To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh. ...

BOULDER, COLORADO / ACCESS Newswire / October 7, 2025 / Sonoma Pharmaceuticals, Inc. (Nasdaq:SNOA), a global healthcare leader developing and producing patented Microcyn® technology-based stabilized hypochlorous acid (HOCl) products, today announced that it has successfully registered its manufacturing facility and listed its Microcyn-based facial spray under the FDA's Modernization of Cosmetics Regulation Act of 2022 (MoCRA). The MoCRA registration expands Sonoma's regulatory footprint, enabling the Compan ...

BOULDER, COLORADO / ACCESS Newswire / September 25, 2025 / Sonoma Pharmaceuticals, Inc. (Nasdaq:SNOA), a global healthcare leader developing and producing patented Microcyn® technology based stabilized hypochlorous acid (HOCl) products for a wide range of applications, including wound care, eye care, dermatological conditions, podiatry, and animal health care, today announced that it will participate in a webcast presentation and host one-on-one meetings with investors at the Lytham Partners Fall 2025 Inves ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) Presents Sonoma Pharmaceuticals' unaudited condensed consolidated financial statements and detailed notes on accounting policies, liquidity, and revenue [Item 1. Unaudited Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) Presents Sonoma Pharmaceuticals' unaudited condensed consolidated financial statements and detailed notes on accounting policies, liquidity, and revenue [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $14,594,000 by June 30, 2025, driven by current assets, while liabilities rose, slightly decreasing stockholders' equity Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (Unaudited) | March 31, 2025 | | :-------------------------------- | :-------------------------- | :------------- | | Total Assets | $14,594,000 | $13,693,000 | | Total Liabilities | $10,538,000 | $9,282,000 | | Total Stockholders' Equity | $4,056,000 | $4,411,000 | | Cash and cash equivalents | $3,605,000 | $5,374,000 | | Accounts receivable, net | $2,602,000 | $2,232,000 | | Inventories, net | $3,802,000 | $2,915,000 | | Prepaid expenses and other current assets | $2,868,000 | $1,915,000 | | Accounts payable | $2,046,000 | $953,000 | | Accrued expenses and other current liabilities | $1,836,000 | $2,224,000 | [Condensed Consolidated Statements of Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Net loss increased to $1,241,000 for Q2 2025 despite 18% revenue growth, influenced by higher operating and other expenses Condensed Consolidated Statements of Comprehensive Loss | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Revenues | $4,015,000 | $3,391,000 | | Cost of revenues | $2,551,000 | $2,085,000 | | Gross profit | $1,464,000 | $1,306,000 | | Total operating expenses | $2,559,000 | $2,479,000 | | Loss from operations | $(1,095,000) | $(1,173,000) | | Net loss | $(1,241,000) | $(1,143,000) | | Net loss per share: basic and diluted | $(0.76) | $(1.34) | | Comprehensive loss | $(435,000) | $(2,024,000) | - Revenues increased by **18% to $4,015,000** for the three months ended June 30, 2025, compared to $3,391,000 for the same period in 2024[10](index=10&type=chunk) - Net loss increased to **$1,241,000** in Q2 2025 from $1,143,000 in Q2 2024[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash and cash equivalents decreased by $1,769,000 in Q2 2025, mainly due to increased cash used in operating and investing activities Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(2,015,000) | $(912,000) | | Net cash used in investing activities | $(106,000) | $(5,000) | | Net cash (used in) provided by financing activities | $(58,000) | $636,000 | | Effect of exchange rate on cash and cash equivalents | $410,000 | $(258,000) | | Net decrease in cash and cash equivalents | $(1,769,000) | $(539,000) | | Cash and cash equivalents, end of period | $3,605,000 | $2,589,000 | - Net cash used in operating activities significantly increased to **$2,015,000** in Q2 2025 from $912,000 in Q2 2024, driven by net loss and increases in accounts receivable, inventories, and prepaid expenses[13](index=13&type=chunk)[97](index=97&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity declined to $4,056,000 by June 30, 2025, primarily due to net loss, partially offset by foreign currency and stock compensation Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric | Balance, March 31, 2025 | Balance, June 30, 2025 | | :-------------------------------- | :---------------------- | :--------------------- | | Additional Paid-in Capital | $206,593,000 | $206,673,000 | | Accumulated Deficit | $(197,806,000) | $(199,047,000) | | Accumulated Other Comprehensive Loss | $(4,376,000) | $(3,570,000) | | Total Stockholders' Equity | $4,411,000 | $4,056,000 | | Net loss | - | $(1,241,000) | | Foreign currency translation adjustment | - | $806,000 | | Employee stock-based compensation | - | $57,000 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides details on organization, liquidity, accounting policies, and going concern risk, including revenue recognition and inventory valuation [Note 1. Organization and Recent Developments](index=7&type=section&id=Note%201.%20Organization%20and%20Recent%20Developments) Sonoma Pharmaceuticals specializes in HOCl products globally and recently completed a 1-for-20 reverse stock split - Sonoma Pharmaceuticals, Inc. develops and produces stabilized hypochlorous acid (HOCl) products for wound care, eye care, dermatological conditions, podiatry, animal health care, and as non-toxic disinfectants, selling in **55 countries**[18](index=18&type=chunk) - A **1-for-20 reverse stock split** was effective August 29, 2024, reducing common stock outstanding from 21,174,693 to 1,058,447 shares[19](index=19&type=chunk) [Note 2. Liquidity and Financial Condition](index=7&type=section&id=Note%202.%20Liquidity%20and%20Financial%20Condition) Persistent net losses and accumulated deficit raise substantial doubt about the company's ability to continue as a going concern Liquidity and Financial Condition | Metric | June 30, 2025 | March 31, 2025 | | :----------------- | :------------ | :------------- | | Accumulated deficit | $199,047,000 | $197,806,000 | | Working capital | $8,259,000 | $8,552,000 | | Net cash used in operating activities (3 months) | $2,015,000 | $912,000 (for 3 months ended June 30, 2024) | - The company's history of losses and current financial condition indicate **substantial doubt** about its ability to continue as a going concern within one year[22](index=22&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=8&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines key accounting policies, including estimates, net loss per share, revenue recognition, inventory valuation, and segment reporting - The company computes basic and diluted net loss per share by dividing net loss by the weighted-average number of common shares outstanding, excluding anti-dilutive securities[24](index=24&type=chunk)[25](index=25&type=chunk) - Revenue is recognized when promised goods or services are transferred to the customer, reflecting the consideration expected in exchange, including direct sales, distributor sales, consignment, and technology licensing[27](index=27&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - Inventories are stated at the lower of cost (standard cost approximating FIFO) or net realizable value, with provisions for excess and obsolete inventory[35](index=35&type=chunk)[36](index=36&type=chunk) [Note 4. Condensed Consolidated Balance Sheet](index=10&type=section&id=Note%204.