1 Warrants and the Series A-2 Warrants, the Company allocated $122 thousand between other expenses and Convertible Notes debt issuance cost. The $122 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model.

The fair value of the Series A-1 Warrants and the Series A-2 Warrants was determined to be $93 thousand immediately prior to the adjustment to the exercise price with the following key assumptions:

	Series A-1 Warrants			Series A-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.6			1.1
Risk-free interest rate		3.59	%		4.73	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.21		$	0.00

The fair value of the Series A-1 Warrants and the Series A-2 Warrants was determined to be $216 thousand immediately after the adjustment to the exercise price with the following key assumptions:

	Series A-1 Warrants			Series A-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.6			1.1
Risk-free interest rate		3.59	%		4.73	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.40		$	0.09

Series B Preferred Stock and November 2021 Warrants

On October 29, 2021, the Company entered into a private placement (the “2021 Private Placement”), including a securities purchase agreement with various institutional investors to sell in a private placement offering (i) an aggregate of 15,000 shares of our newly-created Series B Preferred Stock convertible into an aggregate of 1,071,429 shares of common stock, and (ii) the November 2021 Warrants exercisable for 1,071,429 shares of common stock for net proceeds of $14.9 million. The 2021 Private Placement closed on November 2, 2021. The November 2021 Warrants became exercisable as of January 31, 2022, and are exercisable through September 11, 2028.

The Series B Preferred Stock does not have any preemptive rights or a preference upon any liquidation, dissolution or winding-up of NovaBay. The Series B Preferred Stock does, however, have anti-dilution protection 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 Series B Preferred Stock.

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Table of Contents

Each share of the Series B Preferred Stock that the Company issued in the 2021 Private Placement had a purchase price of $1,000 per share and was initially convertible at a conversion price of $0.40 into 2,500 shares of common stock, or an aggregate of 37,500,000 shares of common stock (which does not account for the Reverse Stock Split). On September 9, 2022, the 2022 Warrant Reprice Transaction provided for amendments to certain common stock purchase warrants to lower their exercise price to $0.18 per share as well as the issuance of the September 2022 Warrants also with an exercise price of $0.18 per share, which exercise price was lower than the then effective $0.40 conversion price of the Series B Preferred Stock (which does not account for the Reverse Stock Split). This triggered the Series B Preferred Stock anti-dilution feature, resulting in the automatic adjustment to the conversion price for each outstanding share of the Series B Preferred Stock to $0.18, and each outstanding share of Series B Preferred Stock became convertible into 5,556 shares of common stock (which does not account for the Reverse Stock Split). As a result of the change, the Company recorded a $5.7 million deemed Series B Preferred Stock dividend. The deemed dividend was recorded as a reduction to income available to common stockholders in the basic earnings per share (EPS) calculation in the third quarter of 2022. In accordance with ASC 820, the deemed dividend was measured as the difference between (1) the fair value of the Series B Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Series B Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). The fair value of the Series B Preferred Stock was determined to be $6.8 million immediately prior to the conversion price adjustment in accordance with the following key assumptions:

Expected price volatility		79.6	%
Expected term (in years)		1.3
Risk-free interest rate		3.64	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	8.05

The fair value of the Series B Preferred Stock was determined to be $12.5 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Expected price volatility		79.6	%
Expected term (in years)		1.3
Risk-free interest rate		3.64	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	2.10

Thereafter, the Company effected the Reverse Stock Split, which resulted in an automatic adjustment to the conversion price for each outstanding share of the Series B Preferred Stock to $6.30, and each outstanding share of Series B Preferred Stock became convertible into 159 shares of common stock.

On April 27, 2023, the Company entered into the 2023 Private Placement where the May 2023 Warrants were issued with an exercise price of $1.30 per share, which exercise price was lower than the then effective $6.30 conversion price of the Series B Preferred Stock. This triggered the Series B Preferred Stock anti-dilution feature, resulting in the automatic adjustment to the conversion price for each outstanding share of the Series B Preferred Stock to $1.30, and each outstanding share of Series B Preferred Stock became convertible into 770 shares of common stock. As a result of the change, the Company recorded a $1.8 million deemed Series B Preferred Stock dividend. The deemed dividend was recorded as a reduction to income available to common stockholders in the basic earnings per share (EPS) calculation in the second quarter of 2023. In accordance with ASC 820, the deemed dividend was measured as the difference between (1) the fair value of the Series B Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Series B Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). The fair value of the Series B Preferred Stock was determined to be $8.7 million immediately prior the conversion price adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	5.35

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The fair value of the Series B Preferred Stock was determined to be $10.5 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.61

As of September 30, 2023, 8,850 shares of the Series B Preferred Stock had been converted into common stock. Each of the remaining 6,150 shares of the Series B Preferred Stock as of September 30, 2023, was currently convertible into 770 shares of common stock at a conversion price of $1.30.

Further, on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction, the November 2021 Warrants were amended to reduce the exercise price to $6.30 and extend the expiration date to September 11, 2028. Additionally, in conjunction with the 2022 Warrant Reprice Transaction, holders of the November 2021 Warrants, as amended, exercised a portion of their warrants at the reduced exercise price.

Common Stock

Common Stock Warrants

In addition to the Amended July 2020 Warrants, the Amended November 2021 Warrants, the September 2022 Warrants, the 2022 Warrants and the May 2023 Warrants, the Company also has the following outstanding warrants:

2019 Ladenburg Warrants

In 2019, Ladenburg was granted warrants exercisable for 4,799 shares of common stock (the “2019 Ladenburg Warrants”). The 2019 Ladenburg Warrants bear an exercise price of $34.65 and an expiration date of August 8, 2024.

July 2020 Warrants

In 2020, certain of the Company’s accredited investors were granted warrants with an exercise price of $57.75 (the “July 2020 Warrants”). A portion of these warrants were subsequently amended as described above to become the Amended July 2020 Warrants. As of September 30, 2023, outstanding July 2020 Warrants which were not amended were exercisable for 59,960 shares of common stock. The July 2020 Warrants expire on January 22, 2026.

TLF Bio Innovation 2021 Warrants

In 2021, TLF Bio Innovation was granted warrants exercisable for 429 shares of common stock with an exercise price of $23.51 (the “TLF Warrants”). The TLF Warrants expire on January 15, 2026.

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Summary of Warrants Outstanding

The details of all outstanding warrants as of September 30, 2023 and December 31, 2022 are as follows:

	Warrants (in thousands)		Weighted- Average Exercise Price
Outstanding at December 31, 2022		2,306	$	7.70
Warrants granted		5,076		1.30
Warrants expired		—		—
Outstanding at September 30, 2023		7,382		2.18

NOTE 13. EQUITY-BASED COMPENSATION

Equity Compensation Plans 

In  October 2007, the Company adopted the 2007 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. 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 than ten years from the date of grant. All stock options outstanding under the 2007 Plan were fully vested as of  December 31, 2020.

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 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.  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 than provided for in Section 4(a)(i) of the 2017 Plan as determined by the Board. On March 31, 2023, the number of shares available for future awards under the 2017 Plan was increased by 81,417 shares. As of  September 30, 2023, there were 147,905 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 common stock on the date of grant and, if ISOs are granted to an owner of more than 10% of the Company’s stock, then not less than 110% of the fair market value of the common stock on the date of grant. The term of awards will not be longer than ten years, or in the case of ISOs, not longer than five years with respect to holders of more than 10% 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 option exercises under the 2007 Plan and the 2017 Plan.

Summary of Outstanding Equity Awards

The following table summarizes information about the Company’s equity awards outstanding at September 30, 2023 and activity during the period ended September 30, 2023: 

(in thousands, except years and per share data)	Awards			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2022		132		$	37.99		7.5	$	69
Options granted		42		$	1.67
Restricted stock units granted		5			—
Restricted stock units vested		(5	)		—
Options forfeited/cancelled		(19	)	$	64.23
Restricted stock units cancelled		(7	)		—
Outstanding at September 30, 2023		148		$	26.26		7.6	$	13
Vested and expected to vest at September 30, 2023		119		$	32.34		7.5	$	2
Vested at September 30, 2023		59		$	59.30		5.8	$	—
Exercisable at September 30, 2023		59		$	59.30		5.8	$	—

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The aggregate intrinsic value in the table above 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 September 30, 2023 for options that have a quoted market price in excess of the exercise price. There were no stock option awards exercised during the three and nine months ended September 30, 2023 and 2022. The Company received no cash payments for the exercise of stock options during the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023, total unrecognized compensation cost related to unvested stock options and restricted stock units was approximately $0.3 million. This amount is expected to be recognized as stock-based compensation expense in the Company’s unaudited condensed consolidated statements of operations over the remaining weighted average vesting period of 2.1 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 Note 2, “Summary of Significant Accounting Policies,” for a description of the accounting policies that the Company applied to value its stock-based awards. 

During the nine months ended September 30, 2023 and 2022, the Company granted options to employees and directors to purchase an aggregate of 6,150 and 17,892 shares of common stock, respectively.

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

	Nine Months Ended September 30,
Assumption	2023			2022
Expected price volatility		152.99	%		158.04	%
Expected term (in years)		6.81			6.45
Risk-free interest rate		3.47	%		2.29	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of options granted during the period	$	1.61		$	9.46

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 has not 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 the nine months ended September 30, 2023, the Company granted 5,148 shares of restricted stock to employees and directors. During the nine months ended September 30, 2022, the Company granted 5,148 shares of restricted stock to employees and directors.

For the three months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $62 thousand and $208 thousand, respectively, for stock-based awards to employees and directors.  For the nine months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $201 thousand and $130 thousand, respectively, for stock-based awards to employees and directors.

Stock-Based Awards to Non-Employees

During the nine months ended September 30, 2023, the Company granted options to non-employees to purchase an aggregate of 36,000 shares of common stock in exchange for advisory and consulting services. During the nine months ended September 30, 2022, the Company did not grant options exercisable for shares of common stock to non-employees in exchange for advisory and consulting services.

When the Company grants stock options, the stock options are recorded at their fair value on the grant date and recognized over the respective service or vesting period. The fair value of the stock options that are granted is calculated using the Black-Scholes option pricing model.

For the three months ended  September 30, 2023, the Company recognized compensation expense of $3 thousand as compared to no stock-based compensation expense for the three months ended  September 30, 2022, related to non-employee stock option grants. For the nine months ended  September 30, 2023, the Company recognized stock-based compensation expense of $7 thousand as compared to a nominal stock-based compensation expense for the nine months ended  September 30, 2022, related to non-employee stock option grants.

During the nine months ended September 30, 2023, the Company did not grant restricted stock to non-employees.

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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):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022			2023		2022
Research and development	$	5	$	5		$	16	$	14
Sales and marketing		18		12			49		37
General and administrative		39		(225	)		136		79
Total stock-based compensation expense	$	62	$	(208	)	$	201	$	130

NOTE 14. DISTRIBUTION AGREEMENTS

Transactions under the Company’s major distribution agreements are recognized upon transfer of control of product 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 the nine months ended September 30, 2023 (in thousands): 

	Product Returns, Discounts for Prompt Payment			Other Customer Fees			Rebates			Total
Balance at December 31, 2022	$	1,673		$	53		$	81		$	1,807
Provision related to sales made in current period		521			104			79			704
Payments and customer credits issued		(1,194	)		(141	)		(134	)		(1,469	)
Balance at September 30, 2023	$	1,000		$	16		$	26		$	1,042

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 the three months ended September 30, 2023 and 2022, the Company earned $232 thousand and $170 thousand, respectively, in net sales revenue for its Avenova Spray product from these distribution and partner pharmacy agreements. During the nine months ended September 30, 2023 and 2022, the Company earned $519 thousand and $113 thousand, respectively, in net 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 and $1.6 million as of September 30, 2023 and December 31, 2022, respectively. The contract liability is included in accrued liabilities in the condensed consolidated balance sheets. The Company also recorded a prepayment of $141 thousand for rebates related to these distribution agreements as of September 30, 2023, with no such prepayment recorded as of December 31, 2022, that is recorded in the prepaid expenses and other current assets in the condensed consolidated balance sheets (see Note 4, “Prepaid Expenses and Other Current Assets”).

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 the three and nine months ended September 30, 2023, the revenue generated from over-the-counter Avenova Spray was $1.6 million and $4.5 million, respectively. During the three and nine months ended September 30, 2022, the revenue generated from over-the-counter Avenova Spray was $1.6 million and $5.1 million, respectively. 

DERMAdoctor Products Distribution Agreements

DERMAdoctor products are sold through distribution arrangements with third parties such as Costco and others. During the three and nine months ended September 30, 2023, the Company earned $0.1 million and $0.5 million, respectively, in sales revenue for its DERMAdoctor products from these distribution agreements. During both the three and nine months ended September 30, 2022, the Company earned $0.4 million in sales revenue for its DERMAdoctor products from these distribution agreements.

Under these distribution arrangements, the Company had a contract liability balance of $0.3 million and $0.2 million as of September 30, 2023 and December 31, 2022, respectively. The contract liability is included in accrued liabilities in the condensed consolidated balance sheets.

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NOTE 15. 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. During the three and nine months ended September 30, 2023, the Company contributed $32 thousand and $95 thousand, respectively. During the three and nine months ended September 30, 2022, the Company contributed $25 thousand and $101 thousand, respectively.

NOTE 16. RELATED PARTY TRANSACTIONS      

Related Party Revenue 

The following table summarizes information about the Company’s related party revenue and cost of goods sold (in thousands): 

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023			2022
Related party revenue:
NeutroPhase	$	—		$	—	$	1,043		$	657
Total related party revenue	$	—		$	—	$	1,043		$	657
Cost of goods sold:
NeutroPhase	$	(28	)	$	—	$	(923	)	$	(648	)
Total related party expenses	$	(28	)	$	—	$	(923	)	$	(648	)

Related party accounts receivable was $0.2 million as of September 30, 2023 and December 31, 2022.

NOTE 17. SEGMENT REPORTING

The Company’s chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, allocates resources and assesses performance based on financial information of the Company. The CODM reviews financial information presented for each reportable segment for purposes of making operating decisions and assessing financial performance.

Prior to the DERMAdoctor Acquisition in November 2021, the Company was managed as a single segment focused on commercializing Avenova Spray in the United States. After the DERMAdoctor Acquisition, the Company began managing and aggregating its operational and financial information in accordance with two reportable segments: (1) Eyecare & Wound Care and (2) Skincare. The Eyecare & Wound Care segment consists of products historically sold by NovaBay prior to the DERMAdoctor Acquisition. The Skincare segment consists of products acquired in the DERMAdoctor Acquisition and skincare products subsequently sold under the DERMAdoctor brand.

Select financial information for each segment is as follows:

	Three					Three
	Months					Months
	Ended		Percentage			Ended		Percentage
	September		of Total			September		of Total
	30,		Sales,			30,		Sales,
	2023		Net			2022		Net
Eyecare & Wound Care	$	2,481		76	%	$	2,507		66	%
Skincare		784		24	%		1,319		34	%
Total sales, net	$	3,265		100	%	$	3,826		100	%

	Three						Three
	Months						Months
	Ended			Percentage			Ended			Percentage
	September			of Total			September			of Total
	30,			Operating			30,			Operating
	2023			Loss			2022			Loss
Eyecare & Wound Care	$	(698	)		63	%	$	(257	)		56	%
Skincare		(418	)		37	%		(200	)		44	%
Total operating loss	$	(1,116	)		100	%	$	(457	)		100	%

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	Nine Months					Nine Months
	Ended		Percentage			Ended		Percentage
	September		of Total			September		of Total
	30,		Sales,			30,		Sales,
	2023		Net			2022		Net
Eyecare & Wound Care	$	8,354		76	%	$	7,646		71	%
Skincare		2,645		24	%		3,115		29	%
Total sales, net	$	10,999		100	%	$	10,761		100	%

	Nine Months						Nine Months
	Ended						Ended
	September			Percentage			September			Percentage
	30,			of Total			30,			of Total
	2023			Operating Loss			2022			Operating Loss
Eyecare & Wound Care	$	(3,094	)		74	%	$	(3,605	)		72	%
Skincare		(1,111	)		26	%		(1,386	)		28	%
Total operating loss	$	(4,205	)		100	%	$	(4,991	)		100	%

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  September 30, 2023, and events which occurred subsequently but were not recognized in the condensed consolidated financial statements. Except as described below there were no other subsequent events which required recognition, adjustment to or disclosure in the unaudited condensed consolidated financial statements.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion contains forward-looking statements that involve risks and uncertainties. The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report, and with our consolidated financial statements and related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023, as amended by Amendment No. 1 to the Annual Report on Form 10-K, which was filed with the SEC on April 28, 2023. Words such as “expects,” “anticipated,” “will,” “may,” “goals,” “plans,” “believes,” “estimates,” “concludes,” determines,” variations of these words, and similar expressions are intended to identify these forward-looking statements. As a result of many factors, including those set forth under the section entitled “Risk Factors” and other sections in our SEC filings, our actual results may differ materially from those anticipated in these forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be reasonable at the time and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements after the date of this report, even if new information becomes available in the future.

Overview 

We are a company focused on the sale of scientifically-created and clinically-proven eyecare, skincare and wound care products.

Our leading product, 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 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. In September 2023, we launched the Avenova Allograft, a dehydrated single-layer amnion membrane used by eyecare professionals as protective covering for the repair of ocular surfaces.

Through our subsidiary DERMAdoctor, LLC (“DERMAdoctor”), we offer over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris. DERMAdoctor branded products are marketed and sold through the DERMAdoctor website, well-known traditional and digital beauty retailers, and a network of international distributors. We acquired DERMAdoctor in November 2021, and since completing the DERMAdoctor Acquisition we have been working to integrate and expand the DERMAdoctor business in order to achieve strategic objectives that we expected by completing this acquisition, including revenue growth, cost reductions and achieving overall profitability. We have not been able to achieve these objectives to date, as DERMAdoctor’s product revenue declined in 2023 compared to 2022, while operating costs relating to these products remained substantially the same. We are working to achieve our overall objectives, as well as continuing to evaluate additional strategies for our Company and our business to address our capital and liquidity needs, including potential other strategic alternatives.

We also manufacture and sell our proprietary form of hypochlorous acid for the wound care market with our NeutroPhase and PhaseOne branded products. NeutroPhase and PhaseOne are used for cleansing and irrigation as part of surgical procedures, as well as treating certain wounds, burns, ulcers and other injuries. We currently sell these products only through distributors.

Recent Developments

2023 Private Placement

On April 27, 2023, the Company entered into a Securities Purchase Agreement with existing accredited institutional investors of the Company for the 2023 Private Placement that provided for the issuance and sale of (i) $3.3 million aggregate principal amount of Convertible Notes, (ii) the Series B-1 Warrants, and (iii) the Series B-2 Warrants. The 2023 Private Placement closed on May 1, 2023 and the Company received gross proceeds of $3.0 million, before deducting placement agent fees and other offering expenses. Due to the number of shares of common stock that may be issued upon conversion or redemption of the Convertible Notes and the exercise of the May 2023 Warrants, we were required to obtain the Stockholder Approval for the issuance of these shares of common stock in accordance with Section 713(a) and 713(b) of the NYSE American Company Guide. The Company received the Stockholder Approval at its 2023 Annual Meeting of Stockholders on June 9, 2023, and, as a result the Convertible Notes and the May 2023 Warrants are currently convertible or exercisable, as applicable, in accordance with their respective terms. In connection with the 2023 Private Placement, certain previously issued common stock purchase warrants issued to participants in the 2023 Private Placement exercisable for 1,724,455 shares of common stock were amended to lower the exercise price from $6.30 to $1.50 per share, as further described below.

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Anti-Dilution Adjustment to Series B Preferred Stock and the Series C Preferred Stock

The Certificate of Designation of Preferences, Rights and Limitations for the Company’s outstanding Series B Preferred Stock (the “Series B Certificate of Designation”) and the Certificate of Designation of Preferences, Rights and Limitations for the Company’s outstanding Series C Preferred Stock (the “Series C Certificate of Designation”) both provide for anti-dilution protection in the event that the Company grants any right to reprice any Company security or issues a new Company security that would entitle the holder to acquire common stock at an effective price per share that is lower than the conversion price of the Series B Preferred Stock and the Series C Preferred Stock, which is referred to as “full-ratchet” anti-dilution protection. As a result of the consummation of the 2023 Private Placement, the conversion price of the Convertible Notes and the exercise price of the May 2023 Warrants at $1.30 per share triggered this anti-dilution protection in the Series B Certificate of Designation and the Series C Certificate of Designation. As a result, the conversion price of each share of Series B Preferred Stock and each share of Series C Preferred Stock, which were each convertible at a price of $6.30 into 159 shares of common stock, were both automatically adjusted downward to become convertible at a price of $1.30 into 770 shares of common stock resulting in an additional 7,863,570 shares of common stock issuable upon conversion of the then outstanding shares of Series B Preferred Stock and Series C Preferred Stock.

For additional information regarding the 2023 Private Placement, the Convertible Notes, the May 2023 Warrants, the warrant amendments and the other related agreements and transactions, as well as the antidilution adjustment to the Series B Preferred Stock and Series C Preferred Stock, see Note 9 “Convertible Notes” and Note 12 “Stockholders’ Equity” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report and the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2023.

Financial Overview and Outlook

We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue to commercialize our eyecare, skincare and wound care products. Our net losses were $1.8 million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively. In addition, our net losses were $5.5 million and $2.4 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $165.7 million, total current assets of $8.2 million and total assets of $12.9 million.

We expect to grow commercial sales of Avenova branded products and expect to grow commercial sales of our DERMAdoctor branded products through an expansion of domestic and international market penetration, with a particular focus on online channels, and the development of new product offerings under both brand names.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. In preparing these unaudited condensed consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

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While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report, we believe that the following accounting estimates are most critical to fully understanding and evaluating our reported financial results as discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Impairment of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

We review goodwill, indefinite-lived intangible assets and long-lived assets for impairment at least annually or whenever events or changes in business circumstances indicate that any such asset may be impaired, that the carrying amount of any such asset may not be fully recoverable or that the useful life of the asset, if applicable, is no longer appropriate. Management uses judgement in making critical assumptions and estimates in determining when an impairment assessment should be recorded, if more frequent than annually, or in the completion of any such assessment. This includes cash flow projections that look several years into the future and assumptions on variables such as future sales and operating margin growth rates, economic conditions, probability of success, market competition, inflation and discount rates. Changes in judgments with respect to these assumptions and estimates could impact any such impairments recorded such as those recorded in the fourth quarter of 2022 as further described in Note 2, “Summary of Significant Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Valuation of Contingent Consideration Resulting from a Business Combination

We revalue any outstanding contingent obligations to pay future consideration related to business combinations at the end of each quarter and record increases or decreases in their fair value within our consolidated statements of operations. Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period. See additional information in Note 2, “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.

Estimates of Future Product Returns

The Company records revenue in an amount that reflects the consideration which the Company expects to receive. Accordingly, revenue is reduced for estimated future product returns. The Company’s estimates for returns are updated quarterly based on historical data of actual returns. Actual future returns experience may differ significantly from historical data and could result in significant future adjustments, including a reduction of revenue recognized.

Common Stock Warrant Liabilities

For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations. The fair values of these warrants are determined using the Black-Scholes option pricing model, the Binomial Lattice (“Lattice”) valuation model, or the Monte Carlo simulation model when deemed appropriate. These values are subject to a significant degree of management’s judgment.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022 (dollars in thousands)

	Three Months Ended September 30,						Dollar			Percent
	2023			2022			Change			Change
Statement of Operations
Sales:
Product revenue, net	$	3,255		$	3,816		$	(561	)		(15	%)
Other revenue, net		10			10			—			0	%
Total sales, net		3,265			3,826			(561	)		(15	%)
Product cost of goods sold		1,427			1,451			(24	)		(2	%)
Gross profit		1,838			2,375			(537	)		(23	%)
Research and development		11			41			(30	)		(73	%)
Sales and marketing		1,715			1,835			(120	)		(7	%)
General and administrative		1,228			956			272			28	%
Total operating expenses		2,954			2,832			122			4	%
Operating loss		(1,116	)		(457	)		(659	)		144	%
Non-cash gain on changes in fair value of warrant liability		—			2,414			(2,414	)		(100	%)
Non-cash loss on modification of common stock warrants		—			(1,922	)		1,922			(100	%)
Other expense, net		(641	)		(171	)		(470	)		275	%
Net loss	$	(1,757	)	$	(136	)	$	(1,621	)		1,192	%

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Effect of Change in Accounting and Revision of Prior Period Financial Statements

As discussed further in Note 2, “Summary of Significant Accounting Policies” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report, during the three months ended September 30, 2022, the Company made an accounting policy change election related to fulfillment fees paid to third-party online retailers such as Amazon. While reviewing its accounting policy for fulfillment fees, the Company identified an immaterial error in its previously issued consolidated financial statements whereby the Company had been incorrectly presenting revenue net of selling commissions paid to third-party online retailers. Changes and revisions to prior period amounts presented in this report have been made to conform to the current period presentations. These changes and revisions did not impact operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statement of operations in the periods presented in this report or in previously issued annual and quarterly Company consolidated financial statements. The changes and revisions also did not impact cash or ending cash balances in the Company’s unaudited condensed consolidated balance sheets as of the dates presented in this report or in previously issued annual and quarterly Company consolidated financial statements.

