Financial Analysis

NOTE 11 Commitments and Contingencies Legal Matters The Company may be involved in legal matters arising in the ordinary course of business including matters involving proprietary technology. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business and financial condition of comprehensive loss. Employment Agreements At March 31, 2026, the Company had an employment agreement in place with one of its key executives. This executive employment agreement provided, among other things, for the payment of up to twenty-four months of severance compensation for terminations under certain circumstances. As of March 31, 2026, with respect to this agreement, aggregated annual salaries was $ 475,000 and potential severance payments to these key executives is $ 1,425,000 , if triggered. Mexico Tax Liability Since 2004, the Company loaned substantial amounts to its Mexico subsidiary Oculus Technologies of Mexico, S.A. de C.V. at various interest rates to fund their operations. As of March 31, 2026, our Mexico subsidiary owes approximately $ 12,300,000 in principal, $ 10,400,000 in technical assistance payments and $ 32,200,000 in accrued interest. The intercompany loans mature in 2032 and were extended 5 years during the current fiscal year. There is no guarantee that the Companys Mexican subsidiary will be able …

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NOTE 15 Employee Benefit Plan The Company has a program to contribute and administer a qualified 401(k) plan. Under the 401(k) plan, the Company matches employee contributions to the plan up to 4% of the employees salary. Company contributions to the plan amounted to an aggregate of $ 117,000 and $ 88,000 for the years ended March 31, 2026 and 2025, respectively. …

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NOTE 9 Debt Financing of Insurance Premiums On February 1, 2026, the Company entered into a note agreement for $ 277,000 with an interest rate of 7.47 % per annum with final payment on November 1, 2026 . This instrument was issued in connection with financing insurance premiums. On February 2, 2026, the Company made an initial payment of $ 28,000 . The note is payable in nine monthly installment payments of principal and interest of $ 28,000 , with the first monthly installment beginning March 1, 2026 . At March 31, 2026, the outstanding principal on the note amounted to $ 222,000 . On February 1, 2025, the Company entered into a note agreement for $ 274,000 with an interest rate of 7.97 % per annum with final payment on November 1, 2025 . This instrument was issued in connection with financing insurance premiums. On February 5, 2025, the Company made an initial payment of $ 28,000 . The note is payable in nine monthly installment payments of principal and interest of $ 28,000 , with the first monthly installment beginning March 1, 2025 . At March 31, 2025, the outstanding principal on the note amounted to $ 220,000 . …

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Schedule of disaggregated revenues by revenue source Year Ended March 31, 2026 2025 Product: Human Care $ 17,681,000 $ 12,635,000 Animal Care 1,848,000 1,653,000 Total $ 19,529,000 $ 14,288,000

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NOTE 13 Stock-Based Compensation 2016 Stock Plan On September 2, 2016, upon recommendation of the board, the stockholders approved the Companys 2016 Equity Incentive Plan (the 2016 Plan). The 2016 Plan is effective as of September 2, 2016 and has a ten year term. The 2016 Plan provides for the grant of options, including incentive stock options as defined in Section 422 of the Internal Revenue Code to employees, stock appreciation rights, restricted awards, performance share awards and performance compensation awards to employees, non-employee directors, advisors and consultants. Options issued under the 2016 Plan generally have a ten-year term. In accordance with the 2016 Plan, the stated exercise price of an employee incentive stock option or a non-statutory stock option shall not be less than 100% of the estimated fair market value of a share of common stock on the date of grant. An employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company shall not be eligible for the grant of an employee incentive stock option unless such grant satisfies the requirements of Section 422(c)(5) of the Internal Revenue Code. Shares subject to awards that expire unexercised or are forfeited or terminated for any other reason will again become available for issuance under the 2016 Plan. No participant in the 2016 Plan can receive more than 11,112 option grants, or other awards with respect to more than 13,334 shares in the aggregate i …

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NOTE 14 Income Taxes The income tax provision is based on the following net taxable loss before income taxes, which are from domestic and foreign sources: Schedule of income tax provision from domestic and foreign sources Year Ended March 31, 2026 2025 Domestic $ 1,026,000 $ (158,000 ) Foreign (4,445,000 ) (2,749,000 ) Totals $ (3,419,000 ) $ (2,907,000 ) The federal, state and foreign income tax provisions are summarized as follows: Schedule of federal, state and foreign income tax provisions Year Ended March 31, 2026 2025 Current: State $ (26,000 ) $ (2,000 ) Deferred: Foreign 270,000 (548,000 ) Total income tax benefit (expense) $ 244,000 $ (550,000 ) A reconciliation of the statutory federal income tax rate to the Companys effective tax rate for continuing operations is as follows: Schedule of reconciliation of federal income tax rate to effective rate Year Ended March 31, 2026 2025 Expected federal statutory rate $ (717,000 ) 21.0 % $ (611,000 ) 21.0 % State income taxes, net of federal benefit 26,000 (0.7 % ) 3,000 (0.1 % ) Foreign tax: Foreign earnings taxed at different rates: Mexico (370,000 ) 10.9 % (152,000 ) 5.2 % Netherlands (13,000 ) 0.4 % (43,000 ) 1.5 % Effect of intercompany interest permanent differences: Mexico 703,000 (20.7 % ) 738,000 (25.3 % ) Netherlands 141,000 (4.1 % ) 142,000 (4.9 % ) Annual inflation adjustment: Mexico 191,000 (5.6 % ) 180,000 (6.2 % ) Other deferred true-ups: Mexico (22,000 ) 0.6 % 227,000 (7.8 % ) Other non-deductible expenses: Me …