%20Condensed%20Consolidated%20Balance%20Sheet) Details inventories, which increased to $3,802,000, and operating leases, which significantly rose due to new facility agreements Inventories, net | Inventories, net | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Raw materials | $1,755,000 | $1,395,000 | | Finished goods | $2,351,000 | $1,818,000 | | Less: allowance for obsolete and excess inventory | $(304,000) | $(298,000) | | Total inventories, net | $3,802,000 | $2,915,000 | Operating Leases | Operating Leases | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Operating lease right-of-use assets | $536,000 | $84,000 | | Operating lease liabilities – current | $96,000 | $58,000 | | Operating lease liabilities – non-current | $440,000 | $27,000 | - The weighted-average remaining lease term for operating leases is **53.3 months**, with a weighted-average discount rate of **10.7%** as of June 30, 2025[42](index=42&type=chunk) [Note 5. Commitments and Contingencies](index=11&type=section&id=Note%205.%20Commitments%20and%20Contingencies) Discusses potential legal matters and executive employment agreements, including $1,519,000 in potential severance payments - Potential severance payments to key executives amount to **$1,519,000** if triggered, based on aggregated annual salaries of $675,000[44](index=44&type=chunk) [Note 6. Debt](index=11&type=section&id=Note%206.%20Debt) Details a $274,000 note agreement at 7.97% interest, with outstanding principal decreasing to $139,000 by June 30, 2025 Debt Metric | Debt Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Outstanding principal on note | $139,000 | $220,000 | | Interest rate | 7.97% per annum | 7.97% per annum | [Note 7. Stock-Based Compensation](index=12&type=section&id=Note%207.%20Stock-Based%20Compensation) Stock-based compensation expense decreased to $57,000, with $233,000 in unrecognized costs for stock options as of June 30, 2025 Stock-Based Compensation | Stock-Based Compensation | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Stock-based compensation expense | $57,000 | $107,000 | | Unrecognized compensation costs (stock options) | $233,000 (as of June 30, 2025) | - | | Weighted-average amortization period | 1.33 years | - | Stock Option Activity | Stock Option Activity | Number of Shares | Weighted Average Exercise Price | | :-------------------------------- | :--------------- | :------------------------------ | | Outstanding at April 1, 2025 | 73,081 | $43.27 | | Options granted | 9,000 | $2.85 | | Options exercised | (8,500) | $2.68 | | Options forfeited | (1,074) | $79.15 | | Outstanding at June 30, 2025 | 72,507 | $42.47 | | Exercisable at June 30, 2025 | 39,177 | $73.86 | Restricted Stock Award Activity | Restricted Stock Award Activity | Number of Shares | Weighted Average Award Date Fair Value per Share | | :-------------------------------- | :--------------- | :----------------------------------------------- | | Unvested restricted stock awards outstanding at April 1, 2025 | 45,000 | $2.68 | | Restricted stock awards granted | 60,500 | $2.85 | | Unvested restricted stock awards outstanding at June 30, 2025 | 105,500 | $2.78 | [Note 8. Income Taxes](index=13&type=section&id=Note%208.%20Income%20Taxes) The effective tax rate was (0.06)% for Q2 2025, resulting in a $1,000 income tax benefit due to a U.S. valuation allowance - The effective tax rate for the three months ended June 30, 2025, was **(0.06)%**, primarily due to a valuation allowance against deferred tax assets in the U.S[52](index=52&type=chunk)[53](index=53&type=chunk) Income Tax | Income Tax | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Income tax benefit (expense) | $1,000 | $(146,000) | [Note 9. Revenue Disaggregation](index=13&type=section&id=Note%209.%20Revenue%20Disaggregation) Total product revenue increased to $4,015,000, with growth in the U.S., Europe, and Asia, but a decline in Latin America Revenue Source | Revenue Source | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Human Care | $3,555,000 | $2,992,000 | | Animal Care | $460,000 | $399,000 | | Total Product | $4,015,000 | $3,391,000 | Geographic Region | Geographic Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | United States | $1,005,000 | $642,000 | | Europe | $1,468,000 | $1,288,000 | | Asia | $662,000 | $477,000 | | Latin America | $564,000 | $880,000 | | Rest of the World | $316,000 | $104,000 | | Total | $4,015,000 | $3,391,000 | [Note 10. Significant Customer Concentrations](index=13&type=section&id=Note%2010.%20Significant%20Customer%20Concentrations) Major customers, including Customer C (19%) and Customer B (14%), represent significant concentrations of revenue and accounts receivable Major Customer Revenue (% of net revenue) | Major Customer Revenue (% of net revenue) | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Customer A | 10% | *% | | Customer B | 14% | 26% | | Customer C | 19% | 18% | Major Customer Accounts Receivable (% of net accounts receivables) | Major Customer Accounts Receivable (% of net accounts receivables) | June 30, 2025 | June 30, 2024 | | :----------------------------------------------------------------- | :------------ | :------------ | | Customer A | *% | 16% | | Customer B | *% | 17% | | Customer C | 14% | 11% | | Customer D | 13% | 17% | [Note 11. Subsequent Events](index=14&type=section&id=Note%2011.%20Subsequent%20Events) Management identified no material subsequent events through the financial statement issuance date - No subsequent events or transactions requiring disclosure were identified through the date the condensed consolidated financial statements were issued[57](index=57&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Discusses Sonoma Pharmaceuticals' financial condition and operational results for Q2 2025, covering business, revenue, expenses, and liquidity [Our Business](index=15&type=section&id=Our%20Business) Sonoma Pharmaceuticals is a global leader in HOCl products for diverse healthcare applications, sold in 55 countries - Sonoma Pharmaceuticals is a global healthcare leader specializing in stabilized hypochlorous acid (HOCl) products for wound care, eye care, dermatological conditions, podiatry, animal health care, and non-toxic disinfectants[61](index=61&type=chunk) - The company's products are clinically proven to safely reduce itch, pain, scarring, and irritation without damaging healthy tissue, and are sold in **55 countries**[61](index=61&type=chunk) [Business Channels](index=16&type=section&id=Business%20Channels) Leverages HOCl expertise across dermatology, wound care, eye care, animal health, and disinfectants, using direct sales and global partnerships - The company's core market differentiation is based on being the leading developer and producer of stabilized hypochlorous acid (HOCl) solutions, with over **20 years of scientific knowledge** and manufacturing experience[62](index=62&type=chunk) - In Dermatology, the company relaunched direct sales of prescription and OTC products in the U.S. in December 2024 and January 2024, respectively, and expanded distribution agreements with WellSpring Pharmaceutical Corporation[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - For First Aid and Wound Care, new applications like intraoperative pulse lavage irrigation treatment were launched in the U.S. in November 2023, and a distribution agreement with Medline Industries, LP, was established in August 2024, expanding to Canada in October 2024[72](index=72&type=chunk)[74](index=74&type=chunk) - In Surface Disinfectants, Nanocyn received EPA approval for use against COVID-19 in April 2022 and was later added to EPA Lists G and H for other pathogens, also achieving Green Seal Certification[83](index=83&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Total revenue increased 18% to $4,015,000, with gross profit up 12% but margin down, and mixed trends in operating expenses [Revenue](index=19&type=section&id=Revenue) Total revenue grew 18% to $4,015,000, driven by strong growth in the U.S., Europe, Asia, and Rest of World, despite Latin