Total Net Sales and Product Cost of Goods Sold

Product revenue, net, decreased $0.5 million, or 15%, to $3.3 million for the three months ended September 30, 2023, from $3.8 million for the three months ended September 30, 2022, primarily due to a decrease in revenue recognized from our DERMAdoctor branded skincare products.

Revenue from eyecare products, including Avenova Spray, increased $0.2 million to $2.4 million for the three months ended September 30, 2023, from $2.2 million for the three months ended September 30, 2022. The increase was due to an overall increase in physician dispensed units sold and units sold through online channels. The increase was partially offset by the decrease in the number of other Avenova branded optical products sold, including the Company’s NovaWipes by Avenova and Avenova Warm Eye Compress.

Revenue from the Company’s wound care products decreased $0.2 million to $0.1 million for the three months ended September 30, 2023, from $0.3 million for the three months ended September 30, 2022.

Revenue from DERMAdoctor branded skincare products decreased $0.5 million to $0.8 million for the three months ended September 30, 2023, from $1.3 million for the three months ended September 30, 2022, due to a decrease in sales in our international and domestic wholesale and retail channels.

Product cost of goods sold decreased by $0.1 million, or 2%, to $1.4 million for the three months ended September 30, 2023, from $1.5 million for the three months ended September 30, 2022 primarily due to the decrease in wound care and DERMAdoctor branded skincare products sold during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Sales and marketing

Sales and marketing expenses decreased by $0.1 million, or 7%, to $1.7 million for the three months ended September 30, 2023, from $1.8 million for the three months ended September 30, 2022. The decrease was due primarily to lower digital advertising and related consulting costs incurred in the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

General and administrative 

General and administrative expenses increased by $0.2 million, or 28%, to $1.2 million for the three months ended September 30, 2023, from $1.0 million for the three months ended September 30, 2022, primarily due to lower non-cash stock-based compensation expenses recorded in the 2022 period.

Non-cash gain on changes in fair value of warrant liability

Adjustments to the fair value of warrant liability resulted in a gain of $2.4 million for the three months ended September 30, 2022 with no comparable adjustment for the three months ended September 30, 2023. For additional information regarding the warrant liability and their valuation, please see Note 11, “Warrant Liability”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

Non-cash loss on modification of common stock warrants

Adjustments to the fair value of common stock warrants resulted in a loss of $1.9 million for the three months ended September 30, 2022 with no comparable adjustment for the three months ended September 30, 2023. This loss related to modification of common stock warrants, which occurred due to amendments to the Amended July 2020 Warrants and the November 2021 Warrants, as amended, in connection with the 2022 Warrant Reprice Transaction.

Other expense, net

Other expense, net increased $0.4 million to $0.6 million for the three months ended September 30, 2023, from $0.2 million for the three months ended September 30, 2022. The increase was primarily due to the amortization of discount and issuance cost related to the Convertible Notes issued in May 2023 with no comparable expense for the three months ended September 30, 2022.

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Comparison of the Nine Months Ended September 30, 2023 and 2022 (dollars in thousands)

	Nine Months Ended September 30,						Dollar			Percent
	2023			2022			Change			Change
Statement of Operations
Sales:
Product revenue, net	$	10,971		$	10,743		$	228			2	%
Other revenue, net		28			18			10			56	%
Total sales, net		10,999			10,761			238			2	%
Product cost of goods sold		4,919			4,735			184			4	%
Gross profit		6,080			6,026			54			1	%
Research and development		64			108			(44	)		(41	%)
Sales and marketing		5,086			5,860			(774	)		(13	%)
General and administrative		5,135			5,049			86			2	%
Total operating expenses		10,285			11,017			(732	)		(7	%)
Operating loss		(4,205	)		(4,991	)		786			(16	%)
Non-cash gain on changes in fair value of warrant liability		216			4,470			(4,254	)		(95	%)
Non-cash gain on changes in fair value of combined embedded derivative liability		40			—			40			100	%
Non-cash gain on changes in fair value of contingent liability		—			219			(219	)		(100	%)
Non-cash loss on modification of common stock warrants		(285	)		(1,922	)		1,637			(85	%)
Other expense, net		(1,298	)		(178	)		(1,120	)		629	%
Net loss	$	(5,532	)	$	(2,402	)	$	(3,130	)		130	%

Total Net Sales and Product Cost of Goods Sold

Product revenue, net, increased $0.3 million, or 2%, to $11.0 million for the nine months ended September 30, 2023, from $10.7 million for the nine months ended September 30, 2022, primarily due to increased revenue from our wound care products.

Revenue from eyecare products, including Avenova Spray increased $0.3 million to $6.8 million for the nine months ended September 30, 2023, from $6.5 million for the nine months ended September 30, 2022, primarily due to an increase in the number of Avenova Spray and NovaWipes by Avenova bundles sold through online channels.

Revenue from the Company’s wound care products increased $0.5 million to $1.6 million for the nine months ended September 30, 2023, from $1.1 million for the nine months ended September 30, 2022, due to a large order of the NeutroPhase branded wound care product in the current year.

Revenue from DERMAdoctor branded skincare products decreased $0.5 million to $2.6 million for the nine months ended September 30, 2023, from $3.1 million for the nine months ended September 30, 2022, primarily due to an overall decrease in units sold through online channels and through domestic and international wholesalers.

Product cost of goods sold increased by $0.2 million, or 4%, to $4.9 million for the nine months ended September 30, 2023, from $4.7 million for the nine months ended September 30, 2022 primarily due to the increase in the margins of our wound care products sold during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Sales and marketing

Sales and marketing expenses decreased by $0.8 million, or 13%, to $5.1 million for the nine months ended September 30, 2023, from $5.9 million for the nine months ended September 30, 2022. The decrease was due primarily to lower digital advertising and related consulting costs incurred in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

General and administrative 

General and administrative expenses increased by $0.1 million, or 2%, to $5.1 million for the nine months ended September 30, 2023, from $5.0 million for the nine months ended September 30, 2022.

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Non-cash gain on changes in fair value of warrant liability 

Adjustments to the fair value of warrant liability resulted in a gain of $0.2 million for the nine months ended September 30, 2023 compared to a gain of $4.5 million for the nine months ended September 30, 2022. For additional information regarding the warrant liability and their valuation, please see Note 11, “Warrant Liability”, in the Notes to Unaudited Condensed Consolidated Financial Statements, in Part I, Item 1 of this report.

Non-cash gain on changes in fair value of combined embedded derivative liability

The adjustments to the fair value of combined embedded derivative liability resulted in a gain of $40 thousand for the nine months ended September 30, 2023. The gain results from the increase in the price of the Company’s common stock price during the period that the derivative liability was recorded. The Company did not record a comparable loss or gain for the nine months ended September 30, 2022.

Non-cash gain on changes in fair value of contingent liability 

Adjustments to the fair value of contingent liability resulted in a gain of $0.2 million for the nine months ended September 30, 2022 with no comparable adjustment for the nine months ended September 30, 2023. This contingent liability related to potential future contingent consideration of earn out payments that could have become payable as part of the DERMAdoctor Acquisition if specified milestone events were achieved. As of September 30, 2023, the Company does not anticipate that any such earn out payments will be made.

Non-cash loss on modification of common stock warrants

Adjustments to the fair value of common stock warrants resulted in a loss of $0.3 million for the nine months ended September 30, 2023. The loss related to modification of common stock warrants, which occurred due to amendments to the Amended July 2020 Warrants, Amended November 2021 Warrants, and the September 2022 Warrants, as amended, in connection with the 2023 Private Placement. Adjustments to the fair value of common stock warrants resulted in a loss of $1.9 million for the nine months ended September 30, 2022. This loss related to modification of common stock warrants, which occurred due to amendments to the Amended July 2020 Warrants and the November 2021 Warrants, as amended, in connection with the 2022 Warrant Reprice Transaction.

Other expense, net

Other expense, net increased $1.1 million to $1.3 million for the nine months ended September 30, 2023, from $0.2 million for the nine months ended September 30, 2022. The increase was primarily due to the amortization of discount and issuance cost related to the Convertible Notes issued in May 2023 with no comparable expense for the nine months ended September 30, 2022.

Financial Condition, Liquidity and Capital Resources 

As of September 30, 2023, our cash and cash equivalents were $3.5 million, compared to $5.4 million as of December 31, 2022. Our cash and cash equivalents as of September 30, 2023 includes $2.8 million of net proceeds from the issuance of the Convertible Notes and the May 2023 Warrants in the 2023 Private Placement that closed on May 1, 2023. Under the terms of the Convertible Notes, we are required to make a monthly redemption of the principal amount of the Convertible Notes (“Monthly Redemption”) over an 18-month period beginning on June 1, 2023 in an amount equal to $193 thousand per month, unless such Monthly Redemption is eligible under the terms of the Convertible Notes to instead be settled through the issuance of our common stock. We have paid the Monthly Redemption in cash for the first six payments. For additional information regarding the 2023 Private Placement and the Convertible Notes, see Note 9 “Convertible Note,” and Note 12 “Stockholders’ Equity” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report and the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2023.

Based primarily on the funds available on September 30, 2023, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations, meet its planned operating expenses and to meet the Monthly Redemption of the Convertible Notes into at least the second quarter of 2024. We have sustained operating losses for the majority of our corporate history and expect that our 2023 expenses will exceed our 2023 revenues, as we continue to invest in both Avenova and DERMAdoctor commercialization efforts. Additionally, we expect to continue incurring operating losses and negative cash flows until revenues reach a level sufficient to support ongoing growth and operations. Accordingly, we have determined that our planned operations raise substantial doubt about our ability to continue as a going concern. Additionally, changing circumstances may cause us to expend cash significantly faster than currently anticipated, and we may need to spend more cash than currently expected because of circumstances beyond our control that impact the broader economy such as periods of inflation and supply chain issues.

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Our long-term liquidity needs will be largely determined by the success of commercialization efforts. To address our current liquidity and capital needs, we have and continue 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 on one or more of our sales and marketing programs or restructuring operations to change our overhead structure; (3) out-licensing rights to certain of our products or product candidates, pursuant to which we would receive cash milestones or an upfront fee; and/or (4) entering into license agreements to sell new products. We may issue securities, including common stock, preferred stock, convertible debt securities and warrants through additional private placement transactions or registered public offerings, which may require the filing of a Form S-1 or Form S-3 registration statement with the SEC. While the Company believes that the proceeds from the 2023 Private Placement improved our liquidity in the near term, there is no assurance that we 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, we continue to evaluate different plans and strategies to address our capital and liquidity needs, as well as evaluating potential other strategic alternatives and transactions. In the absence of one or more additional transactions and/or substantial revenue growth from our commercialization efforts, there will be substantial doubt about our ability to continue as a going concern within one year after the date these unaudited condensed consolidated financial statements are issued, and we will be required to scale back or terminate operations and/or seek protection under applicable bankruptcy laws. The accompanying unaudited condensed consolidated financial statements have been prepared assuming we 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 do not 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 our ability to continue as a going concern. 

Cash Used in Operating Activities

Net cash used in operating activities was $3.8 million for the nine months ended September 30, 2023, which consisted primarily of a net loss of $5.5 million, adjusted by depreciation and amortization expenses of $0.2 million, stock-based compensation expenses related to employee and director stock awards of $0.2 million, non-cash loss on modification of common stock warrants expense of $0.3 million, non-cash gain on changes in fair value of warrant liability of $0.2 million, non-cash gain on changes in fair value of combined derivative liability of $0.1 million, accretion of interest and amortization of debt discounts on convertibles notes of $1.1 million, and a net increase of $0.2 million in our net operating assets and liabilities.

Net cash used in operating activities was $5.4 million for the nine months ended September 30, 2022, which consisted primarily of a net loss of $2.4 million, non-cash loss on modification of common stock warrants of $1.9 million, non-cash gain on the change in fair value of warrant liability of $4.5 million, non-cash gain on the change in fair value of contingent liability of $0.2 million, depreciation and amortization expenses of $0.4 million, stock-based compensation expenses related to employee and director stock awards of $0.1 million, and a net decrease in our net operating assets and liabilities of $0.8 million.

Cash Used in Investing Activities

Net cash used in investing activities for the purchase of property and equipment was $17 thousand and $112 thousand, for the nine months ended September 30, 2023 and 2022, respectively.

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Cash Provided by Financing Activities

Net cash provided by financing activities was $1.9 million for the nine months ended September 30, 2023, which included the net proceeds of $2.8 million received in the 2023 Private Placement of the Convertible Notes and the May 2023 Warrants. The aggregate proceeds were offset by repayment of $0.8 million for the Monthly Redemption through September 30, 2023 on the Convertible Notes issued and debt issuance cost of $0.3 million.

Net cash provided by financing activities was $1.6 million for the nine months ended September 30, 2022 and was primarily related to the proceeds received in the 2022 Warrant Reprice Transaction partially offset by the repayment of the DERMAdoctor line of credit, which was terminated in the first quarter of 2022.

Net Operating Losses and Tax Credit Carryforwards

As of December 31, 2022, we had net operating loss carryforwards for federal and state income tax purposes of $133.0 million and $111.0 million, respectively. The federal net operating loss carryforwards consist of $94.9 million generated before January 1, 2018, which will begin to expire in 2024 and $38.1 million that will carry forward indefinitely but are subject to an 80% limitation for years following December 31, 2021. The state net operating loss carryforwards will begin to expire in 2028. As of December 31, 2022, we also had tax credit carryforwards for federal income tax purposes of $0.5 million and $0.1 million for state tax purposes. If not utilized, the federal tax credits will begin expiring in 2031. The state tax credits have an indefinite carryover period.

Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.

Inflation

Our costs are subject to fluctuations, particularly due to changes in the price of raw and packing materials and the cost of labor, transportation and operating supplies. Therefore, our business results depend, in part, on our continued ability to manage these fluctuations through pricing actions, costs savings projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuations could adversely impact our results of operations or cash flows.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements at September 30, 2023 and December 31, 2022 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Seasonality

Avenova Branded Products

In recent years, as our focus and revenue mix have shifted in favor of Avenova products sold directly to the consumer without insurance reimbursement, we have not noted any material seasonal impacts on our overall eyecare business, with demands consistent throughout the year.

Prior to this shift, while focused on prescription Avenova Spray, prescriptions for Avenova Spray experienced seasonality with the first quarter of each year typically being the lowest revenue quarter. This annual phenomenon was due to consumers facing the need to satisfy health insurance deductibles and changes to copays as each new insurance year began.

Dermatology/Skincare Products

Our DERMAdoctor products are sold through wholesale distribution relationships with third parties such as Costco and others; therefore, we may receive periodic large orders that result in large chunks of revenue that are received in irregular intervals during the year. Historically sales of DERMAdoctor products that contain sunscreen and antiperspirants are higher in the summer seasons and sales of DERMAdoctor products that contain moisturizers are higher in the fall and winter months. In addition, DERMAdoctor products will typically experience an uptick in sales during the fourth quarter around the holidays of each country in which its products are sold, particularly in the United States and China.

Contractual Obligations

Our contractual cash commitments as of September 30, 2023 were as follows (in thousands):

Contractual Obligations	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Facility leases	$	545	$	901	$	412	$	—	$	1,858
Equipment lease		8		10		—		—		18
Total	$	553	$	911	$	412	$	—	$	1,876

-43-

Our commitments as of September 30, 2023 consisted primarily of facility operating leases and an operating lease for one copier.

The total commitment for the facility leases were $1.9 million due over the leases’ terms as of September 30, 2023.

The total commitment for the copier lease was $18 thousand due over the leases’ terms as of September 30, 2023.

See Note 10, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further information regarding these leases.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk consists principally of interest rate risk on our cash and cash equivalents. Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in interest rates, particularly because our current liquid assets at September 30, 2023 were held in cash and cash equivalents.

Our investment policy restricts our investments to high-quality investments and limits the amounts invested with any one issuer, industry, or geographic area. The goals of our investment policy are as follows: preservation of capital, assurance of liquidity needs, best available return on invested capital, and minimization of capital taxation. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with an interest rate fixed at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, in accordance with our investment policy, we maintain our cash and cash equivalents in short-term marketable securities, including money market mutual funds, Treasury bills, Treasury notes, certificates of deposit, commercial paper, and corporate and municipal bonds. The risk associated with fluctuating interest rates is limited to our investment portfolio. Due to the short-term nature of our investment portfolio, we believe we have minimal interest rate risk arising from our investments. As of September 30, 2023 and December 31, 2022, a 10% change in interest rates would have had an immaterial effect on the value of our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We do not hold any instruments for trading purposes.

With most of our focus on the domestic U.S. market, we have not had any material exposure to foreign currency rate fluctuations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Based upon that evaluation at September 30, 2023, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure, at the reasonable assurance level, that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023, which has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

-44-

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The “Legal Matters” section of Note 10, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

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 Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023 and under Part II, Item 1A included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which was filed with the SEC on May 11, 2023. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide updated quarterly information under this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, ISSUER PURCHASES OF EQUITY SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable. 

ITEM 5. OTHER INFORMATION

None.

- 45-

ITEM 6. EXHIBITS

The following exhibits are filed with or incorporated by reference into this report.

EXHIBIT INDEX

	Incorporation by Reference					Filed Herewith
Exhibit Number	Exhibit Description	Form	File Number	Exhibit/ Form 8-K Item Reference	Filing Date
2.1	Membership Unit Purchase Agreement dated September 27, 2021, by and among the Company, DERMAdoctor, the Founders and the Sellers (as defined therein)	8-K	001-3678	2.1	9/28/2021
3.1	Amended and Restated Certificate of Incorporation of NovaBay Pharmaceuticals, Inc.	10-K	001-33678	3.1	3/21/2018
3.2	Amendment to the Amended and Restated Certificate of Incorporation	8-K	001-33678	3.1	6/04/2018
3.3	Amendment to the Amended and Restated Certificate of Incorporation, as amended	8-K	001-33678	3.1	5/28/2020
3.4	Amendment to the Amended and Restated Certificate of Incorporation, as amended, dated May 24, 2021	8-K	001-33678	3.1	5/24/2021
3.5	Amendment to the Amended and Restated Certificate of Incorporation, as amended, dated January 31, 2022	8-K	001-33678	3.1	2/1/2022
3.6	Certificate of Designation for the Series B Preferred Stock	8-K	001-33678	3.1	11/1/2021
3.7	Amendment to Amended and Restated Certificate of Incorporation, as amended, dated November 14, 2022	8-K	001-33678	3.1	11/18/2022
3.8	Certificate of Designation for the Series C Preferred Stock	8-K	001-33678	3.2	11/18/2022
3.9	Bylaws, as amended and restated effective June 13, 2023	8-K	001-33678	3.1	6/14/2023
4.1	Form of Warrant pursuant to the Services Agreement with TLF Bio Innovation Lab, LLC, dated May 13, 2020	8-K	001-33678	4.1	5/18/2020
4.2	Form of July 2020 Warrant	8-K	001-33678	4.1	7/21/2020
4.3	Form of Amended July 2020 Warrant	8-K	001-33678	4.1	9/13/2022
4.4	Form of Amended November 2021 Warrant	8-K	001-33678	4.2	9/13/2022
4.5	Form of September 2022 Warrant (2020 participants)	8-K	001-33678	4.3	9/13/2022
4.6	Form of September 2022 Warrant (2021 participants)	8-K	001-33678	4.4	9/13/2022
4.7	Form of Series A-1 Long-Term Warrant	8-K	001-33678	4.5	9/13/2022
4.8	Form of Series A-2 Short-Term Warrant	8-K	001-33678	4.6	9/13/2022
4.9	Form of Original Issue Discount Secured Senior Convertible Debentures	8-K	001-33678	4.1	4/27/2023
4.10	Form of Series B-1 Long-Term Warrant	8-K	001-33678	4.2	4/27/2023
4.11	Form of Series B-2 Short-Term Warrant	8-K	001-33678	4.3	4/27/2023
4.12	Form of Warrant Amendment Agreement	8-K	001-33678	4.4	4/27/2023
31.1	Certification of the Principal Executive Officer of NovaBay Pharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a)					X
31.2	Certification of the Principal Financial Officer of NovaBay Pharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a)					X
32.1	Certification by the Chief Executive Officer of NovaBay Pharmaceuticals, Inc., as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)					X
32.2	Certification by the Chief Financial Officer of NovaBay Pharmaceuticals, Inc., as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)					X
101.INS	Inline XBRL Instance Document					X
101.SCH	Inline XBRL Taxonomy Extension Schema Document					X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase					X
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document					X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document					X
104	The Cover Page Interactive Data File, formatted in Inline XBRL (included within the Exhibit 101 attachments)					X

-46-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 9, 2023
	By:	/s/   Justin Hall
		Justin Hall  Chief Executive Officer, General Counsel and Director (principal executive officer)

Date: November 9, 2023
	By:	/s/   Tommy Law
		Tommy Law Interim Chief Financial Officer (principal financial officer)

-47-

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT

RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Justin Hall, certify that:

1. I have reviewed this Form 10-Q of NovaBay Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2023

/s/ Justin Hall

Justin Hall

Chief Executive Officer, General Counsel and Director (principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT

RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Tommy Law, certify that:

1. I have reviewed this Form 10-Q of NovaBay Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2023

/s/ Tommy Law 

Tommy Law

Interim Chief Financial Officer

(principal financial officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of NovaBay Pharmaceuticals, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2023 (the Report), I, Justin Hall, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2023

/s/ Justin Hall 

Justin Hall

Chief Executive Officer, General Counsel and Director

This Certification is made solely for the purpose of 18 USC Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of NovaBay Pharmaceuticals, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2023 (the Report), I, Tommy Law, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2023

/s/ Tommy Law 

Tommy Law

Interim Chief Financial Officer

This Certification is made solely for the purpose of 18 USC Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Nov. 06, 2023
Document Information [Line Items]
Entity Central Index Key	0001389545
Entity Registrant Name	NOVABAY PHARMACEUTICALS, INC.
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	001-33678
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	68-0454536
Entity Address, Address Line One	2000 Powell Street, Suite 1150
Entity Address, City or Town	Emeryville
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94608
City Area Code	510
Local Phone Number	899-8800
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	NBY
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Emerging Growth Company	false
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		6,529,302

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
ASSETS
Cash and cash equivalents	$ 3,472	$ 5,362
Accounts receivable, net of allowance for credit losses ($3 and $19 at September 30, 2023 and December 31, 2022, respectively)	916	1,973
Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments ($556 and $499 at September 30, 2023 and December 31, 2022, respectively)	3,493	3,437
Prepaid expenses and other current assets	333	560
Total current assets	8,214	11,332
Operating lease right-of-use assets	1,526	1,831
Property and equipment, net	97	119
Goodwill	348	348
Other intangible assets, net	2,166	2,280
Other assets	501	489
TOTAL ASSETS	12,852	16,399
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	947	1,080
Accrued liabilities	1,869	2,724
Convertible Notes, net	1,270	0
Operating lease liabilities	485	453
Total current liabilities	4,571	4,257
Operating lease liabilities-non-current	1,244	1,588
Total liabilities	5,815	5,845
Commitments & contingencies (Note 10)
Stockholders’ equity:
Common stock, $0.01 par value; 150,000 shares authorized, 6,529 and 2,035 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively*	65	20
Additional paid-in capital*	170,675	165,713
Accumulated deficit	(165,680)	(158,152)
Total stockholders’ equity	7,037	10,554
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	12,852	16,399
Series B Preferred Stock [Member]
Stockholders’ equity:
Preferred Stock	302	570
Series C Preferred Stock [Member]
Stockholders’ equity:
Preferred Stock	$ 1,675	$ 2,403

