ENCISION INC

NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS

JUNE 30, 2025

(Unaudited)

Note 1. ORGANIZATION AND NATURE OF BUSINESS

"Encision Inc. ( the “Company”) is a medical device company that designs, develops, manufactures, and markets patented surgical instruments that provide greater safety to and save the lives of patients undergoing minimally-invasive surgery. The Company believes that the patent AEM® (Active Electrode Monitoring) surgical instrument technology is changing the marketplace for electrosurgical devices and instruments by providing a solution to a patient safety risk in laparoscopic surgery. The company's sales to date have been made principally in the United States.

The Company has an accumulated deficit of $22,806,378 at June 30, 2025. Issuances of common stock and warrants have provided a significant portion of the Company's operating funds, the exercise of stock options to purchase common stock, loans, and (in some periods) operating profits. Shareholders’ equity decreased by $29,014 since March 31, 2025, because of a net loss of $41,133 and stock-based compensation of $12,119. Should the Company’s liquidity be diminished in the future because of operating losses, the Company may be required to seek additional capital.

The strategic marketing and sales plan is designed to expand the use of the company products in surgically active hospitals and surgery centers in the United States.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The unaudited condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The unaudited condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed on July 10, 2025.

The accompanying unaudited condensed interim financial statements have been prepared, in all material respects, in conformity with the standards of accounting measurements and reflect, in the opinion of management, all adjustments necessary to summarize fairly the financial position and results of operations for such periods in accordance with GAAP. All adjustments are of a normal recurring nature. The results of operations for the most recent interim period are not necessarily indicative of the results to be expected for the full year.

The Company had a net loss of $41,133 for the three months ended June 30, 2025. At June 30, 2025, the Company had cash of $47,918, current borrowings of $320,440, and borrowing capacity up to $679,560, as restricted by eligible accounts receivable, under the line of credit. Working capital was $1,172,666 an increase of $135,816 from March 31, 2025. The Company decreased $209,515 of cash in the fiscal three months ended June 30, 2025, primarily because of cash used by operating activities and repayment of borrowings. Management is developing plans to ensure the Company has the working capital necessary to fund operations. The Company increased the pricing of products to mitigate higher material costs. Management concludes that it is probable that cash resources and line of credit will be sufficient to meet cash requirements for twelve months from the issuance of the unaudited condensed financial statements. Therefore, the accompanying unaudited condensed financial statements have been prepared, assuming the Company will continue as a going concern.

Use of Estimates in the Preparation of Financial Statements. Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.

ENCISION INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2025(Unaudited)

Cash and Cash Equivalents. For purposes of reporting cash flows, the company considers all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments. The financial instruments consist of cash, trade receivables, payables, secured notes, and an Economic Injury Disaster Loan (“EIDL”) loan. The carrying values of cash and trade receivables approximate their fair value due to their short maturities. The fair values of the EIDL loan approximates the carrying value based on estimated discounted future cash flows using the current rates at which similar loans would be made.

Concentration of Credit Risk. Financial instruments, which potentially subject the company to concentrations of credit risk, consist of cash and accounts receivable. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at June 30, 2025. The Company believes that cash on deposit that exceeds $250,000 with financial institutions is financially sound, and the risk of loss is minimal.

The Company has no off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts, or other foreign hedging arrangements. The Company maintains the majority of cash balances with one financial institution in the form of demand deposits.

Accounts receivables are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, the Company may be exposed to credit risk generally associated with the healthcare industry. The accounts receivable balance at June 30, 2025, of $749,426 and at March 31, 2025, of $786,471 included no more than 11% from any one customer.

In July 2025, the FASB issued ASU No. 2025-05, Current expected credit losses (CECL)(Topic 326) (“ASU 2025-05”). Topic 326, Financial Instruments—Credit Losses, replaces the incurred-loss model with a forward-looking current expected credit loss model that requires recognition of lifetime expected credit losses on financial assets measured at amortized cost and certain off-balance-sheet credit exposures (including trade accounts receivable and contract assets), using historical experience, current conditions, and reasonable and supportable forecasts. The company is evaluating the impact of adopting Topic 326 on its financial statements and related disclosures.

