ECIA 10-K & 10-Q changes, risk factors and insider trading

We may need additional funding to support our operations. We were formed in 1991 and have incurred losses of approximately $22$23 million since that date. We have primarily financed research, development and operational activities with 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. For the fiscal year ended March 31, 2024,2025, our cash providedused byin operations was $144,000.$54,948. At March 31, 2024,2025, we had cash and equivalents of $43,000.$257,433. If we are unable to maintain cash flows sufficient to support ongoing operations, we will need to seek additional financing. There is no assurance that we will be able to raise additional capital on acceptable terms or at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders could be diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds through debt financing, which may involve restrictive covenants, our ability to operate our business may be restricted. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, our business, results of operations and financial condition could be materially and adversely affected.

If government regulations change or if we fail to comply with existing and/or new regulations, we might miss market opportunities and experience increased costs and limited growth. The research, development, manufacturing, marketing and distribution of our products in the United States and other countries are subject to extensive regulation by numerous governmental authorities including, but not limited to, the Food and Drug Administration. Under the Federal Food, Drug and Cosmetic Act, medical devices must receive clearance from the Food and Drug Administration through the Section 510(k) pre-market notification process or through the lengthier pre-market approval process before they can be sold in the United States. The process of obtaining required regulatory approvals is lengthy and has required the expenditure of substantial resources. There can be no assurance that we will be able to continue to obtain the necessary approvals. As part of our strategy, we also intend to pursue commercialization of our products in international markets. Our products are subject to regulations that vary from country to country. The process of obtaining foreign regulatory approvals in certain countries can be lengthy and require the expenditure of substantial resources. We may not be able to obtain necessary regulatory approvals or clearances on a timely basis or at all, and delays in receipt of or failure to receive such approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our financial position, results of operations and cash flows. Tariffs will may increase our material costs and, if they are fully absorbed by us, then they will negatively affect our gross profit margins.

If we fail to comply with the extensive regulatory requirements governing the manufacturing of our products, we could be subject to fines, suspensions or withdrawals of regulatory approvals, product recalls, suspension of manufacturing, operating restrictions and/or criminal prosecution. The manufacturing of our products is subject to extensive regulatory requirements administered by the Food and Drug Administration and other regulatory agencies. Inspection of our manufacturing facilities and processes can be conducted at any time, without prior notice, by the Food and Drug Administration and such regulatory agencies. In addition, future changes in regulations or interpretations made by the Food and Drug Administration or other regulatory agencies, with possible retroactive effect, could adversely affect us. Changes in existing regulations or adoption of new regulations or policies could prevent us from obtaining, or affect the timing of, future regulatory approvals or clearances. We may not be able to obtain necessary regulatory approvals or clearances on a timely basis in the future, or at all. Delays in receipt of, failure to receive such approvals or clearancesclearances, and/or failure to comply with existing or future regulatory requirements would have a material adverse effect on our financial position, results of operations operations, and cash flows.

Sales and Marketing Expenses. We continue our efforts to expand domestic and international distribution capability, and we 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 AEM technology. Sales and marketing expenses are expected to increase as we increase our marketing efforts to support our direct sales representatives. In fiscal year 2024,2026, we expect to have sixfive direct sales managers. Each direct sales manager also manages a separate territory.

Net Service 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 $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 AurisVicarious Health, Inc. (“Auris Health”). Auris Health is a part ofSurgical the Johnson & Johnson family of companies.Inc.. Under the agreement, we collaborated on the integration of AEM technology into monopolar instrumentationand producedprovide bycertain Aurisrelated Healthdesign services for advancedelements of Vicarious’ robotic surgical applications.system.

Gross profit. Gross profit in FY24FY25 was $3,135,962,$3,511,286, which represented aan decreaseincrease of $896,571,$375,324, or 22%,12%, from gross profit in FY23FY24 of $4,032,533.$3,135,962. Gross profit margin was 54% of net product revenue for FY25 and 48% of net product revenue for FY24 and 55% of net product revenue for FY 23.FY24. Gross profit decreasedincreased in FY25 from FY24 from FY23 due principally to highera productreduction vendorin costsmaterial andcost increasedon inventoryhigh reserves.volume product. In FY23FY25, we had highan marginincrease in 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.