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Accounts receivable, allowance for doubtful accounts	$ 3	$ 19
Inventory Valuation Reserves	$ 556	$ 499
Preferred stock, shares authorized (in shares)		5,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	150,000,000	150,000,000
Common stock, shares issued (in shares)	6,529,000	2,035,000
Common stock, shares outstanding (in shares)	6,529,000	2,035,000
Series B Preferred Stock [Member]
Preferred stock par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	6,000	12,000
Preferred stock, shares outstanding (in shares)	6,000	12,000
Series C Preferred Stock [Member]
Preferred stock, shares issued (in shares)	1,000	2,000
Preferred stock, shares outstanding (in shares)	1,000	2,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022		Sep. 30, 2023	Sep. 30, 2022
Sales:
Total sales, net	$ 3,265	$ 3,826		$ 10,999	$ 10,761
Product cost of goods sold	1,427	1,451		4,919	4,735
Gross profit	1,838	2,375		6,080	6,026
Operating expenses:
Research and development	11	41		64	108
Sales and marketing	1,715	1,835		5,086	5,860
General and administrative	1,228	956		5,135	5,049
Total operating expenses	2,954	2,832		10,285	11,017
Operating loss	(1,116)	(457)		(4,205)	(4,991)
Non-cash gain on changes in fair value of warrant liability	0	2,414		216	4,470
Non-cash gain on changes in fair value of combined derivative liability	0	0		40	0
Non-cash gain on changes in fair value of contingent liability	0	0		0	219
Non-cash loss on modification of common stock warrants	0	(1,922)		(285)	(1,922)
Other expense, net	(641)	(171)		(1,298)	(178)
Net loss	(1,757)	(136)		(5,532)	(2,402)
Less: Increase to accumulated deficit due to adjustment to Series B Preferred Stock conversion price	0	(5,657)		(1,802)	(5,657)
Less: Increase to accumulated deficit due to adjustment to Series C Preferred Stock conversion price	0	0		(194)	0
Net loss attributable to common stockholders	$ (1,757)	$ (5,793)		$ (7,528)	$ (8,059)
Net loss per share attributable to common stockholders (basic and diluted)* (in dollars per share)	$ (0.37)	$ (3.61)	[1]	$ (2.27)	$ (5.32)	[1]
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock (basic and diluted)* (in shares)	4,692	1,604	[1]	3,311	1,514	[1]
Product [Member]
Sales:
Total sales, net	$ 3,255	$ 3,816		$ 10,971	$ 10,743
Product and Service, Other [Member]
Sales:
Total sales, net	$ 10	$ 10		$ 28	$ 18

[1] After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands		Conversion of Series B Preferred Stock to Common Stock [Member] Preferred Stock [Member]	Conversion of Series B Preferred Stock to Common Stock [Member] Common Stock [Member]	Conversion of Series B Preferred Stock to Common Stock [Member] Additional Paid-in Capital [Member]	Conversion of Series B Preferred Stock to Common Stock [Member] Retained Earnings [Member]	Conversion of Series B Preferred Stock to Common Stock [Member]	Conversion of Series C Preferred Stock to Common Stock [Member] Preferred Stock [Member]	Conversion of Series C Preferred Stock to Common Stock [Member] Common Stock [Member]	Conversion of Series C Preferred Stock to Common Stock [Member] Additional Paid-in Capital [Member]	Conversion of Series C Preferred Stock to Common Stock [Member] Retained Earnings [Member]	Conversion of Series C Preferred Stock to Common Stock [Member]	Series B Preferred Stock [Member] Preferred Stock [Member]	Series B Preferred Stock [Member] Common Stock [Member]	Series B Preferred Stock [Member] Additional Paid-in Capital [Member]	Series B Preferred Stock [Member] Retained Earnings [Member]	Series B Preferred Stock [Member]	Series C Preferred Stock [Member] Preferred Stock [Member]	Series C Preferred Stock [Member] Common Stock [Member]	Series C Preferred Stock [Member] Additional Paid-in Capital [Member]	Series C Preferred Stock [Member] Retained Earnings [Member]	Series C Preferred Stock [Member]	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance (in shares)																						14	1,365
Balance (in shares) at Dec. 31, 2021																						14	1,365
Balance at Dec. 31, 2021																						$ 680	$ 13	$ 151,365	$ (141,887)	$ 10,171
Net Loss																									(111)	(111)
Stock-based compensation expense related to employee and director stock awards																						$ 0	$ 0	184	0	184
Conversion of Preferred Stock to common stock (in shares)																						(1)	104
Conversion of Preferred Stock to common stock																						$ 71	$ 1	70	0	0
Reclassification of May 2023 Warrants																						0	0	7,502	0	7,502
Conversion of Preferred Stock to common stock																						(71)	(1)	(70)	0	0
Balance at Mar. 31, 2022																						$ 609	$ 14	159,121	(141,998)	17,746
Balance (in shares) at Dec. 31, 2021																						14	1,365
Balance at Dec. 31, 2021																						$ 680	$ 13	151,365	(141,887)	10,171
Net Loss	[1]																									(2,402)
Conversion of Preferred Stock to common stock						$ 110					$ 0
Conversion of Preferred Stock to common stock						(110)					0
Balance at Sep. 30, 2022																						$ 570	$ 18	163,142	(149,946)	13,784
Balance (in shares)																						13	1,469
Balance (in shares) at Mar. 31, 2022																						13	1,469
Balance at Mar. 31, 2022																						$ 609	$ 14	159,121	(141,998)	17,746
Net Loss																						0	0	0	(2,155)	(2,155)
Stock-based compensation expense related to employee and director stock awards																						$ 0	$ 0	154	0	154
Conversion of Preferred Stock to common stock (in shares)																						(1)	57
Conversion of Preferred Stock to common stock																						$ (39)	$ 1	38	0	0
Vesting of director restricted stock awards (in shares)																						0	3
Conversion of Preferred Stock to common stock																						$ 39	$ (1)	(38)	0	0
Vesting of director restricted stock awards																						0	0	0	0	0
Balance at Jun. 30, 2022																						$ 570	$ 15	159,313	(144,153)	15,745
Balance (in shares)																						12	1,529
Balance (in shares) at Jun. 30, 2022																						12	1,529
Net Loss																						$ 0	$ 0	0	(136)	(136)	[1]
Stock-based compensation expense related to employee and director stock awards																						0	0	(208)	0	(208)
Modification of common stock warrants																						$ 0	$ 0	1,922	0	1,922
Exercise of warrants, net of offering costs (in shares)																						0	328
Exercise of warrants, net of offering costs																						$ 0	$ 3	283	0	286
Reclassification of common stock warrants to liability																						0	0	(3,825)	0	(3,825)
Adjustment of Series B Preferred Stock conversion price																						0	0	5,657	(5,657)	0
Balance at Sep. 30, 2022																						$ 570	$ 18	163,142	(149,946)	13,784
Balance (in shares)																						12	1,857
Balance (in shares)																						14	2,035
Balance (in shares) at Dec. 31, 2022																						14	2,035
Balance at Dec. 31, 2022																						$ 2,973	$ 20	165,713	(158,152)	10,554
Net Loss																						0	0	0	(1,739)	(1,739)
Stock-based compensation expense related to employee and director stock awards																						0	0	75	0	75
Balance at Mar. 31, 2023																						$ 2,973	$ 20	165,788	(159,891)	8,890
Balance (in shares) at Dec. 31, 2022																						14	2,035
Balance at Dec. 31, 2022																						$ 2,973	$ 20	165,713	(158,152)	10,554
Net Loss																										(5,532)
Conversion of Preferred Stock to common stock						268					728
Conversion of Preferred Stock to common stock						(268)					(728)
Balance at Sep. 30, 2023																						$ 1,977	$ 65	170,675	(165,680)	7,037
Balance (in shares)																						14	2,035
Balance (in shares) at Mar. 31, 2023																						14	2,035
Balance at Mar. 31, 2023																						$ 2,973	$ 20	165,788	(159,891)	8,890
Net Loss																						0	0	0	(2,036)	(2,036)
Stock-based compensation expense related to employee and director stock awards																						0	0	64	0	64
Conversion of Preferred Stock to common stock (in shares)		(3)	1,897				(1)	277
Conversion of Preferred Stock to common stock		$ (121)	$ 19	$ 102	$ 0	0	$ (728)	$ 2	$ 726	$ 0	0
Modification of common stock warrants																						0	0	285	0	285
Adjustment of Preferred Stock conversion price												$ 0	$ 0	$ 1,802	$ (1,802)	$ 0	$ 0	$ 0	$ 194	$ (194)	$ 0
Reclassification of May 2023 Warrants																						$ 0	$ 0	1,360	0	1,360
Vesting of director restricted stock awards (in shares)																						0	5
Conversion of Preferred Stock to common stock		$ 121	$ (19)	$ (102)	$ 0	$ 0	$ 728	$ (2)	$ (726)	$ 0	$ 0
Balance at Jun. 30, 2023																						$ 2,124	$ 41	170,321	(163,923)	8,563
Balance (in shares)																						10	4,214
Balance (in shares) at Jun. 30, 2023																						10	4,214
Net Loss																						$ 0	$ 0	0	(1,757)	(1,757)
Stock-based compensation expense related to employee and director stock awards																						$ 0	$ 0	62	0	62
Conversion of Preferred Stock to common stock (in shares)																						(3)	2,315
Conversion of Preferred Stock to common stock																						$ (147)	$ 24	123	0	0
Reclassification of derivative liability																						0	0	169	0	169
Conversion of Preferred Stock to common stock																						147	(24)	(123)	0	0
Balance at Sep. 30, 2023																						$ 1,977	$ 65	$ 170,675	$ (165,680)	$ 7,037
Balance (in shares)																						7	6,529

[1] After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Operating activities:
Net loss	$ (5,532)	$ (2,402)	[1]
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment	39	88
Amortization of intangible assets	114	272
Non-cash loss on modification of common stock warrants	285	1,922
Non-cash gain on changes in fair value of warrant liability	(216)	(4,470)
Non-cash gain on changes in fair value of combined derivative liability	(40)	(0)
Non-cash gain on changes in fair value of contingent liability	0	(219)
Accretion of interest and amortization of debt discounts on convertible notes	1,119	0
Changes in operating assets and liabilities:
Accounts receivable	1,057	(465)
Inventory	(56)	(848)
Prepaid expenses and other current assets	227	234
Operating lease right-of-use assets	305	(1,526)
Other assets	(20)	(1)
Accounts payable and accrued liabilities	(988)	128
Operating lease liabilities	(312)	1,712
Net cash used in operating activities	(3,817)	(5,445)
Investing activities:
Purchases of property and equipment	(17)	(112)
Net cash used in investing activities	(17)	(112)
Financing activities:
Proceeds from convertible notes and warrant issuances, net of discount	3,000	0
Payment on the convertible notes	(770)	0
Debt issuance cost	(294)	0
Proceeds from the exercise of warrants	0	1,703
Payment on the line of credit	0	(105)
Net cash provided by financing activities	1,936	1,598
Net change in cash, cash equivalents, and restricted cash	(1,898)	(3,959)
Cash, cash equivalents and restricted cash, beginning of year	5,846	7,979
Cash, cash equivalents and restricted cash, end of period	3,948	4,020
Supplemental disclosure of cash flow information:
Interest paid	189	12
Supplemental disclosure of non-cash information:
Derivative liability transferred to equity	169	0
Equity transferred to warrant liability	0	3,825
Addition of operating lease, right-of-use asset	0	2,039
Reassessment of operating lease, right-of-use asset	0	164
Series B Preferred Stock [Member]
Supplemental disclosure of non-cash information:
Adjustment of Preferred Stock conversion price	1,802	5,657
Series C Preferred Stock [Member]
Supplemental disclosure of non-cash information:
Adjustment of Preferred Stock conversion price	194	0
Employees and Directors [Member]
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense related to employee and director stock awards	201	130
Conversion of Series B Preferred Stock to Common Stock [Member]
Supplemental disclosure of non-cash information:
Conversion of Preferred Stock to common stock	268	110
Conversion of Series C Preferred Stock to Common Stock [Member]
Supplemental disclosure of non-cash information:
Conversion of Preferred Stock to common stock	728	0
Warrant Liability [Member]
Supplemental disclosure of non-cash information:
Derivative liability transferred to equity	$ 1,360	$ 7,502

[1] After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

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Note 1 - Organization

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 1. ORGANIZATION

NovaBay Pharmaceuticals, Inc. (the “Company”) develops and sells scientifically-created and clinically-proven eyecare, skincare 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.

Through our subsidiary DERMAdoctor, LLC (“DERMAdoctor”), the Company offers over 30 dermatologist-developed products targeting common skin concerns, ranging from aging and blemishes to dry skin, perspiration and keratosis pilaris. DERMAdoctor branded products are marketed and sold through the DERMAdoctor website, well-known traditional and digital beauty retailers, and a network of international distributors. We acquired DERMAdoctor in November 2021 (the “DERMAdoctor Acquisition”), and since completing this transaction we have been working to integrate and expand the DERMAdoctor business in order to achieve strategic objectives contemplated by the acquisition, including revenue growth, cost reductions and overall profitability.

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 certain wounds, burns, ulcers and other injuries. The Company currently sells these products through distributors.

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 (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 as two reportable segments: (1) Eyecare and Wound Care and (2) Skincare.

Effective November 15, 2022, the Company effected a 1-for-35 reverse split of our outstanding common stock (“Reverse Stock Split”) (See Note 12, “Stockholders’ Equity” for further details). 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 this 1-for-35 reverse stock split.

Liquidity and Going Concern

Based primarily on the funds available on September 30, 2023 and the 2023 Private Placement, the Company believes that the Company’s existing cash and cash equivalents and cash flows generated from product sales will be sufficient to fund its existing operations, meet its planned operating expenses and to meet the Monthly Redemptions of the Convertible Notes (both as defined below) into at least the second quarter of 2024. The Company has sustained operating losses for the majority of its corporate history and expects that its 2023 expenses will exceed its 2023 revenues, as the Company continues to invest in both its Avenova and DERMAdoctor 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 at least one year from the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (“SEC”). Additionally, changing circumstances may cause 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 and supply chain issues.

The Company’s long-term liquidity needs will be largely determined by the success of 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 on one 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; and/or (4) entering into license agreements to sell new products. The Company may issue securities, including common stock, preferred stock, convertible debt securities and warrants through additional private placement transactions or registered public offerings, which may require 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 the 2023 Private Placement (as defined below) improved the Company’s liquidity in the near term, there is no 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 do not 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 its ability to continue as a going concern. 

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Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE 2. 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 consolidated financial statements include the accounts of NovaBay Pharmaceuticals, Inc. and its wholly-owned subsidiary, DERMAdoctor, LLC. All intercompany balances and transactions have been eliminated in consolidation.

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, 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 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 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, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023, as amended by Amendment No. 1 to the Annual Report on Form 10-K, which was filed with the SEC on April 28, 2023 (collectively, the “Annual Report”).

Change in Accounting and Revision of Prior Period Financial Statements

During the third quarter of 2022, the Company made an accounting policy change election related to fulfillment fees paid to third-party online retailers such as Amazon. The Company began expensing these fees as incurred as product cost of goods sold in the Company’s condensed consolidated statements of operations. The Company previously recorded revenue net of these fees. The Company believes that making this change is appropriate and preferable as it is more consistent with the practices of comparable companies as the Company increasingly focuses on commercial growth in its direct to consumer on-line channels. Changes to prior period amounts presented in this report have been made to conform to the current period presentation. See additional information under “Revenue Recognition” below. The changes had no impact on operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statements of operations in the periods presented in this report or in previously issued annual and quarterly financial statements. The changes also did not impact cash or ending cash balances in the Company’s unaudited condensed consolidated balance sheets in the periods presented in this report or in previously issued annual and quarterly financial statements.

While reviewing its accounting policy for fulfillment fees during the third quarter of 2022, the Company identified an error in its previously issued financial statements whereby the Company had been incorrectly presenting revenue net of selling commissions paid to third-party online retailers. During the third quarter of 2022, the Company concluded that these commissions relate to sales activity and began expensing them as incurred as sales and marketing expenses within the Company’s unaudited condensed consolidated statements of operations. The identified error impacted the Company’s previously issued 2022 first and second quarter condensed consolidated financial statements. Management believes that the impact of these adjustments to correct such error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors. However, revisions to prior period amounts presented in this report have been made to conform to the current period presentation. See additional information under “Revenue Recognition” below. The revisions had no impact on operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statements of operations in the periods presented in this report or in previously issued annual consolidated financial statements. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

Cash, Cash Equivalents, and 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 September 30, 2023 and December 31, 2022, 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):

	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	3,472	$	5,362
Restricted cash included in other assets		476		484
Total cash, cash equivalents, and restricted cash in the condensed consolidated statements of cash flows	$	3,948	$	5,846

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 the three and nine months ended September 30, 2023 and 2022, revenues were derived primarily from sales of Avenova and DERMAdoctor branded products, directly to consumers through Amazon.com, Avenova.com and DERMAdoctor.com.

During the three and nine months ended September 30, 2023 and 2022, revenues from significant product categories were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Avenova Spray	$	2,064	$	1,939	$	5,759	$	5,778
DERMAdoctor		784		1,319		2,645		3,115
NeutroPhase		—		—		1,043		657
Other products		407		558		1,524		1,193
Total product revenue, net		3,255		3,816		10,971		10,743
Other revenue, net		10		10		28		18
Total sales, net	$	3,265	$	3,826	$	10,999	$	10,761

During the three months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 66% and 70% of total Avenova Spray net revenue, respectively. During the nine months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 68% and 73% of total Avenova Spray net revenue, respectively. No other individual distributor comprised greater than 10% of total Avenova Spray net revenue during the three and nine months ended September 30, 2023 or 2022.

As of September 30, 2023 and December 31, 2022, accounts receivable from our major distribution partners and major retailers greater than 10% were as follows:

	September 30,			December 31,
Major distribution partner	2023			2022
Major U.S. Retailer A		26	%		*	%
Avenova Spray Pharmacy Distributor A		20	%		11	%
Major International Retailer A		10	%		*	%
Avenova Spray Pharmacy Distributor B		*	%		30	%
Major U.S. Retailer B		*	%		15	%

* Less than 10%

The Company relies on seven contract manufacturers to produce its products. The Company does not own any manufacturing facilities and intends to continue to rely on third parties for the supply of finished goods. Contract manufacturers may or 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, convertible notes, derivative liabilities, warrant liabilities, and contingent consideration. The Company’s cash and cash equivalents, 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 Convertible Notes (as defined below) entered into on April 27, 2023 are carried at proceeds, net of discounts, which management believes approximates fair value. Additionally, the derivative liability related to certain embedded features contained within the Convertible Notes, restricted cash, warrant liabilities, and contingent consideration were carried at fair value.

The Company follows 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.

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. Management recorded a reserve for allowance for credit losses of $3 thousand and $19 thousand as of September 30, 2023 and December 31, 2022, respectively.

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 contract manufacturers 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 the first-in, first-out method. At September 30, 2023 and December 31, 2022, management had recorded an allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments of $556 thousand and $499 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 of five to seven years for office and laboratory equipment, three to five years for computer equipment and software, and five to seven years for furniture and fixtures. Leasehold improvements are amortized over the lease term.

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

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets are measured at their respective fair values as of the acquisition date and may be subject to adjustment within the measurement period, which may be up to one year from the acquisition date. 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 than not that the assets are impaired.

The Company did not record any goodwill or indefinite-lived asset impairment charges during the three and nine months ended September 30, 2023 or 2022.

Valuation of Contingent Consideration Resulting from a Business Combination

In connection with certain acquisitions, including the DERMAdoctor Acquisition, the Company may be required to pay future consideration that is contingent upon the achievement of specified milestone events. The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. Each quarter thereafter, the Company revalues these obligations and records increases or decreases in the fair value within the consolidated statement of operations until such time as the specified milestone achievement period is complete.

Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on the Company’s results of operations in any given period. Actual results may differ from estimates.

DERMAdoctor Acquisition milestone events consist of financial targets for calendar years 2022 and 2023. The financial target was not met for the calendar year 2022. Additionally, we do not expect the financial target to be met for the calendar year 2023. As a result, the liability recorded for potential earn out payments in the Company’s condensed consolidated balance sheets was zero as of September 30, 2023 and December 31, 2022. This amount is subject to change in the event that there are changes to our expectations and related valuation assumptions, which are valued using Level 3 fair value inputs.

Long-Lived Assets 

The Company’s intangible assets that do not 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 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 consolidated statements of operations.

The Company did not record any long-lived asset impairments during the three and nine months ended September 30, 2023 or 2022.

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

Revenue Recognition

Revenue is recognized from the sale of goods in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when or as the Company’s performance obligations are satisfied by transferring control of the promised goods to customers in an amount that reflects the consideration which the Company expects to receive. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps as prescribed by ASC 606:

i. identify the contract(s) with a customer;

ii. identify the performance obligations in the contract;

iii. determine the transaction price;

iv. allocate the transaction price to the performance obligations in the contract; and

v. recognize revenue when (or as) the entity satisfies performance obligations.

Revenue is generated through the Company’s webstores, Avenova.com and DERMAdoctor.com, for Avenova and DERMAdoctor products. Such direct to consumer sales are recognized upon fulfillment, which generally occurs upon delivery of the related products to a third-party carrier. Shipping and handling costs are expensed as incurred and included in product cost of goods sold in the consolidated statements of operations. The Company presents revenue net of sales taxes and refunds. 

Revenue generated through third-party online retailers, including Amazon, is recognized when control of the goods is transferred to the customer, which generally occurs upon delivery of the products to a third-party carrier.

The Company pays third-party online retailers advertising & promotion fees, selling commissions and fulfillment fees. Advertising & promotion fees are expensed as incurred as sales and marketing expenses within operating expenses in the consolidated statements of operations. Prior to the third quarter of 2022, the Company recorded revenue net of selling commissions and fulfillment fees. Beginning in the third quarter of 2022, as further described below, the Company began expensing selling commissions as sales and marketing expenses in the consolidated statements of operations and fulfillment fees as product cost of goods sold in the consolidated statements of operations.

Prior to the third quarter of 2022, to determine its accounting for fulfillment fees, the Company evaluated principal versus agent considerations with respect to the obligation to ship its product to the customer. The Company assessed whether the nature of the Company’s obligation is as a principal in providing the fulfillment service or as an agent in promising to arrange for a third party to provide the fulfillment service. The Company concluded that it is an agent with respect to the shipping service as the Company does not control the service itself and, therefore, its obligation is that of a promise to arrange for the service. This determination involved significant judgement. In accordance with this conclusion, prior to the third quarter of 2022, the Company recorded revenue net of fulfillment fees. Beginning in the third quarter of 2022, the Company made an accounting policy change election, as a practical expedient, to account for the shipping fees as a fulfillment activity and began expensing them as incurred within product cost of goods sold in the Company’s consolidated statements of operations. Management believes the resulting accounting changes are preferable as they conform the Company’s practice to a majority of comparable filers and other similar sales channels. Changes to amounts presented for prior periods have been made to conform to these changes. These changes did not impact operating loss, net loss or loss per share in the Company’s condensed consolidated statements of operations in the periods presented in this report or in previously issued annual consolidated financial statements. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

Prior to the third quarter of 2022, the Company also recorded revenue net of selling commissions. During the third quarter of 2022, the Company concluded that these commissions relate to a sales activity and began expensing them as incurred as sales and marketing expenses within the Company’s consolidated statements of operations. The Company determined that its treatment prior to the third quarter of 2022 was an error. The identified error impacted the Company's previously issued 2022 and 2021 quarterly, and 2021 and 2020 annual consolidated financial statements. Management believes that the impact of this error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

The Company also generates Avenova Spray revenue through major pharmacy distribution partners. Product supply of Avenova Spray is the only performance obligation contained in these arrangements, and the Company recognizes product revenue upon transfer of control to its major distribution partners at the amount of consideration that the Company expects to be entitled to, generally upon delivery to the distributor on a “sell-in” basis. Upon recognition of product sales, contract liabilities are recorded for invoiced amounts that are subject to reversal, including product revenue allowances for cash consideration paid to customers for services, discounts, rebate programs, and product returns. The Company derives its rate of return and other contract liabilities from historical data and updates its assumptions quarterly. Payment for product supply is typically due 30 days after control transfers to the distributor.

