<Page>

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 2001

              For the transaction period from __________ to________

                         Commission file number 0-28604


                                  ENCISION INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


            COLORADO                                      84-1162056
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                  4828 STERLING DRIVE, BOULDER, COLORADO 80301
--------------------------------------------------------------------------------
                    (Address of principal executive offices)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 444-2600
--------------------------------------------------------------------------------
                           (Issuer's telephone number)


CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OF 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES /X/   NO / /

STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICABLE DATE:

     COMMON STOCK, NO PAR VALUE                           5,404,307 SHARES
     --------------------------                ---------------------------------
              Class                            (outstanding at October 31, 2001)

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT

YES / /   NO /X/

                                       1
<Page>

                                  ENCISION INC.

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001

                                      INDEX

<Table>
<Caption>
                                                                              Page
                                                                             Number
                                                                             ------
<S>                                                                          <C>

PART I. UNAUDITED FINANCIAL INFORMATION

   ITEM 1 - Condensed Interim Financial Statements:
          - Condensed Balance Sheets as of September 30,
              2001 and March 31, 2001 .....................................     3
          - Condensed Statements of Operations for
              the Three Months Ended September 30, 2001 and 2000 ..........     4
          - Condensed Statements of Operations for
              the Six Months Ended September 30, 2001 and 2000 ............     5
          - Condensed Statements of Cash Flows for
              the Six Months Ended September 30, 2001 and 2000 ............     6
          - Notes to Condensed Interim Financial
              Statements ..................................................     7

   ITEM 2 - Management's Discussion and Analysis
              of Financial Condition and Results of Operations ............    11

PART II. OTHER INFORMATION

   ITEM 6 - Exhibits and Reports on Form 8-K ..............................    18

   SIGNATURE ..............................................................    19
</Table>


                                       2
<Page>

PART I FINANCIAL INFORMATION

ITEM 1 - CONDENSED INTERIM FINANCIAL STATEMENTS

                                  ENCISION INC.

                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

<Table>
<Caption>
                                                                   September 30,           March 31,
                                                                       2001                  2001
                                                                   ------------          ------------
<S>                                                                <C>                   <C>
                                     ASSETS

CURRENT ASSETS:
    Cash and cash equivalents                                      $    833,566          $    791,415
    Accounts receivable, net of allowance for doubtful
        accounts of $30,000 and $21,000, respectively                   773,997               709,597
    Inventory, net of reserve for obsolescence of $60,000
        and $55,000, respectively                                       934,557               766,992
    Prepaid expenses                                                     58,608                29,316
                                                                   ------------          ------------
                Total current assets                                  2,600,728             2,297,320
                                                                   ------------          ------------
EQUIPMENT, at cost:
    Furniture, fixtures and equipment                                   772,929               772,929
    Less- Accumulated depreciation                                     (727,593)             (690,156)
                                                                   ------------          ------------
                Equipment, net                                           45,336                82,773
                                                                   ------------          ------------
PATENTS, net of accumulated amortization of $31,323
    and $28,499, respectively                                           124,657               117,566
OTHER ASSETS                                                             12,972                46,170
                                                                   ------------          ------------
                Total assets                                       $  2,783,693          $  2,543,829
                                                                   ============          ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable                                               $    462,453          $    227,406
    Accrued compensation                                                101,984               129,767
    Other accrued liabilities                                           275,949               210,815
                                                                   ------------          ------------
                Total current liabilities                               840,386               567,988
                                                                   ------------          ------------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Preferred stock, no par value, 10,000,000 shares
        authorized, no shares outstanding                                    --                    --
    Common stock, no par value, 100,000,000 shares
        authorized, 5,402,307 and 5,396,507 shares
        outstanding, respectively                                    17,238,117            16,945,542
    Warrants to purchase common stock                                        --               290,400
    Accumulated deficit                                             (15,294,810)          (15,260,101)
                                                                   ------------          ------------
                Total shareholders' equity                            1,943,307             1,975,841
                                                                   ------------          ------------
                Total liabilities and shareholders' equity         $  2,783,693          $  2,543,829
                                                                   ============          ============
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       3
<Page>

                                  ENCISION INC.

                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<Table>
<Caption>
                                                                       For the Three Months
                                                                        Ended September 30,
                                                                 --------------------------------
                                                                     2001                 2000
                                                                 -----------          -----------
<S>                                                              <C>                  <C>
REVENUE, NET                                                     $ 1,224,525          $   655,245

COST OF SALES                                                        486,516              322,630
                                                                 -----------          -----------
                Gross profit                                         738,009              332,615
                                                                 -----------          -----------
OPERATING EXPENSES:
    Sales and marketing                                              387,872              303,966
    General and administrative                                       230,467              187,845
    Research and development                                          90,113              105,964
                                                                 -----------          -----------
                Total operating expenses                             708,452              597,775
                                                                 -----------          -----------
INCOME (LOSS) FROM OPERATIONS                                         29,557             (265,160)

OTHER INCOME:
    Interest income                                                    6,111               13,925
    Other expense                                                     (1,915)             (24,580)
                                                                 -----------          -----------
NET INCOME (LOSS)                                                $    33,753          $  (275,815)
                                                                 ===========          ===========
NET INCOME (LOSS) PER SHARE (Note 2):
    Basic and diluted net income (loss) per common share         $      0.01          $     (0.05)
                                                                 ===========          ===========
    Basic weighted average shares outstanding                      5,402,307            5,383,507
                                                                 ===========          ===========
    Diluted weighted average shares outstanding                    5,875,751            5,383,507
                                                                 ===========          ===========
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       4
<Page>

                                  ENCISION INC.

