Form 10-K - Annual report [Section 13 and 15(d), not S-K Item 405] (2024)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form10-K

(Mark One)

Commission File Number: 001-33216

SONOMA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in itscharter)

5445 Conestoga Court, Suite 150

Boulder, Colorado 80301

(Address of principal executive offices) (ZipCode)

(800)759-9305

(Registrant’s telephone number, includingarea code)

Securities registered pursuant to Section12(b)of the Act:

Securities registered pursuant to Section12(g)of the Act:

None.

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule405 of the Securities Act. Yes ☐No ☒

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section13 or Section15(d) of the Act. Yes ☐No ☒

Indicate by check mark whetherthe registrant (1)has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2)hasbeen subject to such filing requirements for the past 90days. Yes ☒No ☐

Indicate by check mark whetherthe registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule405 of RegulationS-T(§232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submitsuch files). Yes ☒ No ☐

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerginggrowth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reportingcompany,” and “emerging growth company” in Rule12b-2 of the Exchange Act:

If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whetherthe registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal controlover financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm thatprepared or issued its audit report. ☐

If securities are registeredpursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filingreflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whetherany of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of theregistrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule12b-2 of the Act). Yes ☐No ☒

The aggregate market valueof the votingand non-voting common stock held by non-affiliates of the registrant on September 29, 2023, was $3,797,950 based ona total of 4,932,404 shares of the registrant’s common stock held by non-affiliates on September 29, 2023, at the closing priceof $0.77 per share, as reported on the Nasdaq Capital Market.

There were sharesof the registrant’s common stock issued and outstanding on June 17, 2024.

DOCUMENTS INCORPORATED BYREFERENCE

Items10 (as to directorsand Section16(a) Beneficial Ownership Reporting Compliance), 11, 12, 13 and 14 of PartIII will incorporate by reference informationfrom the registrant’s proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitationof proxies for the registrant’s 2023 annual meeting of stockholders.

TABLE OF CONTENTS

PART I

This report includes “forward-lookingstatements.” The words “may,” “will,” “anticipate,” “believe,” “estimate,”“expect,” “intend,” “plan,” “aim,” “seek,” “should,” “likely,”and similar expressions as they relate to us or our management are intended to identify these forward-looking statements. All statementsby Sonoma regarding expected financial position, revenues, cash flows and other operating results, business strategy, legal proceedingsand similar matters are forward-looking statements. Our expectations expressed or implied in these forward-looking statements may notturn out to be correct. Our results could be materially different from our expectations because of various risks, including the risksdiscussed in this report under “PartI— Item1A— Risk Factors.” Any forward-looking statementspeaks only as of the date as of which such statement is made, and, except as required by law, we undertake no obligation to update anyforward-looking statement to reflect events or circ*mstances, including unanticipated events, after the date as of which such statementwas made.

ITEM1.Business

Corporate Information

We originally incorporated as Micromed Laboratories,Inc. in 1999 under the laws of the State of California. We changed our name to Oculus Innovative Sciences, Inc. in 2001. In December 2006we reincorporated under the laws of the State of Delaware, and in December 2016 we changed our name to Sonoma Pharmaceuticals, Inc.

In 2022, we relocated our principal executiveoffices from 645 Molly Lane, Suite 150, Woodstock, Georgia, 30189 to 5445 Conestoga Court, Suite 150, Boulder, Colorado 80301. We havetwo active wholly-owned subsidiaries: Oculus Technologies of Mexico, S.A. de C.V., and Sonoma Pharmaceuticals Netherlands, B.V. Our fiscalyear end is March 31. Our corporate telephone number is (800) 759-9305. Our websites are www.sonomapharma.com and www.sonomapharma.eu.The websites and any information contained therein or connected thereto is not intended to be incorporated into this report.

Overview

We are a global healthcare leader for developingand producing stabilized hypochlorous acid, or HOCl, products for a wide range of applications, including wound care, eye care, oral care,dermatological conditions, podiatry, animal health care and non-toxic disinfectants. Our products are clinically proven to reduce itch,pain, scarring, and irritation safely and without damaging healthy tissue. In-vitro and clinical studies of HOCl show it to safely manageskin abrasions, lacerations, minor irritations, cuts, and intact skin. We sell our products either directly or via partners in 55 countriesworldwide.

Business Update

Over the past year, we have continued our focuson growing our revenues while maintaining costs. Our human care revenues have grown as a result of adding new customers and distributors,and through organic growth from existing customers and distributors. We have also focused on introducing new products into multiple marketsaround the world and increasing our regulatory reach by seeking new approvals and clearances.

Some of our recent business updates include:

We continue to invest in research and development,both in the U.S. and internationally, for our core performance-stabilized hypochlorous acid, or HOCl, technology. We have an active pipelineof products and we continue to seek new regulatory clearances to expand potential markets we can sell our products into.

Business Channels

Our core market differentiation is based on beingthe leading developer and producer of stabilized hypochlorous acid, or HOCl, solutions. We have been in business for over 20 years, andin that time, we have developed significant scientific knowledge of how best to develop and manufacture HOCl products backed by decadesof studies and data collection. HOCl is known to be among the safest and most-effective ways to relieve itch, inflammation and burns whilestimulating natural healing through increased oxygenation and eliminating persistent microorganisms and biofilms.

We sell our products into many markets both inthe U.S. and internationally. In international markets, we ship a variety of products to 55 countries. Our core strategy is to work withpartners both in the United States and around the world to market and distribute our products. In some cases, we market and sell our ownproducts.

Dermatology

We have developed unique, differentiated, prescription-strengthand safe dermatologic products that support paths to healing among various key dermatologic conditions. Our products are primarily targetedat the treatment of redness and irritation, the management of scars and symptoms of eczema/atopic dermatitis. We are strategically focusedon introducing innovative new products that are supported by human clinical data with applications that address specific dermatologicalprocedures currently in demand. In addition, we look for markets where we can provide effective product line extensions and pricing tonew product families.

In the United States, we partner with EMC Pharma,LLC to sell our prescription dermatology products. Pursuant to our March 2021 agreement with EMC Pharma, we manufacture products for EMCPharma and EMC Pharma has the right to market, sell and distribute them to patients and customers for an initial term of five years, subjectto meeting minimum purchase and other requirements.

In September2021, we launched a new over-the-counter product, Regenacyn® Advanced Scar Gel, which is clinically proven to improve the overallappearance of scars while reducing pain, itch and redness. On the same day, we launched Regenacyn® Plus, a prescription-strength scargel which is available as an office dispense product through physician offices.

In October2022, we launched two new over-the-counter dermatology products in the United States, Reliefacyn® Advanced Itch-Burn-Rash-Pain ReliefHydrogel for the alleviation of red bumps, rashes, shallow skin fissures, peeling, and symptoms of eczema/atopic dermatitis, and Rejuvacyn®Advanced Skin Repair Cooling Mist for management of minor skin irritations following cosmetic procedures as well as daily skin healthand hydration.

In June 2022, the Natural Products Associationcertified Rejuvacyn Advanced as a Natural Personal Care Product. Reliefacyn Advanced received the National Eczema Association Seal ofAcceptance^TM in 2023.

In January 2023, we launched a line of officedispense products exclusively for skin care professionals, including two new prescription strength dermatology products, Reliefacyn^®PlusAdvanced Itch-Burn-Rash-Pain Relief Hydrogel and Rejuvacyn^®Plus SkinRepair Cooling Mist. These products, along with Regenacyn® Plus Scar Gel, aremarketed and sold directly to dermatology practices and medical spas.

In January2024, we launched Lumacyn^TM Clarifying Mist, a direct-to-consumer skin care product in the United States. Lumacyn is an all-naturaldaily toner to soothe skin, reduce redness and irritation, and manage blemishes by reducing infection.

Our consumer products are availablethrough Amazon.com, our online store and third-party distributors.

We sell dermatology products in Europe and Asiathrough distributors. In these international markets, we have a network of partners, ranging from country specific distributors to largepharmaceutical companies to full-service sales and marketing companies. We work with our international partners to create products theycan market in their home country. Some products we develop and manufacture are custom label while others use branding we have alreadydeveloped. We have created or co-developed a wide range of products for international markets using our core HOCl technology.

First Aid and Wound Care

Our HOCl-based wound care products are intendedfor the treatment of acute and chronic wounds as well as first- and second-degree burns, and as an intraoperative irrigation treatment.They work by first removing foreign material and debris from the skin surface and moistening the skin, thereby improving wound healing.Secondly, our HOCl products assist in the wound healing process by removing microorganisms. HOCl is an important constituent of our innateimmune system, formed and released by the macrophages during phagocytosis. Highly organized cell structures such as human tissue can toleratethe action of our wound care solution while single-celled microorganisms cannot, making our products advantageous to other wound-irrigationand antiseptic solutions. Due to its unique chemistry, our wound treatment solution is also much more stable than similar products onthe market and therefore maintains much higher levels of hypochlorous acid over its shelf life.

In the United States, we sell our wound care productsdirectly to hospitals, physicians, nurses, and other healthcare practitioners and indirectly through non-exclusive distribution arrangements.In Europe, the Middle East and Asia, we sell our wound care products through a diverse network of distributors.

To respond to market demand for our HOCl technology-basedproducts, we launched our first direct to consumer over-the-counter product in the United States in February 2021. Microcyn® OTC Woundand Skin Cleanser is formulated for home use without prescription to help manage and cleanse wounds, minor cuts, and burns, includingsunburns and other skin irritations. Microcyn OTC is available without prescription through Amazon.com, our online store and third-partydistributors.

In March 2021, we received approval to marketand use our HOCl products as biocides under Article 95 of the European Biocidal Products Regulation in France, Germany and Portugal. Theapproval applies to our products MucoClyns™ for human hygiene to be marketed and commercialized by us, MicrocynAH® for animalheath marketed and commercialized through our partner, Petagon Limited, and MicroSafe for disinfectant use to be marketed and commercializedthrough our partner, MicroSafe Group DMCC.

In June 2022, the Natural Products Associationcertified Microcyn OTC as a Natural Personal Care Product in the United States.

In June 2023, we announced a new application ofour HOCl technology for intraoperative pulse lavage irrigation treatment, which can replace commonly used IV bags in a variety of surgicalprocedures. The intraoperative pulse lavage container is designed to be used in combination with a pulse lavage irrigation device, orflush gun, for abdominal, laparoscopic, orthopedic, and periprosthetic procedures. It is in trial use by hospitals in Europe and launchedin the U.S. in November 2023.

On April 9, 2024, we announced expansion of ourMicrocyn® Negative Pressure Wound Therapy Solution products line, now available in 250mL, 450mL and 990mL sizes to meet the diverseneeds of healthcare professionals and patients.

Eye Care

Our prescription productAcuicyn™ is an antimicrobial prescription solution for the treatment of blepharitis and the daily hygiene of eyelids and lashesand helps manage red, itchy, crusty and inflamed eyes. It is strong enough to kill the bacteria that causes discomfort, fast enough toprovide near instant relief, and gentle enough to use as often as needed. In the United States, our partner EMC Pharma sells Acuicyn throughits distribution network.

In international marketswe rely on distribution partners to sell our eye products. In May 2020, we entered into an expanded license and distribution agreementwith our existing partner, Brill International S.L. for our Microdacyn60® Eye Care HOCl-based product. Under the license and distributionagreement, Brill has the right to market and distribute our eye care product under the private label Ocudox™ in Italy, Germany,Spain, Portugal, France, and the United Kingdom for a period of 10 years, subject to meeting annual minimum sales quantities. In return,Brill paid us a one-time fee, and the agreed upon supply prices. In parts of Asia, Dyamed Biotech markets our eye product under the privatelabel Ocucyn.

In September 2021, welaunched Ocucyn® Eyelid & Eyelash Cleanser, which is sold directly to consumers on Amazon.com, through our online store, and throughthird party distributors. Ocucyn® Eyelid & Eyelash Cleanser, designed for everyday use, is a safe, gentle, and effective solutionfor good eyelid and eyelash hygiene.

Oral, Dental and Nasal Care

We sella variety of oral, dental, and nasal products around the world.

In international markets, our product Microdacyn60®Oral Care treats mouth and throat infections and thrush. Microdacyn60 assists in reducing inflammation and pain, provides soothing coughrelief and does not contain any harmful chemicals. It does not stain teeth, is non-irritating, non-sensitizing, has no contraindicationsand is ready for use with no mixing or dilution.

Our international nasal care product Sinudox™based on our HOCl technology is an electrolyzed solution intended for nasal irrigation. Sinudox clears and cleans stuffy, runny nosesand blocked or inflamed sinuses by ancillary ingredients that may have a local antimicrobial effect. Sinudox is currently sold throughAmazon in Europe. In other parts of the world, we partner with distributors to sell Sinudox.

Podiatry

Our HOCl-based wound care products are also indicatedfor the treatment of diabetic foot ulcers. In the United States, we sell our wound care products directly to podiatrists as well as hospitals,nurses, and other healthcare practitioners and indirectly through non-exclusive distribution arrangements. In Europe, we sell our woundcare products for podiatric use through a diverse network of distributors.

On April 11, 2023, we launched Podiacyn^TMAdvanced Everyday Foot Care direct to consumers for over-the-counter use in the United States, intended for management of foot odors,infections, and irritations, as well as daily foot health and hygiene. Podiacyn is available through Amazon.com, our online store andthird-party distributors.

Animal Health Care

MicrocynAH® is an HOCl-based topical productthat cleans, debrides and treats a wide spectrum of animal wounds and infections. It is intended for the safe and rapid treatment of avariety of animal afflictions including cuts, burns, lacerations, rashes, hot spots, rain rot, post-surgical sites, pink eye symptomsand wounds to the outer ear.