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NOTE 10 Leases The Companys operating leases are comprised primarily of facility leases. Balance sheet information related to the Companys leases is presented below: Schedule of lease information March 31, March 31, 2026 2025 Operating leases: Operating lease right-of-use assets $ 602,000 $ 84,000 Operating lease liabilities current 151,000 58,000 Operating lease liabilities non-current 469,000 27,000 Other information related to leases is presented below: Year ended March 31, 2026 Year ended March 31, 2025 Lease cost Operating lease cost $ 388,000 $ 365,000 Other information: Operating cash flows from operating leases $ (515,000 ) $ (174,000 ) Weighted-average remaining lease term operating leases (in months) 43.5 18.6 Weighted-average discount rate operating leases 10.7 % 6 % As of March 31, 2026, the annual future minimum lease payments of the Companys operating lease liabilities were as follows: Schedule of minimum operating lease liabilities For Years Ending March 31, 2027 $ 210,000 2028 207,000 2029 169,000 2030 161,000 2031 13,000 Total future minimum lease payments, undiscounted 760,000 Less: imputed interest (140,000 ) Total lease liability $ 620,000 …

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Recent Accounting Standards The Company has evaluated all the recent accounting standards and determined that none are material to it.

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NOTE 16 Revenue Disaggregation The Company generates product revenues from products which are sold into the human and animal healthcare markets.. The following table presents the Companys disaggregated revenues by source: Schedule of disaggregated revenues by revenue source Year Ended March 31, 2026 2025 Product: Human Care $ 17,681,000 $ 12,635,000 Animal Care 1,848,000 1,653,000 Total $ 19,529,000 $ 14,288,000 The following table shows the Companys revenues by geographic region: Schedule of revenues by geographic region Year Ended March 31, 2026 2025 United States $ 5,674,000 $ 2,611,000 Europe 6,904,000 5,523,000 Asia 2,900,000 2,317,000 Latin America 2,373,000 2,962,000 Rest of the World 1,678,000 875,000 Total $ 19,529,000 $ 14,288,000 …

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NOTE 3 Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Aquamed Technologies, Inc. (Aquamed), Oculus Technologies of Mexico S.A. de C.V. (OTM), and Sonoma Pharmaceuticals Netherlands, B.V. (SP Europe). Aquamed has no current operations. All significant intercompany accounts and transactions have been eliminated in consolidation. The functional currency for the Company's wholly-owned subsidiaries incorporated outside the United States (U.S.) is denominated in local currency. Basis of presentation The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and are in conformity with U.S. generally accepted accounting principles (GAAP). The Companys fiscal year end is March 31. Unless otherwise stated, all years and dates refer to the fiscal year. Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and all highly liquid investments with an original maturity of three months or less when purchased. The Companys cash equivalents are held in prime money market investments with strong sponsor organizations which ar …

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NOTE 12 Stockholders Equity Authorized Capital Effective August 29, 2024, the Company increased its authorized shares from 24,000,000 to 50,000,000 shares of common stock with a par value of $ 0.0001 per share. Additionally, the Company is authorized to issue 714,286 shares of convertible preferred stock with a par value of $ 0.0001 per share. Description of Common Stock Each share of common stock has the right to one vote. The holders of common stock are entitled to dividends when funds are legally available and when declared by the board of directors. Description of Series B Convertible Preferred Stock On October 18, 2016, the Companys board of directors approved, and the Company entered into, a Section 382 rights agreement, or the Rights Agreement, with Computershare Inc., or the Rights Agent. The Rights Agreement provides for a dividend of one preferred stock purchase right, or a Right, for each share of common stock, par value $0.0001 per share, of the Company outstanding on November 1, 2016, or the Record Date. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series B Preferred Stock, par value $0.0001 per share, or the Preferred Stock, for a purchase price of $10.00, subject to adjustment as provided in the Rights Agreement. Sale of Common Stock Maxim Group LLC On December 15, 2023, the Company entered into an Equity Distribution Agreement (as amended, the Maxim ATM Agreement), with Maxim Group LLC (Maxim) pursuant to which t …

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NOTE 17 Subsequent Events At-the-Market Sale of Common Stock During April 2026, the Company sold 23,781 shares of common stock for gross proceeds of $56,000 and net proceeds of $55,000 after deducting offering expenses. Dawson James Securities, Inc. On April 24, 2026, the Company entered into an Underwriting Agreement with Underwiter. Pursuant to the terms of the Underwriting Agreement, the Company agreed to issue and sell to the Underwriter an aggregate of 2,962,962 units, each unit consisting of one share of common stock, par value $0.0001 per share or, in lieu of common stock, if purchasing common stock would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of the outstanding common stock, a pre-funded warrant, together with one warrant to purchase one share of common stock at an exercise price equal to $1.35 per share, in a public offering. The public offering price for each unit was $1.35. Pursuant to the Underwriting Agreement, the Company granted the Underwriter a 45-day option (the Over-Allotment Option) to purchase up to 444,444 additional shares of common stock and/or 444,444 warrants to purchase an aggregate of 444,444 shares of common stock. Pursuant to the Underwriting Agreement, The Company agreed to pay the Underwriter an aggregate fee equal to 7.5% of the gross proceeds of the offering. The Company also agreed to pay the Underwriter a non-accountable expense allowance equal to 1% of the publ …

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