Revenue for products sales to Costco is recognized upon transfer of control at the amount of consideration that the Company expects to be entitled to, generally upon delivery to Costco. Upon recognition of product sales, contract liabilities are recorded for invoiced amounts that are subject to reversal, including discounts and product returns. The Company derives its rate of return from historical data and updates its return rate assumption quarterly. Payment for product supply is typically due 30 days after control transfers to Costco.

Revenue generated through the Company’s partner pharmacies is recognized when control of the product transfers to the end customer.

Revenue for product sales to other retailers is generally recognized upon transfer of control to the retailer, which generally occurs upon delivery of the products to a third-party carrier, net of estimated future product returns.

The Company may be required to defer recognition of revenue for upfront payments until it performs its obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt. Deferred revenue was $103 thousand and $4 thousand as of September 30, 2023 and December 31, 2022, respectively, which is recorded within Accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

Cost of Goods Sold

Cost of goods sold includes third-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 allowance for excess and obsolete inventory along with 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, including submissions to the FDA.

Patent Costs

Patent costs, including legal expenses, 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 $0.3 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively. Advertising expenses were $0.9 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Stock-Based Compensation

The Company’s stock-based compensation includes grants of stock options and RSUs to employees, consultants and non-employee directors. The expense associated with these grants is recognized in the Company’s unaudited 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. See Note 13, “Equity-Based Compensation” for further information regarding stock-based compensation expense and the assumptions used in estimating that expense. 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 as of the date of issuance.

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.

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.

The Company classifies as equity any contracts 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 assets or liabilities any contracts that (i) require net-cash settlement, (ii) give the counterparty a choice of net-cash physical settlement or net-share settlement or (iii) do not become exercisable until the occurrence of a contingent event.

For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value 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.

Net Loss per Share

The Company computes net loss per share by presenting both basic and diluted earnings (loss) per share (“EPS”).

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 sets forth the calculation of basic EPS and diluted EPS (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
Numerator	2023			2022*			2023			2022*
Net loss	$	(1,757	)	$	(136	)	$	(5,532	)	$	(2,402	)
Less: Increase in accumulated deficit due to Series B Preferred Stock conversion price		—			(5,657	)		(1,802	)		(5,657	)
Less: Increase in accumulated deficit due to Series C Preferred Stock conversion price		—			—			(194	)		—
Net loss attributable to common stockholders (basic and diluted)	$	(1,757	)	$	(5,793	)	$	(7,528	)	$	(8,059	)
Denominator
Weighted average shares of common stock outstanding (basic and diluted)		4,692			1,604			3,311			1,514
Net loss per share (basic and diluted)	$	(0.37	)	$	(3.61	)	$	(2.27	)	$	(5.32	)

* After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

For the three and nine months ended September 30, 2023 and 2022, Series B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”) and the Series C Non-Voting Convertible Preferred Stock (the “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 did not 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 (in thousands):

	As of September 30,
	2023		2022
Series B Preferred Stock		4,736		1,845
Series C Preferred Stock		845		—
Stock options		148		136
Stock warrants		7,382		65
		13,111		2,046

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements that could affect our business, results of operations, financial condition, and liquidity, see Note 2, “Summary of Significant Accounting Policies” included in the 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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for the Company for annual and interim reporting periods beginning January 1, 2023. The Company adopted the new standard effective January 1, 2023, and the adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

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Note 3 - Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 3. FAIR VALUE MEASUREMENTS 

The Company’s cash equivalents 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. The types of investments that are generally classified within Level 1 of the fair value hierarchy include money market securities and certificates of deposit.

As a result of certain call and put options within the Convertible Notes entered into in April 2023, the Company recorded a combined embedded derivative liability on its consolidated balance sheet with a corresponding debt discount which is netted against the face value of the Convertible Notes. The fair value of the embedded derivative liability was classified within Level 2 of the fair value hierarchy because the stock price used in the related Black Sholes valuation model is adjusted for the dilutive effect of the 2023 Private Placement. This price was also used in the fair value models used by the Company to value the 2023 Warrants issued in conjunction with the 2023 Private Placement as well as in accounting for the warrant amendment and preferred stock conversion price adjustments that resulted from the 2023 Private Placement. This price is based on observable inputs but is not a quoted price in an active market and involves uncertainties. If factors or assumptions utilized in determining this price change, the estimated fair values for which it was used could be materially different. See Notes 9, “Convertible Note”; 11, “Warrant Liability”; and Note 12, “Stockholder’s Equity” for further discussion of related fair value calculations.

The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2023 (in thousands):

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets		Other		Significant
	Balance at		for Identical		Observable		Unobservable
	September 30,		Items		Inputs		Inputs
	2023		(Level 1)		(Level 2)		(Level 3)
Assets
Restricted cash held as a certificate of deposit	$	324	$	324	$	—	$	—
Deposit held as a certificate of deposit		152		152		—		—
Total assets	$	476	$	476	$	—	$	—

The following table presents the Company’s cash equivalent assets measured at fair value on a recurring basis as of December 31, 2022 (in thousands):

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets		Other		Significant
	Balance at		for Identical		Observable		Unobservable
	December 31,		Items		Inputs		Inputs
	2022		(Level 1)		(Level 2)		(Level 3)
Assets
Restricted cash held as a certificate of deposit	$	332	$	332	$	—	$	—
Deposit held as a certificate of deposit		152		152		—		—
Total assets	$	484	$	484	$	—	$	—

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Note 4 - Prepaid Expenses and Other Current Assets

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Prepaid Expenses and Other Current Assets [Text Block]

NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

	September 30,		December 31,
	2023		2022
Prepaid inventory	$	93	$	211
Prepaid insurance		73		146
Prepaid dues and subscriptions		65		43
Prepaid marketing costs		26		24
Prepaid patents		4		12
Tenant allowance		—		11
Other		72		113
Total prepaid expenses and other current assets	$	333	$	560

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Note 5 - Inventory

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE 5. INVENTORY

Inventory consisted of the following (in thousands):

	September 30,			December 31,
	2023			2022
Raw materials and supplies	$	1,031		$	1,273
Finished goods		3,018			2,663
Less: Reserve for excess and obsolete inventory		(556	)		(499	)
Total inventory, net	$	3,493		$	3,437

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Note 6 - Property and Equipment

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

NOTE 6. PROPERTY AND EQUIPMENT 

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

	September 30,			December 31,
	2023			2022
Office and laboratory equipment	$	20		$	20
Furniture and fixtures		157			157
Computer equipment and software		429			412
Leasehold improvements		152			152
Total property and equipment, at cost		758			741
Less: accumulated depreciation		(661	)		(622	)
Total property and equipment, net	$	97		$	119

Depreciation expenses were $13 thousand and $29 thousand for the three months ended September 30, 2023 and 2022, respectively, and $39 thousand and $88 thousand for the nine months ended September 30, 2023 and 2022, respectively.

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Note 7 - Other Intangible Assets

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

NOTE 7. OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):

	Balance at September 30, 2023
			Accumulated
	Gross		Amortization			Impairment			Net
Indefinite-lived intangible assets
Trade names	$	2,080	$	—		$	(970	)	$	1,110
Amortizable intangible assets
Customer relationships	$	290	$	(57	)	$	(172	)	$	61
Trade secrets / product formulations		2,890		(480	)		(1,415	)		995
Total other intangible assets	$	5,260	$	(537	)	$	(2,557	)	$	2,166

	Balance at December 31, 2022
			Accumulated
	Gross		Amortization			Impairment			Net
Indefinite-lived intangible assets
Trade names	$	2,080	$	—		$	(970	)	$	1,110
Amortizable intangible assets
Customer relationships	$	290	$	(48	)	$	(172	)	$	70
Trade secrets / product formulations		2,890		(375	)		(1,415	)		1,100
Total other intangible assets	$	5,260	$	(423	)	$	(2,557	)	$	2,280

In the fourth quarter of 2022, the Company determined that certain of its indefinite-lived and long-lived amortizable intangible assets related to its DERMAdoctor business were impaired. As such, the Company recorded an intangible asset impairment charge of $2.6 million in the fourth quarter of 2022, which was reflected in the “Goodwill, Intangible and Other Asset Impairment” caption in the Company’s consolidated statements of operations. The Company did not record any intangible asset impairment charges for the three and nine months ended September 30, 2023 or 2022.

Amortization expenses were $38 thousand and $90 thousand for the three months ended September 30, 2023 and 2022, respectively, and $114 thousand and $272 thousand for the nine months ended September 30, 2023 and 2022, respectively. Based on the amortizable intangible assets as of September 30, 2023, future amortization expenses are expected to be as follows (in thousands):

2023	$	38
2024		153
2025		152
2026		153
Thereafter		560
Total	$	1,056

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Note 8 - Accrued Liabilities

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

NOTE 8. ACCRUED LIABILITIES 

Accrued liabilities consisted of the following (in thousands):

	September 30,		December 31,
	2023		2022
Contract liabilities (see Note 14)	$	1,042	$	1,807
Employee payroll and benefits		422		261
Marketing costs		40		104
Accrued interest on Convertible Notes		38		—
Inventory purchases		—		101
Other		327		451
Total accrued liabilities	$	1,869	$	2,724

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Note 9 - Convertible Note

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE 9. CONVERTIBLE NOTE

On April 27, 2023, the Company entered into a Securities Purchase Agreement with existing accredited institutional investors (the “Purchasers”) of the Company that provided for the issuance and sale in a private placement (the “2023 Private Placement”) of (i) $3.3 million aggregate principal amount  (the “Aggregate Principal Amount”) of Original Issue Discount Senior Secured Convertible Debentures Due November 1, 2024 (the “Convertible Notes”) that may be converted or redeemed into up to an aggregate of 2,538,464 shares of common stock (the “Conversion Shares”), (ii) a new long-term Series B-1 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2028 (“Series B-1 Warrants”), and (iii) a new short-term Series B-2 warrant exercisable for up to an aggregate of 2,538,464 shares of common stock through June 9, 2025 (“Series B-2 Warrants” and, together with the Series B-1 Warrants, the “May 2023 Warrants”). The May 2023 Warrants have an exercise price of $1.30 per share. The 2023 Private Placement closed on May 1, 2023 and the Company received gross proceeds of $3.0 million, before deducting placement agent fees and other offering expenses. Ladenburg served as the Company’s exclusive placement agent in the 2023 Private Placement and received a fee equal to 8% of the total gross proceeds and were reimbursed for certain related expenses.

Due to the number of shares of common stock that may be issued upon conversion or redemption of the Convertible Notes and the exercise of the May 2023 Warrants, the Company was required to obtain stockholder approval for the issuance of these shares of common stock in accordance with Section 713(a) and 713(b) of the NYSE American Company Guide (the “Stockholder Approval”). The Company received Stockholder Approval at its 2023 Annual Meeting of Stockholders on June 9, 2023, and, as a result, the Convertible Notes and the May 2023 Warrants are currently convertible or exercisable, as applicable, in accordance with their respective terms.

The Convertible Notes are convertible by the holder, in whole or in part, into shares of common stock at a conversion price equal to $1.30 per share (“Conversion Price”) at any time, subject to certain limitations upon conversion. The Convertible Notes are subject to a limitation upon conversion into shares of common stock to the extent that, after giving effect to such conversion, the holder of a Convertible Note (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% or 9.99% of the outstanding common stock. The Company is required to make a monthly redemption of the Convertible Notes (“Monthly Redemption”), which began on June 1, 2023, equal to 1/18th of the Aggregate Principal Amount multiplied by 1.10 in cash; or, as provided in the Convertible Notes, in shares of common stock at the election of the Company under certain conditions as defined in the agreement with a conversion rate equal to the lower of (i) the Conversion Price or (ii) 90% of the Company’s average volume-weighted average price over 10 trading days. At the election of the holders, the Convertible Notes also provide for a mandatory redemption by the Company of a portion of the principal amount of the Convertible Notes after completing a subsequent financing. The redemption amount of the Convertible Notes shall be equal to at least 20% of the gross proceeds received by the Company in such subsequent financing.

If any event of default occurs, the outstanding principal amount of the Convertible Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the holder’s election, immediately due and payable in cash. Commencing five days after the occurrence of any event of default that results in the eventual acceleration of the Convertible Notes, the interest rate on the Convertible Notes shall accrue at an interest rate equal to the lesser of 18% per annum and the maximum rate permitted under applicable law. The Convertible Notes are secured obligations of the Company and DERMAdoctor pursuant to the terms of the Security Agreement, dated April 27, 2023 (the “Security Agreement”). Under the terms of the Security Agreement, the holders of the Convertible Notes were granted a security interest, a lien upon and a right of set-off against all of the Company’s and DERMAdoctor’s assets as collateral security for the complete, timely payment, performance and discharge of the obligations under the Convertible Notes. To further secure the Company’s obligations under the Convertible Notes, DERMAdoctor also executed a Subsidiary Guarantee (the “Subsidiary Guarantee”), pursuant to which DERMAdoctor is a guarantor of the Company’s obligations owed to the Convertible Notes holders. 

The lender’s conversion and subsequent financing redemption option and certain events of default represent embedded call options. The Company’s monthly share redemption option represents an embedded put option. Each of the options requires bifurcation.

The Company allocated the proceeds from the 2023 Private Placement between the May 2023 Warrants, combined embedded derivative liabilities, and the Convertible Notes by applying the residual fair value methodology. The Company first allocated $1.6 million to the May 2023 Warrants and $0.2 million to the derivative liabilities with the residual $1.2 million to the Convertible Notes.

A single derivative comprising all bifurcatable features was measured at fair value using the Black Scholes valuation model. The weighted average key assumptions based on probability of occurrence used to value the combined embedded derivative upon issuance were as follows:

Stock price	$	0.72
Equity volatility		80.1	%
Risk-free interest rate		4.88	%
Dividend yield		0.0	%
Remaining term		0.8

The fair value of the combined embedded derivative was $209 thousand as of April 27, 2023.

As of June 9, 2023, the date of stockholder approval for the shares underlying potential conversion of the Convertible Notes, the fair value of the combined embedded derivative liability was determined to be $169 thousand in accordance with the following key assumptions:

Assumption	As of June 9, 2023
Stock price	$	0.75
Equity volatility		76.9	%
Risk-free interest rate		5.41	%
Remaining term		0.7

The change of $40 thousand in fair value between the date of issuance and June 9, 2023 was recorded as a non-cash gain in the consolidated statements of operations and comprehensive loss. The derivative liability was subsequently reclassified to equity.

The aggregate $300 thousand original issue discount, and the $294 thousand of debt issuance costs that were allocated to the Convertible Notes based on the relative fair value method, were recorded at issuance as an offset to the Convertible Notes on the Company’s unaudited condensed consolidated balance sheet. The Convertible Notes are presented as follows as of September 30, 2023:

(in thousands)
Principal amount	$	2,567
Unamortized discount		(1,136	)
Unamortized debt issuance costs		(161	)
Total Convertible Note, net		1,270

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

The discount and debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Convertible Notes, assuming that the Convertible Notes will be redeemed for cash of $193 thousand per month beginning in June 2023. During both the three and nine months ended September 30, 2023, the effective interest rate on the Convertible Notes was 173%. During the three and nine months ended September 30, 2023, interest expense recognized, including amortization of the issuance costs and debt discount, was $0.7 million and $1.2 million, respectively.

As of September 30, 2023, the Company's contractual maturity of the principal balance of the Convertible Notes was as follows:

(in thousands)
Remainder of 2023	$	550
2024		2,017
Total	$	2,567

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Note 10 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE 10. 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 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 September 30, 2023 or December 31, 2022. 

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 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 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 has not recorded any liabilities for these agreements as of September 30, 2023 or December 31, 2022. 

Legal Matters

From time to time, the Company is subject to various legal proceedings, as well as demands, claims and threatened litigation, that 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 September 30, 2023 and December 31, 2022, 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 expenses legal costs in the period incurred. 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 initial lease term was scheduled to expire on February 28, 2022, but on January 19, 2022, the Company exercised its option to extend the term and amended the lease to extend the term through July 31, 2027.

The Company also leases 19,136 square feet of space located in Riverside, Missouri, which it utilizes for light manufacturing, storage, distribution of products and administrative functions. The lease commenced on October 1, 2019 and expires on December 31, 2024.

In calculating the present value of the minimum lease payments, the Company utilized its incremental borrowing rate. The Company has elected to account for each lease component and its associated non-lease components as a single lease component and has allocated all of the contract consideration across lease components only. 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. The 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 components of lease expense for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Lease Costs	2023		2022		2023		2022
Operating lease cost	$	130	$	120	$	391	$	395
Other information
Operational cash flow used for operating leases	$	145	$	144	$	397	$	399

The Company has measured its operating lease liabilities at its incremental borrowing rate over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate are summarized as follows:

	September 30, 2023			September 30, 2022
Weighted-average remaining lease term (in years)		3.6			5.0
Weighted-average discount rate		5	%		5	%

Future lease payments under non-cancelable leases as of September 30, 2023 were as follows (in thousands):

2023	$	146
2024		557
2025		439
2026		444
2027		290
Total future minimum lease payments		1,876
Less imputed interest		(147	)
Total	$	1,729
Reported as:
Operating lease liabilities	$	485
Operating lease liabilities- non-current		1,244
Total	$	1,729

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Note 11 - Warrant Liability

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Other Liabilities Disclosure [Text Block]

NOTE 11. WARRANT LIABILITY

See additional discussion of the terms of the Company’s various warrants and related transactions in Note 12, “Stockholders’ Equity”. Further, many of the defined terms used below are defined in Note 12, “Stockholders’ Equity”.

May 2023 Warrants

The May 2023 Warrants were issued by the Company on May 1, 2023, in connection with the 2023 Private Placement. The May 2023 Warrants were not initially exercisable prior to the Stockholder Approval on June 9, 2023. Under ASC 480, Distinguishing Liabilities from Equity, the May 2023 Warrants were initially classified as liabilities from the date of issuance through the date of approval at which time they were reclassified to equity.

The fair value of the May 2023 Warrants was determined to be $1.6 million as of the date of issuance on May 1, 2023 in accordance with the following key assumptions (see additional discussion in Note 3, “Fair Value Measurements), at which time they were classified as liabilities:

	Series B-1 Warrants			Series B-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.1			2.1
Risk-free interest rate		3.60	%		4.04	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.40		$	0.22

As of June 9, 2022, the date of stockholder approval, the fair value of these May 2023 Warrants, was determined to be $1.4 million in accordance with the following key assumptions, at which time they were reclassified to equity:

	Series B-1 Warrants			Series B-2 Warrants
Stock price	$	0.68		$	0.68
Expected price volatility		77.6	%		77.6	%
Expected term (in years)		5.0			2.0
Risk-free interest rate		3.92	%		4.59	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.36		$	0.18

As a result, the Company recorded a non-cash gain on changes in fair value of warrant liability of $216 thousand.

September 2022 Warrants

The September 2022 Warrants were issued by the Company on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction. The September 2022 Warrants were not exercisable prior to stockholder approval being received on November 10, 2022. Under ASC 480, Distinguishing Liabilities from Equity, the September 2022 Warrants were classified as liabilities from the date of issuance until Company stockholders approval on November 10, 2022, at which time they were reclassified to equity.

The fair value of the September 2022 Warrants was determined to be $1.4 million as of the date of issuance on September 9, 2022 in accordance with the following key assumptions, which was recorded as a liability:

Expected price volatility		79.6	%
Expected term (in years)		6.0
Risk-free interest rate		3.43	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	4.55

The fair value of the September 2022 Warrants was determined to be $0.5 million as of the date of approval by Company stockholders on November 10, 2022 in accordance with the following key assumptions, at which time the liability was adjusted and reclassified to equity:

Expected price volatility		79.5	%
Expected term (in years)		5.8
Risk-free interest rate		3.93	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	1.40

November 2021 Warrants

The November 2021 Warrants were issued by the Company on November 2, 2021, in connection with the 2021 Private Placement. The November 2021 Warrants were subsequently amended in September 2022 pursuant to the 2022 Warrant Reprice Transaction.

The November 2021 Warrants were not initially exercisable prior to certain stockholder approval being received on January 31, 2022. Under ASC 480, Distinguishing Liabilities from Equity, the November 2021 Warrants were classified as liabilities from the date of issuance through the date of approval of the increase in authorized shares at which time they were reclassified to equity.

As of December 31, 2021 the fair value of the November 2021 Warrants was determined to be $9.6 million in accordance with the following key assumptions, which was recorded as a liability:

Expected price volatility		87	%
Expected term (in years)		6.0
Risk-free interest rate		1.31	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	8.75

As of January 31, 2022 upon receipt of stockholder approval, the fair value of the November 2021 Warrants was determined to be $7.5 million in accordance with the following key assumptions, at which time the liability was adjusted and reclassified to equity:

Expected price volatility		91	%
Expected term (in years)		6.0
Risk-free interest rate		1.65	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	7.00

Unexercised November 2021 Warrants exercisable for 803,574 shares of common stock were amended on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction. As a result of the amendment, these November 2021 Warrants were no longer exercisable prior to certain stockholder approval being received on November 10, 2022. Under ASC 480, Distinguishing Liabilities from Equity, the November 2021 Warrants were reclassified as liabilities on the date of amendment and remained recorded as liabilities through the date of approval of the Reverse Stock Split at which time they were reclassified to equity.

The fair value of these November 2021 Warrants was determined to be $3.5 million as of the date of amendment on September 9, 2022 in accordance with the following key assumptions, at which time they were reclassified as liabilities:

Expected price volatility		79.6	%
Expected term (in years)		6.0
Risk-free interest rate		3.43	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	4.55

As of November 10, 2022, the fair value of these November 2021 Warrants, as amended, was determined to be $1.3 million in accordance with the following key assumptions, at which time they were reclassified to equity:

Expected price volatility		79.5	%
Expected term (in years)		5.8
Risk-free interest rate		3.93	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	1.40

Amended July 2020 Warrants

On September 9, 2022, in connection with the 2022 Warrant Reprice Transaction, the Company amended certain July 2020 Warrants. The Amended July 2020 Warrants exercisable for 77,145 shares of common stock were no longer exercisable prior to certain stockholder approval being received on November 10, 2022. Under ASC 480, Distinguishing Liabilities from Equity, these Amended July 2020 Warrants were reclassified as liabilities on the date of amendment and remained recorded as liabilities through the date of approval of certain stockholder approval on November 10, 2022 at which time they were reclassified to equity.

The fair value of these Amended July 2020 Warrants was determined to be $0.3 million as of the date of amendment on September 9, 2022 in accordance with the following key assumptions, at which time they were reclassified as liabilities:

Expected price volatility		79.6	%
Expected term (in years)		3.4
Risk-free interest rate		3.58	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	3.50

As of November 10, 2022, the fair value of these Amended July 2020 Warrants was determined to be $0.1 million in accordance with the following key assumptions, at which time they were reclassified to equity:

Expected price volatility		79.5	%
Expected term (in years)		3.2
Risk-free interest rate		4.15	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	1.05

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Note 12 - Stockholders' Equity

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Equity [Text Block]

NOTE 12. STOCKHOLDERS' EQUITY

Common Stock and Preferred Stock

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).

Reverse Stock Split

Effective November 15, 2022, the Company amended its Certificate of Incorporation to effect a 1-for-35 reverse split of its outstanding common stock. The Reverse Stock Split was approved by the Company’s stockholders on November 10, 2022. As a result of the Reverse Stock Split, every 35 shares of the Company’s pre-reverse split outstanding common stock were combined and reclassified into 1 share of common stock. Proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Split. Any fractional shares of common stock resulting from the Reverse Stock Split were rounded up to the nearest whole share. All stock options outstanding, common stock reserved for issuance under the Company’s equity incentive plans, common stock reserved for issuance under the Series B Preferred Stock and outstanding warrants were adjusted by dividing the number of affected shares of common stock by 35 and, as applicable, multiplying the exercise/conversion price by 35. Except as otherwise specifically noted, all share numbers, share prices, exercise prices and per share amounts have been adjusted, on a retroactive basis, to reflect this 1-for-35 Reverse Stock Split.

2023 Private Placement

On May 1, 2023, the Company closed the 2023 Private Placement, which consisted of issuing the Convertible Notes and the May 2023 Warrants.

For additional information regarding the Convertible Notes, please see Note 9, “Convertible Note”. For additional information regarding the 2023 Warrants and the related warrant liability and valuation, please see Note 11, “Warrant Liability”.

