NASDAQ: SNOA

Over the past year, we have continued our focus on
increasing revenues and continuing progress towards profitability. During our most recent fiscal year, our revenues have grown as a result
of continued expansion of our distribution network and customer base including increasing expansion into consumer markets, the introduction
of new products into multiple markets around the world, as well as organic growth from existing customers and distributors. We have also
focused on expanding and strengthening our regulatory reach by seeking new approvals and clearances.

Some of our recent business updates include:

·
In March 2026, we announced the U.S. retail launch of our advanced HOCl-based burn relief hydrogel in CVS and Walmart stores in the United States.

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Also in March 2026, we announced the launch of Aquanil® AD, a hypochlorous acid based dermatology product line for sensitive skin, developed exclusively for Persōn & Covey, Inc. for distribution through its established over-the-counter dermatology channels in the United States.

·
In October 2025, we announced the registration of our manufacturing facility and listing of our Microcyn-based facial spray under the FDA's Modernization of Cosmetics Regulation Act of 2022 (MoCRA).

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In October 2025, we announced the launch of a new HOCl wound cleanser for Medline Industries, LP, to be distributed into hospital systems, home healthcare and other healthcare channels across the United States.

·
In August 2025, Reliefacyn® Advanced Itch-Burn-Rash-Pain Relief Hydrogel earned the National Psoriasis Foundation (NPF) Seal of Recognition, and in November 2025, Reliefacyn earned the National Rosacea Society (NRS) Seal of Acceptance.

·
In August 2025, we announced the launch of our HOCl-based diaper rash products for infants and children into Walmart stores and other large retailers in the United States.

·
In July 2025, we expanded our partnership with a U.S.-based distributor for the sale of Microcyn technology-based products to large retailers in the United States to include additional consumer-focused products.

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In April 2025, we launched the sale of our hypochlorous acid-based acne products in over 1,200 stores in the United Kingdom through a leading U.K. health and beauty retailer and pharmacy chain.

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In April 2025, we received regulatory approval for the sale of our wound care products in Ukraine as a Class IIb medical device.

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 pipeline
of products and we intend to continue to seek new regulatory clearances to expand potential markets for our products.

Business Channels

Our core market differentiation is based on being
the leading developer and producer of stabilized hypochlorous acid, or HOCl, solutions. We have been in business for over 20 years, and
in that time, we have developed significant scientific knowledge of how best to develop and manufacture HOCl products backed by decades
of studies and data collection along with manufacturing experience.

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

Dermatology

We have developed unique, differentiated, and safe
dermatologic products that support paths to healing for various dermatologic conditions. Our products are primarily targeted at relieving
pain and itch from skin irritations, the management of scars and managing symptoms of eczema/atopic dermatitis. In Europe and the United
Kingdom, we have developed products to assist in the treatment of acne. We are strategically focused on introducing innovative new products
that are supported by human clinical data with applications that address specific dermatological procedures currently in demand. In addition,
we look for markets where we can provide effective product line extensions and pricing to new product families.

In the United States, we relaunched the direct sale
of our prescription and office dispense dermatology products in December 2024, including Epicyn® Facial Cleanser, Levicyn®
Antimicrobial Dermal Spray, Levicyn Gel, Levicyn Spray Gel, Celacyn® Scar Management Gel. We also relaunched over-the-counter
Lasercyn® Dermal Spray and Lasercyn Gel.

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Other over-the-counter dermatology products in the
United States include Regenacyn® Advanced Scar Gel, which is clinically proven to improve the overall appearance of scars
while reducing pain, itch and redness, Reliefacyn® Advanced Itch-Burn-Rash-Pain Relief Hydrogel 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 health and hydration.
Rejuvacyn is certified as a Natural Personal Care Product by the Natural Products Association, and Reliefacyn received the National Eczema
Association Seal of AcceptanceTM in 2023, the National Psoriasis Foundation Seal of Recognition in 2025 and the National Rosacea
Society Seal of Acceptance in 2025. In January 2024, we launched LumacynTM Clarifying Mist, a direct-to-consumer skin care
product in the United States. Lumacyn is an all-natural daily toner to soothe and cleanse the skin.

