ENCISION INC

Previous wording

Certain statements contained in this section on Management’s Discussion and Analysis are not historical facts, including statements about our strategies and expectations with respect to new and existing products, market demand, acceptance of new and existing products, marketing efforts, technologies and opportunities, market and industry segment growth, and return on investments in products and markets. These statements are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve substantial risks and uncertainties that may cause actual results to differ materially from those indicated by the forward looking statements. All forward looking statements in this section on Management’s Discussion and Analysis are based on information available to us on the date of this document, and we assume no obligation to update such forward looking statements. Readers of this Form 10-Q are strongly encouraged to review the section entitled*“Risk Factors”*in our Form 10-K for the fiscal year ended March 31, 2024.

Current wording

Certain statements contained in this section on Management’s Discussion and Analysis are not historical facts, including statements about strategies and expectations with respect to new and existing products, market demand, acceptance of new and existing products, marketing efforts, technologies and opportunities, market and industry segment growth, and return on investments in products and markets. These statements are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve substantial risks and uncertainties that may cause actual results to differ materially from those indicated by the forward looking statements. All forward looking statements in this section on Management’s Discussion and Analysis are based on information available to us on the date of this document, and we assume no obligation to update such forward looking statements. Readers of this Form 10-Q are strongly encouraged to review the section entitled*“Risk Factors”*in the Form 10-K for the fiscal year ended March 31, 2024.

Previous wording

Encision Inc., a medical device company based in Boulder, Colorado, has developed and markets innovative technology that provides unprecedented outcomes and patient safety in minimally-invasive surgery. Approximately one in every three surgeons may have a patient injury each year from preventable stray energy burns. We believe that our patented Active Electrode Monitoring (“AEM®”) AEM EndoShield™ Burn Protection System is changing the marketplace for electrosurgical devices and laparoscopic instruments by providing a solution to a well-documented hazard unique to laparoscopic surgery. The Center for Medicare and Medicaid Services has published its Hospital-Acquired Condition Reduction Program. The program has begun to levy as much as a 1% penalty on Medicare reimbursements to hospitals in the lower quadrant of performance for selected quality indicators, including accidental puncture and laceration (“APL”). Examples of APL include the use of a cautery device (electrosurgery) or scissors to dissect a tissue plane that errantly causes an injury to underlying bowels. A Safety Communication was released by the FDA on May 29, 2018 which is on the FDA's website at: https://www.fda.gov/MedicalDevices/Safety/AlertsandNotices/ucm608637.htm. The Safety Communication states that, "In addition to serving as an ignition source, monopolar energy use can directly result in unintended patient burns from capacitive coupling and intra-operative insulation failure. If a monopolar electrosurgical unit (“ESU”) is used: Do not activate when near or in contact with other instruments.”

Current wording

Encision Inc., a medical device company based in Boulder, Colorado, has developed and markets innovative technology that provides unprecedented outcomes and patient safety in minimally-invasive surgery. Approximately one in every three surgeons may have a patient injury each year from preventable stray energy burns. We believe that the patented Active Electrode Monitoring (“AEM®”) AEM EndoShield™ Burn Protection System is changing the marketplace for electrosurgical devices and laparoscopic instruments by providing a solution to a well-documented hazard unique to laparoscopic surgery. The Center for Medicare and Medicaid Services has published its Hospital-Acquired Condition Reduction Program. The program has begun to levy as much as a 1% penalty on Medicare reimbursements to hospitals in the lower quadrant of performance for selected quality indicators, including accidental puncture and laceration (“APL”). Examples of APL include the use of a cautery device (electrosurgery) or scissors to dissect a tissue plane that errantly causes an injury to underlying bowels.

Previous wording

Our patented AEM technology provides surgeons with the desired tissue effects, while capturing stray electrosurgical energy that can cause unintended and unseen tissue injury that may result in death. AEM Surgical Instruments are equivalent to conventional instruments in size, shape, ergonomics, functionality and competitive pricing, but they incorporate “Active Electrode Monitoring” technology to dynamically and continuously monitor the flow of electrosurgical current, thereby helping to prevent patient injury. With our “shielded and monitored” instruments, surgeons are able to perform electrosurgical procedures more safely, effectively and economically than is possible using conventional instruments or alternative energy sources.

Current wording

The patented AEM technology provides surgeons with the desired tissue effects, while capturing stray electrosurgical energy that can cause unintended and unseen tissue injury that may result in death. AEM Surgical Instruments are equivalent to conventional instruments in size, shape, ergonomics, functionality and competitive pricing, but they incorporate “Active Electrode Monitoring” technology to dynamically and continuously monitor the flow of electrosurgical current, thereby preventing patient injury from stray energy burns. With the “shielded and monitored” instruments, surgeons can perform electrosurgical procedures more safely, effectively and economically than is possible using conventional instruments or alternative energy sources.