                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<Table>
<Caption>
                                                                               For the Six Months
                                                                               Ended September 30,
                                                                        --------------------------------
                                                                            2001                2000
                                                                        -----------          -----------
<S>                                                                     <C>                  <C>
REVENUE, NET                                                            $ 2,251,445          $ 1,165,944

COST OF SALES                                                               959,885              608,827
                                                                        -----------          -----------
                Gross profit                                              1,291,560              557,117
                                                                        -----------          -----------
OPERATING EXPENSES:
    Sales and marketing                                                     767,491              628,866
    General and administrative                                              392,824              371,411
    Research and development                                                177,453              199,273
                                                                        -----------          -----------
                Total operating expenses                                  1,337,768            1,199,550
                                                                        -----------          -----------
LOSS FROM OPERATIONS                                                        (46,208)            (642,433)

OTHER INCOME:
    Interest income                                                          13,646               28,680
    Other expense                                                            (2,147)             (39,513)
                                                                        -----------          -----------
NET LOSS                                                                $   (34,709)         $  (653,266)
                                                                        ===========          ===========
NET LOSS PER SHARE (Note 2):
    Basic and diluted net loss per common share                         $     (0.01)         $     (0.12)
                                                                        ===========          ===========
    Basic and diluted weighted average shares used in computing
     net loss per common share                                            5,402,095            5,383,507
                                                                        ===========          ===========
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       5
<Page>

                                  ENCISION INC.

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<Table>
<Caption>
                                                                                       For the Six Months
                                                                                       Ended September 30,
                                                                                --------------------------------
                                                                                    2001                 2000
                                                                                -----------          -----------
<S>                                                                             <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                    $   (34,709)         $  (653,266)
    Adjustments to reconcile net loss to net cash
        provided by (used in) operating activities-
            Depreciation and amortization                                            40,261               66,304
            Amortization of discount                                                     --               (9,226)
            Inventory reserves                                                        5,000              (45,000)
            Changes in operating assets and liabilities-
                Accounts receivable                                                 (64,400)            (164,601)
                Inventory                                                          (172,565)             (94,908)
                Other assets                                                          3,906              (30,373)
                Accounts payable                                                    235,047               30,607
                Accrued compensation and other accrued
                    liabilities                                                      37,351              (16,944)
                                                                                -----------          -----------
                    Net cash provided by (used in) operating activities              49,891             (917,407)
                                                                                -----------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of equipment                                                               --              (26,201)
    Patent costs                                                                     (9,915)              (1,706)
    Sale of short-term investments                                                       --            1,075,000
                                                                                -----------          -----------
                    Net cash provided by (used in) investing activities              (9,915)           1,047,093
                                                                                -----------          -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from the exercise of stock options                                       2,175                   --
                                                                                -----------          -----------
                    Net cash provided by financing activities                         2,175                   --
                                                                                -----------          -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                            42,151              129,686

CASH AND CASH EQUIVALENTS, beginning of period                                      791,415              446,473
                                                                                -----------          -----------
CASH AND CASH EQUIVALENTS, end of period                                        $   833,566          $   576,159
                                                                                ===========          ===========
</Table>

   The accompanying notes are an integral part of these financial statements.

                                       6
<Page>

                                  ENCISION INC.

                 NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)

(1)  ORGANIZATION AND NATURE OF BUSINESS

Encision Inc. (the "Company"), a Colorado corporation, designs, develops,
manufactures and markets patented electrosurgical instruments that provide
greater safety to patients undergoing minimally-invasive surgery. The Company
believes its patented AEM(R) technology is changing the marketplace for
electrosurgical devices and laparoscopic instruments by providing a solution to
a recognized problem in laparoscopic surgery. The Company's sales to date have
been made principally in the U.S.

During laparoscopic surgical procedures, the surgeon operates from outside the
patient's body, introducing cameras and instruments through small access ports
to perform the surgical intervention. MIS has proven to greatly enhance the
patient's post-operative course of recovery and is now the preferred surgical
approach in over 50% of abdominal surgeries.

The market opportunity was created by the surgeons' continued demand for
monopolar electrosurgery tools, which they have preferred using in "open"
procedures, combined with certain inherent risks of this technology in MIS. The
risk of "unintended" electrosurgical burns to the patient in laparoscopic
monopolar electrosurgery has been well documented.

The Company's approach to the market opportunity was to design and develop a
laparoscopic instrument system that helps to prevent unintended electrosurgical
burns. The Company's patented AEM Laparoscopic Instrument System provides the
surgeon with the tissue effects they demand while helping to prevent stray
electrical energy, which can cause unintended and unseen tissue injury. The AEM
Instruments incorporate active electrode monitoring technology to dynamically
and continuously monitor the flow of electrosurgical current, thereby helping to
prevent patient injury. With the AEM System, surgeons are able to perform a
broad range of electrosurgical procedures more safely and efficaciously than is
possible using conventional laparoscopic instruments.

Prior to the three months ended September 30, 2001, the Company has incurred
losses since its inception and has an accumulated deficit of $15,294,810 at
September 30, 2001. Its operations have been financed primarily through issuance
of equity. The Company's liquidity has substantially diminished because of such
continuing operating losses and the Company may be required to seek additional
capital to continue operations.

During fiscal year 2001, the Company continued to execute a strategy designed to
achieve profitable operations. The Company implemented strategic marketing and
sales plans and entered into exclusive agreements with stocking distributors and
independent sales representatives to sell the Company's products. Management
expects these efforts to result in continued sales revenue increases for fiscal
year 2002 which, combined with controlled operating expenses and increased gross
profit margins, will ultimately reduce the overall net loss incurred from
operations and conserve the Company's cash resources.

