10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 21549

Form 10-Q

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

For the quarterly period ended December 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to________

Commission file number: 001-11789

ENCISION INC.

(Exact name of registrant as specified in its charter)

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

6797 Winchester Circle

Boulder, Colorado 80301

(Address of principal executive offices)

(303) 444-2600

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	ECIA	OTC Bulletin Board

Securities registered under Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☐
Non-accelerated Filer  ☒	Smaller reporting company  ☒
	Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	ECIA	OTC Bulletin Board

Securities registered under Section 12(g) of the Act: None

Indicate 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	11,719,543 Shares
(Class)	(outstanding at January 31, 2022)

ENCISION INC.

FORM 10-Q

For the Three and Nine Months Ended December 31, 2021

INDEX

		Page Number
PART I.   FINANCIAL INFORMATION
ITEM 1 - Condensed Interim Financial Statements:
	-       Condensed Balance Sheets as of December 31, 2021 and March 31, 2021	3
	-       Condensed Statements of Three and Nine Months Ended December 31, 2021 and 2020	4
	-       Condensed Statements of Cash Flows for the Nine Months Ended December 31, 2021 and 2020	5
	-       Notes to Condensed Interim Financial Statements	6
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
ITEM 4 - Controls and Procedures		19
PART II.  OTHER INFORMATION
ITEM 1 - Legal Proceedings		20
ITEM 1A - Risk Factors		20
ITEM 2 - Unregistered Sales of Equity Securities		20
ITEM 3 - Defaults on Senior Securities		20
ITEM 4 - Mine Safety Disclosures		20
ITEM 5 - Other Information		20
ITEM 6 - Exhibits		21
SIGNATURE		22

2 

PART I FINANCIAL INFORMATION

ITEM 1 - Condensed Interim Financial Statements

Encision Inc.

Condensed Balance Sheets

(Unaudited)

	December 31,  2021			March 31, 2021
ASSETS
Current assets:
Cash	$	1,424,208		$	1,474,339
Accounts receivable, net of allowance for doubtful accounts of $0 at December 31, 2021 and $35,000 at March 31, 2021		1,029,015			1,024,370
Inventories, net of reserve for obsolescence of $42,186 at December 31, 2021 and $70,000 at March 31, 2021		1,405,789			1,445,134
Prepaid expenses and other assets		149,434			154,151
Total current assets		4,008,446			4,097,994
Equipment:
Furniture, fixtures and equipment, at cost		2,513,905			2,695,297
Accumulated depreciation		(2,278,633	)		(2,429,580	)
Equipment, net		235,272			265,717
Right of use asset		856,481			1,060,971
Patents, net of accumulated amortization of $269,482 at December 31, 2021 and $317,821 at March 31, 2021		188,722			213,368
Other assets		30,574			20,496
TOTAL ASSETS	$	5,319,495		$	5,658,546
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	531,021		$	389,088
Secured notes		18,400			20,397
Accrued compensation		238,919			181,686
Other accrued liabilities		136,974			282,102
Accrued lease liability		357,083			302,978
Total current liabilities		1,282,397			1,176,251
Long-term liability:
Secured notes		212,240			220,263
Accrued lease liability		648,111			926,808
Unsecured promissory note		—			533,118
Total liabilities		2,142,748			2,856,440
Commitments and contingencies (Note 4)
Shareholders’ equity:
Preferred stock, no par value: 10,000,000 shares authorized; none issued and outstanding		—			—
Common stock and additional paid-in capital, no par value: 100,000,000 shares authorized; 11,679,034 issued and outstanding at December 31, 2021 and 11,582,641 issued and outstanding at March 31, 2021		24,303,758			24,265,831
Accumulated (deficit)		(21,127,011	)		(21,463,725	)
Total shareholders’ equity		3,176,747			2,802,106
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,319,495		$	5,658,546

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

3 

Encision Inc.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 31, 2021			December 31, 2020			December 31, 2021			December 31, 2020
NET REVENUE:
Product	$	1,733,658		$	1,998,979		$	5,347,259		$	5,093,118
Service		210,608			163,621			718,297			297,457
Total revenue		1,944,266			2,162,600			6,065,556			5,390,575
COST OF REVENUE:
Product		828,153			975,581			2,728,464			2,500,310
Service		106,792			81,421			356,228			150,197
Total cost of revenue		934,945			1,057,002			3,084,692			2,650,507
GROSS PROFIT		1,009,321			1,105,598			2,980,864			2,740,068
OPERATING EXPENSES:
Sales and marketing		504,709			580,477			1,594,728			1,512,741
General and administrative		326,753			372,994			993,959			998,620
Research and development		194,124			139,390			584,161			443,452
Total operating expenses		1,025,586			1,092,861			3,172,848			2,954,813
OPERATING (LOSS) INCOME		(16,265	)		12,737			(191,984	)		(214,745	)
Interest expense, net		(1,806	)		(16,380	)		(3,359	)		(51,021	)
Extinguishment of debt income					598,567			533,118			598,567
Other income (expense), net		2,060			4,397			(1,061	)		136,000
Interest expense, extinguishment of debt income and other income (expense), net		254			586,584			528,698			683,546
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES		(16,011	)		599,321			336,714			468,801
Provision for income taxes		—			—			—			—
NET (LOSS) INCOME	$	(16,011	)	$	599,321		$	336,714		$	468,801
Net (loss) income per share—basic and diluted	$	0.00		$	0.05		$	0.03		$	0.04
Weighted average shares—basic		11,677,921			11,582,641			11,598,768			11,582,641
Weighted average shares—diluted		11,677,921			11,708,797			12,045,389			11,750,349

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

4 

Encision Inc.

Condensed Statements of Cash Flows

(Unaudited)

Nine Months Ended	December 31, 2021			December 31, 2020
Cash flows (used in) operating activities:
Net income	$	336,714		$	468,801
Adjustments to reconcile net income to net cash (used in) operating activities:
Extinguishment of debt income		(533,118	)		(598,567	)
Depreciation and amortization		85,896			67,907
Stock-based compensation expense related to stock options		29,832			25,014
(Recovery from) doubtful accounts, net change		(35,000	)		(31,500	)
(Recovery from) provision for inventory obsolescence, net change		(27,814	)		24,000
Other income from release of accounts payable		—			(56,435	)
Change in operating assets and liabilities:
Right of use asset, net		(20,102	)		67,856
Accounts receivable		30,355			(130,049	)
Inventories		67,159			80,318
Prepaid expenses and other assets		(5,361	)		(107,510	)
Accounts payable		141,933			86,766
Accrued compensation and other accrued liabilities		(87,895	)		212,394
Net cash (used in) generated by operating activities		(17,401	)		108,995
Cash flows (used in) investing activities:
Acquisition of property and equipment		(17,550	)		(4,144	)
Patent costs		(13,255	)		(15,858	)
Net cash (used in) generated by investing activities		(30,805	)		(20,002	)
Cash flows from financing activities:
Net proceeds from options exercised		8,095			—
Paydown of credit facility, net change		—			(370,498	)
(Paydown of) secured notes		(10,020	)		—
Unsecured promissory note		—			598,567
EIDL loan		—			152,000
Net cash (used in) generated by financing activities		(1,925	)		380,069
Net (decrease) increase in cash		(50,131	)		469,062
Cash, beginning of fiscal year		1,474,339			385,132
Cash, end of fiscal quarter	$	1,424,208		$	854,194
Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$	5,418		$	34,633

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

5 

ENCISION INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

DECEMBER 31, 2021

(Unaudited)

Note 1. ORGANIZATION AND NATURE OF BUSINESS

Encision Inc. is a medical device company that designs, develops, manufactures and markets patented surgical instruments that provide greater safety to, and saves lives of, patients undergoing minimally-invasive surgery. We believe that our patented AEM^® (Active Electrode Monitoring) surgical instrument technology is changing the marketplace for electrosurgical devices and instruments by providing a solution to a patient safety risk in laparoscopic surgery. Our sales to date have been made principally in the United States.

We have an accumulated deficit of $21,127,011 at December 31, 2021. 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. Shareholders’ equity increased by $374,641 since March 31, 2021 as a result of our net income of $336,714, share-based compensation of $29,832 and net proceeds from stock options exercised of $8,095. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital.

