8-K: NovaBay Pivots to Digital Assets with $134M Warrant Sale

NovaBay Pharmaceuticals, Inc. announced a $134 million private placement of pre-funded warrants, signaling a strategic shift towards acquiring and holding revenue-generating digital assets, primarily SKY tokens.

Summary

• NovaBay Pharmaceuticals, Inc. completed a private placement on January 16, 2026, issuing pre-funded warrants to purchase an aggregate of 837,696,130 shares of common stock.
• The aggregate gross proceeds from the private placement were approximately $134 million, comprising $25 million in cash and approximately $109 million in SKY tokens and stablecoins.
• The purchase price for each pre-funded warrant was $0.17, with an exercise price of $0.01 per underlying common stock share, which was largely pre-funded.
• The warrants become exercisable on a tiered basis: 20% after 6 months, an additional 30% after 9 months, and the remaining 50% after 12 months from the issue date, all subject to stockholder approval.
• The company is realigning its business to a capital allocation strategy focused on acquiring digital assets that provide exposure to economic participation within open digital financial networks, with SKY being the only currently approved asset.
• As of the closing of the private placement, the company held 943,599,688.812 SKY tokens.
• The strategy includes holding digital assets for long-term appreciation and protocol-level economics, periodic monetization, evaluating liquidity/financing options collateralized by assets, and investing in internal capabilities for digital asset management.
• The company adopted Accounting Standards Update (ASU) No. 2023-08, 'Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets,' effective January 1, 2026, which requires eligible crypto assets to be measured at fair value with changes recognized in net income.

Sentiment

Score: 6

Explanation: The filing details a significant capital raise and a bold strategic pivot into digital assets, which could offer substantial long-term growth potential. However, this new strategy introduces considerable risks related to market volatility, regulatory uncertainty, and operational complexities inherent in the digital asset space. The high potential for dilution also tempers enthusiasm.

Positives

• Successfully raised approximately $134 million in gross proceeds through a private placement, providing significant capital for the company's new strategic direction.
• The new digital asset strategy aims for long-term appreciation and participation in protocol-level economics, potentially enhancing capital efficiency and stockholder value.
• The company has established a Digital Asset Strategy Advisory Committee and robust custodial arrangements for safeguarding SKY tokens, indicating a structured approach to the new business.
• The pre-funded nature of the warrants means most of the exercise price has already been received by the company, securing a substantial portion of the capital upfront.
• The company will use commercially reasonable efforts to maintain its NYSE American listing and ensure electronic transferability of common stock, supporting market access for investors.

Negatives

• Significant potential dilution: The warrants are exercisable for 837,696,130 shares, representing approximately 87% of the total common stock outstanding as of January 16, 2026, upon full exercise.
• High volatility risk: The new strategy focuses on highly volatile digital assets like SKY, which has experienced extreme price swings (e.g., a 132% increase followed by a 63% decline in 2025).
• Regulatory uncertainty: The legal and regulatory landscape for blockchain-based assets is evolving, posing risks of reclassification as securities, increased compliance costs, or operational shutdowns.
• Initial dependence on a single digital asset (SKY) introduces specific protocol, governance, and market risks.
• Potential for increased earnings volatility due to fair value accounting for crypto assets (ASU No. 2023-08), which recognizes both unrealized gains and losses in net income.
• Risk of non-performance by third-party counterparties, including custodians and trading platforms, which could lead to loss of assets or operational disruptions.
• The company's common stock may trade at a discount to its net asset value (NAV) due to digital asset holdings, and investors could experience losses unrelated to the performance of underlying assets.

