Sonoma Pharmaceuticals Reports Third Quarter 2023 Financial Results

• Cash burn of $717,000 for the quarter ended December 31, 2022, 68% less than prior quarter cash burn of $2,235,000
• Revenues for three and nine months ended December 31, 2022 essentially flat with strong performance in international sales
• European revenues increased 51% for the quarter and 29% for the nine months ended December 31, 2022, compared to the same periods prior year

BOULDER, CO / ACCESSWIRE / February 14, 2023 / Sonoma Pharmaceuticals, Inc. (NASDAQ:SNOA),a global healthcare leader developing and producing stabilized hypochlorous acid (HOCl) products for a wide range of applications, including wound care, eye care, nasal care, oral care and dermatological conditions, today announced financial results for its third fiscal quarter and nine months ended December 31, 2022.

"Our revenues remain strong despite overall economic trends such as inflation, and reduced consumer spending. These trends affected our U.S. business resulting in a decline in the sales of our consumer products. However, our international sales increased in the nine months ended December 31, 2022 compared to the same period in the prior year, with the largest increases in Europe and Latin America. We continue to grow our distributor network, recently adding partners in the U.S. and in Asia, and expanding our product offerings in many regions. We expect our ongoing efforts to add distributors and introduce new products to result in meaningful impacts to future results," said Amy Trombly, CEO of Sonoma. She continued, "Our sharply reduced cash burn for the quarter, combined with $2.5 milllion raised since quarter end, places Sonoma in a solid position as we head toward the end of our fiscal year."

Business Highlights

Sonoma continued to expand its business by launching new products and building new partnerships while growing existing distributor relationships and seeking additional regulatory approvals:

• On January 4, 2023, Sonoma launched a line of office dispense products exclusively for skin care professionals. These products include Regenacyn ^® Plus Scar Management Hydrogel, Reliefacyn ^® Plus Itch-Burn-Rash-Pain Relief Hydrogel, and Rejuvacyn ^® Plus Skin Repair Cooling Mist, all in prescription strength formulations. Sonoma is targeting its office distribution program to dermatology practices and medical spas, offering improved outcomes, convenience, and lower healthcare costs for clients while providing an additional source of income for skin care professionals. Sonoma's office dispense products can be purchased by skin care professionals directly on our website at https://sonomapharma.com/skin-care-professionals .
• In January 2023, Sonoma's Microcyn ^® Rx products, including wound care, prescription dermatology products, Celacyn ^® and Levicyn ^® , and prescription eye care Acuicyn ^® , received a Distribution and Pricing Agreement (DAPA) for distribution by the Defense Logistics Agency (DLA), enabling our partner, EMC Pharma, LLC to enter into distribution agreements for these products with federal customers.
• On January 26, 2023, Sonoma entered into a new partnership with one of the largest pharmaceutical companies in South Korea, Daewoong Pharmaceuticals, for the exclusive distribution of Microcyn technology-based Primocyn ^TM Skin Solution.
• In January 2023, Sonoma continued to expand its U.S. distributor network by partnering with Key Therapeutics, LLC, which will be introducing Sonoma's new line of pediatric care products to pediatricians in the United States.

Results for the Quarter Ended December 31, 2022

Revenues for the quarter ended December 31, 2022 of $2.9 million increased slightly compared to the same period last year. European sales increased by 51%, reflecting an increase in demand for our wound care products as well as the introduction of several new products in Europe. Latin America revenue also increased compared to the same period last year. Decreased revenues in the United States were primarily the result of a decline in sales of our consumer-focused animal health care products as well as an overall retail market slowdown. The decrease in Rest of World revenue was due to decreased disinfectant sales in the Middle East that was partially offset by increased sales in India. The decrease in Asia revenue for the three months ended December 31, 2022 was due to timing of sales with Asian customers receiving higher values of sales earlier in the year compared to the third quarter. Sonoma's revenues tend to be choppy when viewed on a quarterly basis due to international customers placing larger but less frequent orders to benefit from quantity discounts and reduced shipping costs.

For the quarter ended December 31, 2022, Sonoma reported revenues of $2.9 million and cost of revenues of $2.1 million, resulting in gross profit of $0.8 million, or 28% of revenue, compared to a gross profit of $1.2 million, or 41% of revenue, for the same period last year. Gross margins decreased by 13% for the quarter ended December 31, 2022 when compared to the same period last year as a result of overall product mix, lower manufacturing levels and higher costs of materials and transportation.