For our animal health products sold in the U.S.and Canada, we partner with Compana Pet Brands. Compana distributes non-prescription products to national pet-store retail chains andfarm animal specialty stores, such as PetSmart, Tractor Supply, Cabela’s, PetExpress, Bass Pro Shops, and Menards. In August 2022,we announced the launch of a MicrocynVS^® line of products exclusively for veterinarians for the management of wound, skin,ear and eye afflictions in all animal species.

For theAsian and European markets, in May 2019 we partnered with Petagon an international importer and distributor of quality pet food and productsfor an initial term of five years. We supply Petagon with all MicrocynAH products sold by Petagon. In August 2020, Petagon received alicense from the People’s Republic of China for the import of veterinary drug products manufactured by us. This is the highest classificationPetagon and Sonoma can receive for animal health products in China.

Surface Disinfectants

Our HOCl technology has been formulated as a disinfectantand sanitizer solution for our partner MicroSafe and is sold in numerous countries. It is designed to be used to spray in aerosol formatin areas and environments likely to serve as a breeding ground for the spread of infectious disease, which could result in epidemics orpandemics. The medical-grade surface disinfectant solution is used in hospitals worldwide to protect doctors and patients. In May 2020,Nanocyn® Disinfectant & Sanitizer received approval to be entered into the Australian Register of Therapeutic Goods, or ARTG foruse against the coronavirus SARS-CoV-2, or COVID-19, and was also authorized in Canada for use against COVID-19. Nanocyn has also metthe stringent environmental health and social/ethical criteria of Good Environmental Choice Australia, or GECA, becoming one of the veryfew eco-certified, all-natural disinfectant solutions in Australia.

Through our partner MicroSafe, we sell hard surfacedisinfectant products into Europe, the Middle East and Australia.

In July 2021, we granted MicroSafe the non-exclusiveright to sell and distribute Nanocyn in the United States provided that MicroSafe secure U.S. EPA approval. In April of 2022, MicroSafesecured the EPA approval for Nanocyn® Disinfectant & Sanitizer, meaning that it can now be sold in the United States as a surfacedisinfectant, and it was subsequently added to the EPA’s list N for use against COVID-19. In June 2022, the EPA added Nanocyn toList Q as a disinfectant for Emerging Viral Pathogens, including Ebola virus, Mpox, and SARS-CoV-2, and in March 2023 the EPA added Nanocynto Lists G and H, for use against Methicillin Resistant Staphylococcus Aureus (MRSA), Salmonella, Norovirus, Poliovirus, and as a fungicide.Nanocyn also received the Green Seal^® Certification after surpassing a series of rigorous standards that measure environmentalhealth, sustainability and product performance. Nanocyn is currently sold by MicroSafe in Europe, the Middle East and Australia.

Employees

As of June 17, 2024, we employed a total of 9full-time employees in the United States, and one full-time employee in the Netherlands. Additionally, we had 162 employees in Mexico.We are not a party to any collective bargaining agreements. We believe relations with employees are very good.

Products

Our products are all classified as medical devicesand categorized as prescription, over-the-counter (OTC) and office dispense products. Below are some of our key products that we eithersell through our own efforts or through partnership agreements.

Dermatology

In the United States, we offer Lumacyn ClarifyingMist, Regenacyn Advanced Scar Gel and Reliefacyn Advanced Itch-Burn-Rash-Pain Relief Hydrogel for OTC purchase, and Regenacyn Plus ScarGel and Reliefacyn Plus Itch-Burn-Rash-Pain Relief Hydrogel for office dispense.

Lumacyn^TM Clarifying Mist

Lumacyn^TM Clarifying Mist is intendedfor use as a daily skin toner, to soothe and cleanse the skin, reduce redness, and manage blemishes by reducing infection.

Regenacyn®Advanced Scar Gel and Regenacyn® Plus Scar Gel

Regenacyn® Advanced Scar Gel is clinically proven to improve the overall appearance of scars while reducing pain and itch. Regenacyn® Plus is a prescription-strength scar gel which is available as an office dispense product through dermatology practices and medical spas.

Reliefacyn® Advanced Itch-Burn-Rash-Pain Relief Hydrogel and Reliefacyn®Plus Itch-Burn-Rash-Pain Relief Hydrogel

Reliefacyn® Advanced Itch-Burn-Rash-Pain Relief Hydrogel is intended for the alleviation of red bumps, rashes, shallow skin fissures, sunburn, peeling, and symptoms of eczema/atopic dermatitis. Reliefacyn® Plus is a prescription-strength formula available as an office dispense product through dermatology practices and medical spas.

Our prescription product offerings in the U.S.are sold by our partner EMC Pharma, LLC and include Epicyn® Antimicrobial Facial Cleanser, Levicyn® Antimicrobial Dermal Spray,Levicyn® Antipruritic Gel, Levicyn® Antipruritic Spray Gel, Celacyn® Scar Management Gel and Sebuderm® Topical Gel.

Internationally, we offer GramaDerm™ Hydrogeland Solution Combo Pack to assist in the treatment of topical mild to moderate acne, Epicyn™ Scar Management Hydrogel and Pediacyn™Atopic Dermatitis Hydrogel.

Wound Care

In the United States we offer Microcyn® wound and skin care bothas an OTC and prescription product.

Microcyn® OTC Advanced Wound & Skin Cleanser

Microcyn® OTC Advanced Wound & Skin Cleanser is intended forthe over-the-counter management of skin abrasions, lacerations, minor irritations and cuts.

Microcyn® Wound Care Management for Professional Use

Microcyn® offers enhanced healing properties. Microcyn® is a HOCl-based topical line of products designed to stimulate expedited healing by targeting a wide range of pathogens including viruses, fungi, spores and bacteria, including antibiotic-resistant strains that slow the natural healing of wounds.

Eye, Nasal and Oral Care

Ocucyn® Eyelid and Eyelash Cleanser

Ocucyn® Eyelid and Eyelash Cleanser is an OTC product sold directlyin the United States.

Internationally, we offer Ocudox^TM for eye care, Sinudox^TM for nasal irrigation, and Microdacyn60®Oral Care to support the treatment of mouth and throat infections and the debridement and moistening of mouth lesions and thrush.

Podiatry

Podiacyn^TM Advanced Everyday Foot Care

PodiacynTM is intended for management of foot odors, infections, and irritations, as well as daily foot health and hygiene.

Animal Health Care

In the United States and internationally, ourHOCl-based MicrocynAH® line offers topical solutions designed to relieve the common symptoms of hot spots, scratches, skin rashes,post-surgical sites and irritated animal skin and promote expedited healing for all animals.

Our MicrocynVS® line is veterinarian-strengthanimal care for use in vet clinics and animal hospitals.

Surface Disinfectants

Through our partner MicroSafe DMCC, Dubai, wesell Nanocyn®. Nanocyn is a hospital-grade disinfectant indicated to sterilize hard surfaces by spraying directly onto the surface,for medical devices by submerging the device in Nanocyn, and also for fumigation into the air.

When fumigated, Nanocyn has demonstrated the abilityto kill a wide range of airborne pathogens and significantly reduce the spread of infectious disease.

Research and Development

Research and development expenses consist primarilyof expenses for clinical studies, personnel, regulatory services and supplies. For the years ended March 31, 2024 and 2023, research anddevelopment expense amounted to $1,871,000 and $207,000, respectively. A small percentage of these expenses were borne by our customers.

We manufacture all of our products at our facilityin Zapopan, Mexico. We have developed a manufacturing process and conduct quality assurance testing on each production batch in accordancewith current U.S., Mexican and international Current Good Manufacturing Practices. Our facility is required to meet and maintain regulatorystandards applicable to the manufacture of pharmaceutical and medical device products and is certified and complies with U.S. CurrentGood Manufacturing Practices, Quality Systems Regulations for medical devices, and International Organization for Standardization, orISO, guidelines. Our facility has been approved by the Ministry of Health and is also ISO 13485 certified.

Our machines are tested regularly, which is partof a validation protocol mandated by U.S., Mexican and international Current Good Manufacturing Practices, Quality Systems Regulation,and ISO requirements. This validation is designed to ensure that the final product is consistently manufactured in accordance with productspecifications at all manufacturing sites. Certain materials and components used in manufacturing are proprietary to Sonoma. All otherraw materials and supplies utilized in the manufacturing process of our products are available from various third-party suppliers in quantitiesadequate to meet our needs.

We believe we own sufficient factory space andequipment to produce an adequate amount of product to meet anticipated future requirements for at least the next two years. With expansioninto new geographic markets, we may establish additional manufacturing facilities to better serve those new markets.

Regulatory Approvals and Clearances

To date, in the United States we have obtained21 U.S. Food and Drug Administration, or FDA, clearances permitting the sale of products as medical devices for Section 510(k) of theFederal Food, Drug and Cosmetic Act.

Outside the United States, we sell products fordermatological and advanced tissue care with a European Conformity marking, Conformité Européenne, or CE. On April 9, 2020,we received an updated CE certificate covering 39 products in 54 countries with various approvals in Brazil, China, Southeast Asia, SouthKorea, India, Australia, New Zealand, and the Middle East.

The following table summarizesour current material regulatory approvals and clearances by brand.

Significant Customers

We rely on certain key customers for a significantportion of revenues. At March 31, 2024, customer B represented 13% of our net accounts receivable balance and customer D represented 17%of our net accounts receivable balance. At March 31, 2023, customer B represented 22% of our net accounts receivable balance and customerD represented 21% of our net accounts receivable balance. For the year ended March 31, 2024, customer A represented 17%, customer B represented15% and customer C represented 14% of net revenues. For the year ended March 31, 2023, customer A represented 11%, customer B represented16% and customer C represented 18% of net revenues.

Intellectual Property

Our success depends in part on an ability to obtainand maintain proprietary protection for product technology and know-how, to operate without infringing proprietary rights of others, andto prevent others from infringing on our proprietary rights. We seek to protect a proprietary position by, among other methods, filing,when possible, U.S. and foreign patent applications relating to our technology, inventions and improvements that are important to thebusiness. We have patented certain aspects of our HOCl technology in the United States and worldwide. We also rely on trade secrets, know-how,continuing technological innovation, and in-licensing opportunities to develop and maintain a proprietary position.

Although we work diligently to protect proprietarytechnology, there are no assurances that any patent will be issued from currently pending patent applications or from future patent applications.The scope of any patent protection may not exclude competitors or provide competitive advantages, and any patent may not be held validif subsequently challenged, and others may claim rights in or ownership of patents and proprietary rights. Furthermore, others may developproducts similar to ours and may duplicate any of the products or design around patents.

We have also filed for trademark protection formarks used with products in each of the following regions: United States, Europe, Canada, certain countries in Central and South America,including Mexico and Brazil, certain countries in the Middle East and certain countries in Asia, including Japan, China, Hong Kong, theRepublic of Korea, India and Australia. In addition to patents and trademarks, we rely on trade secret and other intellectual propertylaws, nondisclosure agreements and other measures to protect intellectual property rights. We believe that in order to have a competitiveadvantage, we must develop and maintain the proprietary aspects of technologies. Employees, consultants and advisors are required to executeconfidentiality agreements in connection with their employment, consulting or advisory relationships. Employees, consultants and advisorswith whom we expect to work with are also required to disclose and assign to us all inventions made in the course of a working relationshipwith them, while using intellectual property or which relate to our business. Despite any measures taken to protect our intellectual property,unauthorized parties may attempt to copy aspects of the products or to wrongfully obtain or use information that is regarded as proprietary.

Competition

We compete globally across six main channels:dermatology, eye, nasal and oral care, wound and acute care, podiatry, animal health care and surface disinfectants with our HOCl technology.

Dermatology

Our dermatology products are at the forefrontof HOCl-based solutions, a safe and highly effective active ingredient designed to relieve itching and burning and act as a highly effectiveantimicrobial agent. We believe no other solutions on the market provide the same patient benefits at the levels of safety and cost. OurHOCl-based solutions face significant competition in the United States from prescription products including corticosteroids, topical steroidsand topical antibiotics. Our opportunity as an adjunct to these steroids is based on the insight that many doctors and patients limitsteroid and antibiotic use due to potential side effects. These side effects include bacterial resistance, stinging, burning and inflammationfor topical antibiotics and stretch marks, easy bruising, tearing of the skin and, to a lesser extent, enlarged blood vessels for topicalsteroids. Our HOCl-based products are safe, non-toxic and have shown few side effects in clinical studies.

Wound and Acute Care Markets

Similar to our dermatology products, our HOCl-basedwound and acute care solutions provide improved efficacy at lower costs than traditional acute care products. Our HOCl-based solutionscompete with topical anti-infectives and antibiotics, as well as some advanced wound technologies, such as skin substitutes, growth factorsand delayed release silver-based dressings. Our opportunity in this space relative to antibiotics is based on the insight that competingantibiotic solutions may have resistance-building properties.

Factors Affecting Competitive Position

While some other companies are able to producesmall molecule, HOCl-based formulations, based on our research, their products may become unstable after a relatively short period oftime or have large ranges of effectiveness. We believe our HOCl-based solutions are among the most stable therapeutics available.

