Sonoma Pharmaceuticals Reports Second Quarter FY 2021 Financial Results

“We are pleased that our second fiscal quarter results show continued progress towards our goal of building a sustainable company that can deliver both growth and profitability,” said Amy Trombly, CEO of Sonoma Pharmaceuticals. Ms. Trombly continued, “We continue to invest in growth opportunities by building our pipeline of products and working with our extensive network of distributors to commercialize them.”

Ms. Trombly continued, “we are disappointed that a first quarter restatement was necessary. At the time the first quarter 10-Q was prepared, we were transitioning offices and staff. The restructuring of our Finance Department is now complete and we have hired a permanent CFO, CPA-certified controller and additional accounting staff to replace the temporary staff. They have been working exceptionally hard in the past few weeks to correct our first quarter 10-Q and prepare our second quarter 10-Q. We expect to be back on track with accurate SEC reporting going forward.” During the review of Sonoma’s financial statements, our staff discovered material errors in the first quarter financial statements that led to a restatement of the quarter ended June 30, 2020. The combined errors led to a correction of net income from $992,000 to $240,000 and earnings per share of $0.54 per share to $0.13 per share.

Business Highlights for the Second Fiscal Quarter

During the second fiscal quarter, Sonoma successfully completed the move from Petaluma, CA to Woodstock, GA. All manufacturing is now completed in Sonoma’s state-of-the-art facility in Zapopan, Mexico. Sonoma expects to see a continuing reduction in both overhead and cost of good sold as a result of this reorganization.

A joint study by the University of Hong Kong and Queen Mary Hospital using Dermodacyn® Disinfecting solution, a medical grade solution manufactured by Sonoma and sold by Sonoma’s partner MicroDerm Technologies Limited in Hong Kong, was published in the Journal of Hospital Infection. (Journal of Hospital Infection 106 (2020) pages 226-231). The study showed that Dermodacyn® Disinfecting solution drastically reduced the viability of SARS-CoV-2 against other commonly-used laboratory and domestic disinfectants.

Sonoma’s partner, MicroSafe Group DMCC, Dubai,. received a “green” designation from “Good Environmental Choice Australia” (GECA) certifying Nanocyn® Disinfectant & Sanitizer as all natural. Sonoma manufactures Nanocyn using is proprietary HOCl technology.

Sonoma’s international business continued to show strength as the company works with its global network of distribution partners to expand the number of products and territories where those products are offered. For example, Sonoma worked with its partner Te Arai BioFarma to launch two new products in Australia and New Zealand for nasal and oral care as previously disclosed on September 9, 2020.

Sonoma’s operating results continue to improve quarter over quarter with an overall increase in revenue and reduction in operating costs. While the COVID-19 pandemic has provided a challenging global environment, Sonoma’s diversity in product offerings and global markets served has proven to not only insulate Sonoma from regional downturns, but the Company’s anti-viral and anti-bacterial products have seen increased demand in certain regions.

Results for the Second Quarter and Six Months Ended September 30, 2020

Revenue of $5,769,000 for the second quarter ended September 30, 2020, increased by $1,042,000, or 22%, from $4,727,000 for the same period last year. This increase was primarily the result of increases in revenue in Latin America and Europe and Rest of World of $1,076,000 and $191,000, respectively, offset by a decrease in revenue in the United States of $225,000. Revenue of $11,536,000 for the six months ended September 30, 2020, increased by $2,315,000, or 25%, from $9,221,000 for the same period last year. This increase was primarily the result of increases in revenue in Latin America of $2,638,000 and Europe and Rest of World of $768,000, respectively, offset by a decrease in revenue in the United States of $1,091,000. The COVID-19 pandemic continues to impact our U.S. dermatology revenues. Further, during the six months ended September 30, 2020, animal care products increased slightly from the prior year. Acute products are down slightly in revenue from prior year during the six months ended September 30, 2020.