Risks

• The company may be unable to successfully implement its new blockchain-based asset strategy or operate SKY-related activities at the scale or profitability currently anticipated.
• The Sky network (or Sky Protocol) involves significant technical, market, governance, regulatory, and operational risks, including smart contract failures, disruption, or exploitation of weaknesses.
• USDS, the stablecoin underpinning the Sky Protocol, may fail to maintain its 1:1 peg to the U.S. dollar during extreme market volatility, leading to loss of confidence and impairment of SKY value.
• USDS is backed by digital asset collateral whose market values may decline rapidly and unpredictably, triggering liquidations that may not recover sufficient value to support the outstanding USDS supply.
• Insufficient on-chain and off-chain liquidity during periods of heightened volatility or market disruption could impair redemptions, liquidations, and price discovery, exacerbating losses.
• Governance of the Sky Protocol through SKY ownership and voting may lead to a small number of holders controlling substantial voting power, potentially influencing protocol parameters in ways that do not align with all participants' interests.
• Sky Star Agents, decentralized projects within the Sky Ecosystem, may pursue experimental or untested initiatives, implement software, or engage in activities subject to significant technological, legal, regulatory, and operational uncertainties.
• The company's historical financial statements do not reflect the potential variability in earnings from SKY holdings, making it difficult to evaluate future prospects and achieve profitability.
• The price of SKY has been, and will likely continue to be, highly volatile, and substantial decreases could materially adversely affect financial results and the market price of common stock.
• SKY's status as an asset that may potentially be deemed a security, as well as the status of SKY-related products and services (e.g., staking), is subject to regulatory uncertainty, potentially leading to regulatory scrutiny, inquiries, investigations, fines, and other penalties.
• If any blockchain-based assets held or acquired are later determined to constitute securities and exceed 40% of total assets, the company could be classified as an investment company under the 1940 Act, subjecting it to significant additional regulatory requirements.
• Reliance on third-party trading platforms and over-the-counter brokers exposes the company to risks if these platforms fail to meet standards, experience security breaches, or are involved in illicit activities.
• Evolving accounting standards for crypto assets may increase earnings volatility and reporting complexity, potentially requiring retrospective adjustments or impacting financial statements.
• A cyberattack or other malicious attack on the SKY Protocol or related service providers could result in a partial or total loss of blockchain-based assets, harm to reputation, improper data disclosure, and significant regulatory scrutiny.
• Risks relating to the custody of SKY tokens include the loss or destruction of private keys required to access tokens and cyberattacks or other data loss, which may not be covered by insurance.
• Decentralized finance (DeFi) arrangements expose the company to smart contract risks, operational failures, and cybersecurity threats, including software code bugs, liquidation risks, and governance risks.
• The company's SKY strategy exposes it to the risk of non-performance by counterparties, including execution partners and custodians, due to financial deterioration, insolvency, or other reasons.
• The ability to generate income from blockchain-based asset holdings (e.g., staking) is subject to significant uncertainty due to unpredictable reward rates, adoption timelines, liquidity, and security risks.
• Political or economic crises may motivate large-scale sales of blockchain-based assets, resulting in a reduction in values and materially and adversely affecting the company.
• Proof-of-stake blockchains are a relatively recent innovation and have not been subject to as widespread use or adoption over as long a period as traditional proof-of-work blockchains, potentially having undetected vulnerabilities or operational problems.
• Changes in regulatory interpretations could require the company to register as a money services business or money transmitter, leading to increased compliance costs or operational shutdowns.
• Reliance on open-source code by blockchain-based asset networks exposes risks related to competitive networks, insufficient maintenance, and discovery of security vulnerabilities.
• Popular stablecoins are reliant on the U.S. banking system and U.S. treasuries, and the failure of either to function normally could impede the function of stablecoins or lead to outsized redemption requests.
• The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of SKY and adversely impact the business.
• If interest rates rise or other opportunities in external DeFi protocols or traditional finance become more attractive, the digital asset strategy may underperform or become unsustainable.
• The company's digital asset holdings will be less liquid than its cash and cash equivalents and may not be able to serve as a source of liquidity for the company.
• Taxation of blockchain-based assets is complex and evolving, potentially leading to unexpected tax liabilities, additional reporting obligations, or disputes with tax authorities.
• The price of the company's common stock may fluctuate substantially, which may result in losses to stockholders, influenced by blockchain-based asset market volatility and regulatory changes.
• Offers of new securities or availability for sale of a substantial number of shares of common stock, including from warrant exercise, may cause the price of publicly traded securities to decline.
• The common stock may trade at a discount to the company's net asset value, and investors could experience losses unrelated to the performance of underlying blockchain-based asset holdings.