Some of our competitors in the dermatology, woundcare, eye, nasal and oral care, podiatry, animal health care and surface disinfectant markets enjoy several competitive advantages. Theseinclude:

Government Regulation

Government authorities in the United States, atthe federal, state and local levels, and foreign countries extensively regulate, among other things, the research, development, testing,manufacture, labeling, promotion, advertising, distribution, sampling, marketing, and import and export of pharmaceutical products, biologicsand medical devices. All of our products in development will require regulatory approval or clearance by government agencies prior tocommercialization. In particular, human therapeutic products are subject to rigorous pre-clinical and clinical trials and other approvalprocedures of the FDA and similar regulatory authorities in foreign countries. Various federal, state, local and foreign statutes andregulations also govern testing, manufacturing, safety, labeling, storage, distribution and record-keeping related to such products andtheir marketing. The process of obtaining these approvals and clearances, and the subsequent process of maintaining substantial compliancewith appropriate federal, state, local, and foreign statutes and regulations, require the expenditure of substantial time and financialresources. In addition, statutes, rules, regulations and policies may change and new legislation or regulations may be issued that coulddelay such approvals.

Medical Device Regulation

To date, we have received 21 510(k) clearancesfor use of products as medical devices in tissue care management, such as cleaning, debridement, lubricating, moistening and dressing,including for acute and chronic wounds, and in dermatology applications. Any future product candidates or new applications classifiedas medical devices will require clearance by the FDA.

Medical devices are subject to FDA clearance andextensive regulation under the Federal Food Drug and Cosmetic Act. Under the Federal Food Drug and Cosmetic Act, medical devices are classifiedinto one of three classes: Class I, Class II or Class III. The classification of a device into one of these three classes generally dependson the degree of risk associated with the medical device and the extent of control needed to ensure safety and effectiveness. Devicesmay also be designated unclassified. Unclassified devices are legally marketed pre-amendment devices for which a classification regulationhas yet to be finalized and for which a pre-market approval is not required.

Class I devices are devices for which safety andeffectiveness can be assured by adherence to a set of general controls. These general controls include compliance with the applicableportions of the FDA’s Quality System Regulation, which sets forth good manufacturing practice requirements; facility registration,device listing and product reporting of adverse medical events; truthful and non-misleading labeling; and promotion of the device onlyfor its cleared or approved intended uses. ClassII devices are also subject to these general controls, and any other special controlsas deemed necessary by the FDA to ensure the safety and effectiveness of the device. Review and clearance by the FDA for these devicesis typically accomplished through the 510(k) pre-market notification procedure. When 510(k) clearance is sought, a sponsor must submita pre-market notification demonstrating that the proposed device is substantially equivalent to a legally marketed device. If the FDAagrees that the proposed device is substantially equivalent to the predicate device, then 510(k) clearance to market will be granted.After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that wouldconstitute a major change in its intended use, requires a new 510(k) clearance or could require a pre-market approval.

Clinical trials are almost always required tosupport a pre-market approval application and are sometimes required for a 510(k) pre-market notification. These trials generally requiresubmission of an application for an investigational device exemption. An investigational device exemption must be supported by pre-clinicaldata, such as animal and laboratory testing results, which show that the device is safe to test in humans and that the study protocolsare scientifically sound. The FDA must approve an investigational device exemption, in advance, for a specified number of patients, unlessthe product is deemed a non-significant risk device and is eligible for more abbreviated investigational device exemption requirements.

Both before and after a medical device is commerciallydistributed, manufacturers and marketers of the device have ongoing responsibilities under FDA regulations. The FDA reviews design andmanufacturing practices, labeling and record keeping, and manufacturers’ required reports of adverse experiences and other informationto identify potential problems with marketed medical devices. Device manufacturers are subject to periodic and unannounced inspectionby the FDA for compliance with the Quality System Regulation, which sets forth the Current Good Manufacturing Practice requirements thatgovern the methods used in, and the facilities and controls used for the design, manufacture, packaging, servicing, labeling, storage,installation and distribution of all finished medical devices intended for human use.

On November 30, 2023, the FDA issued a proposedrule to classify certain wound dressings and liquid wound washes containing antimicrobials with a low level of antimicrobial resistanceconcern, including hypochlorous acid, into Class II medical devices. If finalized as proposed, we would be required to submit new 510(k)applications for our products and to demonstrate compliance with special controls that require specific information relating to performancetesting and technical specifications, specific labeling requirements, and other requirements to mitigate the risks to health and demonstratea reasonable assurance of safety and effectiveness. Our existing devices could serve as predicates for the new devices. The FDA is proposingthat manufacturers will need to demonstrate compliance with applicable special controls within six months after the effective date ofthe rule, when finalized.

FDA regulations prohibit the advertising and promotionof a medical device for any use outside the scope of a 510(k) clearance or pre-market approval or for unsupported safety or effectivenessclaims. Although the FDA does not regulate physicians’ practice of medicine, the FDA does regulate manufacturer communications withrespect to off-label use.

If the FDA finds that a manufacturer has failedto comply with FDA laws and regulations or that a medical device is ineffective or poses an unreasonable health risk, it can instituteor seek a wide variety of enforcement actions and remedies, ranging from a public warning letter to more severe actions such as:

The FDA also has the authority to require a companyto repair, replace, or refund the cost of any medical device.

The FDA also administers certain controls overthe export of medical devices from the United States, as international sales of medical devices that have not received FDA clearance aresubject to FDA export requirements. Additionally, each foreign country subjects such medical devices to its own regulatory requirements.In the European Union, there is a single regulatory approval process and approval is represented by the presence of a CE marking.

Other Regulation in the United States

The Physician Payments Sunshine Act

The Physician Payments Sunshine Act signed intolaw in 2010 as part of the Affordable Care Act requires manufacturers of medical devices, drugs, biologicals, and medical supplies totrack and report certain payments made to and transfers of value provided to physicians and teaching hospitals as well as to report certainownership and investment interests held by physicians and their immediate family members. These manufacturers must report annually tothe Center for Medicare & Medicaid Services any direct or indirect payments and transfers of value of $10 or more, or annual aggregateof $100 or more, made to physicians or to a third party at the request of or on behalf of a physician, including dentists. Payment includes:consulting fees, compensation for services other than consulting, honoraria, gifts, entertainment, food, travel (including the specifieddestinations), education, research, charitable contribution, royalty or license, current or prospective ownership or investment interest,direct compensation for serving as faculty or as a speaker for a medical education program, grants, any other nature of the payment, orother transfer of value. Manufacturers face monetary penalties for non-compliance. Certain payments related to research must be reportedseparately. Product samples intended for patient use need not be reported.

Health Care Coverage and Reimbursem*nt by Third-PartyPayors

Commercial success in marketing and selling productsdepends, in part, on the availability of adequate coverage and reimbursem*nt from third-party health care payors, such as government andprivate health insurers and managed care organizations. Third-party payors are increasingly challenging the pricing of medical productsand services. Government and private sector initiatives to limit the growth of health care costs, including price regulation, competitivepricing, and managed-care arrangements, are continuing in many countries where we do business, including the United States. These changesare causing the marketplace to be more cost-conscious and focused on the delivery of more cost-effective medical products. Governmentprograms, including Medicare and Medicaid, private health care insurance companies, and managed-care plans control costs by limiting coverageand the amount of reimbursem*nt for particular procedures or treatments. This has created an increasing level of price sensitivity amongcustomers for our products. Some third-party payors also require that a favorable coverage determination be made for new or innovativemedical devices or therapies before they will provide reimbursem*nt of those medical devices or therapies. Even though a new medical productmay have been cleared or approved for commercial distribution, we may find limited demand for the product until adequate coverage andreimbursem*nt have been obtained from governmental and other third-party payors.

Fraud and Abuse Laws

In the United States, we are subject to variousfederal and state laws pertaining to healthcare fraud and abuse, which, among other things, prohibit the offer or acceptance of remunerationintended to induce or in exchange for the purchase of products or services reimbursed under a federal healthcare program and the submissionof false or fraudulent claims with the government. These laws include the federal Anti-Kickback Statute, the False Claims Act and comparablestate laws. These laws regulate the activities of entities involved in the healthcare industry, such as Sonoma, by limiting the kindsof financial arrangements such entities may have with healthcare providers who use or recommend the use of medical products, including,for example, sales and marketing programs, advisory boards and research and educational grants. In addition, in order to ensure that healthcareentities comply with healthcare laws, the Office of Inspector General of the U.S.Department of Health and Human Services recommendsthat healthcare entities institute effective compliance programs. To assist in the development of effective compliance programs, the Officeof Inspector General has issued model Compliance Program Guidance, materials for a variety of healthcare entities which, among other things,identify practices to avoid that may implicate the federal Anti-Kickback Statute and other relevant laws and describes elements of aneffective compliance program. While compliance with the Compliance Program Guidance materials is voluntary, a California law requirespharmaceutical and devices manufacturers to initiate compliance programs that incorporate the Compliance Program Guidance and the July2002 Pharmaceuticals Research and Manufacturers of America Code on Interactions with Healthcare Professionals.

Due to the scope and breadth of the provisionsof some of these laws, it is possible that some of our practices might be challenged by the government under one or more of these lawsin the future. Violations of these laws, which are discussed more fully below, can lead to civil and criminal penalties, damages, imprisonment,fines, exclusion from participation in Medicare, Medicaid and other federal health care programs, and the curtailment or restructuringof operations. Any such violations could have a material adverse effect on our business, financial condition, results of operations orcash flows.

Anti-Kickback Laws

Our operations are subject to federal and stateanti-kickback laws. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering orproviding remuneration directly or indirectly to induce either the referral of an individual for a good or service reimbursed under afederal healthcare program, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under afederal healthcare program, such as Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted toinclude anything of value, including such items as gifts, discounts, the furnishing of supplies or equipment, waiver of co-payments, andproviding anything at less than its fair market value. Because the Anti-Kickback Statute makes illegal a wide variety of common, evenbeneficial, business arrangements, the Office of Inspector General was tasked with issuing regulations, commonly known as “safeharbors,” that describe arrangements where the risk of illegal remuneration is minimal. As long as all of the requirements of aparticular safe harbor are strictly met, the entity engaging in that activity will not be prosecuted under the federal Anti-Kickback Statute.The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegalor that prosecution will be pursued. However, business arrangements that do not fully satisfy an applicable safe harbor may result inincreased scrutiny by government enforcement authorities, such as the Office of Inspector General. Our agreements to pay compensationto our advisory board members and physicians who provide other services for us may be subject to challenge to the extent they do not fallwithin relevant safe harbors under state and federal anti-kickback laws. In addition, many states have adopted laws similar to the federalAnti-Kickback Statute, which apply to the referral of patients for health care services reimbursed by Medicaid, and some have adoptedsuch laws with respect to private insurance. Violations of the Anti-Kickback Statute are subject to significant fines and penalties andmay lead to a company being excluded from participating in federal health care programs.

False Claims Laws

The federal False Claims Act prohibits knowinglyfiling a false claim, knowingly causing the filing of a false claim, or knowingly using false statements to obtain payment from the federalgovernment. Certain violations of the Anti-Kickback Statute constitute per se violations of the False Claims Act. Under the False ClaimsAct, such suits are known as “qui tam” actions. Individuals may file suit on behalf of the government and share in any amountsreceived by the government pursuant to a settlement. In addition, certain states have enacted laws modeled after the federal False ClaimsAct under the Deficit Reduction Act of 2005, where the federal government created financial incentives for states to enact false claimslaws consistent with the federal False Claims Act. As more states enact such laws, we expect the number of qui tam lawsuits to increase.Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend falseclaims actions, pay fines or be excluded from Medicare, Medicaid or other federal or state government healthcare programs as a resultof investigations arising out of such actions.

HIPAA

Two federal crimes were created under the HealthInsurance Portability and Accountability Act of 1996, or HIPAA: healthcare fraud and false statements relating to healthcare matters.The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, includingprivate payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact ormaking any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,items or services.

Health Information Privacy and Security

Individually identifiable health information issubject to an array of federal and state regulation. Federal rules promulgated pursuant to HIPAA regulate the use and disclosure of healthinformation by “covered entities.” Covered entities include individual and institutional health care providers from whichwe may receive individually identifiable health information. These regulations govern, among other things, the use and disclosure of healthinformation for research purposes, and require the covered entity to obtain the written authorization of the individual before using ordisclosing health information for research. Failure of the covered entity to obtain such authorization could subject the covered entityto civil and criminal penalties. We may experience delays and complex negotiations in dealing with each entity’s differing interpretationof the regulations and what is required for compliance. Also, where our customers or contractors are covered entities, including hospitals,universities, physicians or clinics, we may be required by the HIPAA regulations to enter into “business associate” agreementsthat subject the company to certain privacy and security requirements. In addition, many states have laws that apply to the use and disclosureof health information, and these laws could also affect the manner in which we conduct research and other aspects of business. Such statelaws are not preempted by the federal privacy law when such laws afford greater privacy protection to the individual than the federallaw. While activities to assure compliance with health information privacy laws are a routine business practice, we are unable to predictthe extent to which resources may be diverted in the event of an investigation or enforcement action with respect to such laws.

Foreign Regulation

Whether or not we obtain FDA approval for a product,approval of a product by the applicable regulatory authorities of foreign countries must be obtained before clinical trials or marketingof the product in those countries can begin. The approval process varies from country to country, and the time may be longer or shorterthan that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursem*ntalso vary greatly from country to country. Although governed by the applicable country, clinical trials conducted outside of the UnitedStates typically are administered under a three-phase sequential process similar to that discussed above for medical devices.