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

We have been actively monitoring the novel coronavirus (“COVID”) situation and its impact globally. Our production facilities continued to operate during the year as they had prior to the COVID pandemic with minimal change, other than for enhanced safety measures intended to prevent the spread of the virus. The remote working arrangements and travel restrictions imposed by various governments had limited impact on our ability to maintain operations during the year, as our manufacturing operations have generally been exempted from stay-at-home orders. However, we cannot predict the impact of the progression of the COVID pandemic on future results due to a variety of factors, including the continued good health of our employees, the ability of suppliers to continue to operate and deliver, our ability and our customers to maintain operations, continued access to transportation resources, the changing needs and priorities of customers, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic. We will continue to closely monitor the COVID pandemic in order to ensure the safety of our people and our ability to serve our customers and patients worldwide.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed on June 23, 2021.

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

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

6 

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

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

Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and accounts receivable. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at December 31, 2021. We believe that our cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.

We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.

Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at December 31, 2021 of $1,029,015 and at March 31, 2021 of $1,024,370 included no more than 17% from any one customer.

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At December 31, 2021 and March 31, 2021 inventory consisted of the following:

	December 31, 2021			March 31, 2021
Raw materials	$	1,086,031		$	1,038,094
Finished goods		361,944			477,040
Total gross inventories		1,447,975			1,515,134
Less reserve for obsolescence		(42,186	)		(70,000	)
Total net inventories	$	1,405,789		$	1,445,134

Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. Depreciation expense for the three and nine months ended December 31, 2021 was $18,079 and $47,995, respectively, and for the three and nine months ended December 31, 2020 was $13,277 and $45,554, respectively. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expense as incurred and major additions, replacements and improvements are capitalized.

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

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

7 

Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At December 31, 2021, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.

Revenue Recognition. We record revenue at a single point in time, when control is transferred to the customer. We will 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. As presented on the Statement of Operations our revenue is disaggregated between product revenue and service revenue. As it relates specifically to product revenue, we do not believe further disaggregation is necessary as substantially all of our product 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.

Deferred Revenue. We record a contract liability to deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of December 31, 2021 and March 31, 2021 includes a contract liability for customer prepayments and is included in other accrued liabilities. Deferred revenue as of December 31, 2021 and March 31, 2020 includes customer prepayments of $229,167 and $0, respectively and is included in other accrued liabilities. 

Research and Development Expenses. We expense research and development costs for products and processes as incurred.

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

Stock-based compensation expense recognized under ASC 718 for the three and nine months ended December 31, 2021 was $14,104 and $29,832, respectively and for the three and nine months ended December 31, 2020 was $8,483 and $25,014, respectively, which consisted of stock-based compensation expense related to grants of employee stock options.

Segment Reporting. We have concluded that we have two operating segments, product and service. Product designs, develops, manufactures and markets patented surgical instruments. Service performs electrical engineering activities for external entities.

8 

	Three Months Ended December 31, 2021								Nine Months Ended December 31, 2021
	Product			Service		Total			Product			Service		Total
Net revenue	$	1,733,658		$	210,608	$	1,944,266		$	5,347,259		$	718,297	$	6,065,556
Cost of revenue		828,153			106,792		934,945			2,728,464			356,228		3,084,692
Gross profit		905,505			103,816		1,009,321			2,618,795			362,069		2,980,864
Operating income (loss)		(120,081	)		103,816		(16,265	)		(554,053	)		362,069		(191,984	)
Depreciation and amortization		32,302			—		32,302			85,896			—		85,896
Patent and capital expenditures		11,382			—		11,382			30,805			—		30,805
Equipment and patents, net	$	423,994		$	—	$	423,994		$	423,994		$	—	$	423,994

	Three Months Ended December 31, 2020							Nine Months Ended December 31, 2020
	Product			Service		Total		Product			Service		Total
Net revenue	$	1,998,979		$	163,621	$	2,162,600	$	5,093,118		$	297,457	$	5,390,575
Cost of revenue		975,581			81,421		1,057,002		2,500,310			150,197		2,650,507
Gross profit		1,023,398			82,200		1,105,598		2,592,808			147,260		2,740,068
Operating income (loss)		(69,463	)		82,200		12,737		(362,005	)		147,260		(214,745	)
Depreciation and amortization		20,584			—		20,584		67,907			—		67,907
Patent and capital expenditures		—			—		—		4,144			—		4,144
Equipment and patents, net	$	387,549		$	—	$	387,549	$	387,549		$	—	$	387,549

Recently Issued Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, excluding smaller reporting entities, which will be effective for fiscal years beginning after December 15, 2022. We will adopt ASU 2016-13 beginning April 1, 2023 and do not expect the application of the CECL impairment model to have a significant impact on our allowance for uncollectible amounts for accounts receivable.

Note 3. Basic and Diluted Income and Loss per Common Share

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

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

	Three Months Ended					Nine Months Ended
	December 31, 2021			December 31, 2020		December 31, 2021		December 30, 2020
Net (loss) income	$	(16,011	)	$	599,321	$	336,714	$	468,801
Weighted-average basic shares outstanding		11,677,921			11,582,641		11,598,768		11,582,641
Effect of dilutive securities		—			126,156		366,355		167,708
Weighted-average diluted shares		11,819,567			11,745,161		12,045,389		11,750,349
Basic net income (loss) per share	$	0.00		$	0.05	$	0.03	$	0.04
Diluted net income (loss) per share	$	0.00		$	0.05	$	0.03	$	0.04
Antidilutive employee stock options		1,076,000			909,844		709,645		868,292

9 

Note 4. COMMITMENTS AND CONTINGENCIES

We have a noncancelable lease agreement for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease expires October 31, 2024.

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

We determine if an arrangement contains a lease at inception. We currently do not have any finance leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at 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 in determining 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.

The minimum future lease payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022	$	90,625
	2023		372,167
	2024		386,667
	2025		232,139
	Total	$	1,081,598

During January 2021, we canceled our relationship with Crestmark Bank. We had no borrowings and incurred a $20,000 exit fee.

On August 4, 2020, we received $150,000 in loan funding from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note, dated August 1, 2020 in the original principal amount of $150,000 with the SBA, the lender. Under the terms of the Note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the Note is thirty years, though it may be payable sooner upon an event of default under the Note. Under the Note, we will be obligated to make equal monthly payments of principal and interest of $774 beginning on August 1, 2022 through the maturity date of August 1, 2050. The Note may be prepaid in part or in full, at any time, without penalty.

During January 2021, we entered into a note agreement with U.S. Bank for $92,000. The note is for five years at a 5% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.

On February 8, 2021, we entered into an unsecured promissory note under the PPP for a principal amount of $533,118. The PPP was established under the Consolidated Appropriations Act of 2020, enacted December 27, 2020. Under the terms of the CARES Act, a PPP loan recipient may apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined based upon the use of loan proceeds for payroll costs, rent and utility costs, and the maintenance of employee and compensation levels. This was our second PPP loan. On April 17, 2020, we entered into an unsecured promissory note under the PPP for a principal amount of $598,567. In the quarter that ended December 31, 2020, we achieved the requirements for forgiveness, and all of the $598,567 was forgiven. We recognized the forgiveness as extinguishment of debt income of $598,567. During the quarter that ended December 31, 2021, we achieved the requirements for forgiveness of the second note and recognized the forgiveness as extinguishment of debt income of $533,118.

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The minimum future EIDL payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022		—
	2023		3,091
	2024		3,208
	2025		3,331
	2026		3,457
	Thereafter		142,693
	Total	$	155,780

During January 2021, we entered into a note agreement with U.S. Bank for $92,000. The note is for five years at a 5% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.

The minimum future principal U.S. Bank payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022		4,600
	2023		18,400
	2024		18,400
	2025		18,400
	2026		15,060
	Total	$	74,860

Aside from the operating lease, EIDL loan and U.S. Bank loan, we do not have any material contractual commitments requiring settlement in the future.

We are subject to regulation by the United States Food and Drug Administration (“FDA”). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects us and other manufacturers to determine compliance with these regulations. We believe that we were in substantial compliance with all known regulations at December 31, 2021. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in October 2019.