Future Outlook

The company intends to use the private placement proceeds and future cash raises to support a multi-year capital allocation strategy focused on acquiring and holding a portfolio of select digital assets, primarily SKY, that exhibit revenue-generating characteristics. This strategy anticipates holding digital assets for extended periods for protocol-level economics and potential capital appreciation, periodically monetizing holdings for corporate purposes, evaluating liquidity/financing options collateralized by assets, and investing in internal capabilities for digital asset management. The execution and scope of this strategy are subject to prevailing market conditions, risk limits established by the Digital Asset Strategy Advisory Committee, commercial opportunities, and regulatory, legal, and tax considerations. The company expects the proportion of its total assets represented by SKY holdings to increase, leading to potentially significantly more earnings volatility in future periods. The company will monitor its asset composition and income to avoid classification as an investment company under the 1940 Act, which may require disposing of blockchain-based assets or deploying capital into non-investment assets.

Management Comments

• "The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding Common Stock, which dilution may be substantial under certain market conditions."
• "The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company."
• "We believe that long-term ownership of digital assets, including SKY, can provide exposure to blockchain-based financial infrastructure that enables peer-to-peer settlement and programmability without reliance on a central operator."
• "We also believe that such exposure can offer potential long-term appreciation and participation in protocol-level economics if adoption of the Sky Protocol, tooling, and ecosystem services expands."
• "While it is our intention to acquire and deploy blockchain-based assets that are not securities and that would not expose us to regulatory scrutiny, the legal uncertainty in this area may cause us to miscalculate."
• "We do not believe that the Company will be an investment company, as such term is defined in the 1940 Act, and it does not intend to register as an investment company under the 1940 Act."

Industry Context

This announcement positions NovaBay Pharmaceuticals, Inc. as a participant in the emerging digital asset and blockchain-based financial infrastructure sector, marking a significant departure from its legacy wound care business. The company's focus on SKY, a protocol token of a decentralized network built around the USDS stablecoin, aligns with a broader industry trend of companies seeking exposure to 'protocol-level economics' and 'decentralized finance (DeFi)' activities. The filing highlights the significant regulatory uncertainty prevalent in the digital asset space, with multiple regulators asserting jurisdiction and evolving legal frameworks (e.g., potential classification as securities, Investment Company Act implications), which is a common challenge for entities entering this sector. The reliance on third-party trading platforms and custodians, and the associated risks, are standard considerations in the digital asset industry, especially in light of recent high-profile bankruptcies. The discussion of proof-of-stake versus proof-of-work blockchains and the inherent volatility of newer tokens like SKY reflects the speculative and rapidly developing nature of this industry compared to traditional asset classes.

Comparison to Industry Standards

• The strategic pivot from a traditional pharmaceutical business (wound care) to a digital asset acquisition strategy is a significant departure from typical industry standards for a publicly traded company, especially one listed on NYSE American.
• The capital raise of approximately $134 million, with a substantial portion in digital assets (SKY and stablecoins), is unusual for a company of NovaBay's previous profile, indicating a strong commitment to the new, high-growth potential strategy.
• The high potential dilution (approximately 87% of outstanding common stock upon full warrant exercise) is a notable characteristic, often seen in early-stage or highly speculative ventures, which this new strategy effectively makes NovaBay.
• The explicit acknowledgment of risks related to digital asset volatility, regulatory uncertainty (e.g., 1940 Act, security classification), and cybersecurity aligns with best practices for disclosure in the nascent digital asset industry, reflecting a comprehensive risk assessment.
• The establishment of a Digital Asset Strategy Advisory Committee and the detailed custodial arrangements indicate an attempt to implement institutional-grade risk management, which is a positive step in an industry often criticized for lax controls.
• The consent right granted to major purchasers over the Digital Asset Strategy is a significant governance provision, reflecting the substantial investment and influence of these new stakeholders, which is not a standard corporate governance practice for all investors.