Previous wording

The AEM system consists of shielded 5mm AEM Instruments and an AEM monitor. The AEM Instruments are designed to function identically to the conventional 5mm instruments that surgeons are familiar with, but with the added benefit of enhanced patient safety. Our entire line of laparoscopic instruments has the integrated AEM design and includes the full range of instruments that are common in laparoscopic surgery today. The AEM monitor is compatible with most electrosurgical generators and can also be adapted for use in robotic systems. AEM Surgical Instruments provide enhanced patient safety, require no change in surgeon technique and are cost competitive. Thus, conversion to AEM Surgical Instruments is easy and economical.

Current wording

The AEM system consists of shielded 5mm AEM Instruments and an AEM monitor. The AEM Instruments are designed to function identically to the conventional 5mm instruments that surgeons are familiar with, but with the added benefit of enhanced patient safety. The entire line of laparoscopic instruments has the integrated AEM design and includes the full range of instruments that are common in laparoscopic surgery today. The AEM monitor is compatible with most electrosurgical generators and can also be adapted for use in robotic systems. AEM Surgical Instruments provide enhanced patient safety, require no change in surgeon technique and are cost competitive. Thus, conversion to AEM Surgical Instruments is easy and economical.

Previous wording

When a hospital or surgery center changes to AEM technology, we receive recurring revenue from sales of replacement instruments. We believe that there is no directly competing technology to supplant AEM products. The replacement market of reusable and disposable AEM products in hospitals and surgery centers that use our AEM technology represented over 90% of our product revenue during the three months ended June 30, 2024. This revenue stream is expected to grow as the base of accounts using AEM technology expands. In addition, we intend to further develop disposable versions of more of our AEM products in order to meet market demands and expand our sales opportunities.

Current wording

When a hospital or surgery center changes to AEM technology, we receive recurring revenue from sales of replacement instruments. We believe that there is no directly competing technology to supplant AEM products. The replacement market of reusable and disposable AEM products in hospitals and surgery centers that use our AEM technology represented over 90% of our product revenue during the three and six months ended September 30, 2024. This revenue stream is expected to grow as the base of accounts using AEM technology expands. In addition, we intend to further develop disposable versions of more of our AEM products in order to meet market demands and expand our sales opportunities.

Previous wording

We have an accumulated deficit of $22,523,006 at June 30, 2024. A significant portion of our operating funds have been provided by issuances of our common stock and warrants and the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital.

Current wording

We have an accumulated deficit of $22,693,269 at September 30, 2024. A significant portion of our operating funds have been provided by issuances of our common stock and warrants and the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital.

Previous wording

During the three months ended June 30, 2024, we generated $117,528 of cash in our operating activities and used $14,144 for investments in property and equipment. At June 30, 2024, we had $270,444 in cash and at March 31, 2024 we had $42,509 in cash available to fund future operations, an increase of $227,935 from March 31, 2024. The increase to cash was principally the result of borrowing from our line of credit. Our working capital was $1,324,315 at June 30, 2024 compared to $1,206,252 at March 31, 2024.

Current wording

During the six months ended September 30, 2024, we generated $192,699 of cash in our operating activities and used $42,559 for investments in property and equipment. At September 30, 2024, we had $230,014 in cash and at March 31, 2024 we had $42,509 in cash available to fund future operations, an increase of $187,505 from March 31, 2024. The increase to cash was principally the result of cash generated by operating activities and borrowing from our line of credit. Our working capital was $1,142,362 at September 30, 2024 compared to $1,206,252 at March 31, 2024.

Previous wording

Possibility of Operating Losses: We have an accumulated deficit of $22,523,006 at June 30, 2024. A significant portion of our operating funds have been provided by issuances of our common stock and warrants and the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital. We have made strides toward improving our operating results but due to the ongoing need to develop, optimize and train our direct sales managers and the independent sales representative network, the need to support the development of refinements to our product line, and the need to increase sustained sales to a level adequate to cover fixed and variable operating costs, we may operate at a net loss. Sustained losses, or our inability to generate sufficient cash flow from operations to fund our obligations, may result in a need to raise additional capital.

Current wording

Possibility of Operating Losses: We have an accumulated deficit of $22,693,269 at September 30, 2024. A significant portion of our operating funds have been provided by issuances of our common stock and warrants and the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital. We have made strides toward improving our operating results but due to the ongoing need to develop, optimize and train our direct sales managers and the independent sales representative network, the need to support the development of refinements to our product line, and the need to increase sustained sales to a level adequate to cover fixed and variable operating costs, we may operate at a net loss. Sustained losses, or our inability to generate sufficient cash flow from operations to fund our obligations, may result in a need to raise additional capital.

Previous wording

Net Service revenue. Net service revenue for the quarter ended June 30, 2024 was $38,971 compared to $39,831 for the quarter ended June 30, 2023.