In connection with the 2023 Private Placement, certain Amended November 2021 Warrants, Amended July 2020 Warrants, September 2022 Warrants and 2022 Warrants previously issued to participants exercisable for 1,724,455 shares of common stock were amended in the 2023 Private Placement to lower the exercise price from $6.30 to $1.50 per share, as further described below.

2022 and 2023 Warrant Reprice Transactions, Amended November 2021 Warrants, Amended July 2020 Warrants and September 2022 Warrants

On September 9, 2022, the Company entered into a warrant reprice transaction, which included warrant reprice letter agreements with each of the holders of the November 2021 Warrants and certain holders of the July 2020 Warrants (as defined below) (the “2022 Warrant Reprice Transaction”). Pursuant to the terms of the letter agreements, the November 2021 Warrants and certain July 2020 Warrants were amended to: (i) reduce the exercise price to $6.30; (ii) provide that such warrants would not be exercisable until a later date, which was March 9, 2023; and (iii) in the case of the November 2021 Warrants, extend the termination date to September 11, 2028 (as amended, the “Amended November 2021 Warrants” and the “Amended July 2020 Warrants”, respectively). The Amended November 2021 Warrants expire on September 11, 2028, and the Amended July 2020 Warrants expire on January 22, 2026. As a result of the 2023 Private Placement, (1) a portion of the Amended November 2021 Warrants exercisable for 535,716 shares of common stock have an exercise price of $1.50 and the remaining portion of the Amended November 2021 Warrants exercisable for 267,858 shares of common stock have an exercise price of $6.30 and (2) all of the Amended July 2020 Warrants exercisable for 77,145 shares of common stock have an exercise price of $1.50.

As a result of the 2022 Warrant Reprice Transaction amendments to the Amended November 2021 Warrants and the Amended July 2020 Warrants, the Company recorded a non-cash loss on modification of common stock warrants in the amount of $1.9 million. The loss represents the increase in fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants as a result of the 2022 Warrant Reprice Transaction modification. The increase in fair value was calculated as the difference in value immediately before and after modification using the Black-Scholes option pricing model. The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $3.3 million immediately prior to the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Expected price volatility		79.6	%		79.6	%
Expected term (in years)		5.4			3.4
Risk-free interest rate		3.43	%		3.58	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	3.15		$	0.70

The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $5.2 million immediately after the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Expected price volatility		79.6	%		79.6	%
Expected term (in years)		6.0			3.4
Risk-free interest rate		3.43	%		3.58	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	4.55		$	3.50

As a result of the amendments to the September 2022 Warrants as part of the 2023 Private Placement, the Company allocated $46 thousand between other expenses and Convertible Notes debt issuance cost. The $46 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model.

The fair value of the September 2022 Warrants was determined to be $48 thousand immediately prior to the modification in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		5.4
Risk-free interest rate		3.59	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	0.20

The fair value of the September 2022 Warrants was determined to be $94 thousand immediately after the modification in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		5.4
Risk-free interest rate		3.59	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	0.39

As of September 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

As a result of the amendments to the Amended November 2021 Warrants and the Amended July 2020 Warrants as part of the 2023 Private Placement, the Company allocated $117 thousand between other expenses and Convertible Notes debt issuance cost. The $117 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model. The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $112 thousand immediately prior to the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.4			2.7
Risk-free interest rate		3.59	%		3.88	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.20		$	0.06

The fair value of the Amended November 2021 Warrants and the Amended July 2020 Warrants was determined to be $230 thousand immediately after the modification in accordance with the following key assumptions:

	November 2021 Warrants			July 2020 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.4			2.7
Risk-free interest rate		3.59	%		3.88	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.39		$	0.24

As of September 30, 2023, the Amended November 2021 Warrants were exercisable for an aggregate of 803,574 shares of common stock and the Amended July 2020 Warrants were exercisable for an aggregate of 77,145 shares of common stock.

Additionally, in connection with the 2022 Warrant Reprice Transaction, the Company issued to certain participants in the 2022 Warrant Reprice Transaction that exercised their Amended November 2021 Warrants and their Amended July 2020 Warrants, new common stock purchase warrants (the “September 2022 Warrants”) to purchase a number of shares of common stock equal to 100% of the number of shares that a participant exercised under its November 2021 Warrant or Amended July 2020 Warrant, as applicable. As a result of the 2023 Private Placement, a portion of the September 2022 Warrants exercisable for 238,574 shares of common stock have an exercise price of $1.50 and the remaining portion of the September 2022 Warrants exercisable for 89,286 shares of common stock have an exercise price of $6.30. The September 2022 Warrants expire on September 11, 2028. As of September 30, 2023, the September 2022 Warrants were exercisable for an aggregate of 327,860 shares of common stock.

The 2022 Warrant Reprice Transaction resulted in gross proceeds of approximately $2.1 million. The Company allocated the gross proceeds between the common stock issued for the Amended November 2021 Warrants and the Amended July 2020 Warrants exercised, and the September 2022 Warrants issued to participants by applying the relative fair value allocation methodology. The Company allocated $0.7 million in gross proceeds to the common stock issued for the Amended November 2021 Warrants and the Amended July 2020 Warrants exercised, and $1.4 million to the September 2022 Warrants which were classified as a liability. For additional information regarding the warrant liability and valuation, please see Note 11, “Warrant Liability”.

Ladenburg Thalmann & Co. Inc. (“Ladenburg”) served as the Company’s warrant solicitation agent for the 2022 Warrant Reprice Transaction in exchange for a fee equal to 8% of the total gross proceeds. The Company incurred total issuance costs of $529 thousand in conjunction with the 2022 Warrant Reprice Transaction. The Company allocated $166 thousand of the issuance costs to the warrant liability which was expensed in the Company’s condensed consolidated statements of operations during the third quarter of 2022. The remaining $363 thousand was recorded as a reduction of common stock and additional paid in capital in the Company’s condensed consolidated balance sheets.

Series C Preferred Stock, Series A-1 Warrants and Series A-2 Warrants

Concurrent with the 2022 Warrant Reprice Transaction on September 9, 2022, the Company entered into a private placement transaction with accredited investors (the “2022 Private Placement”), a private placement transaction with certain accredited investors to sell units that consisted of: (1) 3,250 shares of  Series C Preferred Stock convertible into an aggregate of 516,750 shares of common stock, (2) series A-2 warrants to purchase common stock, which are exercisable for 515,876 shares of common stock through May 20, 2024 (the “Series A-2 Warrants”), and (3) series A-1 warrants to purchase common stock, which are exercisable for 515,876 shares of common stock through November 20, 2028 (the “Series A-1 Warrants” and, together with the Series A-2 Warrants, the “2022 Warrants”). The closing of the 2022 Private Placement was subject to receiving certain stockholder approvals (as obtained on November 10, 2022), effecting the Reverse Stock Split, as well as the satisfaction of other customary closing conditions. On November 18, 2022, the Company closed the 2022 Private Placement and received gross proceeds of $3.2 million from the sale of the Series C Preferred Stock and the 2022 Warrants. As a result of the 2023 Private Placement, a portion of the 2022 Warrants exercisable for 873,020 shares of common stock have an exercise price of $1.50 and the remaining portion of the September 2022 Warrants exercisable for 158,732 shares of common stock have an exercise price of $6.30.

The Series C Preferred Stock does not have any preemptive rights or a preference upon any liquidation, dissolution or winding-up of NovaBay. The Series C Preferred Stock does, however, have anti-dilution protection 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 Series C Preferred Stock.

Each share of the Series C Preferred Stock that the Company issued in the 2022 Private Placement had a purchase price of $1,000 per share and was initially convertible at a conversion price of $6.30 into 159 shares of common stock. On April 27, 2023, the Company entered into the 2023 Private Placement where the May 2023 Warrants were issued with an exercise price of $1.30 per share, which exercise price was lower than the then effective $6.30 conversion price of the Series C Preferred Stock. This triggered the Series C Preferred Stock anti-dilution feature, resulting in the automatic adjustment to the conversion price for each outstanding share of the Series C Preferred Stock to $1.30, and each outstanding share of Series C Preferred Stock became convertible into 770 shares of common stock. As a result of the change, the Company recorded a $194 thousand deemed Series C Preferred Stock dividend. The deemed dividend was recorded as a reduction to income available to common stockholders in the basic earnings per share (EPS) calculation in the second quarter of 2023. In accordance with ASC 820, the deemed dividend was measured as the difference between (1) the fair value of the Series C Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Series C Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). The fair value of the Series C Preferred Stock was determined to be $0.9 million immediately prior to the conversion price adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	5.35

The fair value of the Series C Preferred Stock was determined to be $1.1 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.61

As of September 30, 2023, the Series A-1 Warrants were exercisable into 515,876 shares of common stock and the Series A-2 Warrants were exercisable into 515,876 shares of common stock. As of September 30, 2023, 2,153 shares of the Series C Preferred Stock had been converted into common stock. Each of the remaining 1,097 shares of the Series C Preferred Stock, as of September 30, 2023, were convertible into 770 shares of common stock at a conversion price of $1.30.

As a result of the 2023 Private Placement transaction, amendments to the Series A-1 Warrants and the Series A-2 Warrants, the Company allocated $122 thousand between other expenses and Convertible Notes debt issuance cost. The $122 thousand represents the difference in value immediately before and after modification using the Black-Scholes option pricing model.

The fair value of the Series A-1 Warrants and the Series A-2 Warrants was determined to be $93 thousand immediately prior to the adjustment to the exercise price with the following key assumptions:

	Series A-1 Warrants			Series A-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.6			1.1
Risk-free interest rate		3.59	%		4.73	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.21		$	0.00

The fair value of the Series A-1 Warrants and the Series A-2 Warrants was determined to be $216 thousand immediately after the adjustment to the exercise price with the following key assumptions:

	Series A-1 Warrants			Series A-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.6			1.1
Risk-free interest rate		3.59	%		4.73	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.40		$	0.09

Series B Preferred Stock and November 2021 Warrants

On October 29, 2021, the Company entered into a private placement (the “2021 Private Placement”), including a securities purchase agreement with various institutional investors to sell in a private placement offering (i) an aggregate of 15,000 shares of our newly-created Series B Preferred Stock convertible into an aggregate of 1,071,429 shares of common stock, and (ii) the November 2021 Warrants exercisable for 1,071,429 shares of common stock for net proceeds of $14.9 million. The 2021 Private Placement closed on November 2, 2021. The November 2021 Warrants became exercisable as of January 31, 2022, and are exercisable through September 11, 2028.

The Series B Preferred Stock does not have any preemptive rights or a preference upon any liquidation, dissolution or winding-up of NovaBay. The Series B Preferred Stock does, however, have anti-dilution protection 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 Series B Preferred Stock.

Table of Contents

Each share of the Series B Preferred Stock that the Company issued in the 2021 Private Placement had a purchase price of $1,000 per share and was initially convertible at a conversion price of $0.40 into 2,500 shares of common stock, or an aggregate of 37,500,000 shares of common stock (which does not account for the Reverse Stock Split). On September 9, 2022, the 2022 Warrant Reprice Transaction provided for amendments to certain common stock purchase warrants to lower their exercise price to $0.18 per share as well as the issuance of the September 2022 Warrants also with an exercise price of $0.18 per share, which exercise price was lower than the then effective $0.40 conversion price of the Series B Preferred Stock (which does not account for the Reverse Stock Split). This triggered the Series B Preferred Stock anti-dilution feature, resulting in the automatic adjustment to the conversion price for each outstanding share of the Series B Preferred Stock to $0.18, and each outstanding share of Series B Preferred Stock became convertible into 5,556 shares of common stock (which does not account for the Reverse Stock Split). As a result of the change, the Company recorded a $5.7 million deemed Series B Preferred Stock dividend. The deemed dividend was recorded as a reduction to income available to common stockholders in the basic earnings per share (EPS) calculation in the third quarter of 2022. In accordance with ASC 820, the deemed dividend was measured as the difference between (1) the fair value of the Series B Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Series B Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). The fair value of the Series B Preferred Stock was determined to be $6.8 million immediately prior to the conversion price adjustment in accordance with the following key assumptions:

Expected price volatility		79.6	%
Expected term (in years)		1.3
Risk-free interest rate		3.64	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	8.05

The fair value of the Series B Preferred Stock was determined to be $12.5 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Expected price volatility		79.6	%
Expected term (in years)		1.3
Risk-free interest rate		3.64	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	2.10

Thereafter, the Company effected the Reverse Stock Split, which resulted in an automatic adjustment to the conversion price for each outstanding share of the Series B Preferred Stock to $6.30, and each outstanding share of Series B Preferred Stock became convertible into 159 shares of common stock.

On April 27, 2023, the Company entered into the 2023 Private Placement where the May 2023 Warrants were issued with an exercise price of $1.30 per share, which exercise price was lower than the then effective $6.30 conversion price of the Series B Preferred Stock. This triggered the Series B Preferred Stock anti-dilution feature, resulting in the automatic adjustment to the conversion price for each outstanding share of the Series B Preferred Stock to $1.30, and each outstanding share of Series B Preferred Stock became convertible into 770 shares of common stock. As a result of the change, the Company recorded a $1.8 million deemed Series B Preferred Stock dividend. The deemed dividend was recorded as a reduction to income available to common stockholders in the basic earnings per share (EPS) calculation in the second quarter of 2023. In accordance with ASC 820, the deemed dividend was measured as the difference between (1) the fair value of the Series B Preferred Stock immediately prior to the conversion price adjustment (but without the anti-dilution protection feature) and (2) the fair value of the Series B Preferred Stock immediately after the conversion price adjustment (but without the anti-dilution protection feature). The fair value of the Series B Preferred Stock was determined to be $8.7 million immediately prior the conversion price adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	5.35

The fair value of the Series B Preferred Stock was determined to be $10.5 million immediately after the conversion price protection adjustment in accordance with the following key assumptions:

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.61

As of September 30, 2023, 8,850 shares of the Series B Preferred Stock had been converted into common stock. Each of the remaining 6,150 shares of the Series B Preferred Stock as of September 30, 2023, was currently convertible into 770 shares of common stock at a conversion price of $1.30.

Further, on September 9, 2022, in connection with the 2022 Warrant Reprice Transaction, the November 2021 Warrants were amended to reduce the exercise price to $6.30 and extend the expiration date to September 11, 2028. Additionally, in conjunction with the 2022 Warrant Reprice Transaction, holders of the November 2021 Warrants, as amended, exercised a portion of their warrants at the reduced exercise price.

Common Stock

Common Stock Warrants

In addition to the Amended July 2020 Warrants, the Amended November 2021 Warrants, the September 2022 Warrants, the 2022 Warrants and the May 2023 Warrants, the Company also has the following outstanding warrants:

2019 Ladenburg Warrants

In 2019, Ladenburg was granted warrants exercisable for 4,799 shares of common stock (the “2019 Ladenburg Warrants”). The 2019 Ladenburg Warrants bear an exercise price of $34.65 and an expiration date of August 8, 2024.

July 2020 Warrants

In 2020, certain of the Company’s accredited investors were granted warrants with an exercise price of $57.75 (the “July 2020 Warrants”). A portion of these warrants were subsequently amended as described above to become the Amended July 2020 Warrants. As of September 30, 2023, outstanding July 2020 Warrants which were not amended were exercisable for 59,960 shares of common stock. The July 2020 Warrants expire on January 22, 2026.

TLF Bio Innovation 2021 Warrants

In 2021, TLF Bio Innovation was granted warrants exercisable for 429 shares of common stock with an exercise price of $23.51 (the “TLF Warrants”). The TLF Warrants expire on January 15, 2026.

Summary of Warrants Outstanding

The details of all outstanding warrants as of September 30, 2023 and December 31, 2022 are as follows:

	Warrants (in thousands)		Weighted- Average Exercise Price
Outstanding at December 31, 2022		2,306	$	7.70
Warrants granted		5,076		1.30
Warrants expired		—		—
Outstanding at September 30, 2023		7,382		2.18

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Note 13 - Equity-based Compensation

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 13. EQUITY-BASED COMPENSATION

Equity Compensation Plans 

In  October 2007, the Company adopted the 2007 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. 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 than ten years from the date of grant. All stock options outstanding under the 2007 Plan were fully vested as of  December 31, 2020.

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 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.  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 than provided for in Section 4(a)(i) of the 2017 Plan as determined by the Board. On March 31, 2023, the number of shares available for future awards under the 2017 Plan was increased by 81,417 shares. As of  September 30, 2023, there were 147,905 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 common stock on the date of grant and, if ISOs are granted to an owner of more than 10% of the Company’s stock, then not less than 110% of the fair market value of the common stock on the date of grant. The term of awards will not be longer than ten years, or in the case of ISOs, not longer than five years with respect to holders of more than 10% 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 option exercises under the 2007 Plan and the 2017 Plan.

Summary of Outstanding Equity Awards

The following table summarizes information about the Company’s equity awards outstanding at September 30, 2023 and activity during the period ended September 30, 2023: 

(in thousands, except years and per share data)	Awards			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2022		132		$	37.99		7.5	$	69
Options granted		42		$	1.67
Restricted stock units granted		5			—
Restricted stock units vested		(5	)		—
Options forfeited/cancelled		(19	)	$	64.23
Restricted stock units cancelled		(7	)		—
Outstanding at September 30, 2023		148		$	26.26		7.6	$	13
Vested and expected to vest at September 30, 2023		119		$	32.34		7.5	$	2
Vested at September 30, 2023		59		$	59.30		5.8	$	—
Exercisable at September 30, 2023		59		$	59.30		5.8	$	—

The aggregate intrinsic value in the table above 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 September 30, 2023 for options that have a quoted market price in excess of the exercise price. There were no stock option awards exercised during the three and nine months ended September 30, 2023 and 2022. The Company received no cash payments for the exercise of stock options during the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023, total unrecognized compensation cost related to unvested stock options and restricted stock units was approximately $0.3 million. This amount is expected to be recognized as stock-based compensation expense in the Company’s unaudited condensed consolidated statements of operations over the remaining weighted average vesting period of 2.1 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 Note 2, “Summary of Significant Accounting Policies,” for a description of the accounting policies that the Company applied to value its stock-based awards. 

During the nine months ended September 30, 2023 and 2022, the Company granted options to employees and directors to purchase an aggregate of 6,150 and 17,892 shares of common stock, respectively.

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

	Nine Months Ended September 30,
Assumption	2023			2022
Expected price volatility		152.99	%		158.04	%
Expected term (in years)		6.81			6.45
Risk-free interest rate		3.47	%		2.29	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of options granted during the period	$	1.61		$	9.46

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 has not 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 the nine months ended September 30, 2023, the Company granted 5,148 shares of restricted stock to employees and directors. During the nine months ended September 30, 2022, the Company granted 5,148 shares of restricted stock to employees and directors.

For the three months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $62 thousand and $208 thousand, respectively, for stock-based awards to employees and directors.  For the nine months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $201 thousand and $130 thousand, respectively, for stock-based awards to employees and directors.

Stock-Based Awards to Non-Employees

During the nine months ended September 30, 2023, the Company granted options to non-employees to purchase an aggregate of 36,000 shares of common stock in exchange for advisory and consulting services. During the nine months ended September 30, 2022, the Company did not grant options exercisable for shares of common stock to non-employees in exchange for advisory and consulting services.

When the Company grants stock options, the stock options are recorded at their fair value on the grant date and recognized over the respective service or vesting period. The fair value of the stock options that are granted is calculated using the Black-Scholes option pricing model.

For the three months ended  September 30, 2023, the Company recognized compensation expense of $3 thousand as compared to no stock-based compensation expense for the three months ended  September 30, 2022, related to non-employee stock option grants. For the nine months ended  September 30, 2023, the Company recognized stock-based compensation expense of $7 thousand as compared to a nominal stock-based compensation expense for the nine months ended  September 30, 2022, related to non-employee stock option grants.

During the nine months ended September 30, 2023, the Company did not grant restricted stock to non-employees.

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):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022			2023		2022
Research and development	$	5	$	5		$	16	$	14
Sales and marketing		18		12			49		37
General and administrative		39		(225	)		136		79
Total stock-based compensation expense	$	62	$	(208	)	$	201	$	130

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Note 14 - Distribution Agreements

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

License, Collaboration, and Distribution Agreements [Text Block]

NOTE 14. DISTRIBUTION AGREEMENTS

Transactions under the Company’s major distribution agreements are recognized upon transfer of control of product 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 the nine months ended September 30, 2023 (in thousands): 

	Product Returns, Discounts for Prompt Payment			Other Customer Fees			Rebates			Total
Balance at December 31, 2022	$	1,673		$	53		$	81		$	1,807
Provision related to sales made in current period		521			104			79			704
Payments and customer credits issued		(1,194	)		(141	)		(134	)		(1,469	)
Balance at September 30, 2023	$	1,000		$	16		$	26		$	1,042

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 the three months ended September 30, 2023 and 2022, the Company earned $232 thousand and $170 thousand, respectively, in net sales revenue for its Avenova Spray product from these distribution and partner pharmacy agreements. During the nine months ended September 30, 2023 and 2022, the Company earned $519 thousand and $113 thousand, respectively, in net 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 and $1.6 million as of September 30, 2023 and December 31, 2022, respectively. The contract liability is included in accrued liabilities in the condensed consolidated balance sheets. The Company also recorded a prepayment of $141 thousand for rebates related to these distribution agreements as of September 30, 2023, with no such prepayment recorded as of December 31, 2022, that is recorded in the prepaid expenses and other current assets in the condensed consolidated balance sheets (see Note 4, “Prepaid Expenses and Other Current Assets”).

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 the three and nine months ended September 30, 2023, the revenue generated from over-the-counter Avenova Spray was $1.6 million and $4.5 million, respectively. During the three and nine months ended September 30, 2022, the revenue generated from over-the-counter Avenova Spray was $1.6 million and $5.1 million, respectively. 

DERMAdoctor Products Distribution Agreements

DERMAdoctor products are sold through distribution arrangements with third parties such as Costco and others. During the three and nine months ended September 30, 2023, the Company earned $0.1 million and $0.5 million, respectively, in sales revenue for its DERMAdoctor products from these distribution agreements. During both the three and nine months ended September 30, 2022, the Company earned $0.4 million in sales revenue for its DERMAdoctor products from these distribution agreements.

Under these distribution arrangements, the Company had a contract liability balance of $0.3 million and $0.2 million as of September 30, 2023 and December 31, 2022, respectively. The contract liability is included in accrued liabilities in the condensed consolidated balance sheets.

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Note 15 - Employee Benefit Plan

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Retirement Benefits [Text Block]

NOTE 15. 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. During the three and nine months ended September 30, 2023, the Company contributed $32 thousand and $95 thousand, respectively. During the three and nine months ended September 30, 2022, the Company contributed $25 thousand and $101 thousand, respectively.

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Note 16 - Related Party Transactions

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

NOTE 16. RELATED PARTY TRANSACTIONS      

Related Party Revenue 

The following table summarizes information about the Company’s related party revenue and cost of goods sold (in thousands): 

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023			2022
Related party revenue:
NeutroPhase	$	—		$	—	$	1,043		$	657
Total related party revenue	$	—		$	—	$	1,043		$	657
Cost of goods sold:
NeutroPhase	$	(28	)	$	—	$	(923	)	$	(648	)
Total related party expenses	$	(28	)	$	—	$	(923	)	$	(648	)

Related party accounts receivable was $0.2 million as of September 30, 2023 and December 31, 2022.

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Note 17 - Segment Reporting

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE 17. SEGMENT REPORTING

The Company’s chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, allocates resources and assesses performance based on financial information of the Company. The CODM reviews financial information presented for each reportable segment for purposes of making operating decisions and assessing financial performance.

Prior to the DERMAdoctor Acquisition in November 2021, the Company was managed as a single segment focused on commercializing Avenova Spray in the United States. After the DERMAdoctor Acquisition, the Company began managing and aggregating its operational and financial information in accordance with two reportable segments: (1) Eyecare & Wound Care and (2) Skincare. The Eyecare & Wound Care segment consists of products historically sold by NovaBay prior to the DERMAdoctor Acquisition. The Skincare segment consists of products acquired in the DERMAdoctor Acquisition and skincare products subsequently sold under the DERMAdoctor brand.