America's decline Geographic Revenue | Geographic Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | United States | $1,005,000 | $642,000 | $363,000 | 57% | | Europe | $1,468,000 | $1,288,000 | $180,000 | 14% | | Asia | $662,000 | $477,000 | $185,000 | 39% | | Latin America | $564,000 | $880,000 | $(316,000) | (36%) | | Rest of the World | $316,000 | $104,000 | $212,000 | 204% | | Total | $4,015,000 | $3,391,000 | $624,000 | 18% | - The increase in U.S. revenue was primarily due to human health care and over-the-counter animal health care products[85](index=85&type=chunk) - Latin America revenue decreased by **$316,000** primarily due to timing of customer orders for overflow manufacturing[87](index=87&type=chunk) [Cost of Revenue and Gross Profit](index=19&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit) Cost of revenues rose 22% to $2,551,000, increasing gross profit by 12% to $1,464,000, but reducing gross profit margin to 36% Cost of Revenue and Gross Profit | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Cost of Revenues | $2,551,000 | $2,085,000 | $466,000 | 22% | | Cost of Revenue as a % of Revenues | 64% | 61% | - | - | | Gross Profit | $1,464,000 | $1,306,000 | $158,000 | 12% | | Gross Profit as a % of Revenues | 36% | 39% | - | - | - The increase in gross profit was primarily due to increased revenue and overall product mix[88](index=88&type=chunk) [Research and Development Expense](index=20&type=section&id=Research%20and%20Development%20Expense) Research and development expenses increased 26% to $594,000, driven by enhanced product development for new releases Research and Development Expense | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Research and Development Expense | $594,000 | $470,000 | $124,000 | 26% | | Research and Development Expense as a % of Revenues | 15% | 14% | - | - | - The increase in R&D expenses was primarily due to increased product development to support new product releases[89](index=89&type=chunk) [Selling, General and Administrative Expense](index=20&type=section&id=Selling,%20General%20and%20Administrative%20Expense) Selling, general and administrative expenses decreased 2% to $1,965,000, reflecting ongoing cost containment efforts Selling, General and Administrative Expense | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Selling, General and Administrative Expense | $1,965,000 | $2,009,000 | $(44,000) | (2%) | | Selling, General and Administrative Expense as a % of Revenues | 49% | 59% | - | - | - The decline in SG&A expenses was a result of ongoing efforts to contain expenses[90](index=90&type=chunk) [Other (Expense) Income, net](index=20&type=section&id=Other%20(Expense)%20Income,%20net) Other (expense) income, net, shifted to a $(147,000) expense, influenced by exchange rates and employee retention credits Other (expense) income, net | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Other (expense) income, net | $(147,000) | $176,000 | - The current period's other expense primarily relates to exchange rate fluctuations, offset by **$323,000 in employee retention credits**[91](index=91&type=chunk) [Income Tax Benefit (Expense)](index=20&type=section&id=Income%20Tax%20Benefit%20(Expense)) An income tax benefit of $1,000 was recorded, a shift from a prior-year expense, due to an increase in Mexico's deferred tax asset Income Tax Benefit (Expense) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Income tax benefit (expense) | $1,000 | $(146,000) | - The income tax benefit in the current period was related to an increase in the Mexico deferred tax asset[92](index=92&type=chunk) [Net Loss](index=20&type=section&id=Net%20Loss) Net loss increased to $1,241,000, but net loss per share improved to $(0.76) due to higher weighted-average shares outstanding Net Loss | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(1,241,000) | $(1,143,000) | | Weighted-average shares outstanding: basic and diluted | 1,641,000 | 851,000 | | Net loss per share: basic and diluted | $(0.76) | $(1.34) | [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) Net loss and accumulated deficit persist, with cash and working capital declining, necessitating additional capital for operations [Sources of Liquidity](index=21&type=section&id=Sources%20of%20Liquidity) Operations have historically been financed by equity sales, revenues, and loans, with recent funding from cash, stock sales, and employee retention credits - Substantially all operations since inception have been financed through sales of equity securities, revenues, loans, and asset sales[95](index=95&type=chunk) - Since July 1, 2024, financing has included cash on hand, **$2,238,000 from common stock sales**, and **$619,000 from employee retention credits** for 2020 and 2021[96](index=96&type=chunk)[100](index=100&type=chunk) [Cash Flows](index=21&type=section&id=Cash%20Flows) Net cash used in operating activities significantly increased to $2,015,000, while investing and financing activities also shifted to cash usage Cash Flow Activity | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(2,015,000) | $(912,000) | | Net cash used in investing activities | $(106,000) | $(5,000) | | Net cash (used in) provided by financing activities | $(58,000) | $636,000 | | Net change in cash and cash equivalents | $(1,769,000) | $(539,000) | | Cash and cash equivalents, end of the period | $3,605,000 | $2,589,000 | | Working capital, end of period | $8,259,000 | $8,176,000 | - Net cash used in operating activities increased due to net loss, and increases in accounts receivable (**$216,000**), inventories (**$652,000**), and prepaid expenses (**$819,000**), partially offset by an increase in accounts payable (**$1,026,000**)[97](index=97&type=chunk) - Net cash used in financing activities was **$58,000** in Q2 2025, primarily from principal payments on short-term debt, contrasting with **$636,000 provided** in Q2 2024 from common stock sales[99](index=99&type=chunk) [Material Trends and Uncertainties](index=22&type=section&id=Material%20Trends%20and%20Uncertainties) Faces uncertainties including customer concentration, foreign currency risk, a substantial Mexico tax liability, and global economic conditions - The company relies on certain key customers for a significant portion of its revenues, which may fluctuate[101](index=101&type=chunk) - Exposure to foreign currency devaluation for the Mexico Peso and Euro versus the U.S. dollar poses an unpredictable risk[102](index=102&type=chunk) - A substantial Mexico tax liability, including intercompany debt and unpaid technical assistance charges, is due in **2027**, though management believes sufficient assets exist to cover it[103](index=103&type=chunk) - The recently enacted U.S. tax reform legislation (OBBBA) is anticipated to have an insignificant impact on deferred tax assets, liabilities, and income taxes payable[105](index=105&type=chunk) [Use of Estimates](index=22&type=section&id=Use%20of%20Estimates) Financial statements rely on management estimates and assumptions, particularly for deferred tax asset valuation allowances, which may differ from actual results - Significant estimates and assumptions, such as the valuation allowance for deferred tax assets, are required in preparing consolidated financial statements[106](index=106&type=chunk) [Off-Balance Sheet Transactions](index=22&type=section&id=Off-Balance%20Sheet%20Transactions) The company has no off-balance sheet arrangements with a material effect on its financial condition or liquidity - The company has no off-balance sheet arrangements that are material or reasonably likely to become material[107](index=107&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Sonoma Pharmaceuticals is exempt from providing quantitative and qualitative market risk disclosures - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[108](index=108&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of