nby20210331_10q.htm

10-Q 1 nby20210331_10q.htm FORM 10-Q nby20210331_10q.htm

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 March 31, 2021

☐	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, CA 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

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. (Check one):

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 May 3, 2021, there were 41,782,584 shares of the registrant’s common stock outstanding.

PART I
FINANCIAL INFORMATION

Item 1.		Financial Statements	3

	1.	Condensed Consolidated Balance Sheets: March 31, 2021 (unaudited) and December 31, 2020	3

	2.	Condensed Consolidated Statements of Operations and Comprehensive Loss: Three months ended March 31, 2021 and 2020 (unaudited)	4

	3.	Condensed Consolidated Statements of Stockholders’ Equity (Deficit): Three months ended March 31, 2021 and 2020 (unaudited)	5

	4.	Condensed Consolidated Statements of Cash Flows: Three months ended March 31, 2021 and 2020 (unaudited)	6

	5.	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.		Controls and Procedures	34

PART II
OTHER INFORMATION

Item 1.		Legal Proceedings	34

Item 1A.		Risk Factors	34

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.		Defaults Upon Senior Securities	35

Item 4.		Mine Safety Disclosure	35

Item 5.		Other Information	35

Item 6.		Exhibits	35

SIGNATURES			37

EXHIBIT INDEX			36

	March 31,			December 31,
	2021			2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,508		$	11,952
Accounts receivable, net of allowance for doubtful accounts ($18 and $0 at March 31, 2021 and December 31, 2020, respectively)		1,038			1,106
Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments ($201 and $236 at March 31, 2021 and December 31, 2020, respectively)		850			608
Prepaid expenses and other current assets		750			576
Total current assets		13,146			14,242
Operating lease right-of-use assets		350			436
Property and equipment, net		100			84
Other assets		476			476
TOTAL ASSETS	$	14,072		$	15,238

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable	$	833		$	302
Accrued liabilities		1,851			2,115
Operating lease liabilities		396			416
Total current liabilities		3,080			2,833
Operating lease liabilities-non-current		9			87
Total liabilities		3,089			2,920

Stockholders' equity:
Preferred stock: 5,000 shares authorized; none issued and outstanding at March 31, 2021 and December 31, 2020		—			—
Common stock, $0.01 par value; 75,000 shares authorized, 41,782 shares issued and outstanding at March 31, 2021 and December 31, 2020		418			418
Additional paid-in capital		148,146			147,963
Accumulated deficit		(137,581	)		(136,063	)
Total stockholders' equity		10,983			12,318
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	14,072		$	15,238

	Three Months Ended March 31,
	2021			2020
Sales:
Product revenue, net	$	1,801		$	1,892
Other revenue, net		6			—
Total sales, net		1,807			1,892

Product cost of goods sold		455			581
Gross profit		1,352			1,311
Operating expenses:
Research and development		5			9
Sales and marketing		1,680			1,560
General and administrative		1,187			1,277
Total operating expenses		2,872			2,846
Operating loss		(1,520	)		(1,535	)

Non-cash gain on changes in fair value of warrant liability		—			137
Non-cash gain on changes in fair value of embedded derivative liability		—			2
Other income (expense), net		2			(186	)

Loss before provision for income taxes		(1,518	)		(1,582	)
Provision for income taxes		—			—
Net loss and comprehensive loss	$	(1,518	)	$	(1,582	)

Net loss per share attributable to common stockholders (basic and diluted)	$	(0.04	)	$	(0.06	)
Weighted-average shares of common stock used in computing net loss per share attributable to common stockholders (basic and diluted)		41,782			27,978

										Total
					Additional					Stockholders'
	Common Stock				Paid-In					Equity
	Shares		Amount		Capital		Accumulated Deficit			(Deficit)
Balance at December 31, 2020		41,782	$	418	$	147,963	$	(136,063	)	$	12,318
Net loss		—		—		—		(1,518	)		(1,518	)
Stock-based compensation expense related to employee and director stock options		—		—		130		—			130
Stock-based compensation expense related to non-employee stock options		—		—		53		—			53
Balance at March 31, 2021		41,782	$	418	$	148,146	$	(137,581	)	$	10,983

	March 31,			December 31,
Major distribution partner	2021			2020
Distributor A		19	%		14	%
Amazon		19	%		11	%
Distributor B		18	%		18	%
Chongqing Pioneer Pharma Holdings Limited		13	%		16	%
Distributor C		11	%		14	%