Although there can be no guarantee, based upon its current operating plan, the
Company believes that its cash resources will be sufficient to fund its
operations during fiscal year 2002 and through September 30, 2002. If the
Company is unable to manage the business operations in line with the budget
expectations, it could have a material adverse effect on the Company's business
viability, financial position, results of operations and cash flows. If the
Company is not successful in continuing to generate cash from its operations,
additional capital resources could be required to maintain ongoing operations.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities as well as disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from those estimates.

     CASH AND EQUIVALENTS

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

                                       7
<Page>

     CONCENTRATION OF CREDIT RISK

The accounts receivable balance at September 30, 2001 of $773,997 included
$310,947 (40%) from four customers and $31,132 (4%) from international
customers. The Company's accounts receivable balances are primarily domestic.
The accounts receivable balance at March 31, 2001, of $709,597 included $89,980,
or approximately 13%, from one customer.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, cash equivalents and
short-term trade receivables and payables. The carrying values of cash, cash
equivalents and short-term receivables and payables approximate their fair
value.

     INVENTORY

Inventory consists primarily of component parts and raw materials, and is valued
at the lower of cost (first-in, first-out basis) or market. Inventory consists
of the following:

<Table>
<Caption>
                                               September 30,        March 31,
                                                   2001               2001
                                               -------------        ---------
<S>                                            <C>                  <C>
          Raw materials                          $ 786,427          $ 609,410
          Finished goods                           208,130            212,582
                                                 ---------          ---------
                                                   994,557            821,992
          Less-Reserve for obsolescence            (60,000)           (55,000)
                                                 ---------          ---------
                                                 $ 934,557          $ 766,992
                                                 =========          =========
</Table>

     PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, with depreciation computed primarily
on a straight-line basis over the estimated useful life of the asset, generally
three to five years. 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 (17
years in the U.S.). Capitalized costs are expensed if patents are not granted.
The Company reviews the carrying value of its patents periodically to determine
whether the patents have continuing value.

     INCOME TAXES

Net operating loss carryforwards totaling approximately $15.3 million are
available to reduce taxable income as of September 30, 2001. The net operating
loss carryforwards expire, if not previously utilized, at various dates
beginning in the year 2011. The Company has not paid income taxes since its
inception. The Tax Reform Act of 1986 and other income tax regulations contain
provisions which may limit the net operating loss carryforwards available to be
used in any given year, if certain events occur, including changes in ownership
interests. The Company has established a valuation allowance for the entire
amount of its deferred tax asset since inception due to its history of operating
losses.

     REVENUE RECOGNITION

Revenue from product sales is recorded when the Company ships the product and
the earnings process is complete. The Company recognizes revenue on sales to
stocking distributors when there is no significant right of return, other than
normal warranty claims.

                                       8
<Page>

     STOCK BASED COMPENSATION

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), and applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related interpretations in accounting
for stock options granted to employees.

     COMPREHENSIVE INCOME

For the period ended September 30, 2001, the Company's comprehensive income or
loss is the same as its net income or loss. For the three month and six month
periods ended September 30, 2000 the Company's total comprehensive loss was
$253,613 and $614,058 respectively.

     BASIC AND DILUTED LOSS PER COMMON SHARE

Net income or loss per share is calculated in accordance with SFAS No. 128,
"Earnings Per Share" ("SFAS 128"). Under the provisions of SFAS 128, basic net
income or loss per 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 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. As a result of the Company's net loss for
the six month periods ended September 30, 2001 and 2000 and the three month
period ended September 30, 2000, all potentially dilutive securities would be
anti-dilutive and thus, are excluded from diluted earnings per share.

For all periods presented, the Company had financial instruments that could
create future dilution to the Company's common shareholders and are not
currently classified as outstanding common shares of the Company. The following
table details such instruments and the common stock comparative for each. The
common stock number is based on specific conversion or issuance assumptions
pursuant to the corresponding terms of each instrument. Potential stock issuance
excluded from earning per share because their effect was anti-dilutive are as
follows:

<Table>
<Caption>
                Three Months   Six Months     Three and six
                   Ended          Ended       Months Ended
                  9/30/01        9/30/01         9/30/00
                ------------   ----------     -------------
<S>             <C>            <C>            <C>
Options           97,200         820,400         725,400
Warrants              --              --         120,000
</Table>

     RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. In June 1999, the FASB issued SFAS No. 137, which deferred
the effective date of SFAS No. 133. As a result, the Company is required to
adopt SFAS No. 133 in the fiscal year beginning April 1, 2001. To date, the
Company has not entered into any agreements that would be impacted by these
pronouncements.

The Emerging Issues Task Force ("EITF") is currently working on reaching
consensus for EITF Issue No. 00-14 "Accounting for Certain Sales Incentives".
This issue addresses specific guidance for the recognition, measurement, and
income statement classification for sales incentives offered by the Company, on
a limited or continuous basis, to customers, and includes items such as
discounts, coupons, rebates, and free products or services. The Company is
required to adopt this statement on April 1, 2002 and management believes the
adoption of this issue will not have a significant impact on the results of
operations or financial position of the Company.

In June 2001, the FASB approved Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS No. 141"). SFAS No. 141 requires that all
business combinations be accounted for using the purchase method of accounting.
The use of the pooling-of-interest method of accounting for business
combinations is prohibited. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001. The Company is accounting for
business combinations after June 30, 2001, in accordance with SFAS No. 141.

In August 2001, the FASB approved Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 supersedes FASB Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 did not
address the accounting for a segment of a business accounted for as a
discontinued operation which resulted in two accounting models for long-lived

                                       9
<Page>

assets to be disposed of. SFAS No. 144 establishes a single accounting model for
long-lived assets to be disposed of by sale and requires that those long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
The Company will adopt SFAS No. 144 on April 1, 2002, but has not yet quantified
the effects of adopting SFAS No. 144 on its financial position or results of
operations.

