NBY NovaBay Pharmaceuticals Inc New

• 3Q16 total sales nearly tripled from 3Q15 to record $3.4 million
• Affirms outlook to reach positive adjusted cash flow from operations in December 2016
• Regained compliance with NYSE listing requirements

Conference call begins today at 4:30 p.m. Eastern time

NovaBay® Pharmaceuticals, Inc. (NYSE MKT: NBY), a biopharmaceutical company focusing on commercializing its prescription Avenova® lid and lash hygiene product for the domestic eye care market, reports financial results for the three and nine months ended September 30, 2016, and provides a business update.

“This is an exceptional time at NovaBay as we achieved yet another quarter of record Avenova sales, growing 176% over the third quarter of 2015 and up 20% from the second quarter of 2016, and putting us on an estimated annualized run rate of $12 million,” said Mark M. Sieczkarek, NovaBay’s President and CEO. “Importantly, 68% of Avenova sales came from the higher-margin prescription ophthalmology channel. This is a 25% increase in prescription sales from the second quarter as we continue to execute on our channel strategy.

“This positive change in sales channel mix contributed to the gross margin on Avenova product sales expanding to 88%. We reduced our adjusted use of cash from operations from $5.8 million for the fourth quarter of last year when we implemented a restructuring to $1.2 million for the third quarter of 2016,” he added. “All in all, we believe we are well on our way to achieving our goal of positive adjusted cash flow from operations in December 2016.

“Importantly, during the quarter and with the support of our investors we implemented a warrant exercise that boosted our cash position to $9.4 million, the highest level in three years. The additional funds were essential to keeping our listing on the NYSE MKT exchange, which allows us to maintain greater visibility with the investment community. We expect to use these additional funds to support the continued growth of our commercial activities and drive Avenova sales in this largely untapped market of approximately 41 million Americans.”

NovaBay defines adjusted cash flow from operations as GAAP cash flow from operations less changes in operating assets and liabilities.

Key Third Quarter Avenova Metrics

• Avenova sales of $3.1 million increased nearly three-fold (176%) year-over-year and 20% over 2Q16;
• Prescription sales into the pharmacy channel of $2.1 million were more than six-fold (550%) higher year-over-year and up 25% over 2Q16;
• New prescribers increased by more than 1,100;
• Total number of medical professionals who have prescribed Avenova increased by 17%, to more than 7,700.

Third Quarter 2016 Financial Results

Net sales for the third quarter of 2016 of $3.4 million, were nearly three times the $1.2 million reported for the third quarter of 2015 and up 29% from $2.7 million for the second quarter of 2016. Product revenue, which includes sales of Avenova and NeutroPhase®, was $3.3 million, up 187% from $1.1 million for the third quarter of 2015 and up 23% from $2.7 million for the second quarter of 2016. Total gross profit margin was 84% for the third quarter of 2016, compared with 78% for the prior-year period and 82% for the preceding quarter, with the increase mainly due to higher sales of Avenova and the recognition of revenue upon the termination of a collaborative agreement. The gross profit margin on Avenova sales increased to 88%, up from 85% in the preceding quarter.

Operating loss for the third quarter of 2016 was $2.0 million, representing improvements of 62% from $5.3 million for the third quarter of 2015 and 9% from $2.2 million for the second quarter of 2016. R&D expenses were $4 thousand for the third quarter of 2016 versus $1.6 million for the third quarter of 2015 and $278 thousand for the second quarter of 2016. The decreases are primarily due to lower spending on clinical trials that were completed, the Company’s focus of resources on Avenova commercialization and the exchange of laboratory equipment for R&D services in the third quarter of 2016 that were valued in excess of the net book value of the equipment. G&A expenses for the third quarter of 2016 of $2.2 million compared with $1.7 million for the prior-year period and $1.3 million for the second quarter of 2016. The increase is primarily due to modification of the exercise price for warrants issued in May 2015, higher stock-based compensation expense and costs associated with subleasing the Company’s previous headquarters location. Sales and marketing expenses for the third quarter of 2016 decreased 12% to $2.7 million from $3.0 million for the third quarter of 2015 and decreased 7% from $2.9 million for the second quarter of 2016, primarily due to reduced sales force expenses.