June 30, 2025, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=22&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including CEO and CFO, concluded disclosure controls and procedures were effective as of the reporting period end - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2025[109](index=109&type=chunk) [Changes in Internal Control Over Financial Reporting](index=23&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the first quarter of fiscal year 2026 - No material changes in internal control over financial reporting occurred during the first quarter of fiscal year 2026[110](index=110&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=23&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Control systems provide only reasonable assurance due to inherent limitations, not absolute certainty of objective achievement - Control systems provide only reasonable, not absolute, assurance due to inherent limitations[111](index=111&type=chunk) [PART II - OTHER INFORMATION](index=24&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) Covers legal proceedings, risk factors, equity sales, senior security defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) The company may face legal matters, including proprietary technology disputes, which could materially affect financial condition despite current insignificance - The company may be involved in legal matters, including proprietary technology, which management currently deems insignificant but could have a material adverse effect[113](index=113&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the Annual Report on Form 10-K for the fiscal year ended March 31, 2025 - No material changes to risk factors from the Annual Report on Form 10-K for the fiscal year ended March 31, 2025[114](index=114&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity securities were issued during the quarter ended June 30, 2025, or through August 7, 2025 - No unregistered securities were issued during the quarter ended June 30, 2025, and through August 7, 2025[115](index=115&type=chunk) [Item 3. Defaults Upon Senior Securities](index=24&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the quarter ended June 30, 2025 - No defaults upon senior securities occurred during the quarter ended June 30, 2025[116](index=116&type=chunk) [Item 4. Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures%20(Not%20applicable.)) Mine Safety Disclosures are not applicable to Sonoma Pharmaceuticals, Inc - Mine Safety Disclosures are not applicable to the company[117](index=117&type=chunk) [Item 5. Other Information](index=24&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2025 - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[118](index=118&type=chunk) [Item 6. Exhibits](index=24&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with Form 10-Q, including organizational documents, equity plans, various agreements, and certifications - The exhibit index includes organizational documents, equity incentive plans, and various agreements such as supply, distribution, and license agreements[120](index=120&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk) - Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are filed herewith[125](index=125&type=chunk) [Signatures](index=29&type=section&id=Signatures) The report was signed by Amy Trombly, President and CEO, and Jerome Dvonch, CFO, on August 7, 2025 - The report was signed by Amy Trombly, President and CEO, and Jerome Dvonch, CFO, on August 7, 2025[128](index=128&type=chunk)

[Part I](index=4&type=section&id=PART%20I) [Business](index=4&type=section&id=ITEM%201.%20Business) Sonoma Pharmaceuticals develops and produces stabilized hypochlorous acid (HOCl) products for diverse healthcare applications, expanding global distribution and securing regulatory approvals to drive revenue - The company's core strategy is to work with partners in the United States and globally to market and distribute its products, which are sold in over **55 countries**[21](index=21&type=chunk) - Key business channels include Dermatology, First Aid and Wound Care, Eye Care, Oral/Dental/Nasal Care, Podiatry, Animal Health, and Surface Disinfectants[22](index=22&type=chunk)[30](index=30&type=chunk)[35](index=35&type=chunk)[37](index=37&type=chunk)[39](index=39&type=chunk)[41](index=41&type=chunk)[44](index=44&type=chunk) - In August 2024, Sonoma entered a five-year distribution agreement with Medline Industries, LP for its wound care products in the U.S., later expanded to include Canada and OTC products[34](index=34&type=chunk) - The company partners with Compana Pet Brands for animal health products in the U.S. and Canada, and with Petagon for Asian and European markets[42](index=42&type=chunk)[43](index=43&type=chunk) - The company is a global healthcare leader focused on developing and producing stabilized hypochlorous acid (HOCl) products for a wide range of applications[17](index=17&type=chunk) - Sonoma's business strategy involves selling products directly and through partners in over **55 countries**, with a focus on expanding its distribution network and customer base[18](index=18&type=chunk)[21](index=21&type=chunk) - Recent business updates include new FDA 510(k) clearances, expanded distribution agreements with Medline Industries and WellSpring Pharmaceutical, and the successful transition of European products to the new EU Medical Device Regulation (MDR)[23](index=23&type=chunk) - All products are manufactured at the company's facility in Zapopan, Mexico, which is certified under U.S. cGMP, ISO 13485, and Mexican Ministry of Health standards[75](index=75&type=chunk) [Business Channels and Products](index=5&type=section&id=Business%20Channels%20and%20Products) Sonoma markets its HOCl-based products across diverse healthcare channels, primarily through partnerships for U.S. and international distribution [Research and Development](index=14&type=section&id=Research%20and%20Development) Research and development expenses, consisting mainly of clinical studies, personnel, and regulatory services, were slightly down in fiscal year 2025 compared to 2024 R&D Expense Comparison | Fiscal Year | R&D Expense | | :--- | :--- | | **2025** | $1.814 million | | **2024** | $1.871 million | [Regulatory Approvals and Competition](index=14&type=section&id=Regulatory%20Approvals%20and%20Competition) Sonoma holds multiple U.S. FDA and EU regulatory approvals for its HOCl products, competing with larger firms by leveraging the superior stability of its solutions - The company has obtained **22 U.S. FDA 510(k) clearances** for its products as medical devices[78](index=78&type=chunk) - On January 29, 2025, Sonoma received an updated CE certificate under the new EU Medical Devices Regulation, covering all its commercialized products in Europe[79](index=79&type=chunk) - The company competes with large, well-established companies in dermatology, wound care, and other markets that have advantages such as greater name recognition, established distribution networks, and larger financial resources[92](index=92&type=chunk)[96](index=96&type=chunk) - Sonoma believes its HOCl-based solutions are among the most stable available, which provides a competitive advantage over other HOCl products that may become unstable over short periods[91](index=91&type=chunk) [Government Regulation](index=18&type=section&id=Government%20Regulation) The company's products are extensively regulated by the FDA in the U.S. and international authorities, requiring compliance with medical device regulations and healthcare laws - The company has received **22 510(k) clearances** for its products as medical devices, which are classified as Class I, II, or III depending on risk[93](index=93&type=chunk)[94](index=94&type=chunk) - A proposed FDA rule