Note 5. SHARE-BASED COMPENSATION

The provisions of ASC 718-10-55 requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and RSUs, based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options for the three and nine months ended December 31, 2021 and 2020, which was allocated as follows:

	Three Months Ended					Nine Months Ended
	December 31, 2021			December 31, 2020		December 31, 2021		December 31, 2020
Cost of sales	$	(67	)	$	917	$	464	$	2,751
Sales and marketing		1,816			1,218		4,550		3,653
General and administrative		10,953			5,803		22,408		16,974
Research and development		1,402			545		2,410		1,636
Stock-based compensation expense	$	14,104		$	8,483	$	29,832	$	25,014

Share-based compensation cost for stock options is measured at the grant date, based on the fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM option-pricing model requires the use of actual employee exercise behavior data and the application of a number of assumptions, including expected volatility, risk-free interest rate and expected dividends. There were 190,000 stock options granted, 2,533 stock options exercised and 17,467 stock options forfeited during the three months ended December 31, 2021. There were 200,000 stock options granted, 96,393 stock options exercised and 58,607 stock options forfeited during the nine months ended December 31, 2021. There were 20,000 stock options granted and 60,000 stock options forfeited during the three months ended December 31, 2020, and 110,000 stock options granted and 72,000 stock options forfeited during the nine months ended December 31, 2020. 

As of December 31, 2021, approximately $135,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

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Note 6. RELATED PARTY TRANSACTION

We paid consulting fees of $15,348 and $57,764 to an entity owned by one of our directors during the three and nine months ended December 31, 2021, respectively, and $16,000 and $45,103 during the three and nine months ended December 31, 2020, respectively.

Note 7. SUBSEQUENT EVENTS

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

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

Certain statements contained in this section on Management’s Discussion and Analysis are not historical facts, including statements about our strategies and expectations with respect to new and existing products, market demand, acceptance of new and existing products, marketing efforts, technologies and opportunities, market and industry segment growth, and return on investments in products and markets. These statements are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve substantial risks and uncertainties that may cause actual results to differ materially from those indicated by the forward looking statements. All forward looking statements in this section on Management’s Discussion and Analysis are based on information available to us on the date of this document, and we assume no obligation to update such forward looking statements. Readers of this Form 10-Q are strongly encouraged to review the section entitled “Risk Factors” in our Form 10-K for the fiscal year ended March 31, 2021.

General

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. We believe that our patented Active Electrode Monitoring (“AEM®”) AEM EndoShield™ Burn Protection System is changing the marketplace for electrosurgical devices and laparoscopic instruments by providing a solution to a well-documented hazard unique to laparoscopic surgery. The Center for Medicare and Medicaid Services has published its Hospital-Acquired Condition Reduction Program. The program has begun to levy as much as a 1% penalty on Medicare reimbursements to hospitals in the lower quadrant of performance for selected quality indicators, including accidental puncture and laceration (“APL”). Examples of APL include the use of a cautery device (electrosurgery) or scissors to dissect a tissue plane that errantly causes an injury to underlying bowels. A Safety Communication was released by the FDA on May 29, 2018. It is on the FDA's website at: https://www.fda.gov/MedicalDevices/Safety/AlertsandNotices/ucm608637.htm. The Safety Communication states that, "In addition to serving as an ignition source, monopolar energy use can directly result in unintended patient burns from capacitive coupling and intra-operative insulation failure. If a monopolar electrosurgical unit (“ESU”) is used: Do not activate when near or in contact with other instruments.”

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

Our patented AEM technology provides surgeons with the desired tissue effects, while capturing stray electrosurgical energy that can cause unintended and unseen tissue injury that may result in death. AEM Surgical Instruments are equivalent to conventional instruments in size, shape, ergonomics, functionality and competitive pricing, but they incorporate “Active Electrode Monitoring” technology to dynamically and continuously monitor the flow of electrosurgical current, thereby helping to prevent patient injury. With our “shielded and monitored” instruments, surgeons are able to perform electrosurgical procedures more safely, effectively and economically than is possible using conventional instruments or alternative energy sources.

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. We have focused our marketing strategies to date on expanding the market awareness of the AEM technology and our broad independent endorsements and 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 nine months ended December 31, 2021. This revenue stream is expected to grow as the base of accounts using AEM technology expands. In addition, we intend to further develop disposable versions of more of our AEM products in order to meet market demands and expand our sales opportunities.

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We have an accumulated deficit of $21,127,011 at December 31, 2021. 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. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital.

During the nine months ended December 31, 2021, we used $17,401 of cash in our operating activities and used $17,550 for investments in property and equipment. As of December 31, 2021, we had $1,424,208 and at March 31, 2021 we had $1,474,339 in cash available to fund future operations, a decrease of $50,131 from March 31, 2021. Our working capital was $2,726,049 at December 31, 2021 compared to $2,921,743 at March 31, 2021.

Historical Perspective

We were organized in 1991 and spent several years developing the AEM monitoring system and protective sheaths to adapt to conventional electrosurgical instruments. We have invested heavily in an effort to protect our valuable technology, and, as a result of this effort, we have been issued 16 unexpired relevant patents that together form a significant intellectual property position. Our patents relate to the basic shielding and monitoring technologies that we incorporate into our AEM products.

Our AEM Surgical Instruments have been engineered to provide a seamless transition for surgeons 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.

Outlook

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

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 fiscal year 2022. Our objectives for the remainder of fiscal year 2022 are to optimize sales execution, to expand market awareness of the AEM technology and to maximize the number of additional hospital and surgery center accounts switching to AEM instruments while retaining existing customers. In addition, acceptance of AEM products depends on surgeons’ preference for our instruments, which depends on factors such as ergonomics, quality and ease of use in addition to the technological and safety advantages of AEM products. If surgeons prefer other instruments to our instruments, our business results will suffer.

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We have been actively monitoring the COVID situation and its impact. Our primary objectives have remained the same throughout the pandemic: to support the safety of our team members and their families and continue to support patients. Our production facility continued to operate during the year as it had prior to the COVID pandemic with very little change, other than for enhanced safety measures intended to prevent the spread of the virus. Our capital and financial resources, including overall liquidity, remain strong. The remote working arrangements and travel restrictions imposed by various governments had limited impact on our ability to maintain operations during the year, as our manufacturing operation has generally been exempted from stay-at-home orders. However, we cannot predict the impact of the progression of the COVID pandemic on future results due to a variety of factors, including the continued good health of our employees, the ability of suppliers to continue to operate and deliver, our ability and our customers to maintain operations, continued access to transportation resources, the changing needs and priorities of customers, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic. We will continue to closely monitor the COVID pandemic in order to ensure the safety of our people and our ability to serve our customers and patients worldwide.

We have entered into a Master Services Agreement with Auris Health, Inc. (“Auris Health”). Auris Health is a part of the Johnson & Johnson family of companies. Under the agreement, we will collaborate on the integration of AEM technology into monopolar instrumentation produced by Auris Health for advanced surgical applications. This work is ongoing. In August 2021, we signed a Supply Agreement with Auris Health. The agreement has an initial term of three years. During the term, Auris has agreed to buy certain AEM® Technology enabled products exclusively from us.

Possibility of Operating Losses: We have an accumulated deficit of $21,127,011 at December 31, 2021. 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. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital. We have made strides toward improving our operating results but due to the ongoing need to develop, optimize and train our direct sales managers and the independent sales representative network, the need to support the development of refinements to our product line, and the need to increase sustained sales to a level adequate to cover fixed and variable operating costs, we may operate at a net loss. Sustained losses, or our inability to generate sufficient cash flow from operations to fund our obligations, may result in a need to raise additional capital.

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 2022. We also expect to increase market share through promotional programs of placing our AEM monitors at no charge into hospitals that commit to standardize with AEM instruments. However, all of these efforts to increase market share and grow product revenue will depend in part on our ability to expand the efficiency and effective coverage range of our direct and independent sales representatives, as well as maintain and in some cases, improve the quality of our product offerings. The omission or delay of elective surgeries would negatively impact the extent and timing of revenue growth. Service revenue represents design, development and product supply revenue from our agreements with strategic partners.

We also have longer-term initiatives in place to improve our prospects. We expect that 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 sales 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.

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

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 increasing sales volume.

