Sonoma Pharmaceuticals(SNOA) - 2023 Q3 - Quarterly Report

Product Launches and Developments - The company launched two new over-the-counter dermatology products in the U.S. on October 27, 2022, including Reliefacyn® Advanced Itch-Burn-Rash-Pain Relief Hydrogel and Rejuvacyn® Advanced Skin Repair Cooling Mist[76]. - On January 4, 2023, the company introduced a line of office dispense products for skin care professionals, including Reliefacyn Plus Advanced Itch-Burn-Rash-Pain Relief Hydrogel and Rejuvacyn Plus Skin Repair Cooling Mist[77]. - The company has developed and produced stabilized hypochlorous acid (HOCl) products for various applications, demonstrating significant antimicrobial and anti-inflammatory properties[70]. - The company launched its first direct-to-consumer over-the-counter product, Microcyn® OTC Wound and Skin Cleanser, in February 2021, available through Amazon and other distributors[83]. - The company’s prescription product Acuicyn™ is designed for the treatment of blepharitis and is sold through its partner EMC Pharma in the U.S.[86]. Market Presence and Distribution - The company sells its products in 55 countries, focusing on partnerships for marketing and distribution both domestically and internationally[72]. - The company has partnered with Manna Pro Products, LLC to distribute its animal health products in the U.S. and Canada, targeting national pet-store retail chains[93]. - The company’s dermatology products are marketed in Europe, Asia, and Brazil through a network of distributors, with some products developed as private label[80]. - The company received approval to market its HOCl products as biocides in France, Germany, and Portugal under the European Biocidal Products Regulation[84]. - The company’s HOCl-based surface disinfectant, Nanocyn®, received approval for use against COVID-19 in Australia and Canada, highlighting its effectiveness in infection control[95]. Financial Performance - Total revenue for the three months ended December 31, 2022, was $2,944,000, a 1% increase from $2,902,000 in the same period of 2021[99]. - Revenue in the United States decreased by $1,269,000 (33%) for the nine months ended December 31, 2022, primarily due to transitioning the prescription dermatology business to EMC Pharma[100]. - Europe revenue increased by 51% to $1,104,000 for the three months ended December 31, 2022, driven by higher demand for wound care products and new product introductions[101]. - Gross profit for the three months ended December 31, 2022, was $831,000, a 31% decrease from $1,203,000 in the same period of 2021, with gross profit margin dropping from 41% to 28%[105]. - Research and development expenses for the three months ended December 31, 2022, were $0, a 100% decrease from $26,000 in the same period of 2021[106]. - Selling, general and administrative expenses increased by 25% to $2,665,000 for the three months ended December 31, 2022, due to facility consolidation costs[107]. - Net loss for the three months ended December 31, 2022, was $1,939,000, compared to a net loss of $944,000 in the same period of 2021[112]. - Cash and cash equivalents decreased to $2,634,000 as of December 31, 2022, down from $8,529,000 a year earlier[113]. - Net cash used in operating activities for the nine months ended December 31, 2022, was $3,711,000, primarily due to the net loss of $3,843,000[115]. - The accumulated deficit as of December 31, 2022, was $188,206,000, an increase from $184,363,000 as of March 31, 2022[113]. - Net cash used by financing activities was $883,000 for the nine months ended December 31, 2022, primarily due to principal payments on long-term debt of $674,000 and payments of PPP loan of $120,000[117]. Future Outlook and Risks - The company expects revenues to fluctuate and may incur losses in the foreseeable future, indicating a potential need to raise additional capital for product development and market penetration[118]. - Management believes access to capital resources is possible through public or private equity offerings, debt financings, or corporate collaborations, but cannot assure availability on commercially acceptable terms[119]. - The company is exposed to risks from declines in foreign currencies, particularly the euro and the Mexican peso against the U.S. dollar, which have impacted financial results[120]. - The company faces a substantial Mexico tax liability and has engaged tax professionals to explore options to limit exposure, with amounts not due until 2027[121]. - Increased shipping costs have been observed, but the overall impact on business operations has been minimal; customers currently bear most shipping expenses[122]. - The company is monitoring economic conditions and consumer sentiment, as a potential recession in the U.S. may impact financial results[123]. - The Inflation Reduction Act introduced a new 15% corporate minimum tax effective in 2023, along with a 1% excise tax on stock repurchases[124]. - The company is currently evaluating the effect of the Inflation Reduction Act on its consolidated financial statements[125]. - There are no off-balance sheet arrangements that are likely to materially affect the company's financial condition or results[127].