issued on November 30, 2023, may classify wound dressings with antimicrobials like HOCl into Class II, which would require new 510(k) applications and compliance with special controls[99](index=99&type=chunk)[137](index=137&type=chunk) - In the EU, the company's products are classified as medical devices and must comply with the Medical Devices Regulation (MDR) to affix the CE marking for sale in the European Economic Area. The company has successfully transitioned its commercialized products to the new MDR[113](index=113&type=chunk)[115](index=115&type=chunk) - The company is subject to various U.S. healthcare laws, including the Anti-Kickback Statute, False Claims Act, and HIPAA, which regulate financial arrangements with healthcare providers and protect patient information[106](index=106&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) [Risk Factors](index=24&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces significant risks including ongoing net losses, going concern doubts, reliance on key distributors, and international operational exposures to foreign exchange and regulatory challenges [Risks Related to Our Business](index=24&type=section&id=Risks%20Related%20to%20Our%20Business) Key business risks include a history of financial losses, a going concern warning, heavy dependence on key customers and international operations, and challenges with Mexican tax laws - The company has a history of losses, with a net loss of **$3.5 million** in FY2025 and an accumulated deficit of **$197.8 million**. The audited financial statements express substantial doubt about its ability to continue as a going concern[122](index=122&type=chunk) - The company relies heavily on key customers. In FY2025, Customer B and Customer C represented **21%** and **18%** of net revenues, respectively. In FY2024, Customers A, B, and C represented **17%**, **15%**, and **14%**, respectively[130](index=130&type=chunk) - A majority of business is conducted internationally, with approximately **82%** of total revenue in FY2025 generated from sales outside the United States, exposing the company to various international risks[131](index=131&type=chunk) - The company faces risks related to Mexican tax law, which prevents the deduction of intercompany interest expense and requires withholding tax on payments. As of March 31, 2025, its Mexican subsidiary owes approximately **$45.9 million** in principal, technical assistance payments, and accrued interest to the parent company[127](index=127&type=chunk) [Risks Related to Our Common Stock](index=37&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Risks for common stock include price volatility, impact of operating results, anti-takeover provisions, potential dilution from future issuances, and delisting risk from Nasdaq non-compliance - The trading price of the common stock is volatile and depends on factors like operating results, financial situation, and market conditions[187](index=187&type=chunk) - Anti-takeover provisions, such as the ability of the Board to issue preferred stock without stockholder approval and limitations on calling special meetings, may make a takeover or change in management difficult[190](index=190&type=chunk)[194](index=194&type=chunk) - Future issuance of capital stock to raise funds will result in dilution to existing stockholders. The company is authorized to issue up to **50 million shares** of common stock[192](index=192&type=chunk) - Failure to maintain compliance with Nasdaq's continued listing requirements, such as the minimum bid price, could result in the delisting of the common stock[196](index=196&type=chunk) [Unresolved Staff Comments](index=39&type=section&id=ITEM%201B.%20Unresolved%20Staff%20Comments) Not applicable. The company has no unresolved staff comments - Not Applicable[197](index=197&type=chunk) [Cybersecurity](index=39&type=section&id=ITEM%201C.%20Cybersecurity) The company manages cybersecurity risks through management assessments, an outside IT consultant, and reliance on established third-party software providers, with active Board oversight and no material past incidents - Cybersecurity risk management involves assessments by management, an outside consultant, and secure third-party software[198](index=198&type=chunk) - The Board of Directors, as a whole, oversees the company's cybersecurity risks, with management keeping them apprised of threats and mitigation strategies[200](index=200&type=chunk) - The company is not aware of any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition[199](index=199&type=chunk) [Properties](index=40&type=section&id=ITEM%202.%20Properties) As of March 31, 2025, Sonoma Pharmaceuticals leases a corporate office in Boulder, Colorado, and a manufacturing facility and warehouse space in Zapopan, Mexico, which management believes are adequate for the company's needs for at least the next 12 months Leased Properties as of March 31, 2025 | Location | Purpose | Rent per month | | :--- | :--- | :--- | | Boulder, CO | Principal executive office | USD 3,680 | | Zapopan, Mexico | Office, manufacturing | MXN 209,811 | | Zapopan, Mexico | Warehouse | MXN 213,625 | [Legal Proceedings](index=40&type=section&id=ITEM%203.%20Legal%20Proceedings) The company may be involved in legal matters in the ordinary course of business, which management currently believes are insignificant and not expected to have a material adverse effect on the company's business or financial condition - The company may be involved in ordinary course legal matters, but management currently considers them insignificant[202](index=202&type=chunk) [Mine Safety Disclosures](index=40&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Not applicable. The company has no mine safety disclosures - Not applicable[203](index=203&type=chunk) [Part II](index=41&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=ITEM%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on The Nasdaq Capital Market under the symbol "SNOA", with approximately 61 holders of record as of June 10, 2025, and no intention to pay cash dividends in the foreseeable future - Common stock is traded on The Nasdaq Capital Market under the symbol "**SNOA**"[205](index=205&type=chunk) - As of June 10, 2025, there were approximately **61 holders** of record of the common stock[206](index=206&type=chunk) - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[207](index=207&type=chunk) [Selected Financial Data](index=41&type=section&id=ITEM%206.%20Selected%20Financial%20Data) As a smaller reporting company, Sonoma Pharmaceuticals has elected scaled disclosure and is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide information for this item[210](index=210&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=ITEM%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) For FY2025, total revenue increased 12% to $14.3 million, driven by international growth, leading to a narrowed net loss and reduced operating cash outflow, despite ongoing going concern doubts [Results of Continuing Operations](index=42&type=section&id=Results%20of%20Continuing%20Operations) In FY2025, total revenue grew 12% to $14.3 million, driven by strong international sales offsetting U.S. decline, with gross profit increasing and operating expenses decreasing, leading to an improved loss from operations Revenue by Geographic Region (in thousands) | Region | FY 2025 | FY 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | United States | $2,611 | $3,058 | $(447) | (15%) | | Europe | $5,523 | $4,781 | $742 | 16% | | Latin America | $2,962 | $1,726 | $1,236 | 72% | | Asia | $2,317 | $2,298 | $19 | 1% | | Rest of the World | $875 | $872 | $3 | 0% | | **Total** | **$14,288** | **$12,735** | **$1,553** | **12%** | Gross Profit Analysis (in thousands) | Metric | FY 2025 | FY 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cost