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

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Results of Operations

For the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020.

Net Product revenue. Net product revenue for the quarter ended December 31, 2021 was $1,733,658 compared to $1,998,979 for the quarter ended December 31, 2020, a decrease of 13%. The decrease of AEM product net revenue is attributable to an increase of COVID rates at hospitals that used AEM technology during the quarter.

Net Service revenue. Net service revenue for the quarter ended December 31, 2021 was $210,608 compared to $163,621 for the quarter ended December 31, 2020, an increase of 28%. Net service revenue was for engineering services performed under a Master Services Agreement with Auris Health, Inc. (“Auris Health”). Auris Health is a part of the Johnson & Johnson family of companies. Under the agreement, we will collaborate on the integration of AEM technology into monopolar instrumentation produced by Auris Health for advanced surgical applications. The engineering services are ongoing.

Gross profit. Gross profit for the quarter ended December 31, 2021 of $1,009,321 represented a decrease of 9% from gross profit of $1,105,598 for the quarter ended December 31, 2020. Gross profit decreased as a result of lower total revenue and higher material costs. Gross profit as a percentage of sales (gross margins) was 52% for the quarter ended December 31, 2021 and 51% for the quarter ended December 31, 2020.

Sales and marketing expenses. Sales and marketing expenses of $504,709 for the quarter ended December 31, 2021 represented a decrease of 13% from sales and marketing expenses of $580,477 for the quarter ended December 31, 2020. The decrease was the result of lower commissions on lower product revenue and lower trade samples.

General and administrative expenses. General and administrative expenses of $326,753 for the quarter ended December 31, 2021 represented a decrease of 12% from general and administrative expenses of $372,994 for the quarter ended December 31, 2020. The decrease was the result of a decrease of compensation.

Research and development expenses. Research and development expenses of $194,124 for the quarter ended December 31, 2021 represented an increase of 39% compared to $139,390 for the quarter ended December 31, 2020. The increase was the result of an increase of compensation.

Net loss. Net loss was $16,011 for the quarter ended December 31, 2021 compared to net income of $599,321 for the quarter ended December 31, 2020. The net loss increase was principally a result of extinguishment of debt income in the December 31, 2020 quarter.

For the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020.

Net Product revenue. Net product revenue for the nine months ended December 31, 2021 was $5,347,259 compared to $5,093,118 for the nine months ended December 31, 2020, an increase of 5%. The increase of AEM product net revenue is attributable to normalization of hospitals that used AEM technology during the nine months.

Net Service revenue. Net service revenue for the nine months ended December 31, 2021 was $718,297 compared to $297,457 for the nine months ended December 31, 2020, an increase of 42%. Net service revenue was for engineering services performed under a Master Services Agreement with Auris Health, Inc. (“Auris Health”). Auris Health is a part of the Johnson & Johnson family of companies. Under the agreement, we will collaborate on the integration of AEM technology into monopolar instrumentation produced by Auris Health for advanced surgical applications. The engineering services are ongoing.

Gross profit. Gross profit for the nine months ended December 31, 2021 of $2,980,864 represented an increase of 9% from gross profit of $2,740,068 for the nine months ended December 31, 2020. Gross profit increased in line with increased revenue. Gross profit as a percentage of sales (gross margins) was 49% for the nine months ended December 31, 2021 and 51% for the nine months ended December 31, 2020.

Sales and marketing expenses. Sales and marketing expenses of $1,594,728 for the nine months ended December 31, 2021 represented an increase of 5% from sales and marketing expenses of $1,512,741 for the nine months ended December 31, 2020. The increase was the result of higher commissions on higher product revenue, advertising costs and travel. The increase was partially reduced by reduced sales samples.

General and administrative expenses. General and administrative expenses of $993,959 for the nine months ended December 31, 2021 represented a decrease of 0% from general and administrative expenses of $998,620 for the nine months ended December 31, 2020.

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Research and development expenses. Research and development expenses of $584,161 for the nine months ended December 31, 2021 represented an increase of 32% compared to $443,452 for the nine months ended December 31, 2020. The increase was the result of an increase of compensation, outside services and test materials.

Net income. Net income was $336,714 for the nine months ended December 31, 2021 compared to net income of $468,801 for the nine months ended December 31, 2020. The net income decrease was principally a result of higher other net income and extinguishment of debt income for the nine months December 31, 2020.

The results of operations for the three and nine months ended December 31, 2021 are not necessarily indicative of the results of operations for all or any part of the balance of the fiscal year.

Liquidity and Capital Resources

To date, 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. Common stock and additional paid in capital totaled $24,303,758 from inception through December 31, 2021.

During January 2021, we canceled our relationship with Crestmark Bank. We had no borrowings and incurred a $20,000 exit fee.

On August 4, 2020, we received $150,000 in loan funding from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note, dated August 1, 2020 in the original principal amount of $150,000 with the SBA, the lender. Under the terms of the Note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the Note is thirty years, though it may be payable sooner upon an event of default under the Note. Under the Note, we will be obligated to make equal monthly payments of principal and interest of $774 beginning on August 1, 2022 through the maturity date of August 1, 2050. The Note may be prepaid in part or in full, at any time, without penalty.

During January 2021, we entered into a note agreement with U.S. Bank for $92,000. The note is for five years at a 5% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.

On February 8, 2021, we entered into an unsecured promissory note under the PPP for a principal amount of $533,118. The PPP was established under the Consolidated Appropriations Act of 2020, enacted December 27, 2020. Under the terms of the CARES Act, a PPP loan recipient may apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined based upon the use of loan proceeds for payroll costs, rent and utility costs, and the maintenance of employee and compensation levels. This was our second PPP loan. On April 17, 2020, we entered into an unsecured promissory note under the PPP for a principal amount of $598,567. In the quarter that ended December 31, 2020, we achieved the requirements for forgiveness, and all of the $598,567 was forgiven. We recognized the forgiveness as extinguishment of debt income of $598,567. During the quarter that ended December 31, 2021, we achieved the requirements for forgiveness of the second note and recognized the forgiveness as extinguishment of debt income of $533,118.

Our operations used $17,401 of cash during the nine months ended December 31, 2021 on net revenue of $6,065,556. The amounts of cash provided by operations for the nine months ended December 31, 2021 are not necessarily indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2022. At December 31, 2021, we had $1,424,208 in cash available to fund future operations. Our working capital was $2,726,049 at December 31, 2021 compared to $2,921,743 at March 31, 2020. Current liabilities were $1,282,397 at December 31, 2021 compared to $1,176,251 at March 31, 2020. We have a noncancelable lease agreement for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease expires October 31, 2024.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. The primary impact for us was the balance sheet recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases as a lessee.

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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 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 in determining 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.

The minimum future lease payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022	$	90,625
	2023		372,167
	2024		386,667
	2025		232,139
	Total	$	1,081,598

The minimum future EIDL payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022		—
	2023		3,091
	2024		3,208
	2025		3,331
	2026		3,457
	Thereafter		142,693
	Total	$	155,780

The minimum future principal U.S. Bank payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022		4,600
	2023		18,400
	2024		18,400
	2025		18,400
	2026		15,060
	Total	$	74,860

Aside from the operating lease, EIDL loan and U.S. Bank loan, we do not have any material contractual commitments requiring settlement in the future.

As of December 31, 2021, the following table shows our contractual obligations for the periods presented:

	Payment due by period
Contractual obligations	Totals		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations	$	1,081,598	$	369,750	$	653,813	$	58,035	$	—
EIDL loan		154,520		—		6,299		6,788		141,433
U.S. Bank loan		74,860		18,400		36,800		19,660		—
Total	$	1,310,978	$	388,150	$	696,912	$	84,483	$	141,433

Our fiscal year 2022 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 property 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 2022. If we are unable to manage our business operations in line with budget expectations, it could have a material adverse effect on our business viability, financial position, results of operations and cash flows.

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Income Taxes

As of March 31, 2021, net operating loss carryforwards totaling approximately $7.1 million are available to reduce taxable income in the future. The net operating loss carryforwards expire, if not previously utilized, at various dates beginning in the fiscal year ending March 31, 2022. We have not paid income taxes since our 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. We have established a valuation allowance for the entire amount of our deferred tax asset since inception due to our history of losses. Should we achieve 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 to net income.