Select financial information for each segment is as follows:

	Three					Three
	Months					Months
	Ended		Percentage			Ended		Percentage
	September		of Total			September		of Total
	30,		Sales,			30,		Sales,
	2023		Net			2022		Net
Eyecare & Wound Care	$	2,481		76	%	$	2,507		66	%
Skincare		784		24	%		1,319		34	%
Total sales, net	$	3,265		100	%	$	3,826		100	%

	Three						Three
	Months						Months
	Ended			Percentage			Ended			Percentage
	September			of Total			September			of Total
	30,			Operating			30,			Operating
	2023			Loss			2022			Loss
Eyecare & Wound Care	$	(698	)		63	%	$	(257	)		56	%
Skincare		(418	)		37	%		(200	)		44	%
Total operating loss	$	(1,116	)		100	%	$	(457	)		100	%

	Nine Months					Nine Months
	Ended		Percentage			Ended		Percentage
	September		of Total			September		of Total
	30,		Sales,			30,		Sales,
	2023		Net			2022		Net
Eyecare & Wound Care	$	8,354		76	%	$	7,646		71	%
Skincare		2,645		24	%		3,115		29	%
Total sales, net	$	10,999		100	%	$	10,761		100	%

	Nine Months						Nine Months
	Ended						Ended
	September			Percentage			September			Percentage
	30,			of Total			30,			of Total
	2023			Operating Loss			2022			Operating Loss
Eyecare & Wound Care	$	(3,094	)		74	%	$	(3,605	)		72	%
Skincare		(1,111	)		26	%		(1,386	)		28	%
Total operating loss	$	(4,205	)		100	%	$	(4,991	)		100	%

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Note 18 - Subsequent Events

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Subsequent Events [Text Block]

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  September 30, 2023, and events which occurred subsequently but were not recognized in the condensed consolidated financial statements. Except as described below there were no other subsequent events which required recognition, adjustment to or disclosure in the unaudited condensed consolidated financial statements.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

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.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of NovaBay Pharmaceuticals, Inc. and its wholly-owned subsidiary, DERMAdoctor, LLC. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

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, 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 Interim Financial Information, Policy [Policy Text Block]

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 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, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023, as amended by Amendment No. 1 to the Annual Report on Form 10-K, which was filed with the SEC on April 28, 2023 (collectively, the “Annual Report”).

Reclassification, Comparability Adjustment [Policy Text Block]

Change in Accounting and Revision of Prior Period Financial Statements

During the third quarter of 2022, the Company made an accounting policy change election related to fulfillment fees paid to third-party online retailers such as Amazon. The Company began expensing these fees as incurred as product cost of goods sold in the Company’s condensed consolidated statements of operations. The Company previously recorded revenue net of these fees. The Company believes that making this change is appropriate and preferable as it is more consistent with the practices of comparable companies as the Company increasingly focuses on commercial growth in its direct to consumer on-line channels. Changes to prior period amounts presented in this report have been made to conform to the current period presentation. See additional information under “Revenue Recognition” below. The changes had no impact on operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statements of operations in the periods presented in this report or in previously issued annual and quarterly financial statements. The changes also did not impact cash or ending cash balances in the Company’s unaudited condensed consolidated balance sheets in the periods presented in this report or in previously issued annual and quarterly financial statements.

While reviewing its accounting policy for fulfillment fees during the third quarter of 2022, the Company identified an error in its previously issued financial statements whereby the Company had been incorrectly presenting revenue net of selling commissions paid to third-party online retailers. During the third quarter of 2022, the Company concluded that these commissions relate to sales activity and began expensing them as incurred as sales and marketing expenses within the Company’s unaudited condensed consolidated statements of operations. The identified error impacted the Company’s previously issued 2022 first and second quarter condensed consolidated financial statements. Management believes that the impact of these adjustments to correct such error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors. However, revisions to prior period amounts presented in this report have been made to conform to the current period presentation. See additional information under “Revenue Recognition” below. The revisions had no impact on operating loss, net loss or net loss per share in the Company’s unaudited condensed consolidated statements of operations in the periods presented in this report or in previously issued annual consolidated financial statements. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash, Cash Equivalents, and 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 September 30, 2023 and December 31, 2022, 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):

	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	3,472	$	5,362
Restricted cash included in other assets		476		484
Total cash, cash equivalents, and restricted cash in the condensed consolidated statements of cash flows	$	3,948	$	5,846

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.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

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 the three and nine months ended September 30, 2023 and 2022, revenues were derived primarily from sales of Avenova and DERMAdoctor branded products, directly to consumers through Amazon.com, Avenova.com and DERMAdoctor.com.

During the three and nine months ended September 30, 2023 and 2022, revenues from significant product categories were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Avenova Spray	$	2,064	$	1,939	$	5,759	$	5,778
DERMAdoctor		784		1,319		2,645		3,115
NeutroPhase		—		—		1,043		657
Other products		407		558		1,524		1,193
Total product revenue, net		3,255		3,816		10,971		10,743
Other revenue, net		10		10		28		18
Total sales, net	$	3,265	$	3,826	$	10,999	$	10,761

During the three months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 66% and 70% of total Avenova Spray net revenue, respectively. During the nine months ended September 30, 2023 and 2022, sales of Avenova Spray via Amazon comprised 68% and 73% of total Avenova Spray net revenue, respectively. No other individual distributor comprised greater than 10% of total Avenova Spray net revenue during the three and nine months ended September 30, 2023 or 2022.

As of September 30, 2023 and December 31, 2022, accounts receivable from our major distribution partners and major retailers greater than 10% were as follows:

	September 30,			December 31,
Major distribution partner	2023			2022
Major U.S. Retailer A		26	%		*	%
Avenova Spray Pharmacy Distributor A		20	%		11	%
Major International Retailer A		10	%		*	%
Avenova Spray Pharmacy Distributor B		*	%		30	%
Major U.S. Retailer B		*	%		15	%

* Less than 10%

The Company relies on seven contract manufacturers to produce its products. The Company does not own any manufacturing facilities and intends to continue to rely on third parties for the supply of finished goods. Contract manufacturers may or 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 Instruments, Policy [Policy Text Block]

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, convertible notes, derivative liabilities, warrant liabilities, and contingent consideration. The Company’s cash and cash equivalents, 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 Convertible Notes (as defined below) entered into on April 27, 2023 are carried at proceeds, net of discounts, which management believes approximates fair value. Additionally, the derivative liability related to certain embedded features contained within the Convertible Notes, restricted cash, warrant liabilities, and contingent consideration were carried at fair value.

The Company follows 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.

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

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. Management recorded a reserve for allowance for credit losses of $3 thousand and $19 thousand as of September 30, 2023 and December 31, 2022, respectively.

Inventory, Policy [Policy Text Block]

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 contract manufacturers 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 the first-in, first-out method. At September 30, 2023 and December 31, 2022, management had recorded an allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments of $556 thousand and $499 thousand, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

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 of five to seven years for office and laboratory equipment, three to five years for computer equipment and software, and five to seven years for furniture and fixtures. Leasehold improvements are amortized over the lease term.

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

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets are measured at their respective fair values as of the acquisition date and may be subject to adjustment within the measurement period, which may be up to one year from the acquisition date. 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 than not that the assets are impaired.

The Company did not record any goodwill or indefinite-lived asset impairment charges during the three and nine months ended September 30, 2023 or 2022.

Valuation of Contingent Consideration from Business Combination Policy [Policy Text Block]

Valuation of Contingent Consideration Resulting from a Business Combination

In connection with certain acquisitions, including the DERMAdoctor Acquisition, the Company may be required to pay future consideration that is contingent upon the achievement of specified milestone events. The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. Each quarter thereafter, the Company revalues these obligations and records increases or decreases in the fair value within the consolidated statement of operations until such time as the specified milestone achievement period is complete.

Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on the Company’s results of operations in any given period. Actual results may differ from estimates.

DERMAdoctor Acquisition milestone events consist of financial targets for calendar years 2022 and 2023. The financial target was not met for the calendar year 2022. Additionally, we do not expect the financial target to be met for the calendar year 2023. As a result, the liability recorded for potential earn out payments in the Company’s condensed consolidated balance sheets was zero as of September 30, 2023 and December 31, 2022. This amount is subject to change in the event that there are changes to our expectations and related valuation assumptions, which are valued using Level 3 fair value inputs.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Long-Lived Assets 

The Company’s intangible assets that do not 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 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 consolidated statements of operations.

The Company did not record any long-lived asset impairments during the three and nine months ended September 30, 2023 or 2022.

Lessee, Leases [Policy Text Block]

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

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition

Revenue is recognized from the sale of goods in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when or as the Company’s performance obligations are satisfied by transferring control of the promised goods to customers in an amount that reflects the consideration which the Company expects to receive. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps as prescribed by ASC 606:

i. identify the contract(s) with a customer;

ii. identify the performance obligations in the contract;

iii. determine the transaction price;

iv. allocate the transaction price to the performance obligations in the contract; and

v. recognize revenue when (or as) the entity satisfies performance obligations.

Revenue is generated through the Company’s webstores, Avenova.com and DERMAdoctor.com, for Avenova and DERMAdoctor products. Such direct to consumer sales are recognized upon fulfillment, which generally occurs upon delivery of the related products to a third-party carrier. Shipping and handling costs are expensed as incurred and included in product cost of goods sold in the consolidated statements of operations. The Company presents revenue net of sales taxes and refunds. 

Revenue generated through third-party online retailers, including Amazon, is recognized when control of the goods is transferred to the customer, which generally occurs upon delivery of the products to a third-party carrier.

The Company pays third-party online retailers advertising & promotion fees, selling commissions and fulfillment fees. Advertising & promotion fees are expensed as incurred as sales and marketing expenses within operating expenses in the consolidated statements of operations. Prior to the third quarter of 2022, the Company recorded revenue net of selling commissions and fulfillment fees. Beginning in the third quarter of 2022, as further described below, the Company began expensing selling commissions as sales and marketing expenses in the consolidated statements of operations and fulfillment fees as product cost of goods sold in the consolidated statements of operations.

Prior to the third quarter of 2022, to determine its accounting for fulfillment fees, the Company evaluated principal versus agent considerations with respect to the obligation to ship its product to the customer. The Company assessed whether the nature of the Company’s obligation is as a principal in providing the fulfillment service or as an agent in promising to arrange for a third party to provide the fulfillment service. The Company concluded that it is an agent with respect to the shipping service as the Company does not control the service itself and, therefore, its obligation is that of a promise to arrange for the service. This determination involved significant judgement. In accordance with this conclusion, prior to the third quarter of 2022, the Company recorded revenue net of fulfillment fees. Beginning in the third quarter of 2022, the Company made an accounting policy change election, as a practical expedient, to account for the shipping fees as a fulfillment activity and began expensing them as incurred within product cost of goods sold in the Company’s consolidated statements of operations. Management believes the resulting accounting changes are preferable as they conform the Company’s practice to a majority of comparable filers and other similar sales channels. Changes to amounts presented for prior periods have been made to conform to these changes. These changes did not impact operating loss, net loss or loss per share in the Company’s condensed consolidated statements of operations in the periods presented in this report or in previously issued annual consolidated financial statements. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

Prior to the third quarter of 2022, the Company also recorded revenue net of selling commissions. During the third quarter of 2022, the Company concluded that these commissions relate to a sales activity and began expensing them as incurred as sales and marketing expenses within the Company’s consolidated statements of operations. The Company determined that its treatment prior to the third quarter of 2022 was an error. The identified error impacted the Company's previously issued 2022 and 2021 quarterly, and 2021 and 2020 annual consolidated financial statements. Management believes that the impact of this error is immaterial to the previously issued consolidated financial statements, based on an evaluation of both quantitative and qualitative factors. The changes also did not impact cash or ending cash balances in the Company’s condensed consolidated balance sheets in the periods presented in this report or in previously issued annual consolidated financial statements.

The Company also generates Avenova Spray revenue through major pharmacy distribution partners. Product supply of Avenova Spray is the only performance obligation contained in these arrangements, and the Company recognizes product revenue upon transfer of control to its major distribution partners at the amount of consideration that the Company expects to be entitled to, generally upon delivery to the distributor on a “sell-in” basis. Upon recognition of product sales, contract liabilities are recorded for invoiced amounts that are subject to reversal, including product revenue allowances for cash consideration paid to customers for services, discounts, rebate programs, and product returns. The Company derives its rate of return and other contract liabilities from historical data and updates its assumptions quarterly. Payment for product supply is typically due 30 days after control transfers to the distributor.

Revenue for products sales to Costco is recognized upon transfer of control at the amount of consideration that the Company expects to be entitled to, generally upon delivery to Costco. Upon recognition of product sales, contract liabilities are recorded for invoiced amounts that are subject to reversal, including discounts and product returns. The Company derives its rate of return from historical data and updates its return rate assumption quarterly. Payment for product supply is typically due 30 days after control transfers to Costco.

Revenue generated through the Company’s partner pharmacies is recognized when control of the product transfers to the end customer.

Revenue for product sales to other retailers is generally recognized upon transfer of control to the retailer, which generally occurs upon delivery of the products to a third-party carrier, net of estimated future product returns.

The Company may be required to defer recognition of revenue for upfront payments until it performs its obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt. Deferred revenue was $103 thousand and $4 thousand as of September 30, 2023 and December 31, 2022, respectively, which is recorded within Accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

Cost of Goods Sold [Policy Text Block]

Cost of Goods Sold

Cost of goods sold includes third-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 allowance for excess and obsolete inventory along with lower of cost and estimated net realizable value.

Research and Development Expense, Policy [Policy Text Block]

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, including submissions to the FDA.

Patent Costs Policy [Policy Text Block]

Patent Costs

Patent costs, including legal expenses, 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 Cost [Policy Text Block]

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 $0.3 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively. Advertising expenses were $0.9 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Share-Based Payment Arrangement [Policy Text Block]

Stock-Based Compensation

The Company’s stock-based compensation includes grants of stock options and RSUs to employees, consultants and non-employee directors. The expense associated with these grants is recognized in the Company’s unaudited 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. See Note 13, “Equity-Based Compensation” for further information regarding stock-based compensation expense and the assumptions used in estimating that expense. 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 as of the date of issuance.

Income Tax, Policy [Policy Text Block]

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.

Warrant Liabilities [Policy Text Block]

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.

The Company classifies as equity any contracts 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 assets or liabilities any contracts that (i) require net-cash settlement, (ii) give the counterparty a choice of net-cash physical settlement or net-share settlement or (iii) do not become exercisable until the occurrence of a contingent event.

For warrants that are classified as liabilities, the Company records the fair value of the warrants at each balance sheet date and records changes in the estimated fair value 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.

Earnings Per Share, Policy [Policy Text Block]

Net Loss per Share

The Company computes net loss per share by presenting both basic and diluted earnings (loss) per share (“EPS”).

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 sets forth the calculation of basic EPS and diluted EPS (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
Numerator	2023			2022*			2023			2022*
Net loss	$	(1,757	)	$	(136	)	$	(5,532	)	$	(2,402	)
Less: Increase in accumulated deficit due to Series B Preferred Stock conversion price		—			(5,657	)		(1,802	)		(5,657	)
Less: Increase in accumulated deficit due to Series C Preferred Stock conversion price		—			—			(194	)		—
Net loss attributable to common stockholders (basic and diluted)	$	(1,757	)	$	(5,793	)	$	(7,528	)	$	(8,059	)
Denominator
Weighted average shares of common stock outstanding (basic and diluted)		4,692			1,604			3,311			1,514
Net loss per share (basic and diluted)	$	(0.37	)	$	(3.61	)	$	(2.27	)	$	(5.32	)

* After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

For the three and nine months ended September 30, 2023 and 2022, Series B Non-Voting Convertible Preferred Stock (the “Series B Preferred Stock”) and the Series C Non-Voting Convertible Preferred Stock (the “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 did not 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 (in thousands):

	As of September 30,
	2023		2022
Series B Preferred Stock		4,736		1,845
Series C Preferred Stock		845		—
Stock options		148		136
Stock warrants		7,382		65
		13,111		2,046

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements that could affect our business, results of operations, financial condition, and liquidity, see Note 2, “Summary of Significant Accounting Policies” included in the 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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for the Company for annual and interim reporting periods beginning January 1, 2023. The Company adopted the new standard effective January 1, 2023, and the adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

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Note 2 - Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Table Text Block]

	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	3,472	$	5,362
Restricted cash included in other assets		476		484
Total cash, cash equivalents, and restricted cash in the condensed consolidated statements of cash flows	$	3,948	$	5,846

Schedules of Concentration of Risk, by Product [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Avenova Spray	$	2,064	$	1,939	$	5,759	$	5,778
DERMAdoctor		784		1,319		2,645		3,115
NeutroPhase		—		—		1,043		657
Other products		407		558		1,524		1,193
Total product revenue, net		3,255		3,816		10,971		10,743
Other revenue, net		10		10		28		18
Total sales, net	$	3,265	$	3,826	$	10,999	$	10,761

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	September 30,			December 31,
Major distribution partner	2023			2022
Major U.S. Retailer A		26	%		*	%
Avenova Spray Pharmacy Distributor A		20	%		11	%
Major International Retailer A		10	%		*	%
Avenova Spray Pharmacy Distributor B		*	%		30	%
Major U.S. Retailer B		*	%		15	%

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,						Nine Months Ended September 30,
Numerator	2023			2022*			2023			2022*
Net loss	$	(1,757	)	$	(136	)	$	(5,532	)	$	(2,402	)
Less: Increase in accumulated deficit due to Series B Preferred Stock conversion price		—			(5,657	)		(1,802	)		(5,657	)
Less: Increase in accumulated deficit due to Series C Preferred Stock conversion price		—			—			(194	)		—
Net loss attributable to common stockholders (basic and diluted)	$	(1,757	)	$	(5,793	)	$	(7,528	)	$	(8,059	)
Denominator
Weighted average shares of common stock outstanding (basic and diluted)		4,692			1,604			3,311			1,514
Net loss per share (basic and diluted)	$	(0.37	)	$	(3.61	)	$	(2.27	)	$	(5.32	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	As of September 30,
	2023		2022
Series B Preferred Stock		4,736		1,845
Series C Preferred Stock		845		—
Stock options		148		136
Stock warrants		7,382		65
		13,111		2,046

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Note 3 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets		Other		Significant
	Balance at		for Identical		Observable		Unobservable
	September 30,		Items		Inputs		Inputs
	2023		(Level 1)		(Level 2)		(Level 3)
Assets
Restricted cash held as a certificate of deposit	$	324	$	324	$	—	$	—
Deposit held as a certificate of deposit		152		152		—		—
Total assets	$	476	$	476	$	—	$	—

			Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets		Other		Significant
	Balance at		for Identical		Observable		Unobservable
	December 31,		Items		Inputs		Inputs
	2022		(Level 1)		(Level 2)		(Level 3)
Assets
Restricted cash held as a certificate of deposit	$	332	$	332	$	—	$	—
Deposit held as a certificate of deposit		152		152		—		—
Total assets	$	484	$	484	$	—	$	—

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Note 4 - Prepaid Expenses and Other Current Assets (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]

	September 30,		December 31,
	2023		2022
Prepaid inventory	$	93	$	211
Prepaid insurance		73		146
Prepaid dues and subscriptions		65		43
Prepaid marketing costs		26		24
Prepaid patents		4		12
Tenant allowance		—		11
Other		72		113
Total prepaid expenses and other current assets	$	333	$	560

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Note 5 - Inventory (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30,			December 31,
	2023			2022
Raw materials and supplies	$	1,031		$	1,273
Finished goods		3,018			2,663
Less: Reserve for excess and obsolete inventory		(556	)		(499	)
Total inventory, net	$	3,493		$	3,437

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Note 6 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30,			December 31,
	2023			2022
Office and laboratory equipment	$	20		$	20
Furniture and fixtures		157			157
Computer equipment and software		429			412
Leasehold improvements		152			152
Total property and equipment, at cost		758			741
Less: accumulated depreciation		(661	)		(622	)
Total property and equipment, net	$	97		$	119

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Note 7 - Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	Balance at September 30, 2023
			Accumulated
	Gross		Amortization			Impairment			Net
Indefinite-lived intangible assets
Trade names	$	2,080	$	—		$	(970	)	$	1,110
Amortizable intangible assets
Customer relationships	$	290	$	(57	)	$	(172	)	$	61
Trade secrets / product formulations		2,890		(480	)		(1,415	)		995
Total other intangible assets	$	5,260	$	(537	)	$	(2,557	)	$	2,166

	Balance at December 31, 2022
			Accumulated
	Gross		Amortization			Impairment			Net
Indefinite-lived intangible assets
Trade names	$	2,080	$	—		$	(970	)	$	1,110
Amortizable intangible assets
Customer relationships	$	290	$	(48	)	$	(172	)	$	70
Trade secrets / product formulations		2,890		(375	)		(1,415	)		1,100
Total other intangible assets	$	5,260	$	(423	)	$	(2,557	)	$	2,280

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2023	$	38
2024		153
2025		152
2026		153
Thereafter		560
Total	$	1,056

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Note 8 - Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	September 30,		December 31,
	2023		2022
Contract liabilities (see Note 14)	$	1,042	$	1,807
Employee payroll and benefits		422		261
Marketing costs		40		104
Accrued interest on Convertible Notes		38		—
Inventory purchases		—		101
Other		327		451
Total accrued liabilities	$	1,869	$	2,724

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Note 9 - Convertible Note (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Fair Value Measurement Inputs and Valuation Techniques, Embedded Derivative [Table Text Block]

Stock price	$	0.72
Equity volatility		80.1	%
Risk-free interest rate		4.88	%
Dividend yield		0.0	%
Remaining term		0.8

Assumption	As of June 9, 2023
Stock price	$	0.75
Equity volatility		76.9	%
Risk-free interest rate		5.41	%
Remaining term		0.7

Schedule of Long-Term Debt Instruments [Table Text Block]

(in thousands)
Principal amount	$	2,567
Unamortized discount		(1,136	)
Unamortized debt issuance costs		(161	)
Total Convertible Note, net		1,270

Schedule of Maturities of Long-Term Debt [Table Text Block]

(in thousands)
Remainder of 2023	$	550
2024		2,017
Total	$	2,567

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Note 10 - Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Lease, Cost [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
Lease Costs	2023		2022		2023		2022
Operating lease cost	$	130	$	120	$	391	$	395
Other information
Operational cash flow used for operating leases	$	145	$	144	$	397	$	399

	September 30, 2023			September 30, 2022
Weighted-average remaining lease term (in years)		3.6			5.0
Weighted-average discount rate		5	%		5	%

Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block]

2023	$	146
2024		557
2025		439
2026		444
2027		290
Total future minimum lease payments		1,876
Less imputed interest		(147	)
Total	$	1,729
Reported as:
Operating lease liabilities	$	485
Operating lease liabilities- non-current		1,244
Total	$	1,729

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Note 11 - Warrant Liability (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Derivative Instruments [Table Text Block]

	Series B-1 Warrants			Series B-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.1			2.1
Risk-free interest rate		3.60	%		4.04	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.40		$	0.22

	Series B-1 Warrants			Series B-2 Warrants
Stock price	$	0.68		$	0.68
Expected price volatility		77.6	%		77.6	%
Expected term (in years)		5.0			2.0
Risk-free interest rate		3.92	%		4.59	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.36		$	0.18

Expected price volatility		79.6	%
Expected term (in years)		6.0
Risk-free interest rate		3.43	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	4.55

Expected price volatility		79.5	%
Expected term (in years)		5.8
Risk-free interest rate		3.93	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	1.40

Expected price volatility		87	%
Expected term (in years)		6.0
Risk-free interest rate		1.31	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	8.75

Expected price volatility		91	%
Expected term (in years)		6.0
Risk-free interest rate		1.65	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	7.00

Expected price volatility		79.6	%
Expected term (in years)		6.0
Risk-free interest rate		3.43	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	4.55

Expected price volatility		79.5	%
Expected term (in years)		5.8
Risk-free interest rate		3.93	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	1.40

Expected price volatility		79.6	%
Expected term (in years)		3.4
Risk-free interest rate		3.58	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	3.50

Expected price volatility		79.5	%
Expected term (in years)		3.2
Risk-free interest rate		4.15	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	1.05

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Note 12 - Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Fair Value Assumptions of Warrants [Table Text Block]

	November 2021 Warrants			July 2020 Warrants
Expected price volatility		79.6	%		79.6	%
Expected term (in years)		5.4			3.4
Risk-free interest rate		3.43	%		3.58	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	3.15		$	0.70