Our consumer products are available through online
retailers, our online store and third-party distributors.

In January 2023, we launched a line of office dispense
products exclusively for skin care professionals, including two new prescription strength dermatology products, Reliefacyn Plus Advanced
Itch-Burn-Rash-Pain Relief Hydrogel and Rejuvacyn Plus Skin Repair Cooling Mist. These products, along with Regenacyn Plus Scar Gel,
are marketed and sold directly to dermatology practices and medical spas.

We sell dermatology products in international markets
through distributors. In these markets, we have a network of partners, ranging from country specific distributors to large pharmaceutical
companies to full-service sales and marketing companies. We work with our international partners to create products they can market in
their home country. Some products we develop and manufacture are custom label while others use branding we have already developed. 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 intended for
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 innate immune
system, formed and released by the macrophages during phagocytosis. Highly organized cell structures such as human tissue can tolerate
the action of our wound care solution while single-celled microorganisms cannot, making our products advantageous to other wound-irrigation
and antiseptic solutions. Due to its unique chemistry, our wound treatment solution is also much more stable than similar products on
the market and therefore maintains much higher levels of hypochlorous acid over its shelf life.

In the United States, we sell our wound care products
directly 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.

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

In April 2024, we announced expansion of our Microcyn
Negative Pressure Wound Therapy Solution products line, now available in 250mL, 450mL and 990mL sizes to meet the diverse needs of healthcare
professionals and patients.

In August 2024, we entered into a distribution agreement
with Medline Industries, LP, for the marketing and distribution of our wound care products in the United States. The agreement is for
an initial term of five years, subject to automatic one-year renewal periods. In October 2024, we entered into an amendment to the agreement
which allows Medline to also sell our wound care products in Canada, as well as to sell additional over-the-counter wound care products
to retailers in both countries.

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Eye Care

In the United States, our prescription product Acuicyn®
Eyelid & Eyelash Cleanser is an effective solution for symptoms of blepharitis and the daily hygiene of eyelids and lashes.

We sell Ocucyn® Eyelid & Eyelash
Cleanser to consumers through our online store and third party distributors. Ocucyn is designed for everyday use as a safe, gentle, and
effective solution for good eyelid and eyelash hygiene. In international markets we rely on distribution partners to sell our eye products.

Podiatry

Our HOCl-based wound care products are also indicated
for 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 wound
care products for podiatric use through a diverse network of distributors.

In April 2023, we launched Podiacyn®
Advanced Everyday Foot Care direct to consumers for over-the-counter use in the United States, intended for daily foot health and hygiene.
Podiacyn is available through our online store and third-party distributors.

Animal Health Care

MicrocynAH® is an HOCl-based topical
product line that cleans, debrides and supports healing of a wide spectrum of animal wounds and infections. It is intended for a variety
of animal afflictions including cuts, burns, lacerations, rashes, hot spots, rain rot, post-surgical sites, pink eye symptoms and wounds
to the outer ear.

For our animal health products sold in the U.S., we
partner with Compana Pet Brands. Compana distributes non-prescription products to national pet-store retail chains and farm animal specialty
stores, such as PetSmart, Tractor Supply, and Menards.

For the Asian and European markets, in May 2019 we
partnered with Petagon, an international importer and distributor of quality pet food and products, for an initial term of five years.
We supply Petagon with all MicrocynAH products sold by Petagon.

Surface Disinfectants

Our HOCl technology has been formulated as a disinfectant
and sanitizer solution and is sold in numerous countries. It is designed to be used to spray in aerosol format in areas and environments
likely to serve as a breeding ground for the spread of infectious disease, which could result in epidemics or pandemics.