Critical Accounting Policies and Estimates

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, sales and expenses, and related disclosure of contingent assets and liabilities. On an on-going 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 time, when control is transferred to the customer, which is consistent with past practice. We will 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 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 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 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.

We provide for the estimated cost of product warranties at the time sales are recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, we have experienced some costs related to warranties. The warranty accrual is based on historical experience and is adjusted based on current experience. Should actual warranty experience differ from our estimates, revisions to the estimated warranty liability would be required.

We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable value based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Any write-downs of inventory would reduce our reported net income during the period in which such write-downs were applied. To the extent that our estimates prove to be too high, and we ultimately utilize or sell inventory previously determined to be impaired, we may record a reversal of the provision in the period of such determination.

19 

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 not based on current circumstances, are not expected to be realized. Should we maintain sufficient, sustained income in the future, we may conclude that all or some of the valuation allowance should be reversed.

Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.

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

20 

Item 4 – Controls and procedures

Management’s Evaluation of Disclosures Controls and Procedures

Our management, comprised of our Chief Executive Officer (CEO) and Principal Financial and Accounting Officer (PFAO) evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on that evaluation, and taking the matters described below into account, the Company’s CEO and PFAO have concluded that our disclosure controls and procedures over financial reporting were not effective during reporting period ended December 31, 2021.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. “Internal control over financial reporting” is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

●  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of a company;

●  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures of a company are being made only in accordance with authorizations of management and directors of a company; and

● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the financial statements.

A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations, which may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based upon our evaluation of internal controls, our management determined that our controls over financial reporting were not adequate, specifically as it relates to our entity-level control environment, which inhibits management’s ability to ensure complex accounting calculations are performed correctly. In addition, we identified a material weakness in the operation of our internal controls over revenue recognition related to improperly applying the accounting guidance for our service revenue under Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. As such, our CEO and PFAO have concluded that our disclosure controls and procedures contain a material weakness as of the end of the period covered by this Report. Because of the material weaknesses identified, a reasonable possibility exists that a material misstatement in our financial statements will not be prevented or detected on a timely basis. While our internal controls are established and followed, it is clear by the identified weaknesses that they were not operating as they should be. Management believes that this was the case due to our limited staff. However, our Chief Executive Officer and our Principal Financial and Accounting Officer, believe that the financial statements included in this quarterly report on Form 10-Q present, in all material respects, our financial position, results of operations and cash flows for the periods presented, in conformity with U.S. GAAP.

This Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to an exemption provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, enacted into law in July 2010. The Dodd-Frank Act provides smaller public companies and debt-only issuers with a permanent exemption from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes- Oxley Act. We are a smaller reporting company and are eligible for this exemption under the Dodd-Frank Act. We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the facts described above and employ any additional tools and resources deemed necessary to ensure that our financial statements are fairly stated in all material respects.

21 

PART II.

Item 1.  Legal Proceedings 

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.

Item 1A.   Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2021. There have been no material changes to our risk factors from those included in our Annual Report on Form 10-K for the year ended March 31, 2021.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the three and nine months ended December 31, 2021.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

None.

Item 5.   Other Information

None.

Item 6. Exhibits

The following exhibits are filed with this report on Form 10-Q or are incorporated by reference:

3.1 Articles of Incorporation of the Company, as amended. (Incorporated by reference from Registration Statement #333-4118-D dated June 25, 1996).

3.2 Bylaws of the Company. (Incorporated by reference from Current Report on Form 8-K filed on October 30, 2007).

3.3 First Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on May 31, 2017).

4.1 Form of certificate for shares of Common Stock. (Incorporated by reference from Registration Statement #333-4118-D dated June 25, 1996).

4.2 Description of Capital Stock. (Incorporated by reference from Annual Report on Form 10-K filed on June 14, 2019)

10.1 + Supply Agreement dated August 23, 2021 between Auris Health, Inc. and Encision Inc. (Incorporated by reference from the Form 10-Q filed on November 15, 2021)

31.1 Certification of President and CEO under Rule 13a-14(a) of the Exchange Act (filed herewith).

31.2 Certification of Principal Financial and Accounting Officer under Rule 13a-14(a) of the Exchange Act (filed herewith).

32.1 Certifications of President and CEO and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101 The following materials from Encision Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, formatted in iXBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Balance Sheets, (ii) the unaudited Condensed Statements of Income, (iii) the unaudited Condensed Statements of Cash Flows, and (iv) Notes to Condensed Financial Statements, tagged at Level I.

+ Certain portions of the exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.

22 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Encision Inc.
February 14, 2022	By:	/s/ Mala Ray
Date		Mala Ray Controller Principal Accounting Officer & Principal Financial Officer

23 

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Gregory Trudel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Encision Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and,

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 14, 2022
	By:	/s/ Gregory Trudel
		Gregory Trudel President and CEO

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Mala Ray, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Encision Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and,

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 14, 2022
	By:	/s/ Mala Ray
		Mala Ray Controller, Principal Accounting Officer and Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF PERIODIC REPORT

I, Gregory Trudel, President and CEO of Encision Inc. (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

• the Quarterly Report on Form 10-Q of the Company for the three and nine months ended December 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

Dated: February 14, 2022
	By:	/s/ Gregory Trudel
		Gregory Trudel President and CEO

I, Mala Ray, Controller and Principal Accounting Officer of Encision Inc. (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

• the Quarterly Report on Form 10-Q of the Company for the three and nine months ended December 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

Dated: February 14, 2022
	By:	/s/ Mala Ray
		Mala Ray Controller, Principal Accounting Officer and Principal Financial Officer

XML

Cover - shares	9 Months Ended
	Dec. 31, 2021	Jan. 31, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Dec. 31, 2021
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2022
Current Fiscal Year End Date	--03-31
Entity File Number	001-11789
Entity Registrant Name	ENCISION INC.
Entity Central Index Key	0000930775
Entity Tax Identification Number	84-1162056
Entity Incorporation, State or Country Code	CO
Entity Address, Address Line One	6797 Winchester Circle
Entity Address, City or Town	Boulder
Entity Address, State or Province	CO
Entity Address, Postal Zip Code	80301
City Area Code	(303)
Local Phone Number	444-2600
Title of 12(b) Security	Common Stock, no par value
Trading Symbol	ECIA
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		11,719,543

XML

Condensed Balance Sheets (Unaudited) - USD ($)	Dec. 31, 2021	Mar. 31, 2021
Current assets:
Cash	$ 1,424,208	$ 1,474,339
Accounts receivable, net of allowance for doubtful accounts of $0 at December 31, 2021 and $35,000 at March 31, 2021	1,029,015	1,024,370
Inventories, net of reserve for obsolescence of $42,186 at December 31, 2021 and $70,000 at March 31, 2021	1,405,789	1,445,134
Prepaid expenses and other assets	149,434	154,151
Total current assets	4,008,446	4,097,994
Equipment:
Furniture, fixtures and equipment, at cost	2,513,905	2,695,297
Accumulated depreciation	(2,278,633)	(2,429,580)
Equipment, net	235,272	265,717
Right of use asset	856,481	1,060,971
Patents, net of accumulated amortization of $269,482 at December 31, 2021 and $317,821 at March 31, 2021	188,722	213,368
Other assets	30,574	20,496
TOTAL ASSETS	5,319,495	5,658,546
Current liabilities:
Accounts payable	531,021	389,088
Secured notes	18,400	20,397
Accrued compensation	238,919	181,686
Other accrued liabilities	136,974	282,102
Accrued lease liability	357,083	302,978
Total current liabilities	1,282,397	1,176,251
Long-term liability:
Secured notes	212,240	220,263
Accrued lease liability	648,111	926,808
Unsecured promissory note		533,118
Total liabilities	2,142,748	2,856,440
Shareholders’ equity:
Preferred stock, no par value: 10,000,000 shares authorized; none issued and outstanding
Common stock and additional paid-in capital, no par value: 100,000,000 shares authorized; 11,679,034 issued and outstanding at December 31, 2021 and 11,582,641 issued and outstanding at March 31, 2021	24,303,758	24,265,831
Accumulated (deficit)	(21,127,011)	(21,463,725)
Total shareholders’ equity	3,176,747	2,802,106
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 5,319,495	$ 5,658,546