(3)  COMMITMENTS AND CONTINGENCIES

The Company currently leases and subleases its facilities under noncancelable
lease agreements that require payments of $5,504 per month through October 15,
2001 and $8,677 per month through October 31, 2002. The lease expires on October
31, 2004.

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 the Company's products and regularly inspects the Company and other
manufacturers to determine their compliance with these regulations. As of
September 30, 2001 the Company believes that it was in substantial compliance
with all known regulations. The Company was last inspected in November 1998 and
has not, at September 30, 2001, been notified of any deficiencies from that
inspection. FDA inspections are conducted approximately every two years or on a
more frequent basis at the discretion of the FDA.

Because of seasonal and other factors discussed in Item 2, Historical
Perspective and Outlook and Results of Operations, the results of operations for
the quarter ended September 30, 2001 should not be taken as an indication of the
results of operations for all or any part of the balance of the year.

(4)  MANAGEMENT'S REPRESENTATIONS

The 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. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles 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 condensed
interim financial statements and notes thereto should be read in conjunction
with the financial statements and the notes thereto, included in the Company's
Annual Report to the Securities and Exchange Commission for the fiscal year
ended March 31, 2001, filed on Form 10-KSB on July 13, 2001.

The accompanying condensed interim financial statements have been prepared, in
all material respects, in conformity with the standards of accounting
measurements set forth in Accounting Principles Board Opinion No. 28 and
reflect, in the opinion of management, all adjustments, which are of a normal
recurring nature, necessary to summarize fairly the financial position and
results of operations for such periods. The results of operations for the most
recent interim period are not necessarily indicative of the results to be
expected for the full year.

                                       10
<Page>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

     GENERAL

The Company manufactures and markets a line of proprietary electrosurgical
products that are designed to provide greater safety and efficacy to patients
who undergo minimally invasive surgery ("MIS"). The Company believes that its
patented AEM instruments offer surgeons significant advantages compared to
conventional electrosurgical instruments because of their ability to continually
and dynamically monitor for stray electrical energy during MIS procedures. Stray
electrosurgical energy has been shown to cause unintended burns that may result
in prolonged hospitalization or death. The Company has received four FDA Form
510(k) notifications for its products and has obtained patent protection for its
products' core AEM shielding and monitoring technology.

The culmination of the launch of a full line of AEM Laparoscopic Instruments was
accomplished in fiscal year 2001. With the broad array of AEM instruments now
available, the surgeon has a wide choice of instrument options and does not have
to change surgical technique. This coincides with the continued expansion of
independent endorsements for AEM technology. New recommendations from the
malpractice insurance and medicolegal communities complement the broad clinical
endorsements AEM technology has garnered over the past few years.

When hospitals convert to AEM technology it provides recurring revenue from
sales of replacement instruments. The replacement market of reusable and
disposable AEM products in converted hospitals represents over 65% of the
Company's revenue and this revenue stream is expected to grow as the base of
converted hospitals continues to grow.

Prior to the three months ended September 30, 2001, the Company has incurred
losses since its inception and has an accumulated deficit of $15,294,810 at
September 30, 2001 and its operations have been financed primarily through
issuance of equity. The Company's liquidity has substantially diminished because
of such continuing operating losses and the Company may be required to seek
additional capital to continue operations or pursue other alternatives.

As of September 30, 2001, the Company had $833,566 in cash and cash equivalents
available to fund future operations. During the six months ended September 30,
2001, the Company generated $49,891 in cash from its operations, used $9,915 for
investments in patents and received $2,175 from the exercise of stock options.

     HISTORICAL PERSPECTIVE

The Company was organized in 1991 and in subsequent years developed the AEM
monitoring system and protective sheaths to adapt to traditional electrosurgical
instruments. During this period, the Company conducted product trials and
applied for patents with the United States Patent Office and with the
International patent agencies. Patents were issued in 1994, 1997 and 1998.

As the Company evolved, it was clear that its active electrode monitoring
technology needed to be integrated into the standard laparoscopic instrument
design. As the development program proceeded, it also became apparent that the
merging of electrical and mechanical engineering skills in the instrument
development process for the Company's patented, integrated electrosurgical
instruments was more complex than expected. As a result, instruments with
integrated AEM technology were not completed for several years. It was not until
Fiscal Year 2000 that a sufficiently broad AEM instrument line was introduced to
provide hospital operating rooms with a Standard of Care -- AEM Instruments for
all of their electrified monopolar instrumentation in laparoscopic surgery.
Prior to offering the full range of laparoscopic instrumentation, it was
difficult for hospitals to commit to the AEM solution, as there were not
adequate comparable surgical instrument options to match what the surgeon
demanded.

With the broad array of AEM instruments now available, the surgeon has a wide
choice of instrument options and does not have to change surgical technique.
Since conversion to AEM technology is transparent to the surgeon, hospitals can
now universally convert to AEM instruments, thus providing all of their
laparoscopic patients a higher level of safety.

     OUTLOOK

STATEMENTS CONTAINED IN THIS SECTION ON OUTLOOK ARE NOT HISTORICAL FACTS,
INCLUDING STATEMENTS ABOUT THE COMPANY'S STRATEGIES AND EXPECTATIONS ABOUT NEW
AND EXISTING PRODUCTS AND MARKET DEMAND AND ACCEPTANCE OF NEW AND EXISTING
PRODUCTS, 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 OUTLOOK
ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE OF THIS DOCUMENT,
AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH

                                       11
<Page>

FORWARD LOOKING STATEMENTS. READERS OF THIS FORM 10-QSB ARE STRONGLY ENCOURAGED
TO REVIEW THE SECTION ENTITLED "RISK FACTORS WHICH MAY AFFECT FUTURE
PERFORMANCE".