Non-cash loss on the change of fair value of warrant liability for the three months ended September 30, 2016 was $1.7 million, compared with a gain of $139 thousand for the three months ended September 30, 2015. The non-cash loss on changes in fair value of warrant liability was primarily due to the increase in the price of the Company’s common stock during the quarter.

The net loss for the third quarter of 2016 was $3.7 million, or $0.34 per share, compared with a net loss for the third quarter of 2015 of $5.2 million, or $1.77 per share. The net loss for the third quarter of 2016 increased by $1 million or 39% from the second quarter of 2016, primarily due to a non-cash charge related to a revaluation of warrant liabilities.

Nine-Month 2016 Financial Results

Net sales for the nine months ended September 30, 2016 were $7.8 million, up 185% from $2.7 million for the nine months ended September 30, 2015, with the increase primarily attributable to significantly higher sales of Avenova. Product revenue for the first nine months of 2016 increased 196% to $7.6 million. Gross profit margin was 79% for the first nine months of 2016, compared with 76% for the first nine months of 2015. Gross profit margin on Avenova sales was 85% for the nine months ended September 30, 2016.

Operating loss for the first nine months of 2016 narrowed by 41% to $8.8 million from $14.9 million for the comparable period in 2015. R&D expenses for the first nine months of 2016 declined 73% to $1.2 million from the prior-year period, and G&A expenses were relatively unchanged. Sales and marketing expenses for the nine months ended September 30, 2016 were $8.7 million, an increase of 19% from the prior-year period.

Non-cash loss on the change of fair value of warrant liability for the first nine months of 2016 was $2.5 million, compared with a gain of $173 thousand for the first nine months of 2015. The non-cash loss on changes in fair value of warrant liability was primarily due to the increase in the price of the Company’s common stock since December 31, 2015.

The net loss for the nine months ended September 30, 2016 was $11.5 million, or $1.54 per share, compared with a net loss for the nine months ended September 30, 2015 of $14.8 million, or $5.68 per share.

NovaBay reported cash of $9.4 million as of September 30, 2016, compared with $2.4 million as of December 31, 2015. On May 5, 2016, the Company closed the first tranche of a financing for gross proceeds of $7.8 million and on July 31, 2016, the Company closed the second and final tranche for gross proceeds of $4.0 million. During the third quarter of 2016, warrants were exercised for net proceeds to the Company for approximately $6.6 million.

The Company used approximately $3.8 million in cash to fund operations during the third quarter of 2016, compared with $4.1 million used during the third quarter of 2015 and $2.7 million used during the second quarter of 2016. The decrease in cash to fund operations in the third quarter of 2016 from the prior year was primarily due to higher gross profit from Avenova sales and lower operating expenses achieved through companywide cost-reduction programs.

Conference Call

NovaBay management will host an investment community conference call today beginning at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss the Company’s financial and operational results and to answer questions. Shareholders and other interested parties may participate in the conference call by dialing 800-608-8202 from within the U.S. or 702-495-1913 from outside the U.S., with the conference identification number 936110901.

A live webcast of the call will be available at http://novabay.com/investors/events and will be archived for 90 days.

A replay of the call will be available beginning two hours after call completion through 11:59 p.m. Eastern time December 10, by dialing 855-859-2056 from within the U.S. or 404-537-3406 from outside the U.S. and entering the conference identification number 936110901.

About NovaBay Pharmaceuticals, Inc.: Going Beyond Antibiotics®

NovaBay Pharmaceuticals is a biopharmaceutical company focusing on the commercialization of prescription Avenova® lid and lash hygiene for the eye care market. Avenova is formulated with Neutrox™, which is cleared by the U.S. Food and Drug Administration (FDA) as a 510(k) medical device. Neutrox is NovaBay’s pure hypochlorous acid. Laboratory tests show that pure hypochlorous acid has potent antimicrobial activity in solution yet is non-toxic to mammalian cells and neutralizes bacterial toxins. Data from a multicenter clinical study show that Avenova reduced bacterial load, the underlying cause of blepharitis, on ocular skin surface by more than 90%. Avenova is marketed to optometrists and ophthalmologists throughout the U.S. by NovaBay’s direct medical salesforce. It is accessible from more than 90% of retail pharmacies in the U.S. through agreements with McKesson Corporation, Cardinal Health and AmerisourceBergen.