XML

Condensed Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Dec. 31, 2021	Mar. 31, 2021
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 0	$ 35,000
Inventories, reserve for obsolescence	42,186	70,000
Accumulated amortization	$ 269,482	$ 317,821
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0	$ 0
Common stock and additional paid-in capital, shares authorized	100,000,000	100,000,000
Common stock and additional paid-in capital, shares issued	11,679,034	11,582,641
Common stock and additional paid-in capital, shares outstanding	11,679,034	11,582,641

XML

Condensed Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
NET REVENUE:
Total revenue	$ 1,944,266	$ 2,162,600	$ 6,065,556	$ 5,390,575
COST OF REVENUE:
Total cost of revenue	934,945	1,057,002	3,084,692	2,650,507
GROSS PROFIT	1,009,321	1,105,598	2,980,864	2,740,068
OPERATING EXPENSES:
Sales and marketing	504,709	580,477	1,594,728	1,512,741
General and administrative	326,753	372,994	993,959	998,620
Research and development	194,124	139,390	584,161	443,452
Total operating expenses	1,025,586	1,092,861	3,172,848	2,954,813
OPERATING (LOSS) INCOME	(16,265)	12,737	(191,984)	(214,745)
Interest expense, net	(1,806)	(16,380)	(3,359)	(51,021)
Extinguishment of debt income		598,567	533,118	598,567
Other income (expense), net	2,060	4,397	(1,061)	136,000
Interest expense, extinguishment of debt income and other income (expense), net	254	586,584	528,698	683,546
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES	(16,011)	599,321	336,714	468,801
Provision for income taxes
NET (LOSS) INCOME	$ (16,011)	$ 599,321	$ 336,714	$ 468,801
Net (loss) income per share—basic and diluted	$ 0.00	$ 0.05	$ 0.03	$ 0.04
Weighted average shares—basic	11,677,921	11,582,641	11,598,768	11,582,641
Weighted average shares—diluted	11,677,921	11,708,797	12,045,389	11,750,349
Product [Member]
NET REVENUE:
Total revenue	$ 1,733,658	$ 1,998,979	$ 5,347,259	$ 5,093,118
COST OF REVENUE:
Total cost of revenue	828,153	975,581	2,728,464	2,500,310
GROSS PROFIT	905,505	1,023,398	2,618,795	2,592,808
OPERATING EXPENSES:
OPERATING (LOSS) INCOME	(120,081)	(69,463)	(554,053)	(362,005)
Service [Member]
NET REVENUE:
Total revenue	210,608	163,621	718,297	297,457
COST OF REVENUE:
Total cost of revenue	106,792	81,421	356,228	150,197
GROSS PROFIT	103,816	82,200	362,069	147,260
OPERATING EXPENSES:
OPERATING (LOSS) INCOME	$ 103,816	$ 82,200	$ 362,069	$ 147,260

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Cash flows (used in) operating activities:
Net income	$ 336,714	$ 468,801
Adjustments to reconcile net income to net cash (used in) operating activities:
Extinguishment of debt income	(533,118)	(598,567)
Depreciation and amortization	85,896	67,907
Stock-based compensation expense related to stock options	29,832	25,014
(Recovery from) doubtful accounts, net change	(35,000)	(31,500)
(Recovery from) provision for inventory obsolescence, net change	(27,814)	24,000
Other income from release of accounts payable		(56,435)
Change in operating assets and liabilities:
Right of use asset, net	(20,102)	67,856
Accounts receivable	30,355	(130,049)
Inventories	67,159	80,318
Prepaid expenses and other assets	(5,361)	(107,510)
Accounts payable	141,933	86,766
Accrued compensation and other accrued liabilities	(87,895)	212,394
Net cash (used in) generated by operating activities	(17,401)	108,995
Cash flows (used in) investing activities:
Acquisition of property and equipment	(17,550)	(4,144)
Patent costs	(13,255)	(15,858)
Net cash (used in) generated by investing activities	(30,805)	(20,002)
Cash flows from financing activities:
Net proceeds from options exercised	8,095
Paydown of credit facility, net change		(370,498)
(Paydown of) secured notes	(10,020)
Unsecured promissory note		598,567
EIDL loan		152,000
Net cash (used in) generated by financing activities	(1,925)	380,069
Net (decrease) increase in cash	(50,131)	469,062
Cash, beginning of fiscal year	1,474,339	385,132
Cash, end of fiscal quarter	1,424,208	854,194
Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$ 5,418	$ 34,633

XML

ORGANIZATION AND NATURE OF BUSINESS

9 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND NATURE OF BUSINESS

Note 1. ORGANIZATION AND NATURE OF BUSINESS

Encision Inc. is a medical device company that designs, develops, manufactures and markets patented surgical instruments that provide greater safety to, and saves lives of, patients undergoing minimally-invasive surgery. We believe that our patented AEM^® (Active Electrode Monitoring) surgical instrument technology is changing the marketplace for electrosurgical devices and instruments by providing a solution to a patient safety risk in laparoscopic surgery. Our sales to date have been made principally in the United States.

We have an accumulated deficit of $21,127,011 at December 31, 2021. 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. Shareholders’ equity increased by $374,641 since March 31, 2021 as a result of our net income of $336,714, share-based compensation of $29,832 and net proceeds from stock options exercised of $8,095. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital.

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

We have been actively monitoring the novel coronavirus (“COVID”) situation and its impact globally. Our production facilities continued to operate during the year as they had prior to the COVID pandemic with minimal change, other than for enhanced safety measures intended to prevent the spread of the virus. The remote working arrangements and travel restrictions imposed by various governments had limited impact on our ability to maintain operations during the year, as our manufacturing operations have generally been exempted from stay-at-home orders. However, we cannot predict the impact of the progression of the COVID pandemic on future results due to a variety of factors, including the continued good health of our employees, the ability of suppliers to continue to operate and deliver, our ability and our customers to maintain operations, continued access to transportation resources, the changing needs and priorities of customers, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic. We will continue to closely monitor the COVID pandemic in order to ensure the safety of our people and our ability to serve our customers and patients worldwide.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed on June 23, 2021.

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

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

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

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

Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and accounts receivable. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at December 31, 2021. We believe that our cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.

We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.

Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at December 31, 2021 of $1,029,015 and at March 31, 2021 of $1,024,370 included no more than 17% from any one customer.

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At December 31, 2021 and March 31, 2021 inventory consisted of the following:

	December 31, 2021			March 31, 2021
Raw materials	$	1,086,031		$	1,038,094
Finished goods		361,944			477,040
Total gross inventories		1,447,975			1,515,134
Less reserve for obsolescence		(42,186	)		(70,000	)
Total net inventories	$	1,405,789		$	1,445,134

Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. Depreciation expense for the three and nine months ended December 31, 2021 was $18,079 and $47,995, respectively, and for the three and nine months ended December 31, 2020 was $13,277 and $45,554, respectively. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expense as incurred and major additions, replacements and improvements are capitalized.

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

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

Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At December 31, 2021, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.

Revenue Recognition. We record revenue at a single point in time, when control is transferred to the customer. We will 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. As presented on the Statement of Operations our revenue is disaggregated between product revenue and service revenue. As it relates specifically to product revenue, we do not believe further disaggregation is necessary as substantially all of our product 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.

Deferred Revenue. We record a contract liability to deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of December 31, 2021 and March 31, 2021 includes a contract liability for customer prepayments and is included in other accrued liabilities. Deferred revenue as of December 31, 2021 and March 31, 2020 includes customer prepayments of $229,167 and $0, respectively and is included in other accrued liabilities. 

Research and Development Expenses. We expense research and development costs for products and processes as incurred.

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

Stock-based compensation expense recognized under ASC 718 for the three and nine months ended December 31, 2021 was $14,104 and $29,832, respectively and for the three and nine months ended December 31, 2020 was $8,483 and $25,014, respectively, which consisted of stock-based compensation expense related to grants of employee stock options.

Segment Reporting. We have concluded that we have two operating segments, product and service. Product designs, develops, manufactures and markets patented surgical instruments. Service performs electrical engineering activities for external entities.