of Revenues | $8,823 | $7,990 | $883 | 10% | | Gross Profit | $5,465 | $4,745 | $720 | 15% | | Gross Margin | 38% | 37% | - | - | - Selling, General and Administrative (SG&A) expenses decreased by **3%** to **$7.36 million** in FY2025 from **$7.58 million** in FY2024, due to ongoing cost containment efforts[222](index=222&type=chunk) Net Loss and EPS | Metric | FY 2025 | FY 2024 | | :--- | :--- | | Net Loss (in thousands) | $(3,457) | $(4,835) | | Net Loss per Share | $(2.79) | $(10.63) | [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, the company had $5.4 million in cash and $8.6 million in working capital, with reduced operating cash outflow, but its history of losses raises substantial doubt about its going concern ability, necessitating future capital raises Cash and Working Capital (in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,374 | $3,128 | | Working capital | $8,552 | $8,829 | Summary of Cash Flows (in thousands) | Activity | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net cash used in Operating | $(88) | $(2,398) | | Net cash used in Investing | $(80) | $(2) | | Net cash provided by Financing | $3,030 | $1,676 | - The company's history of losses and uncertainty about future funding indicate substantial doubt about its ability to continue as a going concern. The financial statements do not include adjustments that might result from this uncertainty[231](index=231&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=ITEM%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Sonoma Pharmaceuticals has elected scaled disclosure and is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide information for this item[239](index=239&type=chunk) [Consolidated Financial Statements and Supplementary Data](index=47&type=section&id=ITEM%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements for FY2025 and FY2024 are presented, with the auditor's report expressing substantial doubt about the company's going concern ability due to losses and negative cash flows, reflecting decreased total assets and increased total liabilities - The report from the independent registered public accounting firm, Frazier & Deeter, LLC, includes a paragraph expressing substantial doubt about the Company's ability to continue as a going concern[244](index=244&type=chunk) Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $12,648 | $12,548 | | **Total Assets** | **$13,693** | **$14,740** | | Total Current Liabilities | $4,096 | $3,719 | | **Total Liabilities** | **$9,282** | **$8,603** | | **Total Stockholders' Equity** | **$4,411** | **$6,137** | Consolidated Statements of Comprehensive Loss Data (in thousands) | Account | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Revenues | $14,288 | $12,735 | | Gross Profit | $5,465 | $4,745 | | Loss from Operations | $(3,710) | $(4,701) | | **Net Loss** | **$(3,457)** | **$(4,835)** | | Comprehensive Loss | $(5,110) | $(4,140) | - Revenue is disaggregated by product type and geography. In FY2025, Human Care products generated **$12.1 million** and Animal Care products generated **$1.7 million** in revenue[363](index=363&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosures](index=72&type=section&id=ITEM%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) None. The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[364](index=364&type=chunk) [Controls and Procedures](index=72&type=section&id=ITEM%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2025, following successful remediation of prior material weaknesses through staffing and process improvements - Management concluded that disclosure controls and procedures were effective as of March 31, 2025[366](index=366&type=chunk) - Management concluded that internal control over financial reporting was effective as of March 31, 2025, based on the 2013 COSO framework[367](index=367&type=chunk) - The company has taken several remediation measures to address previously identified material weaknesses, including hiring an experienced CFO and Controller, separating duties, and enhancing training. These weaknesses are now considered remediated[368](index=368&type=chunk)[369](index=369&type=chunk) [Other Information](index=73&type=section&id=ITEM%209B.%20Other%20Information) On June 12, 2025, the Compensation Committee granted 13,500 Restricted Stock Units (RSUs) to each of three executive officers, vesting on the third anniversary or upon a change of control - On June 12, 2025, the Compensation Committee granted **13,500 Restricted Stock Units (RSUs)** to each of the CEO, CFO, and another executive officer[371](index=371&type=chunk) [Part III](index=74&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=74&type=section&id=ITEM%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance, including the code of business conduct and procedures for nominating directors, is incorporated by reference from the company's 2025 definitive proxy statement - The information required by this item is incorporated by reference from the registrant's 2025 proxy statement[374](index=374&type=chunk) - The company has adopted a Code of Business Conduct applicable to all officers, directors, and employees, which was updated on November 5, 2024[376](index=376&type=chunk) [Executive Compensation](index=74&type=section&id=ITEM%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2025 definitive proxy statement - The information required by this item is incorporated by reference from the 2025 Proxy Statement[379](index=379&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=75&type=section&id=ITEM%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, as well as matters related to equity compensation plans, is incorporated by reference from the company's 2025 definitive proxy statement - The information required by this item is incorporated by reference from the 2025 Proxy Statement[380](index=380&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=75&type=section&id=ITEM%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2025 definitive proxy statement - The information required by this item is incorporated by reference from the 2025 Proxy Statement[381](index=381&type=chunk) [Principal Accounting Fees and Services](index=75&type=section&id=ITEM%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's 2025 definitive proxy statement - The information required by this item is incorporated by reference from the 2025 Proxy Statement[382](index=382&type=chunk) [Part IV](index=76&type=section&id=PART%20IV) [Exhibits, Financial Statement Schedules](index=76&type=section&id=ITEM%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists documents filed as part of the report, referencing consolidated financial statements under Item 8 and providing a detailed index of exhibits including corporate governance documents, material contracts, and certifications - The consolidated financial statements are referenced under Item 8 of Part II of the report[385](index=385&type=chunk) - A list of exhibits is provided, including the Restated Certificate of Incorporation, Bylaws, material contracts such as distribution agreements with Medline and WellSpring, equity incentive plans, and Sarbanes-Oxley certifications[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk) [Form 10-K Summary](index=79&type=section&id=ITEM%2016.%20Form%2010-K%20Summary) None. The company did not provide a Form 10-K summary - None[393](index=393&type=chunk)