Forward-Looking Statements

This release contains forward-looking statements that are based upon management's current expectations, assumptions, estimates, projections and beliefs. These statements include, but are not limited to, statements regarding our ability to become cash flow positive by the end of 2016, future sales of our products, our current “run rate,” and the Company’s expected future financial results. Forward-looking statements can be identified with words like (and variations of): “estimate,” “believe,” and “expect.” These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or achievements to be materially different and adverse from those expressed in or implied by the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, risks and uncertainties relating to difficulties or delays in manufacturing, distributing, and selling the Company's products, unexpected adverse side effects or inadequate therapeutic efficacy of our product, the uncertainty of patent protection for the Company's intellectual property, and any potential regulatory violations. Other risks relating to NovaBay’s business, including risks that could cause results to differ materially from those projected in the forward-looking statements in this press release, are detailed in NovaBay's latest Form 10-K and Form 10-Q filings with the Securities and Exchange Commission, especially under the heading "Risk Factors." The forward-looking statements in this release speak only as of this date, and NovaBay disclaims any intent or obligation to revise or update publicly any forward-looking statement except as required by law.

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NOVABAY PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share data)       September 30, December 31,   2016     2015   ASSETS Current assets: Cash $ 9,430 $ 2,385 Accounts receivable, net of allowance for doubtful accounts ($14 and $40 at September 30, 2016 and December 31, 2015, respectively) 2,079 536 Inventory, net of allowance for obsolete inventory and lower cost of market ($77 and $45 at September 30, 2016 and December 31, 2015, respectively) 1,084 1,345 Prepaid expenses and other current assets   1,827     261   Total current assets 14,420 4,527 Property and equipment, net 282 395 Other assets   439     155   TOTAL ASSETS $ 15,141   $ 5,077     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Current liabilities: Accounts payable $ 387 $ 2,483 Accrued liabilities 1,880 1,980 Deferred revenue   1,461     170   Total current liabilities 3,728 4,633 Deferred revenues - non-current 1,913 2,248 Deferred rent 248 189 Notes payable, related party - 1,655 Warrant liability 2,336 1,450 Other Liabilities   198     Total liabilities   8,423     10,175     Stockholders' Equity (deficit): Common stock, $0.01 par value; 240,000,000 shares authorized 14,865,507 and 3,486,232 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively 149 35 Additional paid-in capital 108,592 85,387   Accumulated deficit   (102,023 )  

(90,520

)

  Total stockholders' equity (deficit)   6,718    

(5,098

)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 15,141   $ 5,077     NOVABAY PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (In thousands, except per share data)        

Three Months Ended

Nine Months Ended

September 30,

September 30,   2016       2015     2016       2015   Sales: Product revenue $ 3,262 $ 1,136 $ 7,571 $ 2,559 Other revenue   176     64     249    

187

  Total net sales 3,438 1,200 7,820 2,746   Product cost of goods sold   566     269     1,656     670   Gross profit   2,872     931     6,164     2,076     Research and development 4 1,563 1,215 4,503 Sales and marketing 2,663 3,035 8,660 7,260 General and administrative   2,218     1,681     5,131     5,181   Total operating expenses   4,885     6,279     15,006     16,944   Operating Loss (2,013 ) (5,348 ) (8,842 ) (14,868 )   Non cash (loss) gain on changes in fair value of warrant liability (1,671 ) 139 (2,480 ) 173 Other expense, net   (52 )   (31 )   (179 )   (64 )   Loss before provision for income taxes (3,736 ) (5,240 ) (11,501 ) (14,759 ) Provision for income tax   -     (2 )   (2 )   (10 ) Net loss and comprehensive loss $ (3,736 ) $ (5,242 ) $ (11,503 ) $ (14,769 )   Net loss per share attributable to common stock (basic and diluted) $ (0.34 ) $ (1.77 ) $ (1.54 ) $ (5.68 )   Weighted-average shares of common stock outstanding used in computing net loss per share of common stock 10,912,616 2,957,477 7,480,985 2,598,052

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NovaBay ContactsFor NovaBay Avenova purchasing information, please contact:800-890-0329www.Avenova.comorFrom the CompanyNovaBay Pharmaceuticals, Inc.Thomas J. PaulsonChief Financial Officer510-899-8809Contact TomorInvestor ContactLHAJody Cain310-691-7100Jcain@lhai.com