Sonoma Pharmaceuticals Reports Fiscal Year and Fourth Quarter 2021 Financial Results

• Total Revenues Increase 4% Year over Year
• Strong International Growth with 34% Increase in Product Revenues Year over Year
• Increase in Net Loss by $0.8 Million Year over Year due to $3.6 Million in Gain on Sale of Assets Last Year
• EBITDAS Loss Declined by $3.4 Million Year over Year

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, oral and nasal care and dermatological conditions today announced financial results for fiscal year 2021 and the fourth quarter ended March 31, 2021.

“For the past 18 months we have been restructuring the Company to cut losses while positioning it for growth,” said Amy Trombly, CEO. “Last year we consolidated all manufacturing at our factory in Mexico (June), and ended our contract with Invekra that required us to sell product with low margin (October). This year, we entered into a partnership agreement with EMC Pharma, LLC for the sale and distribution of our prescription products in the U.S. allowing us to significantly cut our overhead expenses, including the direct sales force, while continuing to sell our high quality prescription products. Moving forward, we intend to identify additional distribution partners in the U.S. while continuing to bring our pipeline of established products to market and to build on the strength of our international business.”

Business Highlights

On March 26, 2021, Sonoma entered into a new partnership with EMC Pharma, who gained exclusive rights in the U.S. to commercialize our prescription dermatology and prescription eye care products and non-exclusive rights to sell our wound care products into government channels. The initial term of the agreement is five years, it is renewable and subject to minimum purchases.

We continue to forge new partnerships and expand existing ones to increase our reach both in products sold and regions we sell into. Some recent examples are:

• In September 2020, along with our partner Te Arai Biofarma Ltd., we launched two new products in New Zealand, Nasocyn® Nasal Care and Oracyn® Oral Care.
• In December 2020, we partnered with Gabriel Science, LLC to sell our HOCl product, Endocyn®, into dental markets in the U.S.
• In January 2021, we received clearances in Thailand and began selling Dermodacyn® disinfectant in Hong Kong and Thailand through our partner VetSynova Co. Ltd.
• In May 2021, we first shipped wound care products to Egypt via Sonoma’s partner in the Middle East, Microsafe Care.

Additionally, we continue to seek new regulatory clearances to expand potential markets we can sell our products into. For example, Sonoma secured the EU Article 95 biocidal registration in February 2021. As a follow-up, in March 2021 Sonoma was granted the PT2 disinfectant approval for Germany, France and Portugal. In addition, Sonoma has been granted PT3 approval for veterinary hygiene for its MicrocynAH product in Germany, France and Portugal.

Results for the Quarter Ended March 31, 2021

Total revenue of $2.2 million for the fourth quarter ended March 31, 2021, decreased by $2.1 million, or 50%, from $4.3 million for the same period last year. The primary reason for the decline was the $1.6 million decline in United States sales driven by the decline of our dermatology business which we have now partnered with EMC Pharma, LLC and $800,000 of revenue adjustments related to overestimation of revenue in the year ended March 31, 2020 that was determined using a look-back analysis. Another reason for the decline was the $0.7 million decline in Latin America revenue as a result of the Invekra contract ending in October 2020. Pursuant to the Invekra contract, Sonoma manufactured for Invekra at low margins. Since the contract has ended, Sonoma has continued to manufacture for Invekra at reduced quantities but higher margins.

During the quarter ended March 31, 2021, Sonoma reported total revenues of $2.2 million and cost of revenues of $2.4 million resulting in total gross loss of $0.2 million, or (9)% of total revenue, compared to a gross profit of $1.4 million, or 33% of total revenue in the same period last year. Adjusted for the $800,000 of revenue adjustments made to the dermatology business, the gross profit percentage for the quarter ended March 31, 2021 would be approximately 20%. The decline in gross margin is the result of product mix, associated with higher sales to Invekra at a lower margin and higher product sales to distributors versus sales through our direct sales force which tend to have higher net selling prices and thus higher margins. Although distributor sales typically have lower margins, they don’t require the higher operating expenses associated with a dedicated sales force.

Total operating expenses during the fourth quarter of fiscal year 2021 were $2.6 million, down $2.0 million, or 49%, as compared to the same period in the prior year. This decrease in operating expenses was primarily due to lower employee costs resulting from a reduction in headcount and consolidation of manufacturing combined with a refocusing of the business activities resulting in cost-reductions across all divisions.

Net loss for the fourth quarter of fiscal 2021 was $3.6 million, up by $1.9 million, or 111%, compared to the same period last year. The increase in net loss was due primarily due to a gain on sale of assets to Microsafe of $1.1 million in the fourth quarter of FY 2020 and to a lesser extent the writedowns of revenue in the fourth quarter of fiscal year 2021. EBITDAS loss for the fourth quarter of fiscal 2021 of $2.7 million, was up by $100,000, or 4%, compared to an EBITDAS loss of $2.8 million for the same period last year.

As of March 31, 2021, Sonoma had cash and cash equivalents of $4.2 million.

Results for the Year Ended March 31, 2021

Total revenues for the year ended March 31, 2021 of $18.6 million increased by $0.6 million as compared to $17.9 million for the year ended March 31, 2020. Product revenues for the year ended March 31, 2021 of $18.5 million increased by $0.7 million, or 4%, as compared to $17.8 million for the year ended March 31, 2020. The product revenue consisted of a decrease in product revenue of $2.6 million, or 32%, in the United States, an increase in product revenue of $2.2 million, or 58%, in Latin America, and an increase of product revenue of $1.0 million, or 17%, in Europe and Rest of World.

For the year ended March 31, 2021, Sonoma reported total revenues of $18.6 million and total cost of revenues of $12.0 million, resulting in total gross profit of $6.6 million, or 35% of total revenues, compared to a gross profit of $8.1 million, or 45% of total revenues, for the same period in the prior year. The gross profit percentage adjusted for the $800,000 over estimation of prior year revenues would have been 37% for the year ended March 31, 2021. The decline in gross margin is the result of product mix, associated with higher sales to Invekra at a lower margin and higher product sales to distributors versus sales through our direct sales force which tend to have higher net selling prices and thus higher margins. Although distributor sales typically have lower margins they don’t require the higher operating expenses associated with a dedicated sales force.

Total operating expenses during fiscal year 2021 were $10 million, down $5.5 million, or 35%, as compared to the same period in the prior year. This decrease in operating expenses was primarily due to lower employee costs resulting from a reduction in headcount and consolidation of manufacturing combined with a refocusing of the business activities resulting in cost-reductions across all divisions.

Net loss during fiscal year 2021 was $3.9 million, up $0.6 million, or 18%, compared to the same period last year. EBITDAS loss for fiscal year 2021 of $2.9 million, was down $3.3 million, or 53%, compared to an EBITDAS loss of $6.2 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 54 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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