Core Viewpoint - Momentum investing focuses on "buying high and selling higher," contrasting with traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Characteristics - Momentum investing can be risky as stocks may lose momentum when their valuations exceed future growth potential [2] - A safer approach involves investing in bargain stocks that exhibit recent price momentum, identified through the Zacks Momentum Style Score [3] Group 2: Sonoma Pharmaceuticals, Inc. (SNOA) Analysis - SNOA has shown a four-week price change of 32.5%, indicating strong recent price momentum [4] - Over the past 12 weeks, SNOA's stock gained 16.7%, with a beta of 1.56, suggesting it moves 56% more than the market [5] - SNOA has a Momentum Score of A, indicating a favorable time to invest [6] - The stock has a Zacks Rank 2 (Buy) due to upward revisions in earnings estimates, which attract more investor interest [7] - SNOA is trading at a Price-to-Sales ratio of 0.36, suggesting it is undervalued at 36 cents for each dollar of sales [7] Group 3: Investment Opportunities - SNOA is highlighted as a strong candidate for investment, with potential for further price appreciation [8] - Other stocks meeting the "Fast-Paced Momentum at a Bargain" criteria are also available for consideration [8]

PART I - FINANCIAL INFORMATION [Unaudited Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) These unaudited statements detail the company's financial position and performance, noting increased cash from financing activities and a persistent net loss [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show total assets decreased to **$13.7 million**, while cash increased to **$5.2 million**, and stockholders' equity declined to **$4.9 million** due to an accumulated deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 (Unaudited) | Mar 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,236 | $3,128 | | Total current assets | $12,380 | $12,548 | | Total assets | $13,668 | $14,740 | | Total current liabilities | $3,703 | $3,719 | | Total liabilities | $8,798 | $8,603 | | Total stockholders' equity | $4,870 | $6,137 | [Condensed Consolidated Statements of Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Revenues increased for both three and nine-month periods, reaching **$10.5 million** for nine months, while net loss narrowed to **$2.7 million** for the nine-month period, improving loss per share Performance Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2024 | Nine Months Ended Dec 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $3,564 | $3,138 | $10,534 | $9,296 | | Gross Profit | $1,270 | $1,460 | $3,937 | $3,654 | | Loss from operations | $(1,031) | $(844) | $(3,054) | $(3,292) | | Net loss | $(928) | $(866) | $(2,681) | $(3,768) | | Net loss per share | $(0.63) | $(1.59) | $(2.40) | $(10.74) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to **$7,000**, with financing activities providing **$2.8 million**, resulting in a **$2.1 million** net increase in cash to **$5.2 million** Cash Flow Summary for Nine Months Ended Dec 31 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $7 | $(2,550) | | Net cash used in investing activities | $(33) | $(20) | | Net cash provided by financing activities | $2,788 | $1,054 | | **Net increase (decrease) in cash** | **$2,108** | **$(1,414)** | | **Cash and cash equivalents, end of period** | **$5,236** | **$2,406** | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity decreased to **$4.9 million** due to net loss and foreign currency translation loss, partially offset by **$3.1 million** from common stock sales - Total stockholders' equity declined from **$6,137,000** on March 31, 2024, to **$4,870,000** on December 31, 2024[16](index=16&type=chunk) - The company raised approximately **$3.1 million** (net) from the sale of common stock through its At-the-Market (ATM) facility during the nine months ended December 31, 2024[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, a reverse stock split, going concern doubts due to losses, disaggregated revenue by product and geography, and significant customer concentration risk - Effective August 29, 2024, the company executed a **1-for-20 reverse stock split** of its common stock[19](index=19&type=chunk) - The company's history of losses and financial condition indicate **substantial doubt about its ability to continue as a going concern** within one year[22](index=22&type=chunk) Revenue by Source - Nine Months Ended Dec 31 (in thousands) | Revenue Source | 2024 | 2023 | | :--- | :--- | :--- | | Human Care | $8,886 | $7,286 | | Animal Care | $1,176 | $1,688 | | Service and Royalty | $472 | $322 | | **Total** | **$10,534** | **$9,296** | Revenue by Geography - Nine Months Ended Dec 31 (in thousands) | Region | 2024 | 2023 | | :--- | :--- | :--- | | United States | $1,930 | $2,214 | | Europe | $3,943 | $3,488 | | Asia | $1,832 | $1,730 | | Latin America | $2,174 | $1,165 | | Rest of the World | $655 | $699 | | **Total** | **$10,534** | **$9,296** | - For the nine months ended December 31, 2024, three customers (B and C, and another not named for the full period) accounted for **21%**, **19%**, and a percentage over **10%** of net revenue, respectively[59](index=59&type=chunk) - Subsequent to the quarter end, on January 2, 2025, the company granted a total of **49,500 stock options** and **45,000 restricted stock units** to directors, employees, and management[60](index=60&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's global HOCl product business, highlighting a **13% revenue increase** driven by international growth, slight gross margin compression, and ongoing liquidity challenges raising going concern doubts [Our Business](index=16&type=section&id=Our%20Business) The company specializes in stabilized hypochlorous acid (HOCl) products globally, expanding its wound care line and securing a new distribution agreement with Medline Industries - The company's core business is developing and producing **stabilized hypochlorous acid (HOCl) products** for a wide range of healthcare applications, sold in **55 countries**[65](index=65&type=chunk) - In August 2024, the company entered into a **five-year distribution agreement with Medline Industries, LP**, to market and distribute its wound care products in the United States, later expanded to include Canada and OTC products[81](index=81&type=chunk) - The company manufactures all its goods in Mexico, with approximately **82% of revenue** for the nine months ended Dec 31, 2024, derived from sales outside the U.S.[97](index=97&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Total revenue increased **13%** to **$10.5 million** for the nine months, driven by Latin America and Europe, despite a slight gross margin compression and U.S. revenue decline, narrowing the net loss Revenue Change by Geography (Three Months Ended Dec 31, 2024 vs 2023) | Region | $ Change (in thousands) | % Change | | :--- | :--- | :--- | | United States | $(254) | (29%) | | Europe | $40 | 3% | | Asia | $57 | 11% | | Latin America | $461 | 125% | | Rest of the World | $122 | 75% | | **Total** | **$426** | **14%** | - For the three months ended Dec 31, 2024, gross profit margin decreased to **36%** from **47%** in the prior year, due to changes in the utilization of manufacturing resources compared to the prior period[108](index=108&type=chunk) Revenue Change by Geography (Nine Months Ended Dec 31, 2024 vs 2023) | Region | $ Change (in thousands) | % Change | | :--- | :--- | :--- | | United States | $(284) | (13%) | | Europe | $455 | 13% | | Asia | $102 | 6% | | Latin America | $1,009 | 87% | | Rest of the World | $(44) | (6%) | | **Total** | **$1,238** | **13%** | - For the nine months ended Dec 31, 2024, gross profit margin was **37%**, compared to **39%** in the prior year period[120](index=120&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity improved with cash increasing to **$5.2 million** due to **$3.1 million** from stock sales, yet substantial doubt about going concern remains due to accumulated deficit and historical losses - The company reported an accumulated deficit of **$197.0 million** as of December 31, 2024[128](index=128&type=chunk) - Management has concluded that there is **substantial doubt about the company's ability to