	November 2021 Warrants			July 2020 Warrants
Expected price volatility		79.6	%		79.6	%
Expected term (in years)		6.0			3.4
Risk-free interest rate		3.43	%		3.58	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	4.55		$	3.50

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		5.4
Risk-free interest rate		3.59	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	0.20

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		5.4
Risk-free interest rate		3.59	%
Dividend yield		0.0	%
Weighted-average fair value of warrants	$	0.39

	November 2021 Warrants			July 2020 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.4			2.7
Risk-free interest rate		3.59	%		3.88	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.20		$	0.06

	November 2021 Warrants			July 2020 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.4			2.7
Risk-free interest rate		3.59	%		3.88	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.39		$	0.24

	Series A-1 Warrants			Series A-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.6			1.1
Risk-free interest rate		3.59	%		4.73	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.21		$	0.00

	Series A-1 Warrants			Series A-2 Warrants
Stock price	$	0.72		$	0.72
Expected price volatility		80.1	%		80.1	%
Expected term (in years)		5.6			1.1
Risk-free interest rate		3.59	%		4.73	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.40		$	0.09

Schedule of Preferred Stock Assumptions [Table Text Block]

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	5.35

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.61

Expected price volatility		79.6	%
Expected term (in years)		1.3
Risk-free interest rate		3.64	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	8.05

Expected price volatility		79.6	%
Expected term (in years)		1.3
Risk-free interest rate		3.64	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	2.10

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	5.35

Stock price	$	0.72
Expected price volatility		80.1	%
Expected term (in years)		0.8
Risk-free interest rate		4.91	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.61

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Warrants (in thousands)		Weighted- Average Exercise Price
Outstanding at December 31, 2022		2,306	$	7.70
Warrants granted		5,076		1.30
Warrants expired		—		—
Outstanding at September 30, 2023		7,382		2.18

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Note 13 - Equity-based Compensation (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Share-Based Payment Arrangement, Option, Activity [Table Text Block]

(in thousands, except years and per share data)	Awards			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2022		132		$	37.99		7.5	$	69
Options granted		42		$	1.67
Restricted stock units granted		5			—
Restricted stock units vested		(5	)		—
Options forfeited/cancelled		(19	)	$	64.23
Restricted stock units cancelled		(7	)		—
Outstanding at September 30, 2023		148		$	26.26		7.6	$	13
Vested and expected to vest at September 30, 2023		119		$	32.34		7.5	$	2
Vested at September 30, 2023		59		$	59.30		5.8	$	—
Exercisable at September 30, 2023		59		$	59.30		5.8	$	—

Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022			2023		2022
Research and development	$	5	$	5		$	16	$	14
Sales and marketing		18		12			49		37
General and administrative		39		(225	)		136		79
Total stock-based compensation expense	$	62	$	(208	)	$	201	$	130

Employees and Directors [Member]

Notes Tables

Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Nine Months Ended September 30,
Assumption	2023			2022
Expected price volatility		152.99	%		158.04	%
Expected term (in years)		6.81			6.45
Risk-free interest rate		3.47	%		2.29	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of options granted during the period	$	1.61		$	9.46

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Note 14 - Distribution Agreements (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]

	Product Returns, Discounts for Prompt Payment			Other Customer Fees			Rebates			Total
Balance at December 31, 2022	$	1,673		$	53		$	81		$	1,807
Provision related to sales made in current period		521			104			79			704
Payments and customer credits issued		(1,194	)		(141	)		(134	)		(1,469	)
Balance at September 30, 2023	$	1,000		$	16		$	26		$	1,042

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Note 16 - Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Related Party Transactions [Table Text Block]

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023			2022
Related party revenue:
NeutroPhase	$	—		$	—	$	1,043		$	657
Total related party revenue	$	—		$	—	$	1,043		$	657
Cost of goods sold:
NeutroPhase	$	(28	)	$	—	$	(923	)	$	(648	)
Total related party expenses	$	(28	)	$	—	$	(923	)	$	(648	)

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Note 17 - Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three					Three
	Months					Months
	Ended		Percentage			Ended		Percentage
	September		of Total			September		of Total
	30,		Sales,			30,		Sales,
	2023		Net			2022		Net
Eyecare & Wound Care	$	2,481		76	%	$	2,507		66	%
Skincare		784		24	%		1,319		34	%
Total sales, net	$	3,265		100	%	$	3,826		100	%

	Three						Three
	Months						Months
	Ended			Percentage			Ended			Percentage
	September			of Total			September			of Total
	30,			Operating			30,			Operating
	2023			Loss			2022			Loss
Eyecare & Wound Care	$	(698	)		63	%	$	(257	)		56	%
Skincare		(418	)		37	%		(200	)		44	%
Total operating loss	$	(1,116	)		100	%	$	(457	)		100	%

	Nine Months					Nine Months
	Ended		Percentage			Ended		Percentage
	September		of Total			September		of Total
	30,		Sales,			30,		Sales,
	2023		Net			2022		Net
Eyecare & Wound Care	$	8,354		76	%	$	7,646		71	%
Skincare		2,645		24	%		3,115		29	%
Total sales, net	$	10,999		100	%	$	10,761		100	%

	Nine Months						Nine Months
	Ended						Ended
	September			Percentage			September			Percentage
	30,			of Total			30,			of Total
	2023			Operating Loss			2022			Operating Loss
Eyecare & Wound Care	$	(3,094	)		74	%	$	(3,605	)		72	%
Skincare		(1,111	)		26	%		(1,386	)		28	%
Total operating loss	$	(4,205	)		100	%	$	(4,991	)		100	%

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Note 1 - Organization (Details Textual)		9 Months Ended
	Nov. 15, 2022	Sep. 30, 2023
Number of Reportable Segments		2
Reverse Stock Split [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio	35

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Note 2 - Summary of Significant Accounting Policies (Details Textual)		3 Months Ended		9 Months Ended
	Nov. 15, 2022	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Dec. 31, 2022 USD ($)
Accounts Receivable, Allowance for Credit Loss		$ 3,000		$ 3,000		$ 19,000
Inventory Valuation Reserves		556,000		556,000		499,000
Goodwill and Intangible Asset Impairment		0	$ 0	0	$ 0
Impairment of Intangible Assets, Indefinite-Lived (Excluding Goodwill)		0	0	0	0
Business Combination, Contingent Consideration, Liability		0		0		0
Impairment, Long-Lived Asset, Held-for-Use		0	0	$ 0	0
Payment for Product Supply Period (Day)				30 days
Deferred Revenue		103,000		$ 103,000		$ 4,000
Advertising Expense		$ 300	$ 500	$ 900	$ 1,600
Reverse Stock Split, Conversion Ration	35
Equipment [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)		5 years		5 years
Equipment [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)		7 years		7 years
Computer Equipment and Software [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)		3 years		3 years
Computer Equipment and Software [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)		5 years		5 years
Furniture and Fixtures [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)		5 years		5 years
Furniture and Fixtures [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)		7 years		7 years
Revenue from Contract with Customer Benchmark [Member] | Distributor Concentration Risk [Member] | Avenova Spray [Member]
Concentration Risk, Percentage		66.00%	70.00%	68.00%	73.00%

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Note 2 - Summary of Significant Accounting Policies - Components of Cash, Cash Equivalents, and Restricted Cash (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Dec. 31, 2021
Cash and cash equivalents	$ 3,472	$ 5,362
Restricted cash included in other assets	476	484
Total cash, cash equivalents, and restricted cash in the condensed consolidated statements of cash flows	$ 3,948	$ 5,846	$ 4,020	$ 7,979

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Note 2 - Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Total sales, net	$ 3,265	$ 3,826	$ 10,999	$ 10,761
Avenova Spray [Member]
Total sales, net	2,064	1,939	5,759	5,778
DERMAdoctor [Member]
Total sales, net	784	1,319	2,645	3,115
NeutroPhase [Member]
Total sales, net	0	0	1,043	657
Other Products [member]
Total sales, net	407	558	1,524	1,193
Total Product Revenue [Member]
Total sales, net	3,255	3,816	10,971	10,743
Product and Service, Other [Member]
Total sales, net	$ 10	$ 10	$ 28	$ 18

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Note 2 - Summary of Significant Accounting Policies - Revenues and Accounts Receivable from Major Distribution Partners and Customers (Details) - Accounts Receivable [Member] - Customer Concentration Risk [Member]	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Major U.S. Retailer A [Member]
Accounts receivable, concentration risk	26.00%
Accounts receivable, concentration risk	26.00%
Distributor A [Member]
Accounts receivable, concentration risk	20.00%	11.00%
Accounts receivable, concentration risk	20.00%	11.00%
Major International Retailer A [Member]
Accounts receivable, concentration risk	10.00%
Accounts receivable, concentration risk	10.00%
Distributor B [Member]
Accounts receivable, concentration risk		30.00%
Accounts receivable, concentration risk		30.00%
Major U.S. Retailer B [Member]
Accounts receivable, concentration risk		15.00%
Accounts receivable, concentration risk		15.00%

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Note 2 - Summary of Significant Accounting Policies - Calculation of Basic and Diluted EPS (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended							9 Months Ended
	Sep. 09, 2022	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023	Sep. 30, 2022		Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2023	Sep. 30, 2022
Net Loss		$ (1,757)	$ (2,036)	$ (1,739)	$ (136)	[1]	$ (2,155)	$ (111)	$ (5,532)	$ (2,402)	[1]
Less: Increase to accumulated deficit due to adjustment to Series C Preferred Stock conversion price		0			0				(194)	0
Net loss attributable to common stockholders (basic and diluted)		$ (1,757)			$ (5,793)	[1]			$ (7,528)	$ (8,059)	[1]
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock (basic and diluted)* (in shares)		4,692			1,604	[1]			3,311	1,514	[1]
Net loss per share attributable to common stockholders (basic and diluted)* (in dollars per share)		$ (0.37)			$ (3.61)	[1]			$ (2.27)	$ (5.32)	[1]
Series B Preferred Stock [Member]
Less: Increase to accumulated deficit due to adjustment to Series C Preferred Stock conversion price	$ (5,700)	$ 0			$ (5,657)	[1]			$ (1,802)	$ (5,657)	[1]
Series C Preferred Stock [Member]
Less: Increase to accumulated deficit due to adjustment to Series C Preferred Stock conversion price		$ 0			$ 0	[1]			$ (194)	$ 0	[1]

[1] After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

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Note 2 - Summary of Significant Accounting Policies - Outstanding Stock Options and Stock Warrants Excluded from the Diluted Net Loss Per Share Computation (Details) - shares shares in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Anti-dilutive securities (in shares)	13,111	2,046
Series B Preferred Stock [Member]
Anti-dilutive securities (in shares)	4,736	1,845
Series C Preferred Stock [Member]
Anti-dilutive securities (in shares)	845	0
Share-Based Payment Arrangement, Option [Member]
Anti-dilutive securities (in shares)	148	136
Warrant [Member]
Anti-dilutive securities (in shares)	7,382	65

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Note 3 - Fair Value Measurements - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Restricted cash held as a certificate of deposit	$ 324	$ 332
Deposit held as a certificate of deposit	152	152
Total assets	476	484
Fair Value, Inputs, Level 1 [Member]
Restricted cash held as a certificate of deposit	324	332
Deposit held as a certificate of deposit	152	152
Total assets	476	484
Fair Value, Inputs, Level 2 [Member]
Restricted cash held as a certificate of deposit	0	0
Deposit held as a certificate of deposit	0	0
Total assets	0	0
Fair Value, Inputs, Level 3 [Member]
Restricted cash held as a certificate of deposit	0	0
Deposit held as a certificate of deposit	0	0
Total assets	$ 0	$ 0

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Note 4 - Prepaid Expenses and Other Current Assets - Summary of Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Prepaid inventory	$ 93	$ 211
Prepaid insurance	73	146
Prepaid dues and subscriptions	65	43
Prepaid marketing costs	26	24
Prepaid patents	4	12
Tenant allowance	0	11
Other	72	113
Total prepaid expenses and other current assets	$ 333	$ 560

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Note 5 - Inventory - Summary of Inventory (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Raw materials and supplies	$ 1,031	$ 1,273
Finished goods	3,018	2,663
Less: Reserve for excess and obsolete inventory	(556)	(499)
Total inventory, net	$ 3,493	$ 3,437

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Note 6 - Property and Equipment (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Depreciation, Depletion and Amortization	$ 13	$ 29	$ 39	$ 88

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Note 6 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Property and equipment, at cost	$ 758	$ 741
Less: accumulated depreciation	(661)	(622)
Total property and equipment, net	97	119
Office and Laboratory Equipment [Member]
Property and equipment, at cost	20	20
Furniture and Fixtures [Member]
Property and equipment, at cost	157	157
Computer Equipment and Software [Member]
Property and equipment, at cost	429	412
Leasehold Improvements [Member]
Property and equipment, at cost	$ 152	$ 152

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Note 7 - Other Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Impairment of Intangible Assets (Excluding Goodwill), Total	$ 0		$ 0	$ 0	$ 0
Amortization of Intangible Assets	$ 38		$ 90	$ 114	$ 272
DERMAdoctor [Member] | Goodwill and Intangible Asset Impairment [Member]
Impairment of Intangible Assets (Excluding Goodwill), Total		$ 2,600

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Note 7 - Other Intangible Assets - Schedule of Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Trade names, gross	$ 2,080	$ 2,080
Total other intangible assets, impairment	(2,557)	(2,557)
Trade names, net	1,110	1,110
Amortizable intangible assets, accumulated amortization	(537)	(423)
Amortizable intangible assets, net	1,056
Total other intangible assets	5,260	5,260
Total other intangible assets, net	2,166	2,280
Customer Relationships [Member]
Total other intangible assets, impairment	(172)	(172)
Amortizable intangible assets, gross	290	290
Amortizable intangible assets, accumulated amortization	(57)	(48)
Amortizable intangible assets, net	61	70
Trade Secrets [Member]
Total other intangible assets, impairment	(1,415)	(1,415)
Amortizable intangible assets, gross	2,890	2,890
Amortizable intangible assets, accumulated amortization	(480)	(375)
Amortizable intangible assets, net	995	1,100
Trade Names [Member]
Total other intangible assets, impairment	$ (970)	$ (970)

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Note 7 - Other Intangible Assets - Schedule of Finite-Lived Intangible Assets, Future Amortization Expense (Details) $ in Thousands	Sep. 30, 2023 USD ($)
2023	$ 38
2024	153
2025	152
2026	153
Thereafter	560
Total	$ 1,056

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Note 8 - Accrued Liabilities - Summary of Accrued Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Contract liabilities (see Note 14)	$ 1,042	$ 1,807
Employee payroll and benefits	422	261
Marketing costs	40	104
Accrued interest on Convertible Notes	38	0
Inventory purchases	0	101
Other	327	451
Total accrued liabilities	$ 1,869	$ 2,724

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Note 9 - Convertible Note (Details Textual) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	Apr. 27, 2023 USD ($) $ / shares shares	Sep. 30, 2023 USD ($) $ / shares	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($) $ / shares	Sep. 30, 2022 USD ($)	Jun. 09, 2023 USD ($)	Dec. 31, 2022 $ / shares
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares		$ 2.18		$ 2.18			$ 7.7
Proceeds From Debenture and Warrant Issuances, Net	$ 3,000			$ 3,000	$ 0
Fair Value Adjustment of Warrants		$ (0)	$ (2,414)	(216)	$ (4,470)
The 2023 Private Placement [Member]
Proceeds from Issuance of Warrants	1,600
Proceeds from Derivative Instrument, Financing Activities	200
Proceeds from Convertible Debt	$ 1,200
Ladenburg Thalmann and Co. Inc. [Member]
Private Placement, Placement Agent Fee, Percentage of Gross Proceeds	8.00%
Series B-1 Warrant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares) | shares	2,538,464
Series B-2 Warrant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares) | shares	2,538,464
Warrants and Rights Outstanding, Term (Year)	2 years
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 1.3
Original Issue Discount Senior Secured Convertible Debentures [Member]
Debt Instrument, Face Amount	$ 3,300	1,270		1,270
Debt Instrument, Convertible, Number of Equity Instruments	2,538,464
Debt Instrument, Convertible, Conversion Price (in dollars per share) | $ / shares	$ 1.3
Debt Instrument, Monthly Redemption, Multiplier in Cash	1.1
Debt Instrument, Convertible, Threshold Percentage of Stock Price Trigger	90.00%
Debt Instrument, Convertible, Threshold Trading Days	10
Debt Instrument, Redemption Price, Percentage	20.00%
Debt Instrument, Default, Interest Rate	18.00%
Embedded Derivative, Fair Value	$ 209					$ 169
Fair Value Adjustment of Warrants				40
Debt Instrument, Unamortized Discount	300	$ 1,136		$ 1,136
Debt Issuance Costs, Gross	294
Debt Instrument, Redemption Price, Amount Per Month	$ 193
Debt Instrument, Interest Rate, Effective Percentage		173.00%		173.00%
Interest Expense, Debt		$ 700		$ 1,200

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Note 9 - Convertible Note - Key Assumptions of Combined Embedded Derivative (Details)	Sep. 30, 2023	Apr. 27, 2023
Measurement Input, Share Price [Member]
Embedded derivative, measurement input	0.75	0.72
Measurement Input, Price Volatility [Member]
Embedded derivative, measurement input	0.769	0.801
Measurement Input, Risk Free Interest Rate [Member]
Embedded derivative, measurement input	0.0541	0.0488
Measurement Input, Expected Dividend Rate [Member]
Embedded derivative, measurement input		0
Measurement Input, Expected Term [Member]
Embedded derivative, measurement input	0.7	0.8

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Note 9 - Convertible Note - Debenture (Details) - Original Issue Discount Senior Secured Convertible Debentures [Member] - USD ($) $ in Thousands	Sep. 30, 2023	Apr. 27, 2023
Principal amount	$ 2,567
Unamortized discount	(1,136)	$ (300)
Unamortized debt issuance costs	(161)
Total Convertible Note, net	$ 1,270	$ 3,300

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Note 9 - Convertible Note - Contractual Maturity (Details) - Original Issue Discount Senior Secured Convertible Debentures [Member] $ in Thousands	Sep. 30, 2023 USD ($)
Remainder of 2023	$ 550
2024	2,017
Total	$ 2,567

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Note 10 - Commitments and Contingencies (Details Textual)	Sep. 30, 2023 ft²
Riverside, Missouri [Member]
Area of Real Estate Property (Square Foot)	19,136

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Note 10 - Commitments and Contingencies - Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Operating lease cost	$ 130	$ 120	$ 391	$ 395
Operational cash flow used for operating leases	$ 145	$ 144	$ 397	$ 399
Weighted-average remaining lease term (in years) (Year)	3 years 7 months 6 days		3 years 7 months 6 days		5 years
Weighted-average discount rate	5.00%		5.00%		5.00%

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Note 10 - Commitments and Contingencies - Schedule of Future Lease Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
2023	$ 146
2024	557
2025	439
2026	444
2027	290
Total future minimum lease payments	1,876
Less imputed interest	(147)
Total	1,729
Operating lease liabilities	485	$ 453
Operating lease liabilities- non-current	1,244	$ 1,588
Total	$ 1,729

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Note 11 - Warrant Liability (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	May 01, 2023	Apr. 26, 2023	Nov. 10, 2022	Sep. 09, 2022	Jan. 31, 2022	Dec. 31, 2021
Fair Value Adjustment of Warrants	$ (0)	$ (2,414)	$ (216)	$ (4,470)
May 2023 Warrants [Member]
Warrants and Rights Outstanding	1,400		1,400		$ 1,600
Fair Value Adjustment of Warrants			216
September 2022 Warrants [Member]
Warrants and Rights Outstanding	$ 94		94			$ 48	$ 500	$ 1,400
Fair Value Adjustment of Warrants			$ 46
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	327,860		327,860
The November 2021 Warrants [Member]
Warrants and Rights Outstanding	$ 230		$ 230			$ 112	1,300		$ 7,500	$ 9,600
Fair Value Adjustment of Warrants			$ 117
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	803,574		803,574
The Amended November 2021 Warrants [Member]
Warrants and Rights Outstanding								$ 3,500
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)								803,574
Amended July 2020 Warrants [Member]
Warrants and Rights Outstanding							$ 100	$ 300
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	77,145		77,145
Class of Warrant or Right, Outstanding, Accounting for Subsequent Stock Split (in shares)								77,145

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Note 11 - Warrant Liability - The Key Assumptions Used to Value the Warrants (Details)	Sep. 30, 2023	May 01, 2023	Apr. 27, 2023	Apr. 26, 2023	Nov. 10, 2022	Sep. 09, 2022	Sep. 08, 2022	Jun. 09, 2022	Jan. 31, 2022	Nov. 02, 2021
Measurement Input, Share Price [Member] | Series B-1 Warrant [Member]
Warrants assumptions		0.72						0.68
Measurement Input, Share Price [Member] | Series B-2 Warrant [Member]
Warrants assumptions		0.72						0.68
Measurement Input, Share Price [Member] | September 2022 Warrants [Member]
Warrants assumptions	0.72			0.72	1.4	4.55
Measurement Input, Share Price [Member] | The 2021 Warrants [Member]
Warrants assumptions									7	8.75
Measurement Input, Share Price [Member] | The Amended November 2021 Warrants [Member]
Warrants assumptions						4.55
Measurement Input, Share Price [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0.72		0.72		1.4	4.55	3.15
Measurement Input, Share Price [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0.72		0.72		1.05	3.5	0.7
Measurement Input, Price Volatility [Member] | Series B-1 Warrant [Member]
Warrants assumptions		0.801						0.776
Measurement Input, Price Volatility [Member] | Series B-2 Warrant [Member]
Warrants assumptions		0.801						0.776
Measurement Input, Price Volatility [Member] | September 2022 Warrants [Member]
Warrants assumptions	0.801			0.801	0.795	0.796
Measurement Input, Price Volatility [Member] | The 2021 Warrants [Member]
Warrants assumptions									0.91	0.87
Measurement Input, Price Volatility [Member] | The Amended November 2021 Warrants [Member]
Warrants assumptions						0.796
Measurement Input, Price Volatility [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0.801		0.801		0.795	0.796	0.796
Measurement Input, Price Volatility [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0.801		0.801		0.795	0.796	0.796
Measurement Input, Expected Term [Member] | Series B-1 Warrant [Member]
Warrants assumptions		5.1						5
Measurement Input, Expected Term [Member] | Series B-2 Warrant [Member]
Warrants assumptions		2.1						2
Measurement Input, Expected Term [Member] | September 2022 Warrants [Member]
Warrants assumptions	5.4			5.4	5.8	6
Measurement Input, Expected Term [Member] | The 2021 Warrants [Member]
Warrants assumptions									6	6
Measurement Input, Expected Term [Member] | The Amended November 2021 Warrants [Member]
Warrants assumptions						6
Measurement Input, Expected Term [Member] | The November 2021 Warrants [Member]
Warrants assumptions	5.4		5.4		5.8	6	5.4
Measurement Input, Expected Term [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	2.7		2.7		3.2	3.4	3.4
Measurement Input, Risk Free Interest Rate [Member] | Series B-1 Warrant [Member]
Warrants assumptions		0.036						0.0392
Measurement Input, Risk Free Interest Rate [Member] | Series B-2 Warrant [Member]
Warrants assumptions		0.0404						0.0459
Measurement Input, Risk Free Interest Rate [Member] | September 2022 Warrants [Member]
Warrants assumptions	0.0359			0.0359	0.0393	0.0343
Measurement Input, Risk Free Interest Rate [Member] | The 2021 Warrants [Member]
Warrants assumptions									0.0165	0.0131
Measurement Input, Risk Free Interest Rate [Member] | The Amended November 2021 Warrants [Member]
Warrants assumptions						0.0343
Measurement Input, Risk Free Interest Rate [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0.0359		0.0359		0.0393	0.0343	0.0343
Measurement Input, Risk Free Interest Rate [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0.0388		0.0388		0.0415	0.0358	0.0358
Measurement Input, Expected Dividend Rate [Member] | Series B-1 Warrant [Member]
Warrants assumptions		0						0
Measurement Input, Expected Dividend Rate [Member] | Series B-2 Warrant [Member]
Warrants assumptions		0						0
Measurement Input, Expected Dividend Rate [Member] | September 2022 Warrants [Member]
Warrants assumptions	0			0	0	0
Measurement Input, Expected Dividend Rate [Member] | The 2021 Warrants [Member]
Warrants assumptions									0	0
Measurement Input, Expected Dividend Rate [Member] | The Amended November 2021 Warrants [Member]
Warrants assumptions						0
Measurement Input, Expected Dividend Rate [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0		0		0	0	0
Measurement Input, Expected Dividend Rate [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0		0		0	0	0
Warrant Fair Value [Member] | Series B-1 Warrant [Member]
Warrants assumptions		0.4						0.36
Warrant Fair Value [Member] | Series B-2 Warrant [Member]
Warrants assumptions		0.22						0.18