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

Employees

As of June 12, 2026, we employed a total of 9 full-time
employees in the United States, and one full-time employee in the Netherlands. Additionally, we had approximately 250 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 devices
and categorized as prescription, over-the-counter (OTC) and office dispense products. Below are some of our key products that we either
sell through our own efforts or through partnership agreements.

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Dermatology

In the United States, we offer both prescription and
OTC dermatology products. Our prescription strength products include Epicyn Facial Cleanser, Levicyn Dermal Spray, Levicyn Gel, Levicyn
Spray Gel and Celacyn Scar Management Gel.

We offer Lasercyn Dermal Spray, Lasercyn Gel, Regenacyn
Advanced Scar Gel, Reliefacyn Advanced Itch-Burn-Rash-Pain Relief Hydrogel and Lumacyn Clarifying Mist for OTC purchase in the United
States, and Regenacyn Plus Scar Gel and Reliefacyn Plus Itch-Burn-Rash-Pain Relief Hydrogel for office dispense.

Lasercyn Post Procedure Gel is intended for the management of post non-ablative laser therapy procedures, post microdermabrasion therapy and following superficial chemical peels. Both Lasercyn Gel and Lasercyn Dermal Spray may also be used to relieve itch and pain from minor skin irritations, lacerations, abrasions and minor burns.

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Regenacyn Advanced Scar Gel is clinically proven to improve the overall appearance of scars, burns and keloids while reducing pain and itch.

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.

Lumacyn Clarifying Mist is intended for use as a daily skin toner, to soothe and cleanse the skin.

Regenacyn Plus, Reliefacyn Plus, and Rejuvacyn Plus
are prescription-strength products available as office dispense through dermatology practices and medical spas.

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

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Wound Care

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

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

Microcyn Wound Care Management for Professional Use
is an 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. We offer Microcyn Skin &
Wound Spray, Skin & Wound Hydrogel, Wound Irrigation Solution, and Negative Pressure Wound Therapy Solution.

Eye Care

In the United States, we offer both OTC and prescription eye care products.

Acuiycn Eyelid and Eyelash Hygiene is a prescription HOCl-based solution that removes encrustation and debris, to help manage red, itchy, crusty, inflamed eyes and symptoms of chronic eye conditions such as dry eye, contact lens intolerance, blepharitis and meibomian gland dysfunction.

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Ocucyn Eyelid and Eyelash Cleanser is an OTC eye care product sold directly in the United States that provides everyday relief for red, itchy, irritated and swollen eyelids.

Internationally, we offer OcudoxTM for
eye care.

Animal Health Care

In the United States and internationally, our HOCl-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-strength animal
care for use in vet clinics and animal hospitals.

Consumer Markets

We manufacture HOCl-based products for consumer markets in the United States
through established retail brands. These products, including facial sprays, diaper rash and sunburn relief hydrogels, and first aid products,
are marketed and sold through U.S.-based distributors and product lines.

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Surface Disinfectants

Through our partner MicroSafe DMCC, Dubai, we sell
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 ability
to kill a wide range of airborne pathogens and significantly reduce the spread of infectious disease.

Research and Development

Research and development expenses consist primarily
of expenses for clinical studies, personnel, regulatory services and supplies. For the years ended March 31, 2026 and 2025, research and
development expense amounted to $2,271,000 and $1,814,000, respectively. A small percentage of these expenses were borne by our customers.

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

Our machines are tested regularly, which is part of
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 product
specifications at all manufacturing sites. Certain materials and components used in manufacturing are proprietary to Sonoma. All other
raw materials and supplies utilized in the manufacturing process of our products are available from various third-party suppliers in quantities
adequate to meet our needs.