European Union Regulation

Medical Device Regulation

Our products are classified as medical devicesin the European Union. In order to sell medical device products within the European Union, we are required to comply with the requirementsof the Medical Devices Regulation, and its national implementations, including affixing CE markings on products. The CE marking indicatesa product’s compliance with EU legislation and so enables the sale of products throughout the European Economic Area, or the EEA,comprising the 28 Member States of the EU and European Free Trade Association, or EFTA, countries Iceland, Norway, and Liechtenstein.In order to comply with the Medical Devices Regulation, we must meet certain requirements relating to the safety and performance of productsand, prior to marketing products, we must successfully undergo verification of products’ regulatory compliance, or conformity assessment.

The Medical Devices Regulation was adopted inthe EU on May 26, 2017 to replace the existing Medical Device Directive, and became applicable on May 26, 2021, with a transition perioduntil May 26, 2024, which was been extended to December 31, 2028 for non-implantable Class IIb and lower risk devices. Under the new MedicalDevices Regulation, certain devices are classified in higher classes, new devices are classified, and certain new obligations are imposedon manufacturers and distributors. Manufacturers are required to engage a medical device expert and carry insurance for possible liabilityclaims. In addition, the pre-market approval and post-market surveillance requirements are enhanced. The European Database for MedicalDevices, or Eudamed, will hold and publish information on medical devices collected from the European Commission and the national authorities.

Medical devices are divided into three regulatoryclasses: ClassI, ClassIIB and ClassIII. The nature of the conformity assessment procedures depends on the regulatoryclass of the product. In order to comply with the examination, we completed, among other things, a risk analysis and presented clinicaldata, which demonstrated that our products met the performance specifications claimed by us, provided sufficient evidence of adequateassessment of unwanted side effects and demonstrated that the benefits to the patient outweigh the risks associated with the device. Weare subject to continued supervision and are required to report any serious adverse incidents to the appropriate authorities. We are alsorequired to comply with additional national requirements that are beyond the scope of the Medical Devices Regulation.

We received a CE certificate for 39 of our ClassIIB medical devices, which allows us to affix CE markings on these products and sell them in Europe. We may not be able to maintain therequirements established for CE markings for any or all of our products or be able to produce these products in a timely and profitablemanner while complying with the requirements of the Medical Devices Regulation and other regulatory requirements.

European Good Manufacturing Process

In the European Union, the manufacture of pharmaceuticalproducts and clinical trial supplies is subject to good manufacturing practice as set forth in the relevant laws and guidelines. Compliancewith good manufacturing practice is generally assessed by the competent regulatory authorities. They may conduct inspections of relevantfacilities, and review manufacturing procedures, operating systems and personnel qualifications. In addition to obtaining approval foreach product, in many cases each drug manufacturing facility must be approved. Further inspections may occur over the life of the product.

Mexican Regulation

The Ministry of Health is the authority in chargeof sanitary controls in Mexico. Sanitary controls are a group of practices related to the orientation, education, testing, verificationand application of security measures and sanctions exercised by the Ministry of Health. The Ministry of Health is responsible for theissuance of Official Mexican Standards and specifications for drugs subject to the provisions of the General Health Law, which governthe process and specifications of drugs, including the obtaining, preparing, manufacturing, maintaining, mixing, conditioning, packaging,handling, transporting, distributing, storing and supplying of products to the public at large. In addition, a medical device is definedas a device that may contain antiseptics or germicides used in surgical practice or in the treatment of continuity solutions, skin injuriesor its attachments.

Under the General Health Law, a business thatmanufactures drugs is either required to obtain a “Sanitary Authorization” or to file an “Operating Notice.” OurMexican subsidiary, Oculus Technologies of Mexico, S.A. de C.V., is considered a business that manufactures medical devices and thereforeis not subject to a Sanitary Authorization, but rather only required to file an Operating Notice.

In addition to its Operating Notice, our Mexicosubsidiary has obtained a “Good Processing Practices Certificate” issued by Mexican Federal Commission for the Protectionagainst Sanitary Risks, which demonstrates that the manufacturing at our facility located in Zapopan, Mexico, operates in accordance withthe applicable official standards.

In addition, regulatory approval of prices isrequired in most countries other than the United States, which could result in lengthy negotiations delaying our ability to commercializeproducts. We face the risk that the prices which result from the regulatory approval process would be insufficient to generate an acceptablereturn.

Available Information

We make available on sonomapharma.com, free ofcharge, copies of our annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K and amendmentsto these reports, as soon as reasonably practicable after electronically filing or furnishing such materials to the Securities and ExchangeCommission, or SEC. Sonomapharma.com and the information contained therein or connected thereto are not intended to be incorporated intothis annual report on Form10-K. The SEC maintains an Internet site that contains reports, proxy and information statements, andother information regarding issuers that file electronically with the SEC at www.sec.gov.

ITEM1A. Risk Factors

Risks Related to Our Business

We have a history of losses, we expect tocontinue to incur losses and we may never achieve profitability and our March 31, 2024 audited consolidated financial statements includeddisclosure that casts substantial doubt regarding our ability to continue as a going concern.

We reported a net loss of $4,835,000 and $5,151,000for the years ended March 31, 2024 and 2023, respectively. At March 31, 2024 and 2023, our accumulated deficit amounted to $194,349,000and $189,514,000, respectively. We had working capital of $8,829,000 and $10,081,000 as of March 31, 2024 and 2023, respectively. Duringthe years ended March 31, 2024 and 2023, net cash used in operating activities amounted to $2,398,000 and $6,152,000, respectively. Asof March 31, 2024, we had cash and cash equivalents of $3,128,000.

We spent the most recent years working to reduceour losses and have made significant progress. However, we expect to continue incurring losses for the foreseeable future. We may neverachieve or sustain profitability. We must raise additional capital to pursue our product development initiatives, penetrate markets forthe sale of our products and continue as a going concern. We cannot provide any assurance that we will raise additional capital. We believethat we have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations,or other means. If we are unable to secure additional capital, we may be required to curtail our research and development initiativesand take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations.These measures could cause significant delays in our efforts to further commercialize our products, which are critical to the realizationof our business plan and to our future operations. These matters raise substantial doubt about our ability to continue as a going concernor become profitable.

We depend on third party distributors andintend to continue to license or collaborate with third parties in various potential markets, and events involving these strategic partnersor any future collaboration could delay or prevent us from developing or commercializing products.

Our business strategy and our short- and long-termoperating results depend in part on our ability to execute on existing strategic collaborations and to license or partner with new strategicpartners. We believe collaborations allow us to leverage our resources and technologies and to access markets that are compatible withour own core areas of expertise while avoiding the cost of establishing or maintaining a direct sales force in each market. We may incursignificant costs in the use of third parties to identify and assist in establishing relationships with potential collaborators. We currentlyuse distributors for most of our products.

We have limited control over the amount and timingof resources that our current partners or any future collaborators devote to our collaborations or potential products. These partnersmay breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timelymanner. Further, our partners may not develop or commercialize products that arise out of our collaborative arrangements or devote sufficientresources to the development, manufacture, marketing or sale of these products.

To penetrate our target markets, we may need toenter into additional collaborative agreements to assist in the development and commercialization of products. Establishing strategiccollaborations is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial,regulatory or intellectual property position and our internal capabilities. Our discussions with potential collaborators may not leadto the establishment of new collaborations on favorable terms and may have the potential to provide collaborators with access to our keyintellectual property filings and next generation formations. By entering into collaboration, we may preclude opportunities to collaboratewith other third parties who do not wish to associate with our existing third-party strategic partners. Moreover, in the event of terminationof a collaboration agreement, termination negotiations may result in less favorable terms.

Mexican tax law prevents us from deductingintercompany interest expense incurred by our Mexico subsidiary Oculus Technologies of Mexico, S.A. de C.V and requires withholding taxon payments remitted to the US. At the same time, we are unable to recognize tax benefits for foreign tax credits for U.S. tax purposes.

Since 2004, we loaned substantial amounts to ourMexico subsidiary Oculus Technologies of Mexico, S.A. de C.V. at various interest rates to fund their operations. As of March 31, 2024,our Mexico subsidiary owes approximately $13.4 million in principal, $9.8 million in technical assistance payments and $12.6 million inaccrued interest. The intercompany loans mature in 2027. There is no guarantee that our Mexican subsidiary will be able to pay any orall of the amounts due. If we were to forgive the debt or if we were to convert the debt to equity, it would be subject to Mexico incometax at 30%, or approximately $10.7 million, as well as Mexican withholding tax of 15%.

Mexico’s thin capitalization rules alsorequire taxpayers to maintain a debt-to-equity ratio of 3:1. Any interest paid to foreign related parties that results in indebtednessexceeding a ratio of 3:1 to their stockholder’s equity is not deductible for Mexican corporate income tax purposes and we did notmeet that condition. Therefore, we have not been able to deduct the intercompany interest on our Mexico tax returns since 2004. It hasprevented our Mexico subsidiary from accruing net operating losses in Mexico to offset potential future profits. At the same time theintercompany interest income in the United States decreases our U.S. net operating losses and reduces our ability to apply these carryforwardsto offset future taxable income in the United States.

In addition, any interest paid to a foreign lenderis subject to Mexico withholding tax of 15%. We also have interest owed on our intercompany technical assistance agreement and royaltywithholding of 10% on our technical assistance agreement. This would amount to approximately $4.7 million in Mexico withholding tax atMarch 31, 2024, if all of the interest and technical assistance were to be repaid to us. In general, the foreign related party parentcan then claim a credit for these withholding taxes on their U.S. income tax return. However, because of our substantial U.S. net operatinglosses, we are prevented from claiming any credit on any withholding tax for U.S. income tax purposes. Any such failure to pay intercompanydebt, inability to deduct income taxes or apply credits, or liability for tax payments could have a material adverse effect on our business,financial condition, and results of operations.

We rely on a number of key customers whomay not consistently purchase our products in the future and if we lose any one of these customers, our revenues may decline.

Although we have a significant number of customersin each of the geographic markets that we operate in, we rely on certain key customers for a significant portion of our revenues. Forthe year ended March 31, 2024, customer A represented 17%, customer B represented 15% and customer C represented 14% of net revenues.For the year ended March 31, 2023, customer A represented 11%, customer B represented 16% and customer C represented 18% of net revenues.In the future, a small number of customers may continue to represent a significant portion of our total revenues in any given period.These customers may not consistently purchase our products at a particular rate over any subsequent period. The loss of any of these customerscould adversely affect our revenues.

A majority of our business is conductedoutside of the United States, exposing us to additional risks that may not exist in the United States, which in turn could cause our businessand operating results to suffer.

We have material international operations in Mexico,Asia and Europe. During the years ended March 31, 2024 and 2023, approximately 76% and 74% of our total revenue, respectively, were generatedfrom sales outside of the United States. Our business is highly regulated for the use, marketing and manufacturing of our HOCl-based productsboth domestically and internationally. Our international operations are subject to risks, including:

We plan to continue to market and sell our productsinternationally to respond to customer requirements and market opportunities. We currently have manufacturing facilities in Mexico. Establishingoperations in any foreign country or region presents risks such as those described above as well as risks specific to the particular countryor region. In addition, until a payment history is established over time with customers in a new geographic area or region, the likelihoodof collecting receivables generated by such operations could be less than our expectations. As a result, there is a greater risk thatthe reserves set with respect to the collection of such receivables may be inadequate. If our operations in any foreign country are unsuccessful,we could incur significant losses and we may not achieve profitability.

In addition, changes in policies or laws of theUnited States or foreign governments resulting in, among other things, changes in regulations and the approval process, higher taxation,currency conversion limitations, restrictions on fund transfers or the expropriation of private enterprises, could reduce the anticipatedbenefits of our international expansion. If we fail to realize the anticipated revenue growth of our future international operations,our business and operating results could suffer.

If we fail to obtain, or experience significantdelays in obtaining, additional regulatory clearances or approvals to market our current or future products, we may be unable to commercializethese products.

The developing, testing, manufacturing, marketingand selling of medical technology products is subject to extensive regulation by numerous governmental authorities in the United Statesand other countries. The process of obtaining regulatory clearance and approval of medical technology products is costly and time consuming.Even though their underlying product formulations may be the same or similar, our products are subject to different regulations and approvalprocesses depending upon their intended use.

The FDA generally clears marketing of a medicaldevice through the 510(k) pre-market clearance process if it is demonstrated the new product has the same intended use and the same orsimilar technological characteristics as another legally marketed ClassII device, such as a device already cleared by the FDA throughthe 510(k) premarket notification process, and otherwise meets the FDA’s requirements. Product modifications, including labelingthe product for a new intended use, may require the submission of a new 510(k) clearance and FDA approval before the modified productcan be marketed.

On November 30, 2023, the FDA issued a proposedrule to classify certain wound dressings and liquid wound washes, including hypochlorous acid, into Class II medical devices. If finalized,we would be required to submit new 510(k) applications for our products and to demonstrate compliance with special controls that requirespecific information relating to performance testing and technical specifications, specific labeling requirements, and other requirements.While we believe we will be able to demonstrate compliance with these special controls if the proposed rule is finalized, there is noguarantee that the FDA will issue new clearance letters for our products, and the process of obtaining additional clearances may be costlyand time consuming.

In addition, we do not know whether the necessaryapprovals or clearances will be granted or delayed for future products. The FDA could request additional information, changes to productformulation(s) or clinical testing that could adversely affect the time to market and sale of products as drugs. If we do not obtain therequisite regulatory clearances and approvals, we will be unable to commercialize our products and may never recover any of the substantialcosts we have invested in the development of HOCl.

