ENCISION INC

NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS

SEPTEMBER 30, 2025

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 saves lives of, patients undergoing minimally-invasive surgery. The Company believes that the patented 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 $23,074,211 at September 30, 2025. A significant portion of the Company's operating funds has been provided by issuances of common stock and warrants, the exercise of stock options to purchase common stock, loans, and (in some periods) by operating profits. Shareholders’ equity increased by $213,685 since March 31, 2025, because of the issuance of common stock $500,000, net loss of $308,966, and stock-based compensation of $22,651. 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's 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 the 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 $267,833 and $308,966 for the three and six months ended September 30, 2025, respectively. At September 30, 2025, the Company had cash of $71,731 current borrowings of $31,706 and borrowing capacity up to $968,294, as restricted by eligible accounts receivable, under the line of credit. Working capital was $1,375,301, an increase of $338,451 from March 31, 2025. The Company realized a decrease in cash of $185,702 in the fiscal six months ended September 30, 2025, primarily because of cash used by operating activities. Management concludes that it is probable that cash resources and line of credit will only provide funding for our operations into the first fiscal quarter of 2027. Accordingly, there is substantial doubt as to whether existing cash resources are sufficient to enable the Company to continue its operations for the next 12 months as a going concern. Our management is evaluating and pursuing different strategies to obtain the required funding for our operations. To address the Company’s capital needs, the Company must continue to actively pursue additional equity or debt financing. The Company has been in ongoing discussions with potential investors with respect to such financing. Adequate financing opportunities might not be available to the Company, when and if needed, on acceptable terms or at all. If the Company is unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances, the Company’s operating results and prospects will be adversely affected. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Use of Estimates in the Preparation of Financial Statements. The preparation of 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 as well as the 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 SEPTEMBER 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, and 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 us 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. We believe 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 receivable 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 September 30, 2025, of $761,947 and at March 31, 2025, of $786,471 included no more than 11% from any one customer.

Inventories. Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value (“NRV”) in accordance with ASC 330. In addition to the NRV assessment, the Company maintains a stability and obsolescence (“S&O”) allowance for potential excess and obsolete inventory. Under the S&O policy, any stock keeping unit (“SKU”) that has had no transactional activity (sales, usage, transfers, or adjustments) for 18 consecutive months is fully reserved. The 18-month inactivity threshold is based on management’s assessment of historical product turnover and expected lifecycle patterns.

Because this allowance represents a change in estimate rather than an NRV write-down, it is reassessed at each reporting date and may be increased, reduced, or reversed prospectively when new information (e.g., renewed demand or usage) becomes available. When subsequent activity demonstrates that an item is again saleable or usable, the related reserve is reversed.

If, separate from the S&O methodology, management determines that the estimated NRV of any inventory item is below its recorded cost, the item is written down to NRV in accordance with ASC 330. Such NRV write-downs, once recorded, are not reversed in later periods. Changes in the S&O allowance and any NRV write-downs are recorded in cost of goods sold. At September 30, 2025 and March 31, 2025 S&O and NVR inventory reserves consisted of $70,489 andnone and $67,920 andnone respectively.

At September 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 expense for the three and six months ended September 30, 2025, and 2024 was $20,511 and $37,956, respectively, and $16,295 and $30,438, 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 estimated useful life of the asset. Maintenance and repairs are expensed as incurred, and major additions, replacements, and improvements are capitalized.

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 SEPTEMBER 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 income tax exposures. At September 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. We recognize 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 on 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 expense over the requisite service periods in the statements of operations.

Stock-based compensation expense recognized under ASC 718 for the three and six months ended September 30, 2025, and 2024 was $10,532 and $22,651, and $12,637 and $25,011, 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 CDOM (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 September 30, 2025, net long-lived assets totaled $411,443 in the United States.

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

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

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. The Company is 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.

In January 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-01,Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Clarifying the Effective Date. The ASU clarifies the effective date of ASU 2024-03, which requires public business entities to disclose certain natural expense categories in the income statement and to provide additional disaggregated information in the notes. ASU 2025-01 confirms that public business entities are required to adopt the guidance for annual reporting periods beginning after December 15, 2026, and for interim periods within annual reporting periods beginning after December 15, 2027. The Company is evaluating the ASU to determine its impact on our consolidated financial statements and disclosures.

In May 2025, the FASB issued ASU 2025-03,Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. The ASU clarifies how to identify the accounting acquirer in a business combination when the legal acquiree is a variable interest entity (“VIE”). For transactions effected primarily by the exchange of equity interests, entities are now required to evaluate the same factors in ASC 805 used for voting interest entity acquisitions, which may result in certain transactions being accounted for as reverse acquisitions. The Company is evaluating the ASU to determine its impact on our consolidated financial statements and disclosures.

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

In July 2025, the FASB issued ASU 2025-05,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments simplify the application of the current expected credit loss (“CECL”) model for current trade receivables and current contract assets arising from revenue transactions under ASC 606. The Company is evaluating the ASU to determine its impact on our consolidated financial statements and 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 income (loss) 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 income (loss) per share:

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.

The Company determines if an arrangement contains a lease at inception according to ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). 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 in determining 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.

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

Effective June 5, 2025, the Company extended our non-cancelable lease agreement 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 six months ended September 30, 2025, is $194,830.

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

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 September 30, 2025, is as follows:

During June 2022, the Company 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.

The minimum future principal U.S. Bank payment, by fiscal year, as of September 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.

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

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 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 as of September 30, 2024. 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 employees and directors, including employee stock options and RSUs, based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options for the three and six months ended September 30, 2025, and 2024, which was 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,104,332 stock options forfeited, and no stock options exercised during the three and six months ending September 30, 2025, respectively. As of September 30, 2025, approximately $144,020 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

Note 6. RELATED PARTY TRANSACTION

In September 2025, the Company entered into a services agreement with Rader Industries LLC (“Rader Industries”), a company owned by Jessica Rader, an immediate family member of the Company’s Chief Executive Officer, Gregory Trudel. Under the terms of the agreement, Rader Industries provides telemarketing and promotional sales campaign services for a two-month period. The contract provides for compensation at an hourly fee of $25 per hour, plus 10% of invoiced promotional sales generated by Rader Industries during the contract term.

As of September 30, 2025, the Company had paid $1,094 to Rader Industries under this agreement. The Company believes the terms of this arrangement are comparable to those that could have been obtained in an arm’s-length transaction.

Note 7. SUBSEQUENT EVENTS

Management evaluated all of the 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 the financial statements or disclosed in the notes to the unaudited condensed interim financial statements.