Total operating expenses during the third quarter of fiscal year 2023 were $2.7 million, up $0.5 million, or 23%, when compared to $2.2 million during the same period in the prior year, as a result of closing down our Woodstock, GA facility and moving finance and operations staff to our Boulder, CO headquarters, as well as $350,000 of additional expenses for settling a long term contract, each of which management expects to be a one-time event. We continue to tightly manage expenses across all of our operations.

Net loss before income tax for the quarter was $1.9 million, compared to a net loss of $0.9 million for the same period last year. EBITDAS loss for the quarter ended December 31, 2022 of $1.6 million was higher by $0.7 million, compared to an EBITDAS loss of $0.9 million for the same period last year.

Results for the Nine Months Ended December 31, 2022

Revenues of $10.3 million for the nine months ended December 31, 2022 were essentially flat compared to the same period last year. Revenues increased in Europe, Asia, and Latin America. Decreased sales in the United States were due to the conversion of our prescription dermatology business to a distribution model and a decline in sales of our consumer-focused animal health care products as well as an overall retail market slowdown. The decrease in Rest of World revenue was due to decreased disinfectant sales in the Middle East that was partially offset by increased sales in India.

For the nine months ended December 31, 2022, Sonoma reported revenues of $10.3 million and cost of revenues of $6.6 million, resulting in gross profit of $3.6 million, or 35% of revenues, compared to a gross profit of $3.9 million or 38% or revenues in the same period last year. The decrease in gross profit margin for the nine months ended December 31, 2022 was primarily due to product mix and higher costs of materials and transportation.

Total operating expenses during the nine months ended December 31, 2022 of $7.0 million increased by $0.3 million, or 4%, compared to $6.7 million during the same period last year due to $350,000 of additional expenses for settling a long term contract and some increased expenses related to closing the Woodstock, GA office, each of which management expects to be a one-time event.

Net loss before taxes for the nine months ended December 31, 2022 was $3.7 million, compared to a net loss before taxes of $2.1 million for the same period in prior year. EBITDAS loss for the nine months ended December 31, 2022 of $2.8 million was higher by $0.3 million, compared to an EBITDAS loss of $2.5 million for the same period last year.

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 55 countries worldwide and the company actively seeks new distribution partners. The company's principal office is in Boulder, Colorado, with manufacturing operations in Guadalajara, Mexico. 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 "expect," "continue," "believe" 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 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™, Microcyn ^® , Regenacyn ^® , Reliefacyn ^® , Rejuvacyn ^® , Celacyn ^® , Levicyn ^® and Acuicyn ^® are trademarks or registered trademarks of Sonoma Pharmaceuticals, Inc. All other trademarks and service marks are the property of their respective owners.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share amounts)
(Unaudited)

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands)
(Unaudited)

1. Income (loss) from continuing operations minus non-cash expenses (EBITDAS) is a non-GAAP financial measure. The company defines operating income (loss) minus non-cash expenses as GAAP reported operating income (loss) minus operating depreciation and amortization, and operating stock-based compensation. The company uses this measure for the purpose of modifying the operating loss to reflect direct cash related transactions during the measurement period. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP. Non-GAAP measures are not always consistent across, or comparable with, non-GAAP measures disclosed by other companies.
2. Net income (loss) minus non-cash and one time expenses is a non-GAAP financial measure. The company defines net income (loss) minus non-cash expenses as GAAP reported net income (loss) minus depreciation and amortization, stock-based compensation, forgiveness of PPP loan and non-cash foreign exchange transaction losses. The company uses this measure for the purpose of modifying the net loss to reflect only those expenses to reflect direct cash transactions during the measurement period. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP. Non-GAAP measures are not always consistent across, or comparable with, non-GAAP measures disclosed by other companies.
3. Operating expenses minus non-cash expenses is a non-GAAP financial measure. The company defines operating expenses minus non-cash expenses as GAAP reported operating expenses minus operating depreciation and amortization, and operating stock-based compensation. The company uses this measure for the purpose of identifying total operating expenses involving cash transactions during the measurement period. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP. Non-GAAP measures are not always consistent across, or comparable with, non-GAAP measures disclosed by other companies.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
PRODUCT RELATED REVENUE SCHEDULES
(In thousands)
(Unaudited)

The following table presents the company's disaggregated product revenues by geographic region:

SOURCE: Sonoma Pharmaceuticals, Inc.

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