Distribution of our products outside the UnitedStates is subject to extensive government regulation. These regulations, including the requirements for approvals or clearance to market,the time required for regulatory review and the sanctions imposed for violations, vary from country to country. We do not know whetherwe will obtain regulatory approvals in such countries or that we will not be required to incur significant costs in obtaining or maintainingthese regulatory approvals. In addition, the export by us of certain of our products that have not yet been cleared for domestic commercialdistribution may be subject to FDA export restrictions. Failure to obtain necessary regulatory approvals, the restriction, suspensionor revocation of existing approvals or any other failure to comply with regulatory requirements would have a material adverse effect onour future business, financial condition, and results of operations.

If we fail to comply with ongoing regulatoryrequirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawalfrom the market.

Regulatory approvals or clearances that we currentlyhave and that we may receive in the future are subject to limitations on the indicated uses for which the products may be marketed, andany future approvals could contain requirements for potentially costly post-marketing follow-up studies. If the FDA determines that ourpromotional materials or activities constitute promotion of an unapproved use or we otherwise fail to comply with FDA regulations, wemay be subject to regulatory enforcement actions, including warning letters, injunctions, seizures, civil fines or criminal penalties.In addition, the manufacturing, labeling, packaging, adverse event reporting, storing, advertising, promoting, distributing and record-keepingfor approved products are subject to extensive regulation. We are subject to continued supervision by European regulatory agencies relatingto our CE markings and are required to report any serious adverse incidents to the appropriate authorities. Our manufacturing facilities,processes and specifications are subject to periodic inspection by the FDA, Mexican and other regulatory authorities and, from time totime, we may receive notices of deficiencies from these agencies as a result of such inspections. Our failure to continue to meet regulatorystandards or to remedy any deficiencies could result in restrictions being imposed on our products or manufacturing processes, fines,suspension or loss of regulatory approvals or clearances, product recalls, termination of distribution, product seizures or the need toinvest substantial resources to comply with various existing and new requirements. In the more egregious cases, criminal sanctions, civilpenalties, disgorgement of profits or closure of our manufacturing facilities are possible. The subsequent discovery of previously unknownproblems with HOCl, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of ourproducts, and could include voluntary or mandatory recall or withdrawal of products from the market.

New government regulations may be enacted andchanges in FDA policies and regulations and, their interpretation and enforcement, could prevent or delay regulatory approval of our products.We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrativeaction, either in the United States or abroad. Therefore, we do not know whether we will be able to continue to comply with any regulationsor that the costs of such compliance will not have a material adverse effect on our future business, financial condition, and resultsof operations. If we are not able to maintain regulatory compliance, we will not be permitted to market our products and our businesswould suffer.

If any of our third-partycontractors fail to perform their responsibilities to comply with FDA rules and regulations, the manufacture, marketing and sales of ourproducts could be delayed, which could decrease our revenues.

Supplying the marketwith our HOCl technology products requires us to manage relationships with an increasing number of collaborative partners, suppliers andthird-party contractors. As a result, our success depends partially on the success of these third parties in performing their responsibilitiesto comply with FDA rules and regulations. Although we pre-qualify our contractors and we believe that they are fully capable of performingtheir contractual obligations, we cannot directly control the adequacy and timeliness of the resources and expertise that they apply tothese activities. For example, we and our suppliers are required to comply with the FDA’s quality system regulations, which coverthe methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shippingof our products. The FDA enforces the quality system regulation through inspections.

If any of our partnersor contractors fail to perform their obligations in an adequate and timely manner or fail to comply with the FDA’s rules and regulations,including failure to comply with quality systems regulations or a corrective action submitted to the FDA after notification by the FDAof a deficiency is deemed insufficient, then the manufacture, marketing and sales of our products could be delayed. Our products couldbe detained or seized, the FDA could order a recall, or require our partner to replace or offer refunds for our products. The FDA couldalso require our partner, and depending on our agreement with our partner, us, to notify healthcare professionals and others that theproducts present unreasonable risks of substantial harm to the public health. If any of these events occur, the manufacture, marketingand sales of our products could be delayed which could decrease our revenues.

If we fail to complywith the FDA’s rules and regulations and are subject to an FDA recall as part of an FDA enforcement action, the associated costscould have a material adverse effect on our business, financial position, results of operations and cash flows.

Our Company, our products,the manufacturing facilities for our products, the distribution of our products, and our promotion and marketing materials are subjectto strict and continual review and periodic inspection by the FDA and other regulatory agencies for compliance with pre-approval and post-approvalregulatory requirements.

If we fail to complywith the FDA’s rules and regulations, we could be subject to an enforcement action by the FDA. The FDA could undertake regulatoryactions, including seeking a consent decree, recalling or seizing our products, ordering a total or partial shutdown of production, delayingfuture marketing clearances or approvals, and withdrawing or suspending certain of our current products from the market. A product recall,restriction, or withdrawal could result in substantial and unexpected expenditures, destruction of product inventory, and lost revenuesdue to the unavailability of one or more of our products for a period of time, which could reduce profitability and cash flow. In addition,a product recall or withdrawal could divert significant management attention and financial resources. If any of our products are subjectto an FDA recall, we could incur significant costs and suffer economic losses. Production of our products could be suspended and we couldbe required to establish inventory reserves to cover estimated inventory losses for all work-in-process and finished goods related toproducts we, or our third-party contractors, manufacture. A recall of a material amount of our products could have a significant, unfavorableimpact on our future gross margins.

If our productsfail to comply with FDA and other governmental regulations, or our products are deemed defective, we may be required to recall our productsand we could suffer adverse public relations that could adversely impact our sales, operating results, and reputation which would adverselyaffect our business operations.

We may be exposed toproduct recalls, including voluntary recalls or withdrawals, and adverse public relations if our products are alleged to cause injuryor illness, or if we are alleged to have mislabeled or misbranded our products or otherwise violated governmental regulations. Governmentalauthorities can also require product recalls or impose restrictions for product design, manufacturing, labeling, clearance, or other issues.For the same reasons, we may also voluntarily elect to recall, restrict the use of a product or withdraw products that we consider belowour standards, whether for quality, packaging, appearance or otherwise, in order to protect our brand reputation.

Product recalls, productliability claims, even if unmerited or unsuccessful, or any other events that cause consumers to no longer associate our brand with highquality and safe products may also result in adverse publicity, hurt the value of our brand, harm our reputation among our customers andother healthcare professionals who use or recommend the products, lead to a decline in consumer confidence in and demand for our products,and lead to increased scrutiny by federal and state regulatory agencies of our operations, any of which could have a material adverseeffect on our brand, business, performance, prospects, value, results of operations and financial condition.

If our products do not gain market acceptance,our business will suffer because we might not be able to fund future operations.

A number of factors may affect the market acceptanceof our products or any other products we develop or acquire, including, among others:

Our ability to effectively promote and sell anyapproved products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive priceand our ability to obtain sufficient third-party coverage or reimbursem*nt, if any. In addition, our efforts to educate the medical communityon the benefits of our product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion,and may never be successful. If our products do not gain market acceptance, we may not be able to fund future operations, including developing,testing and obtaining regulatory approval for new product candidates and expanding our sales and marketing efforts for our approved products,which would cause our business to suffer.

If our competitors develop products withsimilar characteristics to HOCl, we may need to modify or alter our business strategy, which may delay the achievement of our goals.

Competitors have and may continue to develop productswith similar characteristics to HOCl. Such similar products marketed by larger competitors can hinder our or our partners’ effortsto penetrate the market. As a result, we may be forced to modify or alter our business and regulatory strategy and sales and marketingplans, as a response to changes in the market, competition and technology limitations, among others. Such modifications may pose additionaldelays in achieving our goals.

Negative economic conditions increase therisk that we could suffer unrecoverable losses on our customers’ accounts receivable which would adversely affect our financialresults.

We grant credit to our business customers, whichare primarily located in Mexico, Europe and the United States. Collateral is generally not required for trade receivables. We maintainallowances for potential credit losses. We rely on certain key customers for a significant portion of revenues. At March 31, 2024, customerB represented 13% of our net accounts receivable balance and customer D represented 17% of our net accounts receivable balance. At March31, 2023, customer B represented 22% of our net accounts receivable balance and customer D represented 21% of our net accounts receivablebalance. While we believe we have a varied customer base and have experienced strong collections in the past, if current economic conditionsdisproportionately impact any one of our key customers, including reductions in their purchasing commitments to us or their ability topay their obligations, it could have a material adverse effect on our revenues and liquidity. We have not purchased insurance on our accountsreceivable balances.

We may experience difficulties in manufacturingour products, which could prevent us from commercializing one or more of our products.

The machines used to manufacture our productsare complex, use complicated software and must be monitored by highly trained engineers. Slight deviations anywhere in our manufacturingprocess, including quality control, labeling, and packaging, could lead to a failure to meet the specifications required by the FDA, theEnvironmental Protection Agency, European notified bodies, Mexican regulatory agencies and other foreign regulatory bodies, which mayresult in lot failures or product recalls. If we are unable to obtain quality internal and external components, mechanical and electricalparts, if our software contains defects or is corrupted, or if we are unable to attract and retain qualified technicians to manufactureour products, our manufacturing output of HOCl, or any other product candidate based on our platform that we may develop, could fail tomeet required standards, our regulatory approvals could be delayed, denied or revoked, and commercialization of one or more of our productsmay be delayed or foregone. Manufacturing processes that are used to produce the smaller quantities of HOCl-based products needed forclinical tests and current commercial sales may not be successfully scaled up to allow production of significant commercial quantities.Any failure to manufacture our products to required standards on a commercial scale could result in reduced revenues, delays in generatingrevenue and increased costs.

Our competitive position depends on ourability to protect our intellectual property and our proprietary technologies.

Our ability to compete and to achieve and maintainprofitability depends on our ability to protect our intellectual property and proprietary technologies. We currently rely on a combinationof patents, patent applications, trademarks, trade secret laws, confidentiality agreements, license agreements and invention assignmentagreements to protect our intellectual property rights. We also rely upon unpatented know-how and continuing technological innovationto develop and maintain our competitive position. These measures may not be adequate to safeguard our HOCl technology. If we do not protectour rights adequately, third parties could use our technology, and our ability to compete in the market would be reduced.

Our pending patent applications and any patentapplications we may file in the future may not result in issued patents, and we do not know whether any of our in-licensed patents orany additional patents that might ultimately be issued by the U.S.Patent and Trademark Office or foreign regulatory body will protectour HOCl technology. Any claims that are issued may not be sufficiently broad to prevent third parties from producing competing substitutesand may be infringed, designed around, or invalidated by third parties. Even issued patents may later be found to be invalid or may bemodified or revoked in proceedings instituted by third parties before various patent offices or in courts. For example, our European patentthat was initially issued on May 30, 2007 was revoked by the Opposition Division of the European Patent Office in December 2009 followingopposition proceedings instituted by a competitor.

The degree of future protection for our proprietaryrights is more uncertain in part because legal means afford only limited protection and may not adequately protect our rights, and wewill not be able to ensure that:

The policies we use to protect our trade secretsmay not be effective in preventing misappropriation of our trade secrets by others. In addition, confidentiality and invention assignmentagreements executed by our employees, consultants and advisors may not be enforceable or may not provide meaningful protection for ourtrade secrets or other proprietary information in the event of unauthorized use or disclosures.

We cannot be certain that the steps we have takenwill prevent the misappropriation and use of our intellectual property in the United States, or in foreign countries where the laws maynot protect our proprietary rights as fully as in the United States.

We may face intellectual property infringementclaims that could be time-consuming, costly to defend and could result in our loss of significant rights and, in the case of patent infringementclaims, the assessment of treble damages.

On occasion, we may receive notices of claimsof infringement, misappropriation, or misuse of other parties’ proprietary rights. We may have disputes regarding intellectual propertyrights with the parties that have licensed those rights to us. We may also initiate claims to defend our intellectual property. Intellectualproperty litigation, regardless of its outcome, is expensive and time-consuming, and could divert management’s attention from ourbusiness and have a material negative effect on our business, operating results, or financial condition. In addition, the outcome of suchlitigation may be unpredictable. If there is a successful claim of infringement against us, we may be required to pay substantial damages,including treble damages if we were to be found to have willfully infringed a third party’s patent, to the party claiming infringement,develop non-infringing technology, stop selling our products or using technology that contains the allegedly infringing intellectual propertyor enter into royalty or license agreements that may not be available on acceptable or commercially practical terms, if at all. Our failureto develop non-infringing technologies or license the proprietary rights on a timely basis could harm our business. In addition, modifyingour products to exclude infringing technologies could require us to seek re-approval or clearance from various regulatory bodies for ourproducts, which would be costly and time consuming. Also, we may be unaware of pending patent applications that relate to our technology.Parties making infringement claims on future issued patents may be able to obtain an injunction that would prevent us from selling ourproducts or using technology that contains the allegedly infringing intellectual property, which could harm our business.

We could be required to indemnify thirdparties for alleged intellectual property infringement, which could cause us to incur significant costs.

Some of our distribution agreements contain commitmentsto indemnify our distributors against liability arising from infringement of third-party intellectual property, such as patents. We maybe required to indemnify our customers for claims made against them or to contribute to license fees they are required to pay. If we areforced to indemnify for claims or to pay license fees, our business and financial condition could be substantially harmed.

Our international operations are subjectto trade policies and trade agreements and unfavorable changes could harm our business.

We have significant international operations inMexico and Europe, and we manufacture products for export in Mexico. There may be changes to existing trade agreements, like the USMCA,which went to effect on July 1, 2020, greater restrictions on free trade generally, and significant increases in tariffs on goods importedinto the United States, particularly tariffs on products manufactured in Mexico, among other possible changes. Any changes to USMCA (orsubsequent trade agreements) could impact our operations in countries where we manufacture or sell products or source components, or materials,which could adversely affect our operating results and our business.