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

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Regulatory Approvals and Clearances

To date, in the United States we have obtained 22
U.S. Food and Drug Administration, or FDA, clearances permitting the sale of products as medical devices under Section 510(k) of the Federal
Food, Drug and Cosmetic Act, including wound care and dermatological indications for:

·cleansing, irrigation, moistening and debridement
of exudating wounds, acute and chronic dermal lesions, post-surgical wounds, first-and-second-degree burns and diabetic foot ulcers;

·itch and pain relief associated with dermal irritation;

·relieving the pain of first and second degree
burns;

·management of old and new hypertrophic and keloid
scarring resulting from burns, general surgical procedures and trauma wounds;

·relieving itching and pain experienced with various
types of dermatoses, including atopic dermatitis;

·management of minor skin irritations following
post non ablative laser therapy procedures, microdermabrasion therapy or superficial chemical peels;

·management of irritation and pain from minor
burns, including sunburn; and

·management of minor skin abrasions, minor lacerations,
minor irritations and intact skin of the face, eyelid and eyelashes.

Outside the United States, we sell products for dermatological
and advanced tissue care with a European Conformity marking, Conformité Européenne, or CE. On January 29, 2025, we received
an updated CE certificate under the new EU Medical Devices Regulation (MDR) covering all of our commercialized products in Europe. Our
product indications under MDR include:

·use in surgical wounds (intraoperative and postoperative),
acute and chronic wounds, ulcers, cuts, abrasions, and burns;

·management and reduction of new and existing
hypertrophic and keloid scars;

·care of lesions associated with atopic dermatitis;

·as an adjunct in the topical treatment of mild
to moderate acne; and

·to aid in the treatment and symptoms of blepharitis
on the eyelid.

Significant Customers

We rely on certain key customers for a significant
portion of revenues. At March 31, 2026, customer A represented 12% and customer C represented 19% of our net accounts receivable balance.
At March 31, 2025, customer D represented 24% of our net accounts receivable balance. For the year ended March 31, 2026, customer C represented
15% of net revenues. For the year ended March 31, 2025, customer B represented 21% and customer C represented 18% of net revenues.

Intellectual Property

Our success depends in part on an ability to obtain
and maintain proprietary protection for product technology and know-how, to operate without infringing proprietary rights of others, and
to 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 the
business. 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 proprietary
technology, 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 valid
if subsequently challenged, and others may claim rights in or ownership of patents and proprietary rights. Furthermore, others may develop
products similar to ours and may duplicate any of the products or design around patents.

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We have also filed for trademark protection for marks
used with products in each of the following regions: United States, Europe, Canada, Brazil, certain countries in the Middle East and certain
countries in Asia, including Japan, China, Hong Kong, the Republic of Korea, India and Australia. In addition to patents and trademarks,
we rely on trade secret and other intellectual property laws, nondisclosure agreements and other measures to protect intellectual property
rights. We believe that in order to have a competitive advantage, we must develop and maintain the proprietary aspects of technologies.
Employees, consultants and advisors are required to execute confidentiality agreements in connection with their employment, consulting
or advisory relationships. Employees, consultants and advisors with whom we expect to work with are also required to disclose and assign
to us all inventions made in the course of a working relationship with 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 care, wound care, podiatry, animal health care and surface disinfectants with our HOCl technology.

Dermatology

Our dermatology products are at the forefront of HOCl-based
solutions, a safe and highly effective active ingredient designed to relieve itching and burning and act as a highly effective antimicrobial
agent. We believe no other solutions on the market provide the same patient benefits at the levels of safety and cost. Our HOCl-based
solutions face significant competition in the United States from prescription products including corticosteroids, topical steroids and
topical antibiotics. Our opportunity as an adjunct to these steroids is based on the insight that many doctors and patients limit steroid
and antibiotic use due to potential side effects. These side effects include bacterial resistance, stinging, burning and inflammation
for topical antibiotics and stretch marks, easy bruising, tearing of the skin and, to a lesser extent, enlarged blood vessels for topical
steroids. 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-based
wound and acute care solutions provide improved efficacy at lower costs than traditional acute care products. Our HOCl-based solutions
compete with topical anti-infectives and antibiotics, as well as some advanced wound technologies, such as skin substitutes, growth factors
and delayed release silver-based dressings. Our opportunity in this space relative to antibiotics is based on the insight that competing
antibiotic solutions may have resistance-building properties.