INSTALLED BASE OF AEM MONITORING EQUIPMENT: The Company believes that the
installed base of AEM monitors has the potential for increasing as the inherent
risks associated with monopolar laparoscopic surgery become more widely
acknowledged and as the network of independent sales representatives becomes
more adept at selling the AEM system to our customers. The Company expects that
the repetitive sales of electrosurgical instruments and accessories should
increase as additional AEM monitors are installed. The Company believes that the
measures taken to improve the quality of sales representatives carrying the AEM
product line, along with increased marketing efforts and the introduction of new
products, may provide the basis for increased revenues and may ultimately lead
to profitable operations. However these measures, or any others that the Company
may adopt, may not result in either increased revenues or profitable operations.

POSSIBILITY OF CONTINUED OPERATING LOSSES: Until the three months ended
September 30, 2001, the Company has incurred losses since its inception and has
an accumulated deficit of $15,294,810 at September 30, 2001. The Company has
made significant strides toward improving its operating results and achieved its
first quarterly profit in Q2 FY 2002. However, due to the ongoing need to
develop, optimize and train the sales distribution network and the need to
increase revenues to a level adequate to cover fixed and variable operating
costs, the Company believes that it may operate at a net loss for several
quarters. Nonetheless, the Company believes, based upon its current operating
plan, that its current cash on hand and other capital available to it currently,
will be sufficient to fund operations through at least September 30, 2002.

REVENUE GROWTH: The Company expects to generate increased revenues in the U.S.
from sales to new hospital customers as the network of independent sales
representatives becomes more proficient and expands the utility of AEM
Laparoscopic Instruments. The Company believes that the visibility and
credibility of the clinical endorsements behind the AEM technology will
contribute to increased revenues in FY 2002.

The Company also expects to increase the volume of products sold
internationally. The Company achieved CE marking in August 2000 to allow a
launch into the European marketplace.

GROSS PROFIT AND GROSS MARGINS: Gross profit and gross margin can be expected to
fluctuate from quarter to quarter, as a result of product sales mix and sales
volume. Gross margins on products manufactured or assembled by the Company are
expected to be higher at higher levels of production and sales, as fixed
manufacturing costs are spread over a larger volume of products.

SALES AND MARKETING EXPENSES: The Company will continue its efforts to expand
its domestic and international distribution capability. The Company also
believes that sales and marketing expenses will decrease as a percentage of net
revenue with increasing sales volume.

RESEARCH AND DEVELOPMENT EXPENSES: New additions to the AEM product line are
planned for introduction in fiscal year 2002. Research and development expenses
are expected to increase modestly to support the Company's development of new
AEM products, further expanding the instrument options for the surgeon.

     RISK FACTORS WHICH MAY AFFECT FUTURE PERFORMANCE:

Among the factors that could cause future results to be materially different
from expectations are:

UNCERTAINTY OF MARKET ACCEPTANCE: The Company's success is dependent upon
acceptance of its products by the medical community as reliable, safe and
cost-effective for use in MIS procedures, as well as the recognition that
current practices may not be entirely safe. The Company is unable to predict how
quickly or how broadly its products will be accepted by the medical community,
or if accepted, the number of MIS procedures that will be performed using the
Company's products. Achieving market acceptance will require the Company to
continue to educate the marketplace about the potential hazards involved in the
use of existing electrosurgical products during MIS procedures and the expected
benefits associated with the use of the Company's products. It may also require
additional data to be accepted by the medical community as evidence of the
occurrence of such hazards. The Company may not be successful in educating the
marketplace about its products and available data concerning these hazards may
not create a demand by hospitals and surgeons for the Company's products. The
Company's future financial viability will depend in large part on the extent to
which the Company's products and enhancements are accepted by the market in
commercially viable quantities during Fiscal Year 2002. If the Company's
products do not achieve market acceptance in these quantities during Fiscal Year
2002, the Company's business viability, financial condition, operating results
and cash flows will be materially adversely affected.

ABILITY TO INCREASE REVENUES: The Company's attempts to develop and train a
network of independent sales representatives in the U.S. and to expand its
international distribution efforts may take longer than expected, may not be as
successful as the Company anticipates and, due to the nature of the independent
selling organizations in the U.S., may result in considerable amounts of

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<Page>

retraining effort as the organizations change their product lines and their
personnel. The Company may not be able to obtain full coverage of the U.S. by
independent sales representatives and stocking distributors as quickly as it
currently anticipates. The Company may also encounter more difficulties than
anticipated in developing its international presence, due to regulatory issues
and its ability to successfully manage international operations.

HISTORY OF OPERATING LOSSES AND CAPITAL AVAILABILITY: The Company was formed in
1991 and, until the three months ended September 30, 2001, has incurred losses
since its inception of $15.3 million. The Company has primarily financed its
research, development, and operational activities with sales of common stock.

At September 30, 2001, the Company had $833,566 in cash available to fund future
operations. The Company believes it has sufficient cash available and budget
controls to fund operations through September 30, 2002, however, at that time,
if sales have not significantly increased with a corresponding decrease in net
loss, the Company's current assets would be substantially diminished, which
could result in a material adverse effect on the Company and its results of
operations. The Company may also find itself at a competitive disadvantage due
to its constrained liquidity.