Our sales in international markets subjectus to foreign currency exchange and other risks and costs which could harm our business.

A substantial portion of our revenues are derivedfrom outside the United States, primarily from Mexico and Europe. We anticipate that revenues from international customers will continueto represent a substantial portion of our revenues for the foreseeable future. Because we generate revenues in foreign currencies, weare subject to the effects of exchange rate fluctuations. The functional currency of our Mexican subsidiary is the Mexican Peso and thefunctional currency of our Netherlands subsidiary is the Euro. For the preparation of our consolidated financial statements, the financialresults of our foreign subsidiaries are translated into U.S.dollars using average exchange rates during the applicable period. Ifthe U.S.dollar appreciates against the Mexican Peso or the Euro, as applicable, the revenues we recognize from sales by our subsidiarieswill be adversely impacted. Foreign exchange gains or losses as a result of exchange rate fluctuations in any given period could harmour operating results and negatively impact our revenues. Additionally, if the effective price of our products were to increase as a resultof fluctuations in foreign currency exchange rates, demand for our products could decline and adversely affect our results of operationsand financial condition.

The markets in which we operate are highlycompetitive and subject to rapid technological change. If our competitors are better able to develop and market products that are lessexpensive or more effective than any products that we may develop, our commercial opportunity may be reduced or eliminated.

Our success depends, in part, upon our abilityto stay at the forefront of technological change and to maintain a competitive position. We compete with large healthcare, pharmaceuticaland biotechnology companies, along with smaller or early-stage companies that have collaborative arrangements with larger pharmaceuticalcompanies, academic institutions, government agencies and other public and private research organizations. Many of our competitors havesignificantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinicaltrials, obtaining regulatory approvals and marketing approved products than we do. Our competitors may:

As a result, we may not be able to successfullycommercialize any future products.

The success of our research and developmentefforts may depend on our ability to find suitable collaborators to fully exploit our capabilities. If we are unable to establish collaborationsor if these future collaborations are unsuccessful, our research and development efforts may be unsuccessful, which could adversely affectour results of operations and financial condition.

An element of our business strategy is to enterinto collaborative or license arrangements under which we license our HOCl technology to other parties for development and commercialization.We expect to seek collaborators for our potential products because of the expense, effort and expertise required to conduct clinical trialsand further develop those potential product candidates. Because collaboration arrangements are complex to negotiate, we may not be successfulin our attempts to establish these arrangements. If we need third party assistance in identifying and negotiating one or more acceptablearrangements, it might be costly. Also, we may not have products that are desirable to other parties, or we may be unwilling to licensea potential product because the party interested in it is a competitor. The terms of any arrangements that we establish may not be favorableto us. Alternatively, potential collaborators may decide against entering into an agreement with us because of our financial, regulatoryor intellectual property position or for scientific, commercial or other reasons. If we are unable to establish collaborative agreements,we may not be able to develop and commercialize new products, which would adversely affect our business and our revenues.

In order for any of these collaboration or licensearrangements to be successful, we must first identify potential collaborators or licensees whose capabilities complement and integratewell with ours. We may rely on these arrangements for not only financial resources, but also for expertise or economies of scale thatwe expect to need in the future relating to clinical trials, manufacturing, sales and marketing, and for licensing technology rights.However, it is likely that we will not be able to control the amount and timing of resources that our collaborators or licensees devoteto our programs or potential products. If our collaborators or licensees prove difficult to work with, are less skilled than we originallyexpected, or do not devote adequate resources to the program, the relationship will not be successful. If a business combination involvinga collaborator or licensee and a third party were to occur, the effect could be to diminish, terminate or cause delays in developmentof a potential product.

If we are unable to comply with broad andcomplex federal and state fraud and abuse laws, including state and federal anti-kickback laws, we could face substantial penalties andour products could be excluded from government healthcare programs.

We are subject to various federal and state lawspertaining to healthcare fraud and abuse, which include, among other things, “anti-kickback” laws that prohibit payments toinduce the referral of products and services, and “false claims” statutes that prohibit the fraudulent billing of federalhealthcare programs. Our operations are subject to the Federal Anti-Kickback Statute, a criminal statute that, subject to certain statutoryexceptions, prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly,to induce or reward a person either (i)for referring an individual for the furnishing of items or services for which payment maybe made in whole or in part by a government healthcare program such as Medicare or Medicaid, or (ii)for purchasing, leasing, orderingor arranging for or recommending the purchasing, leasing or ordering of an item or service for which payment may be made under a governmenthealthcare program. Because of the breadth of the Federal Anti-Kickback Statute, the Office of Inspector General of the U.S.Departmentof Health and Human Services, was authorized to adopt regulations setting forth additional exceptions to the prohibitions of the statutecommonly known as “safe harbors.” If all of the elements of an applicable safe harbor are fully satisfied, an arrangementwill not be subject to prosecution under the Federal Anti-Kickback Statute.

In addition, if there is a change in law, regulationor administrative or judicial interpretations of these laws, we may have to change our business practices or our existing business practicescould be challenged as unlawful, which could have a negative effect on our business, financial condition and results of operations.

Healthcare fraud and abuse laws are complex, andeven minor, inadvertent irregularities can potentially give rise to claims that a statute or regulation has been violated. The frequencyof suits to enforce these laws has increased significantly in recent years and has increased the risk that a healthcare company will haveto defend a false claim action, pay fines or be excluded from the Medicare, Medicaid or other federal and state healthcare programs asa result of an investigation arising out of such action. We cannot guarantee that we will not become subject to such litigation. Any violationsof these laws, or any action against us for violation of these laws, even if we successfully defend against it, could harm our reputation,be costly to defend and divert management’s attention from other aspects of our business. Similarly, if the physicians or otherproviders or entities with which we do business are found to have violated abuse laws, they may be subject to sanctions, which could alsohave a negative impact on us.

We may not be able to maintain sufficientproduct liability insurance to cover claims against us.

Product liability insurance for the healthcareindustry is generally expensive to the extent it is available at all. We may not be able to maintain such insurance on acceptable termsor be able to secure increased coverage if the commercialization of our products progresses, nor can we be sure that existing or futureclaims against us will be covered by our product liability insurance. Moreover, the existing coverage of our insurance policy or any rightsof indemnification and contribution that we may have may not be sufficient to offset existing or future claims. A successful claim againstus with respect to uninsured liabilities or in excess of insurance coverage and not subject to any indemnification or contribution couldhave a material adverse effect on our future business, financial condition, and results of operations.

Our ability to generate revenue will bediminished if our partners are unable to obtain acceptable prices or an adequate level of reimbursem*nt from third-party payors, or ourpartners may face pricing pressure from private third-party payers, including customers, from rebates and restrictive reimbursem*nt practices.

Our partner’s ability to commercialize ourproducts successfully will depend in part on the extent to which appropriate coverage and reimbursem*nt levels for the cost of our productsand related treatment are obtained from governmental authorities, private health insurers and other organizations, such as health maintenanceorganizations, or HMOs. In the United States, governmental and private payors have limited the growth of health care costs through priceregulation or controls, competitive pricing programs and drug rebate programs.

There is significant uncertainty concerning third-partycoverage and reimbursem*nt of newly approved medical products. Third-party payors are increasingly challenging the prices charged formedical products and services. Also, the trend toward managed healthcare in the United States and the concurrent growth of organizationssuch as HMOs, as well as the “Affordable Care Act,” or any new healthcare laws may result in lower prices for or rejectionof our products. The cost containment measures that healthcare payors and providers are instituting and the effect of any healthcare reformor changes to managed healthcare could materially and adversely affect our ability to generate revenues.

In the United States and some foreign jurisdictions,there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our partner’sabilities to sell our products profitably, and thus lead to decreased demand for our products and revenues for us. We were able to negotiateminimum purchase requirements in certain of our third-party distributor agreements. However, we have limited control over purchases byour distributors, to meet the minimum purchase thresholds or above the minimum purchase thresholds.

Increasingly, private health insurance companiesand self-insured employers have been raising co-payments required from beneficiaries and looking for other ways to shift more of the costburden to manufacturers and patients. This cost shifting has given consumers greater control of medication choices, as they pay for alarger portion of their prescription costs and may cause consumers to favor lower cost generic alternatives to branded pharmaceuticals.Additionally, patients continue to face cost reduction pressures that may cause them to curtail their use of, or seek reimbursem*nt for,our products, to negotiate reduced fees or other concessions or to delay payment. Third-party payors may reduce or limit reimbursem*ntfor our products in the future, such as by withdrawing their coverage policies, canceling any future contracts, reviewing and adjustingthe rate of reimbursem*nt, or imposing limitations on coverage. Any such changes could negatively impact the sales of our products byour partners, and therefore, have a material adverse effect on our revenues.

Our ability to generate revenue will bediminished if our partners are unable to manage customer product substitutions for our prescription products.

Similar to other pharmaceutical companies, patientsare increasingly seeking lower-cost substitutes to our products. Even if our patients have a prescription for our product, the pharmacistmay recommend a less expensive product even if that product is less effective or designed for conditions different from what the patientis seeking to treat. As a result, the patient may choose to abandon purchasing our prescribed product for a less expensive alternativeproduct resulting in a lost sale for our partners. If the number of consumers substituting our products increases, it could have a materialadverse effect on sales of our products by our partners, and therefore, our revenues, financial position, cash flows and results of operations.

Our inability to raise additional capitalon acceptable terms in the future may cause us to curtail certain operational activities, including regulatory trials, sales and marketing,and international operations, in order to reduce costs and sustain the business, and such inability would have a material adverse effecton our business and financial condition.

We may need to raise additional capital in thefuture in order to, among other things:

Our present and future funding requirements willdepend on many factors, including:

If we raise additional funds by issuing equitysecurities, it will result in dilution to our stockholders. Any equity securities issued also may provide for rights, preferences or privilegessenior to those of holders of our common stock. If we raise additional funds by issuing debt securities, these debt securities would haverights, preferences and privileges senior to those of holders of our common stock, and the terms of the debt securities issued could imposesignificant restrictions on our operations. If we raise additional funds through collaborations or licensing arrangements, we might berequired to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us. Afailure to obtain adequate funds may cause us to curtail certain operational activities, including regulatory trials, sales and marketing,and international operations, in order to reduce costs and sustain our business, and would have a material adverse effect on our businessand financial condition.

Our information technology and infrastructuremay be breached or attacked, which could expose us to liability, damage our reputation, compromise our confidential information or otherwiseadversely affect our business.

In the ordinary course of our business, we collectand store a limited amount of sensitive data, including intellectual property, our proprietary business information and that of our customers,suppliers, business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks.The secure processing, maintenance, and transmission of this information is critical to our operations and business strategy. Despiteour security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employeeerror, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed,publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings,liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the serviceswe provide to customers, and damage our reputation, and cause a loss of confidence in our products and services, which could adverselyaffect our business, revenues and competitive position.

Our cash and cash equivalents may be exposedto failure of our banking institutions.

We maintain our cash at financial institutions,in balances that exceed current FDIC insurance limits. If the banks where we hold deposits were to become insolvent or enter receivership,our ability to access our cash, cash equivalents and investments, including transferring funds, making payments or receiving funds, maybe threatened, and this could have a material adverse effect on our business and financial condition.

Risks Related to Our Common Stock

The market price of our common stock maybe volatile, and the value of your investment could decline significantly.

The trading price for our common stock has been,and we expect it to continue to be, volatile. The price at which our common stock trades depends upon a number of factors, including ourhistorical and anticipated operating results, our financial situation, announcements of new products by us or our competitors, our abilityor inability to raise the additional capital we may need and the terms on which we raise it, and general market and economic conditions.Some of these factors are beyond our control. Broad market fluctuations may lower the market price of our common stock and affect thevolume of trading in our stock, regardless of our financial condition, results of operations, business or prospects. It is impossibleto assure you that the market price of our shares of common stock will not fall in the future.

Our operating results may fluctuate, whichcould cause our stock price to decrease.

Fluctuations in our operating results may leadto fluctuations, including declines, in our share price. Our operating results and our share price may fluctuate from period to perioddue to a variety of factors, including:

Variations in the timing of our future revenuesand expenses could also cause significant fluctuations in our operating results from period to period and may result in unanticipatedearning shortfalls or losses. In addition, The Nasdaq Capital Market, in general, and the market for life sciences companies, in particular,have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performanceof those companies.

Anti-takeover provisions in our certificateof incorporation and bylaws and under Delaware law may make it more difficult for stockholders to change our management and may also makea takeover difficult.

Our corporate documents and Delaware law containprovisions that limit the ability of stockholders to change our management and may also enable our management to resist a takeover. Theseprovisions include:

We are subject to Section 203 of the DelawareGeneral Corporation Law, which, subject to certain exceptions, prohibits “business combinations” between a publicly-held Delawarecorporation and an “interested stockholder,” which is generally defined as a stockholder who became a beneficial owner of15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder became aninterested stockholder.

These provisions might discourage, delay or preventa change of control in our management. These provisions could also discourage proxy contests and make it more difficult for you and otherstockholders to elect directors and cause us to take other corporate actions. In addition, the existence of these provisions, togetherwith Delaware law, might hinder or delay an attempted takeover other than through negotiations with our Board of Directors.

Our stockholders may experience substantialdilution in the value of their investment if we issue additional shares of our capital stock or other securities convertible into commonstock.