GeneralSales and administrativemarketing expenses. GeneralSales and administrativemarketing expenses were $1,520,727$1,689,503 in FY24,FY25, an increase of $33,931$55,379, or 2%,3%, from $1,486,796 $1,634,124 in FY23. FY24. The increase was because of increased regulatorycommissions fees.and travel expenses.

ResearchGeneral and developmentadministrative expenses. ResearchGeneral and developmentadministrative expenses were $621,894$1,400,611 in FY24,FY25, a decrease of $196,225$120,116 or 24%,8%, from $816,119 $1,520,727 in FY23. FY24. The decrease was the resultbecause of decreased compensationregulatory fees, compensation, and outside services.service expenses in FY25.

Other (expense), net. Other (expense), net of $48,218 for FY25, a decrease of $51,0002,782 foror FY246%, from 51,000 in FY25. This decrease was primarily fordue to reduced interest expense of $62,373.expenses.

Net (loss). loss. Net (loss) in FY24FY25 of $691,783$220,198 represented a lossdecrease increase of $367,838$471,585 compared to FY23FY24 net loss of $323,945.$691,783. The net loss increasedecrease was principally because of lowerhigher service revenue, increased product and service revenuemargins, and was partially offset by decreased operating expenses.

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 $24,416,347 from our inception through March 31, 2024. 2025. Our operations used $54,948 and provided $144,389 and used $861,485 of cash in FY24FY25 and FY23,FY24, respectively, on net revenue of $6,585,882$6,555,315 and $7,348,514 $6,585,882 in FY24FY25 and FY23,FY24, respectively. Working capital was $1,206,252$1,036,850 at March 31, 20242025 compared to $1,993,777$1,357,937 at March 31, 2023.2024. The decrease in working capital was primarily caused by the FY24FY25 net lossloss, andwhich decreasedresulted inventories.in increased utilization of the Pathward line of credit, a current liability. Current liabilities were $1,220,022$1,575,915 at March 31, 20242025 compared to $1,130,826$1,068,337 at March 31, 2023.2024.

On November 15,2, 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.

The minimum future principal U.S. Bank payment, by fiscal year, as of DecemberMarch 31, 20232025 is as follows:

We record record revenue at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue continue to apply our current business processes, policies, systems and controls to support recognition and disclosure. Our shipping policy is FOB Shipping Point. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims. We have no ongoing obligations related to product sales, except for normal warranty obligations. We evaluated the requirement to disaggregate product revenue, and concluded that substantially all of its revenue comes from multiple products within a line of medical devices. Our engineering service contracts are billed on a time and materials basis and revenue is recognized over time as the services are performed We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required, which would increase our expenses during the periods in which any such allowances were made. The amount recorded as a provision for bad debts in each period is based upon our assessment of the likelihood that we will be paid on our outstanding receivables, based on customer-specific as well as general considerations. To the extent that our estimates prove to be too high, and we ultimately collect a receivable previously determined to be impaired, we may record a reversal of the provision in the period of such determination.performed.

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 ourthe Form 10-K for the fiscal year ended March 31, 2025.

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 ourthe 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.

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 and robotic electrosurgery instruments used in laparoscopic procedures provide excellent clinical resultsresults, 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.

OurThe 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 preventpreventing patient injury.injury from stray energy burns. With ourthe “shielded and monitored” instruments, surgeons surgeons can perform electrosurgical procedures more safely, effectively, and economically than is possible using conventional instruments or alternative energy sources.

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. OurThe entire line of laparoscopic instruments has anthe 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.

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, weWe have focused our marketing strategies to date on expanding the market awareness of the AEM technology and our broad independent endorsements, and we have continued efforts to improve and expand the AEM technology penetration.

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 JuneSeptember 30, 2025.2024. This revenue stream is expected to grow as the base of accounts using AEM technology expands. In addition, we intend to further develop more disposable versions of more of our AEM products in order to meet market demands and expand our sales opportunities.

We have an accumulated deficit of $22,806,378$23,074,211 at JuneSeptember 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 implement cost reductions, seek additional capital.capital, or make such other operational changes as may be required.