COMPETITION: The electrosurgical products market is intensely competitive. While
the Company knows of no other Company that markets electrosurgical products that
incorporate active electrode monitoring for stray electrical energy, it can be
expected that the manufacturers of unshielded, unmonitored electrosurgical
instruments will resist any loss of market share that might result from the
presence of the Company's shielded products in the marketplace. The Company also
believes that manufacturers of products that are based upon surgical techniques
that are alternatives to monopolar electrosurgery are competitors of the
Company. These techniques include bipolar electrosurgery, the harmonic scalpel
and lasers. The alternative techniques may gain greater market share and new
competitive techniques may be developed and introduced. Many of the Company's
competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources than the Company.
Many of the Company's competitors also currently have, or may develop or acquire
substantial installed customer bases in the medical products market and have
significantly greater market recognition. As a result of these factors, the
Company's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the development, promotion and sale of their products than the Company. It is
possible that new competitors or new alliances among competitors may emerge and
rapidly acquire significant market share. The Company may not be able to compete
successfully against current and future competitors and competitive pressures
faced by the Company may materially adversely affect its financial position,
results of operations and cash flows. The Company's constrained financial
resources may hinder its ability to respond to competitive threats.

DEPENDENCE ON NEW PRODUCT DEVELOPMENT: The Company's future success and
financial performance will depend in part on the Company's ability to meet the
increasingly sophisticated needs of customers through the timely development and
successful introduction of product upgrades, enhancements and new products. Such
upgrades, enhancements and new products are subject to significant technical
risks. The medical device market is subject to rapid technological change,
resulting in frequent new product introductions and enhancements of existing
products, as well as the risk of product obsolescence. While the Company is
currently developing new products and enhancing its existing product lines, the
Company may not be successful in completing the development of such new products
or enhancements. In addition, to be competitive, the Company must also respond
effectively to technological changes by continuing to enhance its existing
products to incorporate emerging or evolving standards. The Company may not be
successful in developing and marketing product enhancements or new products that
respond to technological changes or evolving industry standards. The Company may
experience difficulties that could delay or prevent the successful development,
introduction and marketing of those products, and its new products and product
enhancements may not adequately meet the requirements of the marketplace and
achieve commercially viable levels of market acceptance. If any potential new
products, upgrades, or enhancements are delayed, or if any potential new
products, upgrades, or enhancements experience quality problems or do not
achieve such market acceptance, the Company's financial position, results of
operations and cash flows would be materially adversely effected.

POTENTIAL NEGATIVE IMPACT OF CHANGES IN OR FAILURE TO COMPLY WITH GOVERNMENT
REGULATIONS: The Company's research, manufacturing, marketing and distribution
of its 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 ("FDA"). The FDA administers the
Federal Food, Drug and Cosmetic Act (the "FDC Act"). Under the FDC Act, medical
devices must receive FDA clearance through the Section 510(k) pre-market
notification process or through the more lengthy pre-market approval ("PMA")
process before they can be sold in the United States. The Company has received
four 510(k) notifications covering its products. The process of obtaining FDA
and other required regulatory approvals is lengthy and has required the
expenditure of substantial resources. There can be no assurance that the Company
will be able to continue to obtain the necessary approvals. As an important part
of its strategy, the Company also intends to pursue commercialization of its
products in international markets. The Company's 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. The Company 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, might cause
the Company to miss market opportunities, and would have a material adverse
effect on the Company's financial position, results of operations and cash
flows.

                                       13
<Page>

MANUFACTURING SUBJECT TO GOVERNMENTAL REGULATIONS: Manufacturing of the
Company's products is subject to extensive regulatory requirements administered
by the FDA and other regulatory bodies. The Company believes it is in compliance
with the Quality Systems Regulations ("QSR") required by the FDA, and passed its
last inspection by the FDA in November of 1998. FDA inspections can be conducted
at any time. Failure to comply with the QSR and other regulatory requirements
could, among other things, result in fines, suspensions or withdrawals of
regulatory approvals, product recalls, suspension of manufacturing, operating
restrictions and criminal prosecution. Any such event could have a material
adverse effect on the Company's financial position, results of operations and
cash flows. In addition, future changes in regulations or interpretations made
by the FDA or other regulatory bodies, with possible retroactive effect, could
adversely affect the Company. Furthermore, changes in existing regulations or
adoption of new regulation or policies could prevent the Company from obtaining,
or affect the timing of, future regulatory approvals or clearances. The Company
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 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 the
Company's financial position, results of operations and cash flows.

DEPENDENCE ON PATENTS, PATENT APPLICATION AND PROPRIETARY RIGHTS: The Company's
success depends, and will continue to depend in part, on its ability to maintain
patent protection for its products and processes, to preserve its trade secrets
and to operate without infringing the proprietary rights of third parties. The
Company has three issued US patents on several technologies embodied in its AEM
Monitoring System, AEM Instruments and related accessories and has applied for
additional US patents. In addition, the Company has three issued foreign patents
and one foreign patent application pending. The validity and breadth of claims
coverage in medical technology patents involve complex legal and factual
questions and, therefore, may be highly uncertain. The Company's current patents
may not provide a competitive advantage, the pending applications may not result
in patents being issued, and competitors of the Company may design around any
patents issued to the Company. Furthermore, the Company's non-disclosure
agreements and invention assignment agreements may not protect its proprietary
information and know-how or provide adequate remedies for the Company in the
event of unauthorized use or disclosure of such information, and others may be
able to develop independently such information. There has been substantial
litigation regarding patent and other intellectual property rights in the
medical device industry. Litigation may be necessary to enforce patents issued
to the Company, to protect trade secrets or know-how owned by the Company, to
defend the Company against claimed infringement of the rights of others or to
determine the ownership, scope or validity of the proprietary rights of the
Company and others. Any such claims may require the Company to incur substantial
litigation expenses and to divert substantial time and effort of management
personnel. An adverse determination in litigation involving the proprietary
rights of others could subject the Company to significant liabilities to third
parties, could require the Company to seek licenses from third parties, and
could prevent the Company from manufacturing, selling or using its products. The
occurrence of such litigation or the effect on the Company's business of such
litigation may materially adversely affect the Company's financial position,
results of operations and cash flows.