	Three Months Ended March 31,
Numerator	2021			2020
Net loss	$	(1,518	)	$	(1,582	)

Denominator
Weighted average shares of common stock outstanding, basic and diluted		41,782			27,978
Net loss per share attributable to common stockholders, basic and diluted	$	(0.04	)	$	(0.06	)

	As of March 31,
	2021		2020
Stock options		3,138		2,099
Stock warrants		7,082		8,247
		10,220		10,346

			Fair Value Measurements Using
	Balance at March 31, 2021		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Restricted cash held as a certificate of deposit	$	324	$	324	$	—	$	—
Deposit held as a certificate of deposit		151		151		—		—
Total assets	$	475	$	475	$	—	$	—

			Fair Value Measurements Using
	Balance at December 31, 2020		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Restricted cash held as a certificate of deposit	$	324	$	324	$	—	$	—
Deposit held as a certificate of deposit		151		151		—		—
Total assets	$	475	$	475	$	—	$	—

Lease Costs	Three Months Ended March 31,
	2021		2020
Operating lease cost	$	99	$	264
Sublease income		—		(158	)
Net lease cost	$	99	$	106

Other information
Operational cash flow used for operating leases	$	113	$	296

	March 31,			December 31,
	2021			2020
Office and laboratory equipment	$	20		$	20
Furniture and fixtures		157			157
Computer equipment and software		390			365
Production equipment		65			65
Leasehold improvements		79			79
Total property and equipment, at cost		711			686
Less: accumulated depreciation and amortization		(611	)		(602	)
Total property and equipment, net	$	100		$	84

	March 31,		December 31,
	2021		2020
Avenova contract liabilities	$	862	$	730
Employee payroll and benefits		265		632
Sublease security deposit		175		198
Consulting services		153		98
Audit services		122		—
Inventory purchases		—		181
Other		274		276
Total accrued liabilities	$	1,851	$	2,115

2021	$	341
2022		88
Thereafter		—
Total future minimum lease payments		429
Less imputed interest		(24	)
Total	$	405

Reported as:
Operating lease liability	$	396
Operating lease liability- non-current		9
Total	$	405

Assumptions	2019 Domestic Warrants			2019 Foreign Warrants
Expected price volatility		178	%		178	%
Expected term (in years)		4.57			4.57
Risk-free interest rate		0.25	%		0.27	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrant	$	1.18		$	1.54

Expected price volatility		186	%
Expected term (in years)		4.05
Risk-free interest rate		0.22	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	1.17

	Warrants (in thousands)		Weighted- Average Exercise Price
Outstanding at December 31, 2020		7,067	$	1.63
Warrants granted		15	$	0.67
Warrants exercised		—	$	—
Warrants expired		—	$	—
Outstanding at March 31, 2021		7,082	$	1.63

(in thousands, except years and per share data)	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2020		3,165		$	2.05		7.6	$	189
Options granted		55		$	1.09
Restricted stock units granted		-		$	—
Options exercised		-		$	—
Restricted stock units vested		-		$	—
Options forfeited/cancelled		(82	)	$	3.97
Restricted stock units cancelled		-		$	—
Outstanding at March 31, 2021		3,138		$	1.98		7.4	$	309

Vested and expected to vest at March 31, 2021		2,797		$	2.12		7.2	$	254

Vested at March 31, 2021		1,459		$	3.21		5.3	$	64

Exercisable at March 31, 2021		1,459		$	3.21		5.3	$	64

	Three Months Ended March 31,
Assumption	2021			2020
Expected price volatility		164.44	%		143.83	%
Expected term (in years)		6.19			6.46
Risk-free interest rate		1.09	%		0.99	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of options granted during the period	$	1.04		$	0.53

	Balance at December 31, 2020		Additions		Deductions			Balance at March 31, 2021
Contract Liabilities: Deferred Revenue	$	2	$	1	$	(2	)	$	1
Contract Liabilities: Accrued Liabilities		573		573		(352	)		794
Total	$	575	$	574	$	(354	)	$	795

	Wholesaler/ Pharmacy fees			Cash discounts			Rebate			Returns			Total

Balance at December 31, 2020	$	(91	)	$	(10	)	$	55		$	(527	)	$	(573	)
Current provision related to sales made during current period		(77	)		(13	)		(201	)		(282	)		(573	)
Payments		44			13			133			162			352
Balance at March 31, 2021	$	(124	)	$	(10	)	$	(13	)	$	(647	)	$	(794	)

SEC Form 10-Q filed by NovaBay Pharmaceuticals, Inc.