Factors Affecting Competitive Position

While some other companies are able to produce small
molecule, HOCl-based formulations, based on our research, their products may become unstable after a relatively short period of time 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, wound
care, eye, podiatry, animal health care and surface disinfectant markets enjoy several competitive advantages. These include:

·
greater name recognition;

·
established relationships with healthcare professionals, patients and third-party payors;

·
established distribution networks;

·
additional product lines and the ability to offer rebates or bundle products to offer discounts or incentives;

·
experience in conducting research and development, manufacturing, obtaining regulatory approval for products and marketing; and

·
financial and human resources for product development, sales and marketing and patient support.

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Government Regulation

Government authorities in the United States, at the
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, biologics and medical
devices. All of our products in development will require regulatory approval or clearance by government agencies prior to commercialization.
In particular, human therapeutic products are subject to rigorous pre-clinical and clinical trials and other approval procedures of the
FDA and similar regulatory authorities in foreign countries. Various federal, state, local and foreign statutes and regulations also govern
testing, manufacturing, safety, labeling, storage, distribution and record-keeping related to such products and their marketing. The process
of obtaining these approvals and clearances, and the subsequent process of maintaining substantial compliance with appropriate federal,
state, local, and foreign statutes and regulations, require the expenditure of substantial time and financial resources. In addition,
statutes, rules, regulations and policies may change and new legislation or regulations may be issued that could delay such approvals.

Medical Device Regulation

To date, we have received 22 510(k) clearances for
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 classified as medical
devices will require clearance by the FDA.

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

Class I devices are devices for which safety and effectiveness
can be assured by adherence to a set of general controls. These general controls include compliance with the applicable portions 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 only for its cleared
or approved intended uses. Class II devices are also subject to these general controls, and any other special controls as deemed
necessary by the FDA to ensure the safety and effectiveness of the device. Review and clearance by the FDA for these devices is typically
accomplished through the 510(k) pre-market notification procedure. When 510(k) clearance is sought, a sponsor must submit a pre-market
notification demonstrating that the proposed device is substantially equivalent to a legally marketed device. If the FDA agrees 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 would constitute 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 to support
a pre-market approval application and are sometimes required for a 510(k) pre-market notification. These trials generally require submission
of an application for an investigational device exemption. An investigational device exemption must be supported by pre-clinical data,
such as animal and laboratory testing results, which show that the device is safe to test in humans and that the study protocols are scientifically
sound. The FDA must approve an investigational device exemption, in advance, for a specified number of patients, unless the 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 commercially
distributed, manufacturers and marketers of the device have ongoing responsibilities under FDA regulations. The FDA reviews design and
manufacturing practices, labeling and record keeping, and manufacturers’ required reports of adverse experiences and other information
to identify potential problems with marketed medical devices. Device manufacturers are subject to periodic and unannounced inspection
by the FDA for compliance with the Quality System Regulation, which sets forth the Current Good Manufacturing Practice requirements that
govern 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.

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On November 30, 2023, the FDA issued a proposed rule
to classify certain wound dressings and liquid wound washes containing antimicrobials with a low level of antimicrobial resistance concern,
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 performance testing
and technical specifications, specific labeling requirements, and other requirements to mitigate the risks to health and demonstrate a
reasonable assurance of safety and effectiveness. Our existing devices could serve as predicates for the new devices. The FDA is proposing
that manufacturers will need to demonstrate compliance with applicable special controls within six months after the effective date of
the rule, when finalized.

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

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

·
imposing fines, injunctions and civil penalties

·
requiring a recall or seizure of products

·
implementing operating restrictions, which can include a partial suspension or total shutdown of production

·
refusing requests for 510(k) clearance or pre-market approval of new products

·
withdrawing 510(k) clearance or pre-market approvals already granted

·
criminal prosecution

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

The FDA also administers certain controls over the
export of medical devices from the United States, as international sales of medical devices that have not received FDA clearance are subject
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.

