ENCISION INC

Current report

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, 2025.

Current report

General

Current report

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 and 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.

Current report

We address market opportunities created by the increase in minimally invasive surgery (“MIS”) and surgeons’ use of electrosurgery devices in these procedures. The product opportunity exists in that monopolar electrosurgery instruments used in laparoscopic procedures provide excellent clinical results but are also susceptible to causing inadvertent collateral tissue damage outside the surgeon’s field of view due to insulation failure and capacitive coupling. The risk of unintended electrosurgical burn injury to the patient in laparoscopic surgery has been well documented. This risk poses a threat to patient safety, including the risk of death, and creates liability exposure for surgeons and hospitals, as well as increased and preventable readmissions.

Current report

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 can perform electrosurgical procedures more safely, effectively, and economically than is possible using conventional instruments or alternative energy sources.

Current report

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 an 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 report

AEM technology has been recommended and endorsed by many groups involved in MIS. Surgeons, nurses, biomedical engineers, the medicolegal community, malpractice insurance carriers, and electrosurgical device manufacturers advocate the use of AEM technology. To date, we have focused our marketing strategies on expanding the market awareness of AEM technology and our broad independent endorsements, and we have continued efforts to improve and expand AEM technology penetration.

Current report

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, 2025. This revenue stream is expected to grow as the base of accounts using AEM technology expands. In addition, we intend to develop more disposable versions of our AEM products in order to meet market demands and expand our sales opportunities.

Current report

We have an accumulated deficit of $22,806,378 at June 30, 2025. 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 report

During the three months ended June 30, 2025, we used $115,508 of cash in our operating activities and used $6,535 for investments in property and equipment. At June 30, 2025, we had $47,918 in cash and at March 31, 2025 we had $257,433 in cash available to fund future operations, an decrease of $209,515 from March 31, 2025. The decrease to cash was principally the result of cash used by operating activities and repayment of borrowing from our line of credit. Our working capital was $1,172,666 at June 30, 2025 compared to $1,036,850 at March 31, 2025.

Current report

Historical Perspective

Current report

We were organized in 1991 and spent several years developing the AEM monitoring system and protective sheaths to adapt to conventional electrosurgical instruments. We have invested heavily in an effort to protect our valuable technology, and, as a result of this effort, we have been issued 26 unexpired relevant patents that together form a significant intellectual property position. Our patents relate to the basic shielding and monitoring technologies that we incorporate into our AEM products.

Current report

Our AEM surgical instruments have been engineered to provide a seamless transition for surgeons who are switching from conventional laparoscopic instruments. AEM technology has been integrated into instruments that have the same look, feel, and functionality as conventional instruments that surgeons have been using for years. The AEM product line encompasses the full range of instrument sizes, types, and styles favored by surgeons. Additionally, we continue to improve quality and add to the product line. These additions include more disposable versions, the introduction of hand-activated instruments, our enhanced scissors, our eEdge™ scissors, our EM3 AEM Monitor, our AEM EndoShield Burn Protection System, and the recent introduction of our AEM 2X enTouch® Scissors. Hospitals can make a complete and smooth conversion to our product line, thereby advancing patient safety in MIS with optimal convenience.

Current report

Outlook

Current report

Installed Base of AEM Monitoring Equipment: We believe that sales of our installed base of AEM products will increase as the inherent risks associated with monopolar laparoscopic electrosurgery become more widely acknowledged and as we focus on increasing our sales efficiency and continue to enhance our product line. We expect that the replacement sales of electrosurgical instruments and accessories will also increase as additional facilities adopt AEM technology. We anticipate that the efforts to improve the productivity of sales representatives carrying the AEM product line, along with the introduction of next-generation products, may provide the basis for increased sales and profitable operations. However, these measures, or any others that we may adopt, may not result in either increased sales or profitable operations.

Current report

We believe that the unique performance of the AEM technology and our breadth of independent endorsements provide an opportunity for continued market share growth. In our view, market awareness and awareness of the clinical credibility of the AEM technology, as well as awareness of our endorsements, are improving, and we expect this awareness to benefit our sales efforts for the remainder of the fiscal year 2026. Our objectives for the remainder of fiscal year 2026 are to optimize sales execution, expand market awareness of the AEM technology, and maximize the number of additional hospital and surgery center accounts switching to AEM instruments while retaining existing customers. In addition, acceptance of AEM products depends on surgeons’ preference for our instruments, which depends on factors such as ergonomics, quality, and ease of use, in addition to the technological and safety advantages of AEM products. If surgeons prefer other instruments to our instruments, our business results will suffer.

Current report

Possibility of Operating Losses: We have an accumulated deficit of $22,806,378 at June 30, 2025. 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 report

Revenue Growth: We expect to generate increased product revenue in the U.S. from sales to new customers and from expanded sales to existing customers as the medical device industry stabilizes and our network of direct and independent sales representatives becomes more efficient. We believe that the visibility and credibility of the independent clinical endorsements for AEM technology will contribute to new accounts and increased product revenue in fiscal year 2026. We also expect to increase market share through promotional programs that place our AEM monitors at no charge in hospitals that commit to standardizing with AEM instruments. However, all of these efforts to increase market share and grow product revenue will depend in part on our ability to expand the efficiency and effective coverage range of our direct and independent sales representatives, as well as maintain and, in some cases, improve the quality of our product offerings. The omission or delay of elective surgeries would negatively impact the extent and timing of revenue growth. Service revenue represents design, development and product supply revenue from our agreements with strategic partners.

