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Note 14 - Avenova Asset Divestiture and Bridge Loan

3 Months Ended

Mar. 31, 2025

Avenova Assets [Member]

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

NOTE 14. AVENOVA ASSET DIVESTITURE AND BRIDGE LOAN

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

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

In connection with the closing of the Avenova Asset Divestiture on January 17, 2025, we entered into a Transition Services Agreement, dated January 17, 2025 with PRN, pursuant to which we agreed to provide services to PRN with respect to specified accounting, marketing, sales, customer service, regulatory and operational support for a period of four (4) months after the closing of the Avenova Asset Divestiture (the “PRN Transition Services Agreement”). In exchange for providing such services, PRN and NovaBay agreed upon service fees to be paid to us. We recognized $12 thousand under the PRN Transition Services Agreement during the quarter ended March 31, 2025, which was included in other expense, net in the Company’s condensed consolidated statement of operations (unaudited).

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

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

		Balance at December 31, 2024
ASSETS
Current assets:
Accounts receivable, net		$	352
Inventory, net			765
Prepaid expenses and other current assets			62
Total current assets, discontinued operations			1,179
Property and equipment, net, discontinued operations			9
Total assets, discontinued operations		$	1,188

LIABILITIES
Liabilities:
Current liabilities:
Accounts payable		$	471
Accrued liabilities			676
Total current liabilities, discontinued operations		$	1,147

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations. Results related to the Avenova Asset for the three months ended March 31, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):

		Three Months Ended March 31,
		2025				2024

Net sales		$	433			$	2,367
Cost of goods sold			170				755
Gross profit			263				1,612
Operating expenses
Sales and marketing			224				1,055
Total operating expenses			224				1,055
Operating income			39				557
Gain on divestiture			10,700				—
Net income from discontinued operations before income taxes			10,739				557
Provision for income taxes			269				—

Net income from discontinued operations, net of taxes		$	10,470			$	557

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of cash flows. Results related to the Avenova Asset for the three months ended March 31, 2025 and 2024 have been reflected as discontinued operations in the consolidated statements of cash flows and consist of the following (in thousands):

		Three Months Ended March 31,
		2025				2024

Operating activities:
Net income from discontinued operations		$	10,470			$	557
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash gain on divestiture			(10,700	)			—
Changes in operating assets and liabilities:
Accounts receivable			(72	)			(189	)
Inventory			73				(114	)
Prepaid expenses and other current assets			—				(24	)
Other assets			9				—
Accounts payable and accrued liabilities			(252	)			128
Net cash (used in) provided by operating activities, discontinued operations			(472	)			358

Investing activities:
Proceeds from divestiture			11,000				—
Net cash provided by investing activities, discontinued operations			11,000				—

Net increase in cash and cash equivalents, discontinued operations		$	10,528			$	358