Cosmetics Regulation

In October 2025, we announced the registration of
our manufacturing facility and listing of our Microcyn-based facial spray under the FDA’s Modernization of Cosmetics Regulation
Act of 2022 (MoCRA). MoCRA, enacted in December 2022, expanded the FDA’s regulatory authority over cosmetic products, including
by providing the FDA with new mandatory recall authority over cosmetics and by requiring the registration of cosmetic manufacturing facilities,
the reporting of certain adverse events, the issuance of cGMP requirements, and the establishment of safety substantiation requirements.
Cosmetics are not subject to premarket approval by the FDA, but the FDA seeks to ensure cosmetic products are not adulterated or misbranded.
If the safety of a product or its ingredients has not been adequately substantiated, an appropriate warning label is required to be included
on the product. Other warnings may also be mandated pursuant to FDA regulations. The FDA monitors compliance of cosmetic products with
applicable regulations through market surveillance and inspection of cosmetic manufacturers and distributors to ensure that products do
not contain false or misleading labeling, are not adulterated, and are not manufactured under unsanitary conditions. Inspections also
may arise from consumer or competitor complaints filed with the FDA. In the event that the FDA determines that one of our products fails
to comply with FDA regulations, we may be required, or we may independently decide, to conduct a recall or market withdrawal of that product
or to correct the failure by making changes to that product, including its manufacturing, formulation, or label.

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Other Regulation in the United States

The Physician Payments Sunshine Act

The Physician Payments Sunshine Act signed into law
in 2010 as part of the Affordable Care Act requires manufacturers of medical devices, drugs, biologicals, and medical supplies for which
payment is available under Medicare or Medicaid to track and report certain payments made to and transfers of value provided to physicians
and teaching hospitals as well as to report certain ownership and investment interests held by physicians and their immediate family members.
These manufacturers must report annually to the Center for Medicare & Medicaid Services any direct or indirect payments and transfers
of value of $13.46 or more, or annual aggregate of $134.54 or more in calendar year 2025, 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 specified destinations), 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, or other transfer of value. Manufacturers face monetary penalties
for non-compliance. Certain payments related to research must be reported separately. Product samples intended for patient use need not
be reported.

Health Care Coverage and Reimbursement by Third-Party
Payors

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

Fraud and Abuse Laws

In the United States, we are subject to various federal
and state laws pertaining to healthcare fraud and abuse, which, among other things, prohibit the offer or acceptance of remuneration intended
to induce or in exchange for the purchase of products or services reimbursed under a federal healthcare program and the submission of
false or fraudulent claims with the government. These laws include the federal Anti-Kickback Statute, the False Claims Act and comparable
state laws. These laws regulate the activities of entities involved in the healthcare industry, such as Sonoma, by limiting the kinds
of 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 healthcare
entities comply with healthcare laws, the Office of Inspector General of the U.S. Department of Health and Human Services recommends
that healthcare entities institute effective compliance programs. To assist in the development of effective compliance programs, the Office
of 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 an
effective compliance program. While compliance with the Compliance Program Guidance materials is voluntary, a California law requires
pharmaceutical and devices manufacturers to initiate compliance programs that incorporate the Compliance Program Guidance and the July
2002 Pharmaceuticals Research and Manufacturers of America Code on Interactions with Healthcare Professionals.

Due to the scope and breadth of the provisions of
some of these laws, it is possible that some of our practices might be challenged by the government under one or more of these laws in
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 restructuring
of operations. Any such violations could have a material adverse effect on our business, financial condition, results of operations or
cash flows.