DEPENDENCE ON SINGLE SOURCE SUPPLIERS AND SUB-CONTRACTORS: The Company depends
on single source suppliers for certain of the key components used in
manufacturing its products. Although the Company believes that there are
alternative suppliers, any interruption in the supply of key components could
have a material adverse effect on the Company's ability to manufacture its
products until a new source of supply is located. The Company intends to carry
an appropriate inventory of critical materials, however, a sudden increase in
demand may create a backorder situation as lead times for some of the Company's
critical materials are in excess of 12 weeks. The Company relies on
sub-contractors to provide much of its product, either in the form of finished
goods or sub-assemblies that the Company then assembles and tests. While these
sub-contractors reduce the cost of carrying manufacturing capabilities inside
the Company, they may not be as responsive to increased demand as the Company
would be if it had its manufacturing capacity entirely in-house.

LIMITED MANUFACTURING EXPERIENCE FOR LARGE SCALE PRODUCTION: For the Company to
be financially successful, it must manufacture its products in accordance with
regulatory requirements, in commercial quantities, at appropriate quality levels
and at acceptable costs. The Company may not be successful in making the
transition to large-scale commercial production. The Company's failure to
manufacture its product in commercial quantities at acceptable costs would have
a material adverse effect on the Company's financial position, results of
operations and cash flows.

POTENTIAL FLUCTUATIONS IN FUTURE QUARTERLY RESULTS: The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend upon a number of factors, many of which are outside the
Company's control. These factors include the extent to which the Company's AEM
system and related accessories gain market acceptance; investments by the
Company in marketing, sales, research and development and administrative
personnel necessary to support the Company's anticipated growth; the ability of
the Company to expand its market share; and, general economic conditions.

PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE: The Company faces an
inherent business risk of exposure to product liability claims in the event that
the use of its products is alleged to have resulted in adverse effects to a
patient. The Company maintains a general liability insurance policy up to the
amount of $5,000,000 that includes coverage for product liability claims.
Liability claims may be excluded from such policy, may exceed the coverage
limits of such policy, and such insurance may not continue to be available on
commercially reasonable terms or at all. Consequently, a product liability claim
or other claim with respect to

                                       14
<Page>

uninsured liabilities or in excess of insured liabilities could have a material
adverse effect on the Company's financial position, results of operations and
cash flows.

DEPENDENCE ON KEY PERSONNEL: The Company is highly dependent on a limited number
of key management personnel, particularly its President & Chief Executive
Officer James A. Bowman. The loss of key personnel to death, disability or
termination, or the inability to hire and retain qualified personnel, could have
a material adverse effect on the Company's financial position, results of
operations and cash flows.

     RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000.

NET REVENUES. Revenues for the quarter ended September 30, 2001, were
$1,224,525, compared to $655,245 for the quarter ended September 30, 2000, an
increase of 87%. The increase is attributable to the Company continuing to
expand its product offering and to improve its sales and marketing efforts. This
has resulted in the successful conversion of new hospitals utilizing AEM
technology.

When a hospital converts to AEM technology the Company earns revenue from
replacement instrument purchases, which only the Company can provide. The
replacement market of reusable and disposable AEM products in converted
hospitals represented over 65% of the Company's revenue for the quarter ended
September 30, 2001 and this revenue stream is expected to grow as the base of
newly converted hospitals continues to grow.

GROSS PROFIT. The gross profit for the quarter ended September 30, 2001 of
$738,009 increased by 122% from the quarter ended September 30, 2000 gross
profit of $332,615. Gross profit as a percentage of revenue (gross margin)
increased from 51% for the quarter ended September 30, 2000 to 60% in the
quarter ended September 30, 2001. The increase was primarily the result of
increased unit sales, resulting in increased utilization of fixed manufacturing
overhead and reduced headcount. Also contributing were manufacturing and
purchasing efficiencies that were implemented during the year. Small price
increases on select products had a minor effect on the gross margin
improvements.

SALES AND MARKETING EXPENSES. Sales and marketing expenses of $387,872 for the
quarter ended September 30, 2001 increased by 28% compared to $303,966 for the
quarter ended September 30, 2000. The increase was a result of expanded
marketing programs and initiatives, offset by the cost benefits of more
effective expense planning and controls. In the last fiscal year, the Company
implemented a new sales commission program that was based on growth. The new
program reduced the base salaries for the Company's sales force and increased
the commissions for growing revenue volume and meeting sales quotas. The
Company's marketing efforts continue to focus on garnering independent clinical
endorsements for AEM technology and promoting these recommendations in the
marketplace.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of
$230,467 for the quarter ended September 30, 2001 increased by 23% compared to
$187,845 for the quarter ended September 30, 2000. This increase is the result
of costs incurred associated with various strategic alternatives explored and
presented to the Company. Excluding these costs the General and Administrative
expenses approximated last year's Q2.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of $90,113
for the quarter ended September 30, 2001 decreased by 15% compared to $105,964
for the quarter ended September 30, 2000. This reflects a reduction in the
number of `non-AEM' development projects. The Company feels it is strategically
critical to focus on its proprietary technology and the AEM-related engineering
projects dedicated to expanding the AEM product line. The result was the
elimination of some non-AEM projects and their associated expenses.

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 2000.

NET REVENUES. Revenues for the six months ended September 30, 2001, were
$2,251,445, compared to $1,165,944 for the quarter ended September 30, 2000, an
increase of 93%. The increase is attributable to the Company continuing to
expand its product offering, improve its sales and marketing efforts and
successful conversion of new hospitals utilizing AEM technology.