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Note 12 - Stockholders' Equity (Details Textual)						3 Months Ended			5 Months Ended	9 Months Ended			12 Months Ended
	May 01, 2023 USD ($) $ / shares shares	Apr. 27, 2023 USD ($) $ / shares	Nov. 15, 2022 $ / shares	Sep. 09, 2022 USD ($) $ / shares shares	Oct. 29, 2021 USD ($) $ / shares shares	Sep. 30, 2023 USD ($) $ / shares shares	Sep. 30, 2022 USD ($)		Sep. 30, 2023 USD ($) $ / shares shares	Sep. 30, 2023 USD ($) $ / shares shares	Sep. 30, 2022 USD ($)		Dec. 31, 2019 shares	Jun. 30, 2023 USD ($)	Apr. 30, 2023 USD ($) $ / shares shares	Apr. 26, 2023 USD ($)	Dec. 31, 2022 $ / shares shares	Nov. 10, 2022 USD ($)	Sep. 08, 2022 USD ($) $ / shares	Jan. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)	Jan. 15, 2021 $ / shares shares	Sep. 30, 2020 $ / shares	Jul. 31, 2020 $ / shares
Common Stock, Shares Authorized (in shares)						150,000,000			150,000,000	150,000,000							150,000,000
Preferred Stock, Shares Authorized (in shares)																	5,000,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares						$ 2.18			$ 2.18	$ 2.18							$ 7.7
Gain (Loss) on Modification of Warrants | $						$ 0	$ (1,922,000)			$ (285,000)	$ (1,922,000)
Fair Value Adjustment of Warrants | $						(0)	(2,414,000)			(216,000)	(4,470,000)
Proceeds from Warrant Exercises | $										0	1,703,000
Preferred Stock, Change in Conversion Price, Income Statement Impact | $						(0)	(0)			$ 194,000	(0)
Class of Warrant or Right, Issued During Period (in shares)										5,076,000
The 2022 Private Placement [Member]
Proceeds from Issuance or Sale of Equity, Total | $				$ 3,200,000
The 2022 Private Placement [Member] | Conversion of Series C Preferred Stock to Common Stock [Member]
Preferred Stock, Convertible, Shares Issuable (in shares)				516,750
The 2021 Private Placement Program [Member] | Conversion of Series B Preferred Stock to Common Stock [Member] | Stock Restatement From Reverse Stock Split [Member]
Preferred Stock, Convertible, Shares Issuable (in shares)					1,071,429
Series C Preferred Stock [Member]
Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares		$ 6.3
Preferred Stock, Change in Conversion Price, Income Statement Impact | $						$ (0)	(0)	[1]		$ 194,000	(0)	[1]
Preferred Stock, Shares Outstanding (in shares)						1,000			1,000	1,000							2,000
Series C Preferred Stock [Member] | The 2022 Private Placement [Member]
Stock Issued During Period, Shares, New Issues (in shares)				3,250
Preferred Stock, Purchase Price (in dollars per share) | $ / shares				$ 1,000
Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares				$ 6.3
Preferred Stock, Convertible, Conversion Ratio				159
Series C Preferred Stock [Member] | The 2023 Private Placement [Member]
Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares						$ 1.3			$ 1.3	$ 1.3
Preferred Stock, Convertible, Conversion Ratio		770				770			770	770
Preferred Stock, Change in Conversion Price, Income Statement Impact | $		$ 194,000
Preferred Stock, Fair Value Disclosure | $						$ 1,100,000			$ 1,100,000	$ 1,100,000						$ 900,000
Conversion of Stock, Shares Converted (in shares)									2,153
Preferred Stock, Shares Outstanding (in shares)						1,097			1,097	1,097
Series B Preferred Stock [Member]
Preferred Stock, Shares Authorized (in shares)						5,000,000			5,000,000	5,000,000							5,000,000
Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares		$ 6.3	$ 6.3	$ 0.18															$ 0.4
Preferred Stock, Convertible, Conversion Ratio			159
Preferred Stock, Change in Conversion Price, Income Statement Impact | $				$ 5,700,000		$ (0)	$ 5,657,000	[1]		$ 1,802,000	$ 5,657,000	[1]
Preferred Stock, Fair Value Disclosure | $				$ 12.5															$ 6,800,000
Preferred Stock, Shares Outstanding (in shares)						6,000			6,000	6,000							12,000
Convertible Preferred Stock, Shares Issued upon Conversion (in shares)				5,556
Series B Preferred Stock [Member] | The 2023 Private Placement [Member]
Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares		$ 1.3
Preferred Stock, Convertible, Conversion Ratio		770
Preferred Stock, Change in Conversion Price, Income Statement Impact | $		$ 1,800,000
Preferred Stock, Fair Value Disclosure | $														$ 10,500,000		8,700,000
Conversion of Stock, Shares Converted (in shares)									8,850
Preferred Stock, Shares Outstanding (in shares)						6,150			6,150	6,150
Series B Preferred Stock [Member] | The 2021 Private Placement Program [Member]
Stock Issued During Period, Shares, New Issues (in shares)					15,000
Preferred Stock, Purchase Price (in dollars per share) | $ / shares					$ 1,000
Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares					$ 0.4
Preferred Stock, Convertible, Conversion Ratio					2,500
Proceeds from Issuance of Preferred Stock and Preference Stock | $					$ 14,900,000
Certain Previously Issued Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)															1,724,455
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 1.5														$ 6.3
The Amended November 2021 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)				803,574
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares				$ 6.3
Warrants and Rights Outstanding | $				$ 3,500,000
Amended November 2021 Warrants Exercisable for 1.50 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	535,716
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 1.5
Amended November 2021 Warrants Exercisable for 6.50 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	267,858
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 6.3
The Amended July 2020 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	77,145
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 1.5
The July 2020 and November 2021 Warrants [Member]
Gain (Loss) on Modification of Warrants | $	$ 1,900,000
Warrants and Rights Outstanding | $	$ 5,200,000														$ 3,300,000
September 2022 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)						327,860			327,860	327,860
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares				$ 0.18
Warrants and Rights Outstanding | $				$ 1,400,000		$ 94,000			$ 94,000	$ 94,000						48,000		$ 500,000
Fair Value Adjustment of Warrants | $										$ 46,000
The November 2021 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)						803,574			803,574	803,574
Warrants and Rights Outstanding | $						$ 230,000			$ 230,000	$ 230,000						112,000		1,300,000		$ 7,500,000	$ 9,600,000
Fair Value Adjustment of Warrants | $										$ 117,000
Proceeds from Warrant Exercises | $				$ 700,000
The November 2021 Warrants [Member] | Stock Restatement From Reverse Stock Split [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares				$ 6.3
Amended July 2020 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)						77,145			77,145	77,145
Warrants and Rights Outstanding | $				$ 300,000														$ 100,000
Proceeds from Warrant Exercises | $				1,400,000
September 2022 Warrants Exercisable for 1.50 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	238,574
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 1.5
September 2022 Warrants Exercisable for 6.50 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	89,286
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 6.3
The 2022 Warrant Reprice Transaction [Member]
Proceeds from Warrant Exercises | $				2,100,000
Payments of Stock Issuance Costs | $				529,000
Payments of Stock Issuance Costs Allocated to Warrants | $				166,000
Adjustments to Additional Paid in Capital, Stock Issued, Issuance Costs | $				$ 363,000
The 2022 Warrant Reprice Transaction [Member] | Ladenburg Thalmann and Co. Inc. [Member]
Exercise of Warrants, Commission, Percent				8.00%
The 2022 Private Placement Short Term Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)				515,876
The 2022 Private Placement Long Term Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)				515,876
The 2022 Private Placement Long Term Warrants Exercisable for 1.50 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	873,020
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 1.5
The 2022 Private Placement Long Term Warrants Exercisable for 6.50 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)	158,732
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares	$ 6.3
May 2023 Warrants [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares		$ 1.3
Warrants and Rights Outstanding | $	$ 1,600,000					$ 1,400,000			$ 1,400,000	$ 1,400,000
Fair Value Adjustment of Warrants | $										$ 216,000
Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares		$ 1.3
Series A-1 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)						515,876			515,876	515,876
Series A-2 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)						515,876			515,876	515,876
Series A-1 Warrants and Series A-2 Warrants [Member]
Warrants and Rights Outstanding | $						$ 216,000			$ 216,000	$ 216,000						$ 93,000
Fair Value Adjustment of Warrants | $										$ 122,000
The 2021 Warrants [Member] | Stock Restatement From Reverse Stock Split [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)					1,071,429
The 2019 Ladenburg Warrants [Member] | Stock Restatement From Reverse Stock Split [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares																							$ 34.65
Class of Warrant or Right, Issued During Period (in shares)													4,799
The July 2020 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)						59,960			59,960	59,960
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares																								$ 57.75
TLF Bio Innovation 2021 Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)																						429
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares																						$ 23.51
Reverse Stock Split [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio			35

[1] After giving retroactive effect to a 1-for-35 reverse stock split that became effective November 15, 2022.

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Note 12 - Stockholders' Equity - The Key Assumptions Used to Value the Warrants (Details)	Sep. 30, 2023	Apr. 27, 2023	Apr. 26, 2023	Nov. 10, 2022	Sep. 09, 2022	Sep. 08, 2022
Measurement Input, Price Volatility [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0.801	0.801		0.795	0.796	0.796
Measurement Input, Price Volatility [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0.801	0.801		0.795	0.796	0.796
Measurement Input, Price Volatility [Member] | September 2022 Warrants [Member]
Warrants assumptions	0.801		0.801	0.795	0.796
Measurement Input, Price Volatility [Member] | Series A-1 Warrants [Member]
Warrants assumptions	0.801	0.801
Measurement Input, Price Volatility [Member] | Series A-2 Warrants [Member]
Warrants assumptions	0.801	0.801
Measurement Input, Share Price [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0.72	0.72		1.4	4.55	3.15
Measurement Input, Share Price [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0.72	0.72		1.05	3.5	0.7
Measurement Input, Share Price [Member] | September 2022 Warrants [Member]
Warrants assumptions	0.72		0.72	1.4	4.55
Measurement Input, Share Price [Member] | Series A-1 Warrants [Member]
Warrants assumptions	0.72	0.72
Measurement Input, Share Price [Member] | Series A-2 Warrants [Member]
Warrants assumptions	0.72	0.72
Measurement Input, Expected Term [Member] | The November 2021 Warrants [Member]
Warrants assumptions	5.4	5.4		5.8	6	5.4
Measurement Input, Expected Term [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	2.7	2.7		3.2	3.4	3.4
Measurement Input, Expected Term [Member] | September 2022 Warrants [Member]
Warrants assumptions	5.4		5.4	5.8	6
Measurement Input, Expected Term [Member] | Series A-1 Warrants [Member]
Warrants assumptions	5.6	5.6
Measurement Input, Expected Term [Member] | Series A-2 Warrants [Member]
Warrants assumptions	1.1	1.1
Measurement Input, Risk Free Interest Rate [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0.0359	0.0359		0.0393	0.0343	0.0343
Measurement Input, Risk Free Interest Rate [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0.0388	0.0388		0.0415	0.0358	0.0358
Measurement Input, Risk Free Interest Rate [Member] | September 2022 Warrants [Member]
Warrants assumptions	0.0359		0.0359	0.0393	0.0343
Measurement Input, Risk Free Interest Rate [Member] | Series A-1 Warrants [Member]
Warrants assumptions	0.0359	0.0359
Measurement Input, Risk Free Interest Rate [Member] | Series A-2 Warrants [Member]
Warrants assumptions	0.0473	0.0473
Measurement Input, Expected Dividend Rate [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0	0		0	0	0
Measurement Input, Expected Dividend Rate [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0	0		0	0	0
Measurement Input, Expected Dividend Rate [Member] | September 2022 Warrants [Member]
Warrants assumptions	0		0	0	0
Measurement Input, Expected Dividend Rate [Member] | Series A-1 Warrants [Member]
Warrants assumptions	0	0
Measurement Input, Expected Dividend Rate [Member] | Series A-2 Warrants [Member]
Warrants assumptions	0	0
Weighted Average Fair Value [Member] | The November 2021 Warrants [Member]
Warrants assumptions	0.39	0.2
Weighted Average Fair Value [Member] | Amended July 2020 Warrants [Member]
Warrants assumptions	0.24	0.06
Weighted Average Fair Value [Member] | September 2022 Warrants [Member]
Warrants assumptions	0.39		0.2
Weighted Average Fair Value [Member] | Series A-1 Warrants [Member]
Warrants assumptions	0.4	0.21
Weighted Average Fair Value [Member] | Series A-2 Warrants [Member]
Warrants assumptions	0.09	0

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Note 12 - Stockholders' Equity - Preferred Stock Assumptions (Details)	Sep. 30, 2023	Apr. 27, 2023	Apr. 26, 2023	Sep. 09, 2022	Sep. 08, 2022
Series C Preferred Stock [Member] | Measurement Input, Share Price [Member]
Preferred stock assumption	0.72	0.72
Series C Preferred Stock [Member] | Measurement Input, Price Volatility [Member]
Preferred stock assumption	0.801	0.801
Series C Preferred Stock [Member] | Measurement Input, Expected Term [Member]
Preferred stock assumption	0.8	0.8
Series C Preferred Stock [Member] | Measurement Input, Risk Free Interest Rate [Member]
Preferred stock assumption	0.0491	0.0491
Series C Preferred Stock [Member] | Measurement Input, Expected Dividend Rate [Member]
Preferred stock assumption	0	0
Series C Preferred Stock [Member] | Weighted Average Fair Value [Member]
Preferred stock assumption	0.61	5.35
Series B Preferred Stock [Member] | Measurement Input, Share Price [Member]
Preferred stock assumption		0.72	0.72	2.1	8.05
Series B Preferred Stock [Member] | Measurement Input, Price Volatility [Member]
Preferred stock assumption		0.801	0.801	0.796	0.796
Series B Preferred Stock [Member] | Measurement Input, Expected Term [Member]
Preferred stock assumption		0.8	0.8	1.3	1.3
Series B Preferred Stock [Member] | Measurement Input, Risk Free Interest Rate [Member]
Preferred stock assumption		0.0491	0.0491	0.0364	0.0364
Series B Preferred Stock [Member] | Measurement Input, Expected Dividend Rate [Member]
Preferred stock assumption		0	0	0	0
Series B Preferred Stock [Member] | Weighted Average Fair Value [Member]
Preferred stock assumption		0.61	5.35

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Note 12 - Stockholders' Equity - Outstanding Warrants (Details) shares in Thousands	9 Months Ended
	Sep. 30, 2023 $ / shares shares
Outstanding warrants (in shares) | shares	2,306
Outstanding warrants, weighted-average exercise price (in dollars per share) | $ / shares	$ 7.7
Warrants granted (in shares) | shares	5,076
Warrants granted, weighted average exercise price (in dollars per share) | $ / shares	$ 1.3
Warrants expired (in shares) | shares	0
Warrants expired, weighted average exercise price (in dollars per share) | $ / shares	$ 0
Outstanding warrants (in shares) | shares	7,382
Outstanding warrants, weighted-average exercise price (in dollars per share) | $ / shares	$ 2.18

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Note 13 - Equity-based Compensation (Details Textual) - USD ($) $ in Thousands		1 Months Ended		3 Months Ended		9 Months Ended
	Mar. 31, 2023	Mar. 31, 2017	Oct. 31, 2007	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period (in shares)				0	0	0	0
Proceeds from Stock Options Exercised				$ 0	$ 0	$ 0	$ 0
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount				300		$ 300
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)						2 years 1 month 6 days
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)						42,000
Share-Based Payment Arrangement, Expense				62	(208)	$ 201	$ 130
Share-Based Payment Arrangement, Nonemployee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)						36,000	0
Employees and Directors [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)						6,150	17,892
Share-Based Payment Arrangement, Expense				62	208	$ 201	$ 130
Share-Based Payment Arrangement, Option [Member] | Share-Based Payment Arrangement, Nonemployee [Member]
Share-Based Payment Arrangement, Expense				$ 3	$ 0	$ 7
Restricted Stock [Member] | Share-Based Payment Arrangement, Nonemployee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)						0
Restricted Stock [Member] | Employees and Directors [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)						5,148	5,148
The 2007 Omnibus Incentive Plan [Member] | Maximum [Member] | Incentive Stock Options (ISOs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)			10 years
The 2017 Omnibus Incentive Plan [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Authorized (in shares)		66,243
Share-based Compensation Arrangement by Share-based Payment Award, Annual Increase in Shares Authorized, Percentage of Outstanding Common Stock		4.00%
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Additional Shares Authorized (in shares)	81,417
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares)				147,905		147,905
The 2017 Omnibus Incentive Plan [Member] | Incentive Stock Options (ISOs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percentage of Stock Owned by Shareholder, Minimum		10.00%
The 2017 Omnibus Incentive Plan [Member] | Share-Based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)		4 years
The 2017 Omnibus Incentive Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)		10 years
The 2017 Omnibus Incentive Plan [Member] | Maximum [Member] | Incentive Stock Options (ISOs) [Member] | Shareholder of More Than 10% [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)		5 years
The 2017 Omnibus Incentive Plan [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent		100.00%
The 2017 Omnibus Incentive Plan [Member] | Minimum [Member] | Incentive Stock Options (ISOs) [Member] | Shareholder of More Than 10% [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent		110.00%

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Note 13 - Equity-based Compensation - Stock Options Outstanding (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Outstanding awards (in shares)	132
Outstanding, weighted-average exercise price (in dollars per share)	$ 37.99
Outstanding, weighted-average remaining contractual life (Year)	7 years 7 months 6 days	7 years 6 months
Outstanding, aggregate intrinsic value	$ 13	$ 69
Options granted (in shares)	42
Options granted, weighted-average exercise price (in dollars per share)	$ 1.67
Options forfeited/cancelled (in shares)	(19)
Options forfeited/cancelled, weighted-average exercise price (in dollars per share)	$ 64.23
Outstanding awards (in shares)	148	132
Outstanding, weighted-average exercise price (in dollars per share)	$ 26.26	$ 37.99
Vested and expected to vest (in shares)	119
Vested and expected to vest, weighted-average exercise price (in dollars per share)	$ 32.34
Vested and expected to vest, weighted-average remaining contractual life (Year)	7 years 6 months
Vested and expected to vest, aggregate intrinsic value	$ 2
Vested (in shares)	59
Vested, weighted-average exercise price (in dollars per share)	$ 59.3
Vested, weighted-average remaining contractual life (Year)	5 years 9 months 18 days
Exercisable (in shares)	59
Exercisable, weighted-average exercise price (in dollars per share)	$ 59.3
Exercisable, weighted-average remaining contractual life (Year)	5 years 9 months 18 days
Restricted Stock Units (RSUs) [Member]
Restricted stock units granted (in shares)	5
Restricted stock units vested (in shares)	(5)
Restricted stock units cancelled (in shares)	(7)

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Note 13 - Equity-based Compensation - Weighted-average Assumptions Used in Determining the Value of Options Granted to Employees and Directors (Details) - Employees and Directors [Member] - $ / shares	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Expected price volatility	152.99%	158.04%
Expected term (Year)	6 years 9 months 21 days	6 years 5 months 12 days
Risk-free interest rate	3.47%	2.29%
Dividend yield	0.00%	0.00%
Weighted-average fair value of options granted during the period (in dollars per share)	$ 1.61	$ 9.46

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Note 13 - Equity-based Compensation - Summary of Stock-based Compensation Expense Included in Results of Operations (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Stock-based compensation expense	$ 62	$ (208)	$ 201	$ 130
Research and Development Expense [Member]
Stock-based compensation expense	5	5	16	14
Selling and Marketing Expense [Member]
Stock-based compensation expense	18	12	49	37
General and Administrative Expense [Member]
Stock-based compensation expense	$ 39	$ (225)	$ 136	$ 79

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Note 14 - Distribution Agreements (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Revenue from Contract with Customer, Including Assessed Tax	$ 3,265	$ 3,826	$ 10,999	$ 10,761
Avenova Direct [Member]
Revenue from Contract with Customer, Including Assessed Tax	1,600	1,600	4,500	5,100
DERMAdoctor [Member]
Revenue from Contract with Customer, Including Assessed Tax	784	1,319	2,645	3,115
McKesson Corporation [Member] | Avenova Product [Member]
Revenue from Contract with Customer, Including Assessed Tax	232	170	519	113
McKesson Corporation [Member] | Avenova Product [Member] | Accounts Payable and Accrued Liabilities [Member]
Contract with Customer, Liability	700		700		$ 1,600
McKesson Corporation [Member] | Avenova Product [Member] | Prepaid Expenses and Other Current Assets [Member]
Contract with Customer, Rebate Liability, Current	141		141		0
Costco and Others [Member] | DERMAdoctor [Member]
Revenue from Contract with Customer, Including Assessed Tax	100	$ 400	500	$ 400
Contract with Customer, Liability	$ 300		$ 300		$ 200

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Note 14 - Distribution Agreements - Changes in Assets and Liabilities (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Chargebacks, Discounts for Prompt, Payment, and Other [Member]
Balance	$ 1,673
Provision related to sales made in current period	521
Payments and customer credits issued	(1,194)
Balance	1,000
Other Customer Fees [Member]
Balance	53
Provision related to sales made in current period	104
Payments and customer credits issued	(141)
Balance	16
Rebates [Member]
Balance	81
Provision related to sales made in current period	79
Payments and customer credits issued	(134)
Balance	26
Variable Consideration [Member]
Balance	1,807
Provision related to sales made in current period	704
Payments and customer credits issued	(1,469)
Balance	$ 1,042

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Note 15 - Employee Benefit Plan (Details Textual) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jan. 01, 2022	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
The 401K Plan Contribution Level One [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	100.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	3.00%
The 401K Plan Contribution Level Two [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	50.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	2.00%
The 401(k) Plan [Member]
Defined Contribution Plan, Employer Discretionary Contribution Amount		$ 32	$ 25	$ 95	$ 101

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Note 16 - Related Party Transactions (Details Textual) - USD ($) $ in Millions	Sep. 30, 2023	Dec. 31, 2022
Related Party [Member]
Accounts Receivable, before Allowance for Credit Loss	$ 0.2	$ 0.2

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Note 16 - Related Party Transactions - Related Party Revenue, Cost of Goods Sold, and Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Cost of goods sold	$ 1,427	$ 1,451	$ 4,919	$ 4,735
Related Party [Member]
Related party revenue	0	0	1,043	657
Cost of goods sold	28	(0)	923	648
NeutroPhase [Member] | Related Party [Member]
Related party revenue	0	0	1,043	657
Cost of goods sold	$ 28	$ (0)	$ 923	$ 648

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Note 17 - Segment Reporting (Details Textual)	9 Months Ended
	Sep. 30, 2023
Number of Reportable Segments	2

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Note 17 - Segment Reporting - Financial Information by Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Revenue from Contract with Customer, Including Assessed Tax	$ 3,265	$ 3,826	$ 10,999	$ 10,761
Operating loss	$ (1,116)	$ (457)	$ (4,205)	$ (4,991)
Operating loss, percentage	100.00%	100.00%	100.00%	100.00%
Product [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 3,255	$ 3,816	$ 10,971	$ 10,743
Total of Revenue	100.00%	100.00%	100.00%	100.00%
Optical and Wound Care [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 2,481	$ 2,507	$ 8,354	$ 7,646
Operating loss	$ (698)	$ (257)	$ (3,094)	$ (3,605)
Operating loss, percentage	63.00%	56.00%	74.00%	72.00%
Optical and Wound Care [Member] | Product [Member]
Total of Revenue	76.00%	66.00%	76.00%	71.00%
Skin Care [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 784	$ 1,319	$ 2,645	$ 3,115
Operating loss	$ (418)	$ (200)	$ (1,111)	$ (1,386)
Operating loss, percentage	37.00%	44.00%	26.00%	28.00%
Skin Care [Member] | Product [Member]
Total of Revenue	24.00%	34.00%	24.00%	29.00%