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. The Company reduces inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. The company increased reserves for potentially obsolete or unmarketable inventory $3,982 during the three ending June 30, 2025. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At June 30, 2025, and March 31, 2025, inventory consisted of the following:

Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. Depreciation expenses for the three months ended June 30, 2025, and 2024, were $17,445 and $14,144, respectively. The Company uses the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the asset's estimated useful life. Maintenance and repairs are expensed as incurred, and significant additions, replacements, and improvements are capitalized.

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. The Company uses the incremental borrowing rate based on the information available at the commencement date to determine the lease liabilities, as the leases do not provide an implicit rate. Lease expense is recognized on a straight-line basis over the lease term.

Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A long-lived asset is considered impaired when estimated future cash flows related to the asset, undiscounted and without interest, are insufficient to recover the carrying amount of the asset. If deemed impaired, the long-lived asset is reduced to its estimated fair value. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell.

Patents. The costs of applying for patents are capitalized and amortized on a straight-line basis over the lesser of the patent’s economic or legal life (20 years from the date of application in the United States). Capitalized costs are expensed if patents are not issued. The Company reviews the carrying value of patents periodically to determine whether the patents have continuing value, and such reviews could result in the conclusion that the recorded amounts have been impaired.

ENCISION INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2025(Unaudited)

Income Taxes. The Company accounts for income taxes under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards, and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should the Company achieve sufficient, sustained income in the future, the Company may conclude that some or all of the valuation allowance should be reversed. The Company is required to make many subjective assumptions and judgments regarding our income tax exposures. At June 30, 2025, the Company had no unrecognized tax benefits, which would affect the effective tax rate if recognized, and had no accrued interest, or penalties related to uncertain tax positions.

Revenue Recognition. The Company records revenue at a single point in time when control is transferred to the customer. The Company will continue to apply the current business processes, policies, systems, and controls to support recognition and disclosure. The shipping policy is Free On Board (FOB) Shipping Point. The company recognizes revenue from sales to stocking distributors when there is no right of return other than for normal warranty claims. The Company has no ongoing obligations related to product sales except for normal warranty obligations. As presented in the Statement of Operations, revenue is disaggregated between product revenue and service revenue. As it relates specifically to product revenue, the Company does not believe further disaggregation is necessary, as substantially all of the product revenue comes from multiple products within a line of medical devices. The engineering service contracts are billed on a time and materials basis, and revenue is recognized over time as the services are performed.

Research and Development Expenses. The Company expenses research and development costs for products and processes as incurred.

Stock-Based Compensation. Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, the Company is required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our statements of operations.

Stock-based compensation expense recognized under ASC 718 for the three months ended June 30, 2025, and 2024 was $12,119 and $12,374 respectively, which consisted of stock-based compensation expense related to grants of employee stock options.

Segment Reporting. Effective with the fiscal year ended March 31, 2025, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Adoption of the amended guidance did not change the Company’s conclusion that it operates two reportable segments, nor did it affect the Company’s financial position, results of operations, or cash flows. The standard, however, expands required disclosures related to significant segment expense categories and interim-period information.

Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280, Segment Reporting, the Company has concluded it operates two business segments, product and service. The Product segment designs, develops, manufactures and markets patented surgical instruments. The Service segment performs engineering activities for external entities.

Additionally, our CODM (President and Chief Executive Officer) uses net income or loss, as reported in the Statement of Operations, as the profitability measure in making decisions to evaluate our performance, which is the same basis on which he communicates our results and performance to our Board of Directors. The CODM bases all significant decisions regarding the allocation of our resources on the financial information of the Company as a whole. At June 30, 2025, Net long-lived assets totaled $400,555 in the United States.

Information, by segment, for the three months ended June 30, 2025 and 2024 follows:

ENCISION INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2025(Unaudited)

Recently Issued Accounting Pronouncements.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective for the Company's annual periods for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. We are currently evaluating the ASU to determine its impact on our consolidated financial statements and disclosures.

ASC Topic 326 (CECL). ASC Topic 326,Financial Instruments—Credit Losses, replaces the incurred-loss model with a forward-looking current expected credit loss model that requires recognition of lifetime expected credit losses on financial assets measured at amortized cost and certain off-balance-sheet credit exposures (including trade accounts receivable and contract assets), using historical experience, current conditions, and reasonable and supportable forecasts. The Company is evaluating the impact of adopting Topic 326 on its consolidated financial statements and related disclosures.

The Company does not believe that issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

Note 3. BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE

The Company reports both basic and diluted net (loss) income per share. Basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted average number of common shares outstanding for the period. Diluted net income or loss per common share is computed by dividing the net income or loss for the period by the weighted average number of common and potential common shares outstanding during the period if the effect of the potential common shares is dilutive. The shares used in the calculation of dilutive potential common shares exclude options to purchase shares where the exercise price was greater than the average market price of common shares for the period.

The following table presents the calculation of basic and diluted net (loss) income per share:

ENCISION INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2025(Unaudited)

Note 4. COMMITMENTS AND CONTINGENCIES

The Company has a noncancelable lease agreement for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease expires October 31, 2028.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as either finance or operating leases under previous accounting standards and disclosing key information about leasing arrangements. The Company adopted Topic 842 on April 1, 2019, using the alternative modified transition method, which requires a cumulative effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. There was no cumulative effect adjustment recorded on April 1, 2019. The primary impact was the balance sheet recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases as a lessee.

The Company determines if an arrangement contains a lease at inception. The Company currently does not have any finance leases. 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. The Company uses the incremental borrowing rate based on the information available at the commencement date to determine the lease liabilities, as the leases do not provide an implicit rate. Lease expense is recognized on a straight-line basis over the lease term.

Effective August 28, 2023, the Company extended our noncancelable lease agreement through October 31, 2026, and further extended it through October 31, 2028, for the 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. Lease expense for the three months ended June 30, 2025 is $94,875.

The minimum future lease payment by fiscal year as of June 30, 2025, is as follows:

On August 4, 2020, the Company 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 principal 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.

On November 2, 2022, the company 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, the company was 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 .04%, 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.

The minimum future EIDL payment by fiscal year as of June 30, 2025, is as follows:

ENCISION INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2025(Unaudited)

During September 2020, The Company 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.

The minimum future U.S. Bank payment by fiscal year as of June 30, 2025, is as follows:

During June 2022, the Company 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.

The minimum future principal U.S. Bank payment by fiscal year as of June 30, 2025, is as follows:

Aside from the line of credit, operating lease, EIDL loan, and U.S. Bank loans, the Company does not have any material contractual commitments requiring settlement in the future.

The Company is subject to regulation by the United States Food and Drug Administration ("FDA"). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects the Company and other manufacturers to determine compliance with these regulations. The Company believes that it was in substantial compliance with all known regulations at June 30, 2025. FDA inspections are conducted periodically at the discretion of the FDA. The latest inspection by the FDA occurred in October 2019.

Note 5. SHARE-BASED COMPENSATION

The provisions of ASC 718-10-55 requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and RSUs, based on estimated fair values. The following table summarizes stock-based compensation expenses related to employee stock options for the three months ended June 30, 2025, and 2024, which were allocated as follows:

Share-based compensation cost for stock options is measured at the grant date, based on the fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM option-pricing model requires the use of actual employee exercise behavior data and the application of a number of assumptions, including expected volatility, risk-free interest rate, and expected dividends. There were 90,000 stock options granted 99,332 stock options forfeited and no stock options exercised during the three months ending June 30, 2025. As of June 30, 2025, approximately $150,298 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

ENCISION INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2025(Unaudited)

Note 6. RELATED PARTY TRANSACTION

There were no related party transactions during the three months ending June 30, 2025.

Note 7. SUBSEQUENT EVENTS

We evaluated all of our activity as of the date the unaudited condensed interim financial statements were issued and concluded that no subsequent events have occurred that would require recognition in our financial statements or disclosed in the notes to our unaudited condensed interim financial statements.