Current wording

Net Service revenue. Net service revenue for the quarter ended September 30, 2024 was $101,568 compared to $73,978 for the quarter ended September 30, 2023. Increase was because of services performed under a Master Services Agreement with Vicarious Surgical Inc.

Previous wording

Gross profit. Gross profit for the quarter ended June 30, 2024 of $942,663 represented an increase of 9% from gross profit of $862,725 for the quarter ended June 30, 2023. Gross profit increased because of an increase to sales prices for the quarter ended June 30, 2024. Gross profit on product net revenue as a percentage of sales (gross margin) was 58% for the quarter ended June 30, 2024 and 52% for the quarter ended June 30, 2023. Gross profit on net revenue decreased because of an increase to inventory reserves.

Current wording

Gross profit. Gross profit for the quarter ended September 30, 2024 of $828,482 represented a decrease of 4% from gross profit of $862,609 for the quarter ended September 30, 2023. Gross profit decreased because of a non-cash cost increase of $81,603 to inventory reserves for the quarter ended September 30, 2024. Gross profit on product net revenue as a percentage of sales (gross margin) was 47% for the quarters ended September 30, 2024 and 2023. If the cost increase to inventory reserve were excluded, then gross profit on net revenue would have been 52%.

Previous wording

Sales and marketing expenses. Sales and marketing expenses of $423,237 for the quarter ended June 30, 2024 represented a decrease of 2% from sales and marketing expenses of $433,436 for the quarter ended June 30, 2023. The decrease was because of fewer trade shows and promotional equipment.

Current wording

Sales and marketing expenses. Sales and marketing expenses of $458,480 for the quarter ended September 30, 2024 represented an increase of 18% from sales and marketing expenses of $389,342 for the quarter ended September 30, 2023. The increase was because of trade shows and commissions.

Previous wording

Net Product revenue. Net product revenue for the quarter ended June 30, 2024 was $1,591,960 compared to $1,613,552 for the quarter ended June 30, 2023, a decrease of 1%. The decrease of net product revenue is because of a slight decrease in demand for our products.

Current wording

Net Product revenue. Net product revenue for the six months ended September 30, 2024 was $3,245,779 compared to $3,365,965 for the six months ended September 30, 2023, a decrease of 4%. The decrease of net product revenue is attributable to decreased demand for our products.

Previous wording

General and administrative expenses. General and administrative expenses of $351,903 for the quarter ended June 30, 2024 represented a decrease of 10% from general and administrative expenses of $388,757 for the quarter ended June 30, 2023. The decrease was because of lower bad debt expense and outside accountant fees.

Current wording

General and administrative expenses. General and administrative expenses of $725,310 for the six months ended September 30, 2024 represented a decrease of 4% from general and administrative expenses of $755,133 for the six months ended September 30, 2023. The decrease was because of decreased bad debt expense and outside accountants’ cost.

Previous wording

*Net income.*Net income was $22,041 for the quarter ended June 30, 2024 compared to net loss of $140,453 for the quarter ended June 30, 2023.

Current wording

*Net loss.*Net loss was $148,222 for the six months ended September 30, 2024 compared to net loss of $147,983 for the six months ended September 30, 2023.

Previous wording

To date, a significant portion of our operating funds have been provided by issuances of our common stock and warrants, the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Common stock and additional paid in capital totaled $24,382,720 from inception through June 30, 2024.

Current wording

To date, a significant portion of our operating funds have been provided by issuances of our common stock and warrants, the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Common stock and additional paid in capital totaled $24,395,358 from inception through September 30, 2024.

Previous wording

Our operations generated $117,528 of cash during thethree months ended June 30, 2024 on net revenue of $1,630,931. The amounts of cash generated by operations for the three months ended June 30, 2024 are not necessarily indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2025 At June 30, 2024, we had $270,444 in cash available to fund future operations and a line of credit for up to $857,264, restricted by eligible account receivables. Our working capital was $1,324,315 at June 30, 2024 compared to $1,206,252 at March 31, 2024. Current liabilities were $1,188,551 at June 30, 2024 compared to $1,220,022 at March 31, 2024. We have a noncancelable lease agreement for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease expires October 31, 2026.

Current wording

Our operations generated $192,699 of cash during the six months ended September 30, 2024 on net revenue of $3,386,318. The amounts of cash generated by operations for the six months ended September 30, 2024 are not necessarily indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2025. At September 30, 2024, we had $230,014 in cash available to fund future operations and a line of credit for up to $921,149, restricted by eligible account receivables. Our working capital was $1,142,362 at September 30, 2024 compared to $1,206,252 at March 31, 2024. Current liabilities were $1,140,082 at September 30, 2024 compared to $1,220,022 at March 31, 2024. We have a noncancelable lease agreement for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease expires October 31, 2026.