GROSS PROFIT. The gross profit for the six months ended September 30, 2001 of
$1,291560 increased by 132% from the six months ended September 30, 2000 gross
profit of $557,117. Gross profit as a percentage of revenue (gross margin)
increased from 48% for the six months ended September 30, 2000 to 57% in the six
months ended September 30, 2001. The increase was primarily the result of
increased unit sales, resulting in increased utilization of fixed manufacturing
overhead and reduced headcount. Also contributing were manufacturing and
purchasing efficiencies that were implemented during the year. Small price
increases on select products had a minor effect on the gross margin
improvements.

                                       15
<Page>

SALES AND MARKETING EXPENSES. Sales and marketing expenses of $767,491 for the
six months ended September 30, 2001 increased by 22% compared to $628,866 for
the six months ended September 30, 2000. The increase was a result of expanded
marketing programs and initiatives, offset by the cost benefits of more
effective expense planning and controls. In the last fiscal year, the Company
implemented a new sales commission program that was based on growth. The new
program reduced the base salaries for the Company's sales force and increased
the commissions for growing revenue volume and meeting sales quotas.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of
$392,824 for the six months ended September 30, 2001 increased by 6% compared to
$371,411 for the six months ended September 30, 2000. This increase is the
result of costs incurred associated with various strategic alternatives explored
and presented to the Company. Excluding these costs the General and
Administrative expenses were reduced 7% from last year's six months ended
September 30, 2000.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of $177,453
for the six months ended September 30, 2001 decreased by 11% compared to
$199,273 for the six months ended September 30, 2000. This reflects a reduction
in the number of `non-AEM' development projects. The Company feels it is
strategically critical to focus on its proprietary technology and the
AEM-related engineering projects dedicated to expanding the AEM product line.

     LIQUIDITY AND CAPITAL RESOURCES

The Company has historically satisfied its cash requirements principally through
sales of Common Stock which approximated $17.2 million through September 30,
2001, and, to a substantially lesser degree, funds provided by sales of the
Company's products. Historically, these funds have been used for working capital
and general corporate purposes including research and development. The Company
may use working capital to build inventories, to ensure that orders can be
filled in a timely manner, to support the sales efforts of the Company's sales
force and to accommodate anticipated growth. The remaining net proceeds from the
Company's initial public offering are currently invested primarily in money
market instruments and government securities.

Capital expenditures historically have been relatively minor, and have consisted
of specialized equipment, manufacturing equipment, office equipment and
leasehold improvements. The Company anticipates that its capital requirements
will remain relatively minor.

During late fiscal year 2000 and continuing through September 30, 2001, the
Company instituted a cost containment program for its operations as well as
reduced its employee head count to conserve its cash resources. The Company has
also fully implemented its marketing and sales plan to maintain a certain number
of key sales representatives and entered into exclusive agreements with stocking
distributors and independent sales representatives to sell the Company's
products. These efforts have and are expected to continue to result in increased
sales revenues for fiscal year 2002 and reduced operating expenses. With
increased sales in fiscal year 2002, the Company is expecting an increase in the
gross profit margin that will ultimately reduce the overall net loss incurred
from operations and slow the consumption of the Company's cash resources.
Competitive disadvantages might occur as a result of the Company's current
liquidity situation and diminishing cash resources due to the difficulty in
attracting and retaining distributors of the Company's products.

For the six months ended September 30, 2001, the Company generated $49,891 in
cash from its operations, used $9,915 for investments in patents and received
$2,175 from the exercise of stock options. While the Company has budgets to
guide its operating decisions, the Company can not predict with certainty the
expected revenues, gross profit margin, net loss and usage of cash and cash
equivalents for the remainder of fiscal year 2002 and beyond.

As of September 30, 2001, the Company had $833,566 in cash and cash equivalents
available to fund future operations. Working capital was $1,760,342 at September
30, 2001 compared to $1,729,332 at March 31, 2001.

During fiscal year 2001 and continuing into fiscal year 2002, the Company has
made significant strides toward achieving profitable operations. The Company
implemented an aggressive marketing and sales plan and these efforts are
expected to result in continued sales revenue increases for fiscal year 2002.
Revenue increases combined with controlled operating expenses and increased
gross profit margins will ultimately reduce the overall net loss incurred from
operations and conserve the Company's cash resources.

In conjunction with the Company's Initial Public Offering (IPO) in June 1996,
the Company agreed to sell to John G. Kinnard and Company, Incorporated as the
representative of the several Underwriters, for a nominal purchase price, a
five- year warrant to purchase up to 120,000 shares of the Common Stock of the
Company, exercisable at 120% of the IPO price of $10.50 per share. The warrants
have expired without being exercised. The funds from sale of the warrants have
been reclassified into common stock as of June 30, 2001.

The Company's common stock is traded on the Over The Counter Bulletin Board
(OTCBB: ECSN.OB).

                                       16
<Page>

     INCOME TAXES

Net operating loss carryforwards totaling approximately $15.3 million are
available to reduce taxable income as of September 30, 2001. The net operating
loss carryforwards expire, if not previously utilized, at various dates
beginning in the year 2011. The Company has not paid income taxes since its
inception. The Tax Reform Act of 1986 and other income tax regulations contain
provisions which may limit the net operating loss carryforwards available to be
used in any given year, if certain events occur, including changes in ownership
interests. The Company has established a valuation allowance for the entire
amount of its deferred tax asset since inception due to its history of operating
losses.


                                       17
<Page>

PART II. OTHER INFORMATION

     ITEM 1 - Not Applicable

     ITEM 2 - Not Applicable

     ITEM 3 - Not Applicable

     ITEM 4 - Not Applicable

     ITEM 5 - Not Applicable

     ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

               NONE.


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<Page>

                                    SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Encision has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.


            Name                          Title                      Date
----------------------------  -------------------------------  -----------------


    /s/ Marcia McHaffie       Controller                       November 13, 2001
----------------------------  (Principal Accounting Officer)
      Marcia McHaffie











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