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Anti-Kickback Laws

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

False Claims Laws

The federal False Claims Act prohibits knowingly filing
a false claim, knowingly causing the filing of a false claim, or knowingly using false statements to obtain payment from the federal government.
Certain violations of the Anti-Kickback Statute constitute per se violations of the False Claims Act. Under the False Claims Act, such
suits are known as “qui tam” actions. Individuals may file suit on behalf of the government and share in any amounts received
by the government pursuant to a settlement. In addition, certain states have enacted laws modeled after the federal False Claims Act under
the Deficit Reduction Act of 2005, where the federal government created financial incentives for states to enact false claims laws 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 false claims actions,
pay fines or be excluded from Medicare, Medicaid or other federal or state government healthcare programs as a result of investigations
arising out of such actions.

HIPAA

Two federal crimes were created under the Health Insurance
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, including private payors.
The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making 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 is subject
to an array of federal and state regulation. Federal rules promulgated pursuant to HIPAA regulate the use and disclosure of health information
by “covered entities.” Covered entities include individual and institutional health care providers from which we may receive
individually identifiable health information. These regulations govern, among other things, the use and disclosure of health information
for research purposes, and require the covered entity to obtain the written authorization of the individual before using or disclosing
health information for research. Failure of the covered entity to obtain such authorization could subject the covered entity to civil
and criminal penalties. We may experience delays and complex negotiations in dealing with each entity’s differing interpretation
of 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” agreements
that subject the company to certain privacy and security requirements. In addition, many states have laws that apply to the use and disclosure
of health information, and these laws could also affect the manner in which we conduct research and other aspects of business. Such state
laws are not preempted by the federal privacy law when such laws afford greater privacy protection to the individual than the federal
law. While activities to assure compliance with health information privacy laws are a routine business practice, we are unable to predict
the extent to which resources may be diverted in the event of an investigation or enforcement action with respect to such laws.

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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 marketing
of the product in those countries can begin. The approval process varies from country to country, and the time may be longer or shorter
than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
also vary greatly from country to country. Although governed by the applicable country, clinical trials conducted outside of the United
States 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 devices in
the European Union. In order to sell medical device products within the European Union, we are required to comply with the requirements
of the Medical Devices Regulation, and its national implementations, including affixing CE markings on products. The CE marking indicates
a 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 products
and, prior to marketing products, we must successfully undergo verification of products’ regulatory compliance, or conformity assessment.

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

We successfully transitioned all of our commercialized
products in Europe to the Medical Devices Regulation and received an updated CE certificate for Class IIb wound care solution, wound care
hydrogel and dermatological hydrogel and Class IIa dermatological solution, dermatological hydrogel and eyelid solution, which allows
us to continue to affix CE markings on our products and sell them as medical devices in Europe. We may not be able to maintain the requirements
established for CE markings for any or all of our products or be able to produce these products in a timely and profitable manner while
complying with the requirements of the Medical Devices Regulation and other regulatory requirements. We are subject to continued supervision
and are required to report any serious adverse incidents to the appropriate authorities. We are also required to comply with additional
national requirements that are beyond the scope of the Medical Devices Regulation.

European Good Manufacturing Process

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

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Mexican Regulation

The Ministry of Health is the authority in charge
of sanitary controls in Mexico. Sanitary controls are a group of practices related to the orientation, education, testing, verification
and application of security measures and sanctions exercised by the Ministry of Health. The Ministry of Health is responsible for the
issuance of Official Mexican Standards and specifications for drugs subject to the provisions of the General Health Law, which govern
the 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 defined
as a device that may contain antiseptics or germicides used in surgical practice or in the treatment of continuity solutions, skin injuries
or its attachments.

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

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

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

Available Information

We make available on sonomapharma.com, free of charge,
copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
these reports, as soon as reasonably practicable after electronically filing or furnishing such materials to the Securities and Exchange
Commission, or SEC. Sonomapharma.com and the information contained therein or connected thereto are not intended to be incorporated into
this annual report on Form 10-K. The SEC maintains an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC at www.sec.gov.

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