continue as a going concern** due to its history of losses and uncertainty about securing additional capital[129](index=129&type=chunk) - During the nine months ended December 31, 2024, the company raised **$3,079,000** in net proceeds from the sale of common stock[131](index=131&type=chunk) [Material Trends and Uncertainties](index=28&type=section&id=Material%20Trends%20and%20Uncertainties) Key uncertainties include significant customer concentration, foreign currency risks, a substantial Mexican tax liability due in 2027, and the potential impact of global economic conditions and tariffs - The company relies on certain **key customers** for a significant portion of its revenues[138](index=138&type=chunk) - The company is exposed to risk from **foreign currency devaluation**, especially the Mexican Peso and the Euro against the US dollar[139](index=139&type=chunk) - A substantial **tax liability** related to its Mexico operations, including intercompany debt and interest, is due in 2027[140](index=140&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[144](index=144&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective due to a material weakness in internal control over financial reporting, specifically a lack of separation of duties, with remediation efforts underway - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **not effective** as of December 31, 2024[147](index=147&type=chunk) - Management identified a **material weakness in internal control over financial reporting** due to a lack of separation of duties in the preparation and review of reported numbers[149](index=149&type=chunk) - Remediation measures include hiring a new CFO and Controller in 2023, separating preparation and review duties, and enhancing internal controls training[150](index=150&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company may be involved in ordinary course legal matters, but management currently deems them insignificant - While the company may be involved in ordinary course legal matters, management believes such matters are currently **insignificant**[155](index=155&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) New risk factors include potential tariffs on Mexican imports and the critical need to transition European products to the new Medical Device Regulation (MDR) by December 2028 - A key risk is the potential for new or increased **tariffs on goods imported into the U.S. from Mexico**, which could adversely affect the business as all products are manufactured there[157](index=157&type=chunk) - The company faces a significant risk related to transitioning its European products to the new **Medical Device Regulation (MDR)**; failure to meet the requirements by the December 31, 2028 deadline could result in products being withdrawn from the EU market[160](index=160&type=chunk)[161](index=161&type=chunk)[164](index=164&type=chunk) - While four products have successfully transitioned to the new MDR, several others, including eye care and acne products, are still under review or require additional studies for transition[162](index=162&type=chunk)[163](index=163&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered securities were issued during the quarter ended December 31, 2024 - No unregistered securities were issued during the quarter ended December 31, 2024[165](index=165&type=chunk) [Other Information](index=32&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter[168](index=168&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section indexes all exhibits filed with or incorporated by reference into the Form 10-Q, including corporate governance documents, material contracts, and certifications - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[175](index=175&type=chunk) - Exhibits include various material agreements, such as the Equity Distribution Agreement with Maxim Group LLC and the Distribution Agreement with Medline Industries, LP[175](index=175&type=chunk)

Core Viewpoint - Momentum investing focuses on "buying high and selling higher" rather than traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investors often face challenges in determining the right entry point for fast-moving stocks, which can lose momentum if future growth does not justify high valuations [2] - Investing in bargain stocks that have recently shown price momentum can be a safer strategy [3] Group 2: Sonoma Pharmaceuticals, Inc. (SNOA) Analysis - Sonoma Pharmaceuticals (SNOA) has shown a four-week price change of 0.7%, indicating growing investor interest [4] - The stock has gained 3.9% over the past 12 weeks and has a beta of 1.38, suggesting it moves 38% more than the market [5] - SNOA has a Momentum Score of B, indicating a favorable time to invest [6] - The stock has a Zacks Rank 2 (Buy) due to upward revisions in earnings estimates, which attract more investors [7] - SNOA is trading at a Price-to-Sales ratio of 0.29, meaning investors pay 29 cents for each dollar of sales, indicating a reasonable valuation [7] Group 3: Additional Investment Opportunities - Besides SNOA, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, suggesting further investment opportunities [8] - The Zacks Premium Screens offer over 45 different strategies to help identify winning stock picks [9]

Core Viewpoint - Momentum investing focuses on "buying high and selling higher," contrasting with traditional strategies of "buying low and selling high." Sonoma Pharmaceuticals, Inc. (SNOA) is highlighted as a strong candidate for momentum investing due to its rapid price movement and reasonable valuation. Group 1: Momentum Characteristics - SNOA has a beta of 1.38, indicating it moves 38% more than the market in either direction, showcasing its fast-paced momentum [2] - The stock has gained 147.7% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer timeframe [6] - A recent price increase of 107.8% over the past four weeks reflects growing investor interest [11] Group 2: Valuation Metrics - SNOA is currently trading at a Price-to-Sales ratio of 0.55, meaning investors pay only 55 cents for each dollar of sales, indicating a reasonable valuation [3] - The stock has a Momentum Score of A, suggesting it is an opportune time to invest in SNOA to capitalize on its momentum [12] Group 3: Analyst Ratings and Earnings Estimates - SNOA has earned a Zacks Rank 1 (Strong Buy) due to an upward trend in earnings estimate revisions, which attracts more investors [7] - The momentum-effect is particularly strong among Zacks Rank 1 and 2 stocks, as rising earnings estimates lead to increased investor interest [7] Group 4: Additional Opportunities - Besides SNOA, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, providing additional investment opportunities [8]

Core Viewpoint - Sonoma Pharmaceuticals, Inc. (SNOA) is identified as a strong candidate for investment due to its favorable momentum characteristics and reasonable valuation metrics. Group 1: Momentum Characteristics - SNOA has a four-week price change of 2.4%, indicating growing investor interest [9] - The stock has gained 31% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer time frame [10] - SNOA has a Momentum Score of A, suggesting it is an opportune time to invest [11] Group 2: Valuation Metrics - SNOA is currently trading at a Price-to-Sales ratio of 0.31, meaning investors pay only 31 cents for each dollar of sales, which is considered cheap [12] - The stock's beta is 1.37, indicating it moves 37% higher than the market in either direction, reflecting its fast-paced momentum [11] Group 3: Investment Strategy - The 'Fast-Paced Momentum at a Bargain' screen helps identify stocks like SNOA that are attractively priced while exhibiting recent price momentum [8] - Momentum investors typically focus on "buying high and selling higher," which aligns with SNOA's current performance [6]