	Three Months Ended December 31, 2021								Nine Months Ended December 31, 2021
	Product			Service		Total			Product			Service		Total
Net revenue	$	1,733,658		$	210,608	$	1,944,266		$	5,347,259		$	718,297	$	6,065,556
Cost of revenue		828,153			106,792		934,945			2,728,464			356,228		3,084,692
Gross profit		905,505			103,816		1,009,321			2,618,795			362,069		2,980,864
Operating income (loss)		(120,081	)		103,816		(16,265	)		(554,053	)		362,069		(191,984	)
Depreciation and amortization		32,302			—		32,302			85,896			—		85,896
Patent and capital expenditures		11,382			—		11,382			30,805			—		30,805
Equipment and patents, net	$	423,994		$	—	$	423,994		$	423,994		$	—	$	423,994

	Three Months Ended December 31, 2020							Nine Months Ended December 31, 2020
	Product			Service		Total		Product			Service		Total
Net revenue	$	1,998,979		$	163,621	$	2,162,600	$	5,093,118		$	297,457	$	5,390,575
Cost of revenue		975,581			81,421		1,057,002		2,500,310			150,197		2,650,507
Gross profit		1,023,398			82,200		1,105,598		2,592,808			147,260		2,740,068
Operating income (loss)		(69,463	)		82,200		12,737		(362,005	)		147,260		(214,745	)
Depreciation and amortization		20,584			—		20,584		67,907			—		67,907
Patent and capital expenditures		—			—		—		4,144			—		4,144
Equipment and patents, net	$	387,549		$	—	$	387,549	$	387,549		$	—	$	387,549

Recently Issued Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, excluding smaller reporting entities, which will be effective for fiscal years beginning after December 15, 2022. We will adopt ASU 2016-13 beginning April 1, 2023 and do not expect the application of the CECL impairment model to have a significant impact on our allowance for uncollectible amounts for accounts receivable.

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Basic and Diluted Income and Loss per Common Share

9 Months Ended

Dec. 31, 2021

Earnings Per Share [Abstract]

Basic and Diluted Income and Loss per Common Share

Note 3. Basic and Diluted Income and Loss per Common Share

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

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

	Three Months Ended					Nine Months Ended
	December 31, 2021			December 31, 2020		December 31, 2021		December 30, 2020
Net (loss) income	$	(16,011	)	$	599,321	$	336,714	$	468,801
Weighted-average basic shares outstanding		11,677,921			11,582,641		11,598,768		11,582,641
Effect of dilutive securities		—			126,156		366,355		167,708
Weighted-average diluted shares		11,819,567			11,745,161		12,045,389		11,750,349
Basic net income (loss) per share	$	0.00		$	0.05	$	0.03	$	0.04
Diluted net income (loss) per share	$	0.00		$	0.05	$	0.03	$	0.04
Antidilutive employee stock options		1,076,000			909,844		709,645		868,292

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Note 4. COMMITMENTS AND CONTINGENCIES

We have a noncancelable lease agreement for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease expires October 31, 2024.

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

We determine if an arrangement contains a lease at inception. We currently do not have any finance leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at 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 in determining 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.

The minimum future lease payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022	$	90,625
	2023		372,167
	2024		386,667
	2025		232,139
	Total	$	1,081,598

During January 2021, we canceled our relationship with Crestmark Bank. We had no borrowings and incurred a $20,000 exit fee.

On August 4, 2020, we received $150,000 in loan funding from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note, dated August 1, 2020 in the original principal amount of $150,000 with the SBA, the lender. Under the terms of the Note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the Note is thirty years, though it may be payable sooner upon an event of default under the Note. Under the Note, we will be obligated to make equal monthly payments of principal and interest of $774 beginning on August 1, 2022 through the maturity date of August 1, 2050. The Note may be prepaid in part or in full, at any time, without penalty.

During January 2021, we entered into a note agreement with U.S. Bank for $92,000. The note is for five years at a 5% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.

On February 8, 2021, we entered into an unsecured promissory note under the PPP for a principal amount of $533,118. The PPP was established under the Consolidated Appropriations Act of 2020, enacted December 27, 2020. Under the terms of the CARES Act, a PPP loan recipient may apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined based upon the use of loan proceeds for payroll costs, rent and utility costs, and the maintenance of employee and compensation levels. This was our second PPP loan. On April 17, 2020, we entered into an unsecured promissory note under the PPP for a principal amount of $598,567. In the quarter that ended December 31, 2020, we achieved the requirements for forgiveness, and all of the $598,567 was forgiven. We recognized the forgiveness as extinguishment of debt income of $598,567. During the quarter that ended December 31, 2021, we achieved the requirements for forgiveness of the second note and recognized the forgiveness as extinguishment of debt income of $533,118.

The minimum future EIDL payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022		—
	2023		3,091
	2024		3,208
	2025		3,331
	2026		3,457
	Thereafter		142,693
	Total	$	155,780

During January 2021, we entered into a note agreement with U.S. Bank for $92,000. The note is for five years at a 5% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment.

The minimum future principal U.S. Bank payment, by fiscal year, as of December 31, 2021 is as follows:

Fiscal Year		Amount
	2022		4,600
	2023		18,400
	2024		18,400
	2025		18,400
	2026		15,060
	Total	$	74,860

Aside from the operating lease, EIDL loan and U.S. Bank loan, we do not have any material contractual commitments requiring settlement in the future.

We are subject to regulation by the United States Food and Drug Administration (“FDA”). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects us and other manufacturers to determine compliance with these regulations. We believe that we were in substantial compliance with all known regulations at December 31, 2021. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in October 2019.

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SHARE-BASED COMPENSATION

9 Months Ended

Dec. 31, 2021

Equity [Abstract]

SHARE-BASED COMPENSATION

Note 5. SHARE-BASED COMPENSATION

The provisions of ASC 718-10-55 requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and RSUs, based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options for the three and nine months ended December 31, 2021 and 2020, which was allocated as follows:

	Three Months Ended					Nine Months Ended
	December 31, 2021			December 31, 2020		December 31, 2021		December 31, 2020
Cost of sales	$	(67	)	$	917	$	464	$	2,751
Sales and marketing		1,816			1,218		4,550		3,653
General and administrative		10,953			5,803		22,408		16,974
Research and development		1,402			545		2,410		1,636
Stock-based compensation expense	$	14,104		$	8,483	$	29,832	$	25,014

Share-based compensation cost for stock options is measured at the grant date, based on the fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM option-pricing model requires the use of actual employee exercise behavior data and the application of a number of assumptions, including expected volatility, risk-free interest rate and expected dividends. There were 190,000 stock options granted, 2,533 stock options exercised and 17,467 stock options forfeited during the three months ended December 31, 2021. There were 200,000 stock options granted, 96,393 stock options exercised and 58,607 stock options forfeited during the nine months ended December 31, 2021. There were 20,000 stock options granted and 60,000 stock options forfeited during the three months ended December 31, 2020, and 110,000 stock options granted and 72,000 stock options forfeited during the nine months ended December 31, 2020. 

As of December 31, 2021, approximately $135,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

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RELATED PARTY TRANSACTION

9 Months Ended

Dec. 31, 2021

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTION

Note 6. RELATED PARTY TRANSACTION

We paid consulting fees of $15,348 and $57,764 to an entity owned by one of our directors during the three and nine months ended December 31, 2021, respectively, and $16,000 and $45,103 during the three and nine months ended December 31, 2020, respectively.

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SUBSEQUENT EVENTS

9 Months Ended

Dec. 31, 2021

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

Note 7. SUBSEQUENT EVENTS

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed on June 23, 2021.

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

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

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

Fair Value of Financial Instruments

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

Concentration of Credit Risk

Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and accounts receivable. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at December 31, 2021. We believe that our cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.

We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.

Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at December 31, 2021 of $1,029,015 and at March 31, 2021 of $1,024,370 included no more than 17% from any one customer.

Inventories

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At December 31, 2021 and March 31, 2021 inventory consisted of the following:

	December 31, 2021			March 31, 2021
Raw materials	$	1,086,031		$	1,038,094
Finished goods		361,944			477,040
Total gross inventories		1,447,975			1,515,134
Less reserve for obsolescence		(42,186	)		(70,000	)
Total net inventories	$	1,405,789		$	1,445,134

Property and Equipment

Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. Depreciation expense for the three and nine months ended December 31, 2021 was $18,079 and $47,995, respectively, and for the three and nine months ended December 31, 2020 was $13,277 and $45,554, respectively. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expense as incurred and major additions, replacements and improvements are capitalized.