Our Restated Certificate of Incorporation, asamended, allows us to issue up to 24,000,000 shares of our common stock and to issue and designate, without stockholder approval, therights of up to 714,286 shares of preferred stock. In the event we issue additional shares of our capital stock, dilution to our stockholderscould result. In addition, if we issue and designate a class of convertible preferred stock, these securities may provide for rights,preferences or privileges senior to those of holders of our common stock. Additionally, if we issue preferred stock, it may convert intocommon stock at a ratio of 1:1 or greater because our Restated Certificate of Incorporation, as amended, allows us to designate a conversionratio without limitations.

Shares issuable upon the exercise of outstandingoptions may substantially increase the number of shares available for sale in the public market and depress the price of our common stock.

As of March 31, 2024, we had outstanding optionsto purchase an aggregate of 1,032,999 shares of our common stock at a weighted average exercise price of $2.42 per share and a weightedaverage contractual term of 8.91 years. In addition, 125,556 shares of our common stock were available on March 31, 2024 for future optiongrants under our 2016 Equity Incentive Plan and our 2021 Equity Incentive Plan. To the extent any additional options are granted and exercised,there will be further dilution to stockholders and investors. Until the options expire, these holders will have an opportunity to profitfrom any increase in the market price of our common stock without assuming the risks of ownership. Holders of options may convert or exercisethese securities at a time when we could obtain additional capital on terms more favorable than those provided by the options. The exerciseof the options will dilute the voting interest of the owners of presently outstanding shares by adding a substantial number of additionalshares of our common stock.

We have filed several registration statementswith the SEC, so that substantially all of the shares of our common stock which are issuable upon the exercise of outstanding warrantsand options may be sold in the public market. The sale of our common stock issued or issuable upon the exercise of the warrants and optionsdescribed above, or the perception that such sales could occur, may adversely affect the market price of our common stock.

Our failure to maintain compliance withNasdaq’s continued listing requirements could result in the delisting of our common stock.

On September 22, 2023, we received a letter fromThe Nasdaq Stock Market LLC (“Nasdaq”) indicating that we are not in compliance with Nasdaq Listing Rule 5550(a)(2), whichrequires companies listed on The Nasdaq Stock Market to maintain a minimum bid price of $1 per share for continued listing. On March 21,2024, we received a notice that Nasdaq had granted us an additional 180 calendar days, or until September 16, 2024, to regain compliancewith the minimum closing bid price requirement for continued listing. Nasdaq’s letter has no immediate impact on the listing ofour common stock, which will continue to be listed and traded on Nasdaq, subject to our compliance with the other continued listing requirements.We may regain compliance at any time during this compliance period if the minimum bid price for our common stock is at least $1 for aminimum of ten consecutive business days.

Until Nasdaq has reached a final determinationthat we have regained compliance with all of the applicable continued listing requirements, there can be no assurances regarding the continuedlisting of our common stock or warrants on Nasdaq. The delisting of our common stock and warrants from Nasdaq would have a material adverseeffect on our access to capital markets, and any limitation on market liquidity or reduction in the price of its common stock as a resultof that delisting would adversely affect our ability to raise capital on terms acceptable to the Company, if at all.

ITEM 1B. Unresolved Staff Comments

Not Applicable.

ITEM 1C. Cybersecurity

Risk Management and Strategy

We identify and address cybersecurity threatsand risks related to our business with an approach that includes assessments by our management and use of an outside consultant to manageour information technology. In addition, we rely on operating systems and software from established and reliable third-party service providersto provide security. We have employee policies in place designed to reduce risk of cyber-attacks and educate employees on protocol inthe event of a potential cybersecurity incident.

Currently we are not aware of any risks from cybersecuritythreats, including as a result of any previous cybersecurity incidents, that have materially affected our business strategy, results ofoperations or financial condition or are reasonably likely to have such a material effect. However, cyber-attacks are increasing in frequency,sophistication and intensity, and despite our ongoing efforts we cannot eliminate all risks from cybersecurity threats, or provide assurancesthat we have not experienced undetected cybersecurity incidents. Please refer to “Risk Factors” in Part I, Item 1A of thisForm 10-K for more information on the risks posed to us by cybersecurity threats.

Governance

The Board of Directors takes an active role,as a whole, in overseeing management regarding our Company’s risks, including cybersecurity risks. Our management, including ourChief Executive Officer and our Chief Financial Officer, keeps the Board of Directors apprised of significant risks facing our Companyand the approach being taken to understand, manage, and mitigate such risks, including with respect to potential cybersecurity threats.

ITEM2.Properties

At March 31, 2024, we have a corporate officein Boulder, Colorado and our manufacturing facility in Zapopan, Mexico. We currently lease the following material properties:

We believe that our properties will be adequateto meet our needs for at least the next 12 months.

ITEM3.Legal Proceedings

We may be involved in legal matters arising inthe ordinary course of our business including matters involving proprietary technology. While management believes that such matters arecurrently insignificant, matters arising in the ordinary course of business for which we are or could become involved in litigation mayhave a material adverse effect on our business, financial condition or results of comprehensive (loss) income.

ITEM4.Mine Safety Disclosures.

Not applicable.

PARTII

ITEM5.Market for Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on The Nasdaq CapitalMarket under the symbol “SNOA.” Previously, it traded under the symbol “OCLS” until December 6, 2016. Our commonstock has been trading since our initial public offering on January25, 2007.

Holders

As of June 12, 2024, we had approximately 291holders of record of our common stock. Holders of record include nominees who may hold shares on behalf of multiple owners.

Dividends

We have never declared or paid any cash dividendson our common stock. We currently anticipate that we will retain all future earnings for the operation of our business and we do not currentlyintend to pay any cash dividends on our common stock in the foreseeable future.

Securities Authorized for Issuance Under EquityCompensation Plans

The information required to be disclosed by Item201(d) of Regulation S-K, “Securities Authorized for Issuance Under Equity Compensation Plans,” is incorporated herein byreference. Refer to Item 12 of Part III of this annual report on Form 10-K for additional information.

Recent Sales of Unregistered Securities

We did not issue any unregistered securities duringthe year ended March 31, 2024 and through June 17, 2024.

ITEM6.Selected Financial Data

As a smaller reporting company, as defined byRule12b-2 of the Exchange Act and in Item10(f)(1) of RegulationS-K, we are electing scaled disclosure reporting obligationsand therefore are not required to provide the information requested by this Item.

ITEM 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The preparation of our consolidated financialstatements in conformity with accounting principles generally accepted in the United States of America requires management to exerciseits judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptionsthat affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitmentsand contingencies at the date of the consolidated financial statements.

On an ongoing basis, we evaluate our estimatesand judgments. Areas in which we exercise significant judgment include, but are not necessarily limited to, our valuation of accountsreceivable, inventory, income taxes, equity transactions (compensatory and financing) and contingencies.

We base our estimates and judgments on a varietyof factors including our historical experience, knowledge of our business and industry, current and expected economic conditions, theattributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluateour estimates and assumptions with respect to these judgments and modify our approach when circ*mstances indicate that modifications arenecessary.

While we believe that the factors we evaluateprovide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results willalways be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from suchestimates.

For a Summary of all Accounting Policies, pleaserefer to Notes to Consolidated Financial Statements, Note 3.

Results of Continuing Operations

Comparison of the Year Ended March 31, 2024and 2023

Revenue

The following table shows our consolidated totalrevenue and revenue by geographic region for the year ended March 31, 2024 and 2023:

The decrease in United States revenue of $370,000for the year ended March 31, 2024, was primarily the result of fluctuations in over-the-counter animal health care sales.

The increase in Europe revenue for the year endedMarch 31, 2024 of $730,000 was the result of a general increase in demand for our products and, more specifically, an increase in demandfor our wound care products from our customer in Poland due to recent world events.

The decrease in Asia revenue of $153,000 for theyear ended March 31, 2024, was primarily due to timing of orders. Revenues from our international distributors tend to fluctuate fromperiod to period due to customer placement of larger but less frequent orders to benefit from quantity discounts and reduced shippingcosts.

The decrease in Latin America revenue for theyear ended March 31, 2024 of $657,000 was primarily due to a one-time event in the prior year related to the sale of machinery to a customer.We recorded $750,000 of service revenue in the prior year in connection with this transaction.

The decrease in Rest of World revenue for theyear ended March 31, 2024 of $87,000 was primarily due to timing of customer orders.

Cost of Revenue and Gross Profit

The cost of revenue and gross profit metrics forthe year ended March 31, 2024 and 2023 are as follows:

The increase in gross profit margin of $268,000for the year ended March 31, 2024, as compared to the prior year, was primarily due to overall product mix, redeployment of labor to researchand development projects in the current year and higher costs of materials and transportation in the prior year.

Research and Development Expense

The research and development expense metrics forthe year ended March 31, 2024 and 2023 are as follows:

Increases in research and development expensesfor the year ended March 31, 2024 of $1,664,000 was primarily due to increased product development and expanded regulatory efforts inthe U.S. and Europe to support new product releases.

Selling, General and Administrative Expense

The selling, general and administrative expensemetrics for the years ended March 31, 2024 and 2023 are as follows:

The decline in selling, general and administrativeexpenses for the year ended March 31, 2024 of $1,265,000 was the result of ongoing efforts to contain expenses across all parts of thecompany.

Other Expense, net

Other expense, net for the year ended March 31,2024 was $330,000 compared to $614,000 for the year ended March 31, 2023. The changes in other expense, net primarily relate to exchangerate fluctuations.

Income Tax Benefit

Income tax benefit for the year ended March 31,2024 and 2023 was $196,000 and $33,000, respectively. The increase is primarily related to the release of our valuation allowance on deferredtax assets in Europe.

Net Loss

The following table provides the net loss foreach period along with the computation of basic and diluted net loss per share:

Liquidity and Capital Resources

We reported a net loss of $4,835,000 and $5,151,000for the years ended March 31, 2024 and 2023, respectively. At March 31, 2024 and 2023, our accumulated deficit amounted to $194,349,000and $189,514,000, respectively. As of March 31, 2024 and 2023, we had cash and cash equivalents of $3,128,000 and $3,820,000, respectively.Since our inception, substantially all of our operations have been financed through sales of equity securities. Other sources of financingthat we have used to date include our revenues, as well as various loans and the sale of certain assets to customers.

Since April 1, 2023, substantially all of ouroperations have been financed through cash on hand and the following transactions:

The following table presents a summary of ourconsolidated cash flows for operating, investing and financing activities for the years ended March 31, 2024 and 2023 as well balancesof cash and cash equivalents and working capital:

As of March 31, 2024 and 2023, we had cash andcash equivalents of $3,128,000 and $3,820,000, respectively.

Net cash used in operating activities during theyear ended March 31, 2024 was $2,398,000, primarily due to our net loss of $4,835,000, offset by stock compensation of $516,000, a decreasein inventory of $184,000, and a decrease in prepaid expenses of $1,107,000.

Net cash used in operating activities during theyear ended March 31, 2023 was $6,152,000, primarily due to net loss of $5,151,000 and a decline in deferred revenue.

Net cash used in investing activities for theyear ended March 31, 2024 was $2,000, primarily related to the purchase of capital property and equipment.

Net cash used in investing activities for theyear ended March 31, 2023 was $258,000, primarily related to the purchase of capital property and equipment.

Net cash provided by financing activities forthe year ended March 31, 2024 was $1,676,000 primarily related to proceeds of $1,784,000 from the sale of common stock.

Net cash provided by financing activities forthe year ended March 31, 2023 was $2,489,000 primarily related to proceeds of $2,868,000 from the sale of common stock, proceeds of $515,000from short-term notes, offset by payments on our PPP loan and short-term notes.

We expect revenues to fluctuate and may incurlosses in the foreseeable future and may need to raise additional capital to pursue our product development initiatives, to penetratemarkets for the sale of our products and continue as a going concern. We cannot provide any assurances that we will be able to raise additionalcapital.

Management believes that we have access to capitalresources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, we cannotprovide any assurance that new financing will be available on commercially acceptable terms, if at all. If the economic climate in theU.S. deteriorates, our ability to raise additional capital could be negatively impacted. If we are unable to secure additional capital,we may be required to take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operationsand meet our obligations. These measures could cause significant delays in our continued efforts to commercialize our products, whichis critical to the realization of our business plan and our future operations. These matters raise substantial doubt about our abilityto continue as a going concern.

Capital Expenditures

We currently forecast capital expenditures inorder to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimatelybe determined by the volume of business. We currently do not anticipate that a material amount will be purchased for the year ended March31, 2025. If we purchase capital equipment, we expect to pay cash for those expenditures or to finance them through equipment leases.

Material Trends and Uncertainties

We rely on certain key customers for a significantportion of our revenues. In the future, a small number of customers may continue to represent a significant portion of our total revenuesin any given period. These customers may not consistently purchase our products at a particular rate over any subsequent period.

We are exposed to risk from decline in foreigncurrency for both the Euro and the Mexico Peso versus the US dollar. Most recently there has been a sharp decline in the Euro versus theU.S. Dollar which has impacted our financial results.

We face a substantialMexico tax liability, intercompany debt, unpaid technical assistance charges and accrued interest. These amounts are due in 2027. At thistime, management believes there are sufficient assets on the balance sheet to more than cover any tax obligation without interruptingthe Company’s operations or business. We have engaged tax professionals to review all options to limit our exposure to these amountsand to proceed in a manner that is most advantageous to the Company.

The effects of the recentpandemic continue to impact economies worldwide, and we are closely watching inflation, increased volatility within financial markets,shipping costs, supply chain issues and labor costs. Any impact to our business operations, customer demand and supply chain due to increasedshipping costs may ultimately impact sales. We continue to evaluate our end-to-end supply chain and assess opportunities to refine theimpact on sales. Currently, most of our customers pay for shipping expenses, including increased shipping costs, if any. We have not yetfaced labor shortages however it is possible we may have difficulties retaining and finding qualified employees in a tight labor marketin the future. Furthermore, overall inflation tendencies may put pressure on our product pricing and/or costs.

We also closely monitoroverall economic conditions and consumer sentiment and the prospect of a recession in the United States which may impact our financialresults.

Use of Estimates

The preparation of consolidated financial statementsin conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the consolidatedfinancial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ fromthese estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverabilityof long-lived assets, the valuation allowance related to our deferred tax assets, valuation of equity and derivative instruments, debtdiscounts, valuation of investments and the estimated amortization periods of upfront product licensing fees received from customers.

Off-Balance Sheet Transactions

We currently have no off-balance sheet arrangementsthat have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition,revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM7A.Quantitative and Qualitative Disclosures AboutMarket Risk

As a smaller reporting company as defined by Rule12b-2of the Exchange Act and in Item10(f)(1) of RegulationS-K, we are electing scaled disclosure reporting obligations and thereforeare not required to provide the information requested by this Item.

ITEM8.Consolidated Financial Statements and SupplementaryData

Sonoma Pharmaceuticals, Inc.

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

To the Shareholders and Board of Directors of

Sonoma Pharmaceuticals, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SonomaPharmaceuticals, Inc. and Subsidiaries (the "Company") as of March31, 2024 and 2023, and the related consolidated statementsof comprehensive loss, changes in stockholders' equity and cash flows for the years ended March31, 2024 and 2023, and the relatednotes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements presentfairly, in all material respects, the financial position of the Company as of March31, 2024 and 2023, and the results of their operationsand cash flows for the years ended March31, 2024 and 2023, in conformity with accounting principles generally accepted in the UnitedStates of America.

Substantial Doubt About the Company's Ability to Continue as a GoingConcern

The accompanying consolidated financial statements have been preparedassuming that the Company will continue as a going concern. As discussed in Note2 to the consolidated financial statements, theCompany has incurred significant losses and negative operating cash flows and needs to raise additional funds to meet its obligationsand sustain its operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plansin regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") andare required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rulesand regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statementsare free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internalcontrol over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of materialmisstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to thoserisks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis forour opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current periodaudit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:(1)relateto accounts or disclosures that are material to the consolidated financial statements and (2)involved our especially challenging,subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Frazier & Deeter, LLC

We have served as the Company's auditor since 2021.

Tampa, Florida

June 17, 2024

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share amounts)

The accompanying footnotes are an integral partof these consolidated financial statements.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Loss

(In thousands, except per share amounts)

The accompanying footnotes are an integral partof these consolidated financial statements.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY

For the Years Ended March 31, 2024 and 2023

(In thousands, except share amounts)

The accompanying footnotes are an integral partof these consolidated financial statements.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Inthousands)

The accompanying footnotes are an integral partof these consolidated financial statements.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM9.Changes in and Disagreementswith Accountants on Accounting and Financial Disclosures

None.

ITEM9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and proceduresthat are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such informationis accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervisionand with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the ExchangeAct) as of the end of our most recent fiscal quarter. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were not effective as of March 31, 2024 due to the fact that material weaknessesin our internal controls over financial reporting exist at year end.

Notwithstanding our ineffective disclosure controlsand procedures, management believes the consolidated financial statements included in this Annual Report on Form 10-K present fairly,in all material respects, our financial condition, results of operations and cash flows at and for the years presented in accordance withU.S. generally accepted accounting principles.

Evaluation of Internal Control over FinancialReporting

Our managementis responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the ExchangeAct Rule13a-15(f) and 15d-15(f). Because of its inherent limitations,internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statementswould be prevented or detected. Under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal controlover financial reporting based on the framework in the2013 Internal Control— Integrated Frameworkissuedby the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internalcontrol over financial reporting was not effective as of March 31, 2024. We have determined that there were inadequate spreadsheet controls,a lack of separation of duties with preparation and review of the reported numbers, and inadequate analysis of revenue reporting amongother things. We believe we have taken steps to correct this, but the controls have not been tested and have not been working for a sufficientperiod of time to remove this weakness.

Management’s Remediation Measures

Management, with oversight from the Audit Committeeof our Board of Directors, is actively engaged in remediation efforts to address the material weaknesses identifiedin the management’sevaluation of internal controls and procedures. Management has taken a number of actions to remediate the material weaknesses describedabove, including the following:

These improvements are targeted at strengtheningour internal control over financial reporting and remediating the material weaknesses. We remain committed to an effective internal controlenvironment, and management believes that these actions and the improvements management expects to achieve as a result will effectivelyremediate the material weaknesses. However, the material weaknesses in our internal control over financial reporting will not be consideredremediated until the controls operate for a sufficient period of time and management has concluded, through testing that these controlsoperate effectively. As of the date of filing this Annual Report on Form 10-K, management is in the process of testing and evaluatingthese additional controls to determine whether they are operating effectively. We have hired appropriate accounting staff to establisheffective internal controls and processes.

Changes in Internal Control over FinancialReporting

There were no changes in our internal controlover financial reporting during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting. We have not finished testing our controls and sufficient time has not elapsed tomake the determination these controls are operating effectively.

ITEM9B.Other Information

Amendmentto Bylaws

On June 14, 2024, the Board of Directors approvedan amendment to Section 2.8 of our Amended and Restated Bylaws, changing our stockholders’ meeting quorum requirement from the holdersof a majority of the stock issued and outstanding and entitled to vote, present in person or represented in proxy, to “the holdersof at least one-third of the stock issued and outstanding and entitled to vote, present in person or represented in proxy.”

A copy of Amendment No. 1 to the Amended and RestatedBylaws of Sonoma Pharmaceuticals, Inc., as adopted by the Board of Directors, is filed as Exhibit 3.10 to this Annual Report on Form 10-K.

EquityAwards

On June 14, 2024, the Compensation Committee ofthe Board of Directors approved an equity award of 53,586 Restricted Stock Units to each of Ms. Trombly, Mr. Dvonch and Mr. Thornton,to be issued on June 20, 2024, at a valuation based on the five day weighted-average stock price prior to the date of grant.

During the quarter ended March 31, 2024, no directoror officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined inItem 408(a) of Regulation S-K.

PARTIII

ITEM10.Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporatedby reference to the definitive proxy statement for our 2024 Annual Meeting of Stockholders to be filed with the Securities and ExchangeCommission within 120days after the end of our fiscal year ended March 31, 2024 (the “2024 Proxy Statement”).

Item405 of RegulationS-K requiresthe disclosure of, based upon our review of the forms submitted to us during and with respect to our most recent fiscal year, any knownfailure by any director, officer, or beneficial owner of more than ten percent of any class of our securities, or any other person subjectto Section 16 of the Exchange Act (“reporting person”) to file timely a report required by Section 16(a) of the Exchange Act.This disclosure is contained in the section entitled “Section16(a) Beneficial Ownership Reporting Compliance” in the2024 Proxy Statement.

Code of Business Conduct

We have adopted a Code of Business Conduct thatapplies to all of our officers, directors, and employees, including our Chief Executive Officer, Chief Financial Officer, and other employeeswho perform financial or accounting functions. The Code of Business Conduct sets forth the basic principles that guide the business conductof our employees. On January 17, 2017, our board of directors adopted changes to our Code of Business Conduct. The changes to the Codeof Business Conduct were made to update the code to current best practices. In addition to some clerical changes, the Code of BusinessConduct now explicitly requires employees, directors and officers to act honestly and ethically in dealing with customers, business partnersand others. Furthermore, the Code of Business Conduct now explicitly extends the confidentiality and conflicts of interest requirementsto directors and prohibits company loans. The Code of Business Conduct also updated the disclosure, reporting and enforcement provisions.We filed our Code of Business Conduct with the Securities and Exchange Commission as exhibit 14.1 to the current report on Form 8-K onJanuary 23, 2017, and it is also available on our website at http://www.ir.sonomapharma.com/governance-documents. We will provide anyperson, without charge, copies of our Code of Business Conduct and Ethics upon request. Such requests should be in writing and addressedto: Sonoma Pharmaceuticals, Inc., Attention: Chief Financial Officer, 5445 Conestoga Court, Suite 150, Boulder, Colorado 80301.

To date, there have been no waivers under ourCode of Business Conduct. We intend to disclose future amendments to certain provisions of our Code of Business Conduct or any waivers,if and when granted, of our Code of Business Conduct on our website at http://www.sonomapharma.com within four business days followingthe date of such amendment or waiver.

Procedures for Nominating Directors

There have been no material changes to the proceduresby which stockholders may recommend nominees to our Board of Directors.The Board of Directors will consider candidates for directorpositions that are recommended by any of our stockholders. Any such recommendation for a director nomination should be provided to ourSecretary. The recommended candidate should be submitted to us in writing and addressed to Sonoma Pharmaceuticals, Inc., Attention: Secretary,5445 Conestoga Court, Suite 150, Boulder, Colorado 80301. The recommendation should include the following information: name of candidate;address, phone and fax number of candidate; a statement signed by the candidate certifying that the candidate wishes to be consideredfor nomination to our Board of Directors and stating why the candidate believes that he or she would be a valuable addition to our Boardof Directors; a summary of the candidate’s work experience for the prior five years and the number of shares of our stock beneficiallyowned by the candidate.The Board will evaluate the recommended candidate and shall determine whether or not to proceed withthe candidate in accordance with our procedures. We reserve the right to change our procedures at any time to comply with the requirementsof applicable laws.

ITEM11.Executive Compensation

The information required by this Item is incorporated by referenceto the 2024 Proxy Statement.

ITEM12.Security Ownership of Certain Beneficial Ownersand Management and Related Stockholder Matters.

The information required by this Item is incorporated by referenceto the 2024 Proxy Statement.

The information required to be disclosed by Item201(d) of Regulation S-K, “Securities Authorized for Issuance Under Equity Compensation Plans,” appears under the caption“Equity Compensation Plan Information” in the 2023 Proxy Statement and such information is incorporated by reference intothis report.

ITEM13.Certain Relationships, Related Transactions,and Director Independence

The information required by this Item is incorporated by referenceto the 2024 Proxy Statement.

ITEM14.Principal Accounting Fees and Services

The information required by this Item is incorporated by referenceto the 2024 Proxy Statement.

PARTIV

ITEM 15. Exhibits, FinancialStatement Schedules

(a)Documents filed as part of this report

(1) Financial Statements

Reference is made to the Index to ConsolidatedFinancial Statements of Sonoma Pharmaceuticals, Inc. under Item8 of PartII hereof.

(2) Financial StatementSchedules

Financial statement schedules have been omitted that are not applicableor not required or because the information is included elsewhere in the Consolidated Financial Statements or the Notes thereto.

(b) Exhibits

Exhibit Index

Copies of above exhibits not contained hereinare available to any stockholder, upon payment of a reasonable per page fee, upon written request to: Chief Financial Officer, SonomaPharmaceuticals, Inc., 5445 Conestoga Court, Suite 150, Boulder, Colorado 80301.

(c)Financial Statements and Schedules

Reference is made to Item15(a)(2) above.

ITEM 16. Form 10-K Summary.

None.

SIGNATURES

Pursuant to the requirements of Section13or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities andon the dates indicated.

Exhibit 3.10

AMENDMENT NO. 1

TO THE AMENDED AND RESTATED BYLAWS

OF

SONOMA PHARMACEUTICALS, INC.

On June 14, 2024 the Boardof Directors of Sonoma Pharmaceuticals, Inc., a Delaware corporation (the “Corporation”), approved by unanimous written consentto amend the Corporation’s Amended and Restated Bylaws as follows:

“2.8 Quorum.Except where otherwise provided by law or the certificate of incorporation of the corporation or these bylaws, the holders of at leastone-third of the stock issued and outstanding and entitled to vote, present in person or represented in proxy, shall constitute a quorumat all meetings of the stockholders.”

Exhibit 23.1

CONSENTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statementof Sonoma Pharmaceuticals, Inc. onFormS-3 (File No.333 275311), FormS-8 (File No.262144), FormS-8(File No.333-228898), FormS-8 (File No.333-219058), FormS-8 (File No.333-214760), FormS-8 (File No.333-205171),FormS-8 (File No.333-171412), FormS-8 (File No.333-182263), FormS-8 (File No.333-195530), FormS-8(File No.333-194314), FormS-8 (File No.333-163988), FormS-8 (File No.333-235708), and Form S-8 (File No.333-141017)of our report dated June17, 2024, which includes an explanatory paragraph as to the company's ability to continue as a going concernwith respect to our audit of the consolidated financial statements of Sonoma Pharmaceuticals, Inc. and Subsidiaries as of March31,2024 and 2023 and for the years then ended, which report is included in this Annual Report on Form10-K of Sonoma Pharmaceuticals,Inc. for the years ended March31, 2024 and 2023.

/s/ Frazier & Deeter, LLC

Tampa, Florida

June 17, 2024

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANTTO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Amy Trombly, certify that:

1. I have reviewed this annual report on Form10-K of Sonoma Pharmaceuticals, Inc. for the year ended March 31, 2024;

2. Based on my knowledge, this report does notcontain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of thecirc*mstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements,and other financial information included in this report, fairly present in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officerand I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:

(a) Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating tothe registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;

(b) Designed such internal control over financialreporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’sdisclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in theregistrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (theregistrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officerand I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditorsand the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and materialweaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANTTO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002