For the quarter ended September 30, 2020, Sonoma reported revenues of $5,769,000 and cost of revenues of $3,267,000, resulting in gross profit of $2,502,000 or 43% of revenues, compared to a gross profit of $2,175,000 or 46% of revenues, for the same period in the prior year. For the quarter ended September 30, 2020, gross margins decreased by 3% when compared to the same period last year as a result of the product mix sold. For the six months ended September 30, 2020, Sonoma reported revenues of $11,536,000 and cost of revenues of $6,779,000, resulting in gross profit of $4,757,000, or 41% of revenues, compared to a gross profit of $4,468,000 or 48% or revenues. For the six months ended September 30, 2020, gross margins decreased by 7% as a result of a larger share of low-margin Invekra sales compared to total sales. Sonoma expects profit margins to improve in the future as a result of the end of the contract with Invekra in October 2020 and moving U.S. manufacturing to the Mexican facility.

Total operating expenses during the second quarter of fiscal year 2020 were $2,333,000, down $1,129,000, or 33%, when compared to $3,462,000 during the same period in the prior year. Total operating expenses during the six months ended September 30, 2020 of $5,253,000 decreased by $2,273,000, or 30%, compared to $7,526,000 during the same period last year. The decrease in total operating expenses was primarily the result of a reduction in headcount and the closure of the Petaluma facility.

Net income from continuing operations for the quarter ended September 30, 2020, was $151,000, compared to a net loss of $(1,288,000) for the quarter ended September 30, 2019. EBITDAS income for the quarter ended September 30, 2020 of $383,000, was up $1,469,000, compared to an EBITDAS loss of $(1,086,000), for the same period last year.

Net loss from continuing operations for the six months ended September 30, 2020, was $(557,000), compared to a net loss of $(614,000) for the same period in prior year. EBITDAS loss for the six months ended September 30, 2020 of $(166,000), was up $2,323,000, compared to an EBITDAS loss of $(2,489,000) for the same period last year.

As of September 30, 2020, Sonoma had cash and cash equivalents of $4,320,000. On May 1, 2020, Sonoma received loan proceeds in the amount of $1,310,000 under the Paycheck Protection Program. Whether any amount will be forgiven has not been determined yet.

About Sonoma Pharmaceuticals, Inc.

Sonoma Pharmaceuticals is a global healthcare leader for developing and producing stabilized hypochlorous acid (HOCl) products for a wide range of applications, including wound care, animal health care, eye care, nasal care, oral care and dermatological conditions. The company’s products reduce infections, itch, pain, scarring and harmful inflammatory responses in a safe and effective manner. In-vitro and clinical studies of hypochlorous acid (HOCl) show it to have impressive antipruritic, antimicrobial, antiviral and anti-inflammatory properties. Sonoma’s stabilized HOCl immediately relieves itch and pain, kills pathogens and breaks down biofilm, does not sting or irritate skin and oxygenates the cells in the area treated assisting the body in its natural healing process. The company’s products are sold either directly or via partners in 53 countries worldwide and the company actively seeks new distribution partners. The company’s principal office is in Woodstock, Georgia, with manufacturing operations in Latin America. European marketing and sales are headquartered in Roermond, Netherlands. More information can be found at www.sonomapharma.com. For partnership opportunities, please contact businessdevelopment@sonomapharma.com.

Forward-Looking Statements

Except for historical information herein, matters set forth in this press release are forward-looking within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including statements about the commercial and technology progress and future financial performance of Sonoma Pharmaceuticals, Inc. and its subsidiaries (the “company”). These forward-looking statements are identified by the use of words such as “continue,” “reduce,” “develop” and “expand,” among others. Forward-looking statements in this press release are subject to certain risks and uncertainties inherent in the company’s business that could cause actual results to vary, including such risks that regulatory clinical and guideline developments may change, scientific data may not be sufficient to meet regulatory standards or receipt of required regulatory clearances or approvals, clinical results may not be replicated in actual patient settings, protection offered by the company’s patents and patent applications may be challenged, invalidated or circumvented by its competitors, the available market for the company’s products will not be as large as expected, the company’s products will not be able to penetrate one or more targeted markets, revenues will not be sufficient to meet the company’s cash needs, fund further development, as well as uncertainties relative to the COVID-19 pandemic and economic development, varying product formulations and a multitude of diverse regulatory and marketing requirements in different countries and municipalities, and other risks detailed from time to time in the company’s filings with the Securities and Exchange Commission. The company disclaims any obligation to update these forward-looking statements, except as required by law.

Sonoma Pharmaceuticals™ is a trademark or registered trademark of Sonoma Pharmaceuticals, Inc. All other trademarks and service marks are the property of their respective owners.

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