Management Changes

Corporate Governance

Related Party Transactions

• R01 Fund LP and Framework Ventures IV L.P. participated in the January 16, 2026 private placement, purchasing pre-funded warrants for 268,399,868 and 250,546,261 shares, respectively. Michael Kazley, CEO and Chairman, is the manager member of R01 Capital Manager, which is the investment manager for R01 Capital, the general partner of R01 Fund LP. The terms for R01 and Framework were the same as other investors.
• On October 16, 2025, R01 Fund LP and Framework Ventures IV L.P. purchased pre-funded warrants for 5,405,406 shares for approximately $6 million.
• In connection with the Private Placement, R01 Fund LP and Framework Ventures IV L.P. were granted certain demand registration rights and nomination rights under an Investors Rights Agreement.
• These related party transactions were reviewed and approved by the Company's Audit Committee, which determined the terms were no less favorable to the Company than those obtainable from unaffiliated third parties.

Stakeholder Impact

• Shareholders face significant potential dilution (approximately 87% of outstanding common stock upon full warrant exercise) and increased volatility in share price due to the new digital asset strategy. New nomination rights and consent rights granted to major investors could shift control dynamics.
• Employees may experience changes in operational focus and skill requirements due to the business realignment, potentially impacting existing roles or requiring new hires with digital asset expertise.
• Customers of the legacy wound care business might see reduced investment or attention to that segment, potentially affecting product development or service quality.
• Creditors may view the capital raise as strengthening the balance sheet, but the high-risk nature of digital asset holdings could introduce new credit risk considerations.
• New Investors (Purchasers) gain significant equity exposure and governance influence, but also bear the substantial risks associated with the volatile digital asset market and regulatory uncertainty.

Next Steps

• Obtain stockholder approval for the Issuance Proposals and the Common Stock Authorization Proposal (increasing authorized shares from 1.5 billion to 5 billion).
• File amendments to the relevant Registration Statement as required by the SEC to cover the maximum number of Registrable Securities.
• Keep the Registration Statement continuously effective until all Registrable Securities are sold or can be sold without restriction under Rule 144.
• File a Notification Form: Listing of Additional Shares Application with NYSE American for the Shares.
• Terminate relationship with Coinbase Custody Trust Company, LLC (or any affiliate) as custodian of digital assets within 30 days of the filing date.
• The Digital Asset Strategy Advisory Committee, with consent from major purchasers, will evaluate and approve any changes to the Digital Asset Strategy or acquisition of new assets.
• The company will continue to monitor asset composition and income to avoid classification as an investment company under the 1940 Act.
• Warrants will become exercisable in tranches: 20% at 6 months, 30% at 9 months, and 50% at 12 months from the Original Issue Date (January 16, 2026).

Key Dates

Recommendation

The company is undergoing a radical strategic pivot from pharmaceuticals to digital asset investment, backed by a substantial capital raise. While the capital infusion is positive, the new strategy is inherently high-risk due to extreme volatility in digital asset markets, significant regulatory uncertainty, and potential for substantial dilution. The long-term viability and profitability of this new direction are unproven. Investors should hold to observe the initial execution of this strategy and the company's ability to navigate the complex digital asset landscape before making further investment decisions. The related party transactions and significant investor control also warrant careful monitoring.

Keywords

NovaBay Pharmaceuticals, NBY, pre-funded warrants, private placement, digital assets, blockchain, cryptocurrency, SKY token, USDS stablecoin, capital raise, strategic shift, financial technology, decentralized finance, DeFi, corporate governance, risk management, dilution, market volatility, regulatory risk, investment company act, shareholder approval, R01 Fund LP, Framework Ventures IV L.P., Tether Investments, Sky Frontier Foundation