During the threesix months ended JuneSeptember 30, 2025, we used used $115,508$242,149 of cash in our operating activities and used $6,535$55,148 for investments in property and equipment. At JuneSeptember 30, 2025, we had $47,918 $71,731 in cash and at March 31, 2025 we had $257,433 in cash available to fund future operations, ana decrease of $209,515$185,702 from March 31, 2025. The decrease toin cash was principally the result of cash used by operating activitiesactivities. and repayment of borrowing from our line of credit. Our working capital was $1,172,666 $1,375,301 at JuneSeptember 30, 20252025, compared to $1,036,850 at March 31, 2025. The increase in working capital was principally the result of gross proceeds of the private placement of our common stock issued during the period.

Our AEM surgicalSurgical instrumentsInstruments 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.

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 and robotic 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 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, However, these measures, or any others that we may adopt, may not result in either increased sales or profitable operations.

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 2026 are to optimize sales execution, expand market awareness of the AEM technology, and maximize the number of additional hospital and surgery 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.

Possibility of Operating Losses: We have an accumulated deficit of $22,806,378$23,074,211 at JuneSeptember 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. 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,results but due to the ongoing need to develop, optimize,optimize and train our direct sales managers 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, losses, or our inability to generate sufficient cash flow from operations to fund our obligations, may result in a need to implement cost reductions, raise additional capital.capital, or make such other operational changes as may be required.

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 thatof placeplacing our AEM monitors at no charge ininto hospitals that commit to standardizingstandardize 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, developmentdevelopment, and product supply revenue from our agreements with strategic partners.

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.growth internationally. 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.

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.

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 product line and new products, which will further expand options for surgeons and hospitals.

For the quarter ended JuneSeptember 30, 2025, compared to the quarter ended JuneSeptember 30, 2024.

Net Product revenue. Net product revenue for for the quarter ended JuneSeptember 30, 20252025, was $1,492,832$1,481,802 compared to $1,591,960$1,653,820 for the quarter ended JuneSeptember 30, 2024, a decrease of 6%. 10%. 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.

Net Service revenue. Net service revenue for the quarter ended JuneSeptember 30, 20252025, was $109,896$46,248 compared to $38,971$101,568 for the quarter ended JuneSeptember 30, 2024.This2024. increaseThis decrease was because primarilyof because ofa short delay in services performed under a Master Services Agreement with Vicarious Surgical Inc. This decrease resulted from a brief delay in services under the Master Services Agreement with Vicarious Surgical Inc., following a temporary project suspension by the customer.

Gross profit. Gross profit for the quarter ended JuneSeptember 30, 20252025, of $878,459$697,333 represented a decrease of 7%16% from the gross profit of $942,663$828,482 for the quarter ended JuneSeptember 30, 2024. Gross profit declined for the quarter ended September 30, 2024.2025, due to reduced sales and an unfavorable change in product mix, with a lower proportion of higher-margin products in sales. Gross profit on producttotal net revenue as a percentage of sales (gross margin) was 55% and 58%46% for the quartersquarter ended JuneSeptember 30, 20252025, and 2024 respectively.47% for the quarter ended September 30, 2024.

Sales and marketing expenses:expenses. Sales and marketing expenses of $404,601$395,793 for the quarter ended JuneSeptember 30, 20252025, represented a decrease of 4%14% from sales and marketing expenses of $423,237$458,480 for the quarter ended JuneSeptember 30, 2024. The decrease was becausedue to reduced salestrade shows and commission payable during the period.expenses.

General and administrative expensesexpenses. General and administrative expenses of $328,198$358,639 for the quarter ended JuneSeptember 30, 20252025, represented a decrease increase of 7%4% from general and administrative expenses of $351,903$373,405 for the quarter ended JuneSeptember 30, 2024. ThisThe decrease was because of reductionsdecreased inoutside theaccountants' use of contract servicescosts and reduced regulatoryinsurance expenses.

Research and development expenses. Research and development expenses of $165,440$201,392 for the quarter ended JuneSeptember 30, 20252025, represented an increase of 19%30% compared to $139,180$155,515 for the quarter ended JuneSeptember 30, 2024. The increase was becausedue ofto an increase ofin allocated resources for product development.

Net loss. Net loss was $41,133$267,833 for the quarter ended September 30, 2025, compared to a net loss of $170,262 for the quarter ended September 30, 2024. The increase in net loss for the quarter ended JuneSeptember 30, 2025 compared to net income of $22,041 for the quarter ended June 30, 2024. The decrease to net income2025, was primarily because of thereduced reducedsales volume and an unfavorable change in product sales during the period.mix.