Long-Lived Assets

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

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

Income Taxes

Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At December 31, 2021, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.

Revenue Recognition

Revenue Recognition. We record revenue at a single point in time, when control is transferred to the customer. We will 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. As presented on the Statement of Operations our revenue is disaggregated between product revenue and service revenue. As it relates specifically to product revenue, we do not believe further disaggregation is necessary as substantially all of our product 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.

Deferred Revenue

Deferred Revenue. We record a contract liability to deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of December 31, 2021 and March 31, 2021 includes a contract liability for customer prepayments and is included in other accrued liabilities. Deferred revenue as of December 31, 2021 and March 31, 2020 includes customer prepayments of $229,167 and $0, respectively and is included in other accrued liabilities. 

Research and Development Expenses

Research and Development Expenses. We expense research and development costs for products and processes as incurred.

Stock-Based Compensation

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

Stock-based compensation expense recognized under ASC 718 for the three and nine months ended December 31, 2021 was $14,104 and $29,832, respectively and for the three and nine months ended December 31, 2020 was $8,483 and $25,014, respectively, which consisted of stock-based compensation expense related to grants of employee stock options.

Segment Reporting

Segment Reporting. We have concluded that we have two operating segments, product and service. Product designs, develops, manufactures and markets patented surgical instruments. Service performs electrical engineering activities for external entities.

	Three Months Ended December 31, 2021								Nine Months Ended December 31, 2021
	Product			Service		Total			Product			Service		Total
Net revenue	$	1,733,658		$	210,608	$	1,944,266		$	5,347,259		$	718,297	$	6,065,556
Cost of revenue		828,153			106,792		934,945			2,728,464			356,228		3,084,692
Gross profit		905,505			103,816		1,009,321			2,618,795			362,069		2,980,864
Operating income (loss)		(120,081	)		103,816		(16,265	)		(554,053	)		362,069		(191,984	)
Depreciation and amortization		32,302			—		32,302			85,896			—		85,896
Patent and capital expenditures		11,382			—		11,382			30,805			—		30,805
Equipment and patents, net	$	423,994		$	—	$	423,994		$	423,994		$	—	$	423,994

	Three Months Ended December 31, 2020							Nine Months Ended December 31, 2020
	Product			Service		Total		Product			Service		Total
Net revenue	$	1,998,979		$	163,621	$	2,162,600	$	5,093,118		$	297,457	$	5,390,575
Cost of revenue		975,581			81,421		1,057,002		2,500,310			150,197		2,650,507
Gross profit		1,023,398			82,200		1,105,598		2,592,808			147,260		2,740,068
Operating income (loss)		(69,463	)		82,200		12,737		(362,005	)		147,260		(214,745	)
Depreciation and amortization		20,584			—		20,584		67,907			—		67,907
Patent and capital expenditures		—			—		—		4,144			—		4,144
Equipment and patents, net	$	387,549		$	—	$	387,549	$	387,549		$	—	$	387,549

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, excluding smaller reporting entities, which will be effective for fiscal years beginning after December 15, 2022. We will adopt ASU 2016-13 beginning April 1, 2023 and do not expect the application of the CECL impairment model to have a significant impact on our allowance for uncollectible amounts for accounts receivable.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Schedule of inventory

	December 31, 2021			March 31, 2021
Raw materials	$	1,086,031		$	1,038,094
Finished goods		361,944			477,040
Total gross inventories		1,447,975			1,515,134
Less reserve for obsolescence		(42,186	)		(70,000	)
Total net inventories	$	1,405,789		$	1,445,134

Schedule of service performs electrical engineering activities for external entities

	Three Months Ended December 31, 2021								Nine Months Ended December 31, 2021
	Product			Service		Total			Product			Service		Total
Net revenue	$	1,733,658		$	210,608	$	1,944,266		$	5,347,259		$	718,297	$	6,065,556
Cost of revenue		828,153			106,792		934,945			2,728,464			356,228		3,084,692
Gross profit		905,505			103,816		1,009,321			2,618,795			362,069		2,980,864
Operating income (loss)		(120,081	)		103,816		(16,265	)		(554,053	)		362,069		(191,984	)
Depreciation and amortization		32,302			—		32,302			85,896			—		85,896
Patent and capital expenditures		11,382			—		11,382			30,805			—		30,805
Equipment and patents, net	$	423,994		$	—	$	423,994		$	423,994		$	—	$	423,994

	Three Months Ended December 31, 2020							Nine Months Ended December 31, 2020
	Product			Service		Total		Product			Service		Total
Net revenue	$	1,998,979		$	163,621	$	2,162,600	$	5,093,118		$	297,457	$	5,390,575
Cost of revenue		975,581			81,421		1,057,002		2,500,310			150,197		2,650,507
Gross profit		1,023,398			82,200		1,105,598		2,592,808			147,260		2,740,068
Operating income (loss)		(69,463	)		82,200		12,737		(362,005	)		147,260		(214,745	)
Depreciation and amortization		20,584			—		20,584		67,907			—		67,907
Patent and capital expenditures		—			—		—		4,144			—		4,144
Equipment and patents, net	$	387,549		$	—	$	387,549	$	387,549		$	—	$	387,549

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Basic and Diluted Income and Loss per Common Share (Tables)

9 Months Ended

Dec. 31, 2021

Earnings Per Share [Abstract]

Schedule of basic and diluted net loss per share

	Three Months Ended					Nine Months Ended
	December 31, 2021			December 31, 2020		December 31, 2021		December 30, 2020
Net (loss) income	$	(16,011	)	$	599,321	$	336,714	$	468,801
Weighted-average basic shares outstanding		11,677,921			11,582,641		11,598,768		11,582,641
Effect of dilutive securities		—			126,156		366,355		167,708
Weighted-average diluted shares		11,819,567			11,745,161		12,045,389		11,750,349
Basic net income (loss) per share	$	0.00		$	0.05	$	0.03	$	0.04
Diluted net income (loss) per share	$	0.00		$	0.05	$	0.03	$	0.04
Antidilutive employee stock options		1,076,000			909,844		709,645		868,292

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Dec. 31, 2021

Lease Payment [Member]

Defined Benefit Plan Disclosure [Line Items]

Schedule of principal U.S. Bank payment

Fiscal Year		Amount
	2022	$	90,625
	2023		372,167
	2024		386,667
	2025		232,139
	Total	$	1,081,598

E I D L Payment [Member]

Defined Benefit Plan Disclosure [Line Items]

Schedule of principal U.S. Bank payment

Fiscal Year		Amount
	2022		—
	2023		3,091
	2024		3,208
	2025		3,331
	2026		3,457
	Thereafter		142,693
	Total	$	155,780

U S Bank Payment [Member]

Defined Benefit Plan Disclosure [Line Items]

Schedule of principal U.S. Bank payment

Fiscal Year		Amount
	2022		4,600
	2023		18,400
	2024		18,400
	2025		18,400
	2026		15,060
	Total	$	74,860

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SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Dec. 31, 2021

Equity [Abstract]

Schedule of summarizes stock-based compensation

	Three Months Ended					Nine Months Ended
	December 31, 2021			December 31, 2020		December 31, 2021		December 31, 2020
Cost of sales	$	(67	)	$	917	$	464	$	2,751
Sales and marketing		1,816			1,218		4,550		3,653
General and administrative		10,953			5,803		22,408		16,974
Research and development		1,402			545		2,410		1,636
Stock-based compensation expense	$	14,104		$	8,483	$	29,832	$	25,014

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ORGANIZATION AND NATURE OF BUSINESS (Details Narrative) - USD ($)	9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Mar. 31, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accumulated deficit	$ 21,127,011		$ 21,463,725
Net income	336,714	$ 468,801
Stock options exercised	$ 8,095

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	Dec. 31, 2021	Mar. 31, 2021
Accounting Policies [Abstract]
Raw materials	$ 1,086,031	$ 1,038,094
Finