ENCISION INC

Previous wording

*Possibility of Operating Losses.*We have an accumulated deficit of $22,617,329 at March 31, 2024. We have made significant strides toward improving our operating results. However, due to the ongoing need to develop new products, the need to develop, optimize and train our sales distribution network 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 in future periods.

Current wording

*Possibility of Operating Losses.*We have an accumulated deficit of $22,765,245 at March 31, 2025. We have made significant strides toward improving our operating results. However, due to the ongoing need to develop new products, the need to develop, optimize and train our sales distribution network 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 in future periods.

Previous wording

Sales and Marketing Expenses. We continue our efforts to expand domestic and international distribution capability, andwe believe that sales and marketing expenses will need to be maintained at a healthy level in order to expand our market visibility and optimize the field sales capability of converting new hospital customers to AEMtechnology. Sales and marketing expenses are expected to increase as we increase our marketing efforts to support our direct sales representatives. In fiscal year 2024, we expect to have six direct sales managers. Each direct sales manager also manages a separate territory.

Current wording

Sales and Marketing Expenses. We continue our efforts to expand domestic and international distribution capability, andwe believe that sales and marketing expenses will need to be maintained at a healthy level in order to expand our market visibility and optimize the field sales capability of converting new hospital customers to AEMtechnology. Sales and marketing expenses are expected to increase as we increase our marketing efforts to support our direct sales representatives. In fiscal year 2026, we expect to have five direct sales managers. Each direct sales manager also manages a separate territory.

Previous wording

Net Product revenue. Net product revenue for the fiscal year ended March 31, 2024 (“FY24”) was $6,431,969, and for the fiscal year ended March 31, 2023 (“FY23”), net revenue was $6,885,158, or a decrease of 7%. Product revenue for the fiscal year ended March 31, 2024 decreased primarily because of the decrease in non-essential surgical procedures performed during this period.

Current wording

Net Product revenue. Net product revenue for the fiscal year ended March 31, 2025 (“FY25”) was $6,217,687, and for the fiscal year ended March 31, 2024 (“FY24”), net revenue was $6,431,969, or a decrease of 3%. Product revenue for the fiscal year ended March 31, 2025 decreased primarily because of the decrease in non-essential surgical procedures performed during this period.

Previous wording

Net Service revenue. Net service revenue for FY24 was $153,913, and for FY23 net service revenue was $463,356. Net service revenue for FY23 was for engineering services performed under a Master Services Agreement with Auris Health, Inc. (“Auris Health”). Auris Health is a part of the Johnson & Johnson family of companies. Under the agreement, we collaborated on the integration of AEM technology into monopolar instrumentation produced by Auris Health for advanced surgical applications.

Current wording

Net Service revenue. Net service revenue for FY25 was $337,628 and for FY24 net service revenue was $153,913. Net service revenue for FY24 was for engineering services performed under a Master Services Agreement with Vicarious Surgical Inc.. Under the agreement, we collaborated on the integration of AEM technology into and provide certain related design services for elements of Vicarious’ robotic surgical system.

Previous wording

Gross profit. Gross profit in FY24 was $3,135,962, which represented a decrease of $896,571, or 22%, from gross profit in FY23 of $4,032,533. Gross profit margin was 48% of net product revenue for FY24 and 55% of net product revenue for FY 23. Gross profit decreased in FY24 from FY23 due principally to higher product vendor costs and increased inventory reserves. In FY23 we had high margin service revenue. Our product revenue from GPOs in FY23 was approximately 79% of our total product revenue. In FY24, we had increased product vendor costs that were not allowed to be passed on to our GPO customers for the fiscal year and resulted in a compressed gross profit margin.

Current wording

Gross profit. Gross profit in FY25 was $3,511,286, which represented an increase of $375,324, or 12%, from gross profit in FY24 of $3,135,962. Gross profit margin was 54% of net product revenue for FY25 and 48% of net product revenue for FY24. Gross profit increased in FY25 from FY24 due principally to a reduction in material cost on high volume product. In FY25, we had an increase in high-margin service revenue.

Previous wording

Sales and marketing expenses. Sales and marketing expenses were $1,634,124 in FY24, a decrease of $398,291, or 20%, from $2,032,415 in FY23. The decrease was because of decreased commissions on decreased revenue.

Current wording

Sales and marketing expenses. Sales and marketing expenses were $1,689,503 in FY25, an increase of $55,379, or 3%, from $1,634,124 in FY24. The increase was because of increased commissions and travel expenses.

Previous wording

General and administrative expenses. General and administrative expenses were $1,520,727 in FY24, an increase of $33,931 or 2%, from $1,486,796 in FY23. The increase was because of increased regulatory fees.

Current wording

General and administrative expenses. General and administrative expenses were $1,400,611 in FY25, a decrease of $120,116 or 8%, from $1,520,727 in FY24. The decrease was because of decreased regulatory fees, compensation, and outside service expenses in FY25.

Previous wording

Research and development expenses. Research and development expenses were $621,894 in FY24, a decrease of $196,225 or 24%, from $816,119 in FY23. The decrease was the result of decreased compensation and outside services.

Current wording

Research and development expenses. Research and development expenses were $593,152 in FY25, a decrease of $28,742 or 5%, from $621,894 in FY24. The decrease was the result of decreased compensation and outside services.

Previous wording

Net (loss). Net (loss) in FY24 of $691,783 represented a loss increaseof $367,838 compared to FY23 net loss of $323,945. The net loss increase was principally because of lower product and service revenue and was partially offset by decreased operating expenses.

Current wording

Net loss. Net loss in FY25 of $220,198 represented a decrease of $471,585 compared to FY24 net loss of $691,783. The net loss decrease was principally because of higher service revenue, increased product margins, and decreased operating expenses.

Previous wording

To date, operating funds have been provided primarily by issuances of our common stock and warrants, the exercise of stock options to purchase our common stock, loans and, in some years, by operating profits. To date, common stock and additional paid in capital totaled $24,371,795 from our inception through March 31, 2024. Our operations provided $144,389 and used $861,485 of cash in FY24 and FY23, respectively, on net revenue of $6,585,882 and $7,348,514 in FY24 and FY23, respectively. Working capital was $1,206,252 at March 31, 2024 compared to $1,993,777 at March 31, 2023. The decrease in working capital was primarily caused by the FY24 net loss and decreased inventories. Current liabilities were $1,220,022 at March 31, 2024 compared to $1,130,826 at March 31, 2023.

Current wording

To date, operating funds have been provided primarily by issuances of our common stock and warrants, the exercise of stock options to purchase our common stock, loans and, in some years, by operating profits. To date, common stock and additional paid in capital totaled $24,416,347 from our inception through March 31, 2025. Our operations used $54,948 and provided $144,389 of cash in FY25 and FY24, respectively, on net revenue of $6,555,315 and $6,585,882 in FY25 and FY24, respectively. Working capital was $1,036,850 at March 31, 2025 compared to $1,357,937 at March 31, 2024. The decrease in working capital was primarily caused by the FY25 net loss, which resulted in increased utilization of the Pathward line of credit, a current liability. Current liabilities were $1,575,915 at March 31, 2025 compared to $1,068,337 at March 31, 2024.

Previous wording

On November 15, 2022, we entered into a loan and security agreement with Pathward, N.A. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 0.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $300,000, a loan fee of 0.5% at closing and annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively.

Current wording

On November 2, 2022, we entered into a loan and security agreement with Pathward, N.A. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 0.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $300,000, a loan fee of 0.5% at closing and annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively. The balance under the line of credit is fully collateralized by invoices included in our accounts receivable.

Previous wording

We believe that the unique performance of AEM technology and our breadth of independent endorsements provide an opportunity for market share growth. We believe that the market awareness of AEM technology and its endorsements is continually improving and that this will benefit revenue efforts in FY 25. We believe that we enter FY 25 having achieved improvements in the clinical credibility of our technology. Our FY 25 operating plan is focused on growing revenue, increasing gross profits, increasing research and development costs while increasing profits and positive cash flows. We cannot predict with certainty the expected revenue, gross profit, net income or loss and usage of cash, cash equivalents and restricted cash for FY 25. We believe that cash resources and borrowing capacity will be sufficient to fund our operations for at least the next twelve months under our current operating plan. If we are unable to manage business operations in line with our budget expectations, it could have a material adverse effect on business viability, financial position, results of operations and cash flows. Further, if we are not successful in sustaining profitability and remaining at least cash flow break-even, additional capital may be required to maintain ongoing operations.

Current wording

We believe that the unique performance of AEM technology and our breadth of independent endorsements provide an opportunity for market share growth. We believe that the market awareness of AEM technology and its endorsements is continually improving and that this will benefit revenue efforts in FY 26. We believe that we enter FY 26 having achieved improvements in the clinical credibility of our technology. Our FY 26 operating plan is focused on growing revenue, increasing gross profits, increasing research and development costs while increasing profits and positive cash flows. We cannot predict with certainty the expected revenue, gross profit, net income or loss and usage of cash, cash equivalents and restricted cash for FY 26. We believe that cash resources and borrowing capacity will be sufficient to fund our operations for at least the next twelve months under our current operating plan. If we are unable to manage business operations in line with our budget expectations, it could have a material adverse effect on business viability, financial position, results of operations and cash flows. Further, if we are not successful in sustaining profitability and remaining at least cash flow break-even, additional capital may be required to maintain ongoing operations.

Previous wording

As of March 31, 2024, net operating loss carryforwards totaling approximately $8.9 million were available to reduce taxable income in the future. The net operating loss carryforwards expire, if not previously utilized, at various dates beginning in fiscal year 2025. We have not paid income taxes since our inception. The Tax Reform Act of 1986 and other income tax regulations contain provisions which may limit the net operating loss carryforwards available to be used in any given year if certain events occur, including changes in our ownership. We have established a valuation allowance for the entire amount of our deferred tax asset since inception due to our history of losses. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed.

Current wording

As of March 31, 2025, net operating loss carryforwards totaling approximately $8.2 million were available to reduce taxable income in the future. The net operating loss carryforwards expire, if not previously utilized, at various dates beginning in fiscal year 2025. We have not paid income taxes since our inception. The Tax Reform Act of 1986 and other income tax regulations contain provisions which may limit the net operating loss carryforwards available to be used in any given year if certain events occur, including changes in our ownership. We have established a valuation allowance for the entire amount of our deferred tax asset since inception due to our history of losses. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed.

Previous wording

Effective November 9, 2017, we extended our noncancelable lease agreement through July 31, 2024, and further extended it through October 31, 2026, for our facilities at 6797 Winchester Circle, Boulder, Colorado. Lease expense was $357,503 for the fiscal year ended March 31, 2024 and $329,255 for the fiscal year ended March 31, 2023. The minimum future lease payment, by fiscal year, as of March 31, 2024 is as follows:

Current wording

Effective November 9, 2017, we extended our noncancelable lease agreement through July 31, 2024, and further extended it through October 31, 2026, for our facilities at 6797 Winchester Circle, Boulder, Colorado. Lease expense was $384,184 for the fiscal year ended March 31, 2025 and $357,503 for the fiscal year ended March 31, 2024. The minimum future lease payment, by fiscal year, as of March 31, 2025 is as follows:

Previous wording

During September 2022, we entered into a note agreement with U.S. Bank for $115,004. The note is for five years at a 6% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.

Current wording

During June 2022, we entered into a note agreement with U.S. Bank for $118,970. The note is for five years at a 6% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.