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

To date, a significant portion of our operating funds 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$24,938,998 from inception through JuneSeptember 30, 2025.

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 notenote, 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 principleprincipal 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.

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 raterate, and the proceeds were used to purchase equipment. The note is secured by the equipment.

During July 2022, we entered into a note agreement with U.S. Bank for $118,970.$115,004. The note is for five years at a 6% interest raterate, and the proceeds were used to purchase equipment. The note is secured by the equipment.

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%,2% and 1% 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.

Our operations used $115,508$242,149 of cash during the threesix months endingended JuneSeptember 30, 2025, on net revenue of $1,602,728.$3,130,778. The amounts of cash used by operations for the threesix months endingended JuneSeptember 30, 30, 2025, are not necessarily indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2026. As At Juneof September 30, 2025, we had $47,918$71,731 in cash available to fund future operations and a line of credit for up to $679,560,$968,294, restricted by eligible account receivables.accounts receivable. Our working capital was $1,172,666$1,375,301 at JuneSeptember 30, 20252025, compared to $1,036,850 at March 31, 2025. Current liabilities liabilities were $1,277,873$1,071,571 at JuneSeptember 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.

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 toin determinedetermining 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.

As of JuneSeptember 30, 2025, the following table shows our our contractual obligations for the periodperiods presented:

Our fiscal year 2026 operating plan is focused on increasing new accounts, retaining existing customers, growing revenue, increasing gross profits, and conserving cash. We are investing in research and development efforts to develop next-generation versions of the AEM product line. We have invested in manufacturing propertyequipment and equipment to manufacture disposable scissors inserts internally and to reduce our cost of product revenue. We cannot predict with certainty the expected revenue, gross profit, net income or loss, and usage of cash for fiscal year 2026. If wethe arecurrent unabledownward tosales managetrend ourcontinues, business operations in line with budget expectations, it couldwill have a material adverse effect on our business viability, financial position, results of operations, and cash flows.

As of JuneMarch 30,31, 2025, net operating loss carryforwards carryforwards totaling approximately $8.2 million are available to reduce taxable income in the future. The net operating loss carryforwards expire, expire, if not previously utilized, at various dates beginning in the fiscal year ending March 31, 2025.2026. We have not paid income taxes since our inception. The Tax Reform Act of 1986 and other income tax regulations contain provisions that may limit the net operating loss carryforwards carryforwards available to be used in any given year if certain events occur, including changes in ownership interests. We have established a valuation allowance for the entire amount of our deferred tax assetsasset since inception due to our history of losses. Should we achieve sufficient, sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. If some or all of the valuation allowance were reversed, then, to the extent of the reversal, a tax benefit would be recognized, which would result in an increase in to net income.

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, salessales, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, sales returns, contingencies, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.

We record revenue at a single point in timetime, when control control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, policies, systems, and controls to support recognition and disclosure. Our shipping policy is FOB Shipping Point. We recognize revenue from sales to stocking distributors when there is no right of returnreturn, other than for normal warranty claims. We have no ongoing obligations related related to product salessales, except for normal warranty obligations. We evaluated the requirement to disaggregate revenue and concluded that substantially substantially all of our revenue comes from multiple products within a line of medical devices. Our engineering service contracts are billed on a time and materials basis, and revenue is recognized over time as the services are performed. We record deferred revenue when funds are received prior to the recognition of the associated revenue. We record a contract liability to deferred revenue, which includes customer prepayments and is included in other accrued liabilities.

We recognize 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. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than notnot, based on current circumstances, are not expected to be realized. Should we maintain sufficient, sufficient, sustained income in the future, we may conclude that all or some of the valuation allowance should be reversed.

We amortize our patent costs over their estimated useful lives, which is typically the remaining statutory life. From time to time, we may be required to adjust thethese useful lives of our patents based on advances in technology, competitor actions, and the like. We review the recorded amounts of patents at each period end to determine if their carrying amount is still recoverable based on our expectations regarding sales of related products. Such an assessment, in the future, may result in a conclusion that the assets are impaired, with a corresponding charge against earnings.

We currently estimate forfeitures for stock-based compensation expensesexpense related to employee stock options at 40% and evaluate the forfeiture rate quarterly. Other assumptions that are used used in calculating stock-based compensation expense include risk-free interest rate, expected life, expected volatility, and expected dividend.