Current report

We also have longer-term initiatives in place to improve our prospects. We expect that the development of next-generation versions of our AEM products will better position our products in the marketplace and improve our retention rate at hospitals and surgery centers that have changed to AEM technology, enabling us to grow our sales. We are exploring overseas markets to assess opportunities for international sales growth. Finally, we intend to explore opportunities to capitalize on our proven AEM technology via licensing arrangements and strategic alliances. These efforts to generate additional sales and further the market penetration of our products are longer-term in nature and may not materialize. Even if we are able to successfully develop next-generation products or identify potential international markets or strategic partners, we may not be able to capitalize on these opportunities.

Current report

Gross Profit and Gross Margins: Gross profit and gross margins can be expected to fluctuate from quarter to quarter as a result of product sales mix, sales volume, and service revenue. Gross margins on products manufactured or assembled by us are expected to improve at higher levels of production and sales.

Current report

Sales and Marketing Expenses: We continue to refine our domestic and international distribution capability, and we believe that sales and marketing expenses will decrease as a percentage of net sales with an increasing sales volume.

Current report

Research and Development Expenses: Research and development expenses are expected to increase to support quality improvement efforts and the development of refinements to our AEM product line and new products, which will further expand options for surgeons and hospitals.

Current report

Results of Operations

Current report

For the quarter endedJune 30, 2025*, compared to the quarter endedJune 30, 2024.*

Current report

Net Product revenue. Net product revenue for the quarter ended June 30, 2025 was $1,492,832 compared to $1,591,960 for the quarter ended June 30, 2024, a decrease of 6%. The decrease in net product revenue is primarily due to a reduction in the sales of disposable products, which suggests a decrease in the number of procedures performed during this period. This reduction in procedural volume has, in turn, lowered the overall demand for our products.

Current report

Net Service revenue. Net service revenue for the quarter ended June 30, 2025 was $109,896 compared to $38,971 for the quarter ended June 30, 2024.This increase was primarily because of services performed under a Master Services Agreement with Vicarious Surgical Inc.

Current report

Gross profit. Gross profit for the quarter ended June 30, 2025 of $878,459 represented a decrease of 7% from gross profit of $942,663 for the quarter ended June 30, 2024. Gross profit on product net revenue as a percentage of sales (gross margin) was 55% and 58% for the quarters ended June 30, 2025 and 2024 respectively.

Current report

Sales and marketing expenses: Sales and marketing expenses of $404,601 for the quarter ended June 30, 2025 represented a decrease of 4% from sales and marketing expenses of $423,237 for the quarter ended June 30, 2024. The decrease was because reduced sales commission payable during the period.

Current report

General and administrative expensesGeneral and administrative expenses of $328,198 for the quarter ended June 30, 2025 represented a decrease increase of 7% from general and administrative expenses of $351,903 for the quarter ended June 30, 2024. This decrease was because of reductions in the use of contract services and regulatory expenses.

Current report

Research and development expenses. Research and development expenses of $165,440 for the quarter ended June 30, 2025 represented an increase of 19% compared to $139,180 for the quarter ended June 30, 2024. The increase was because of an increase of allocated resources for product development.

Current report

Net loss. Net loss was $41,133 for the quarter ended June 30, 2025 compared to net income of $22,041 for the quarter ended June 30, 2024. The decrease to net income was primarily because of the reduced product sales during the period.

Current report

The results of operations for the three months ending June 30, 2025, are not necessarily indicative of the results of operations for all or any part of the balance of the fiscal year.

Current report

Liquidity and Capital Resources

Current report

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 $24,428,466 from inception through June 30, 2025.

Current report

On August 4, 2020, we received $150,000 in loan funding from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note dated August 1, 2021, in the original principal amount of $150,000 with the SBA, the lender. Under the terms of the Note, interest accrues on the outstanding principle at the rate of 3.75% per annum. The term of the Note is thirty years, though it may be payable sooner upon an event of default under the Note.

Current report

During September 2020, we entered into a note agreement with U.S. Bank for $92,000. The note is for five years at a 5% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.

Current report

During July 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.

Current report

On November 2, 2022, we entered into a loan and security agreement with Pathward, N.A. (formerly Crestmark Bank). 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 the 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.

Current report

Our operations used $115,508 of cash during the three months ending June 30, 2025, on net revenue of $1,602,728. The amounts of cash used by operations for the three months ending June 30, 2025, are not necessarily indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2026. At June 30, 2025, we had $47,918 in cash available to fund future operations and a line of credit for up to $679,560, restricted by eligible account receivables. Our working capital was $1,172,666 at June 30, 2025 compared to $1,036,850 at March 31, 2025. Current liabilities were $1,277,873 at June 30, 2025, compared to $1,575,915 at March 31, 2025. We have a noncancelable lease agreement for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease expires October 31, 2028.

Current report

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. We use our incremental borrowing rate based on the information available at the commencement date to determine the lease liabilities, as our leases do not provide an implicit rate. Lease expense is recognized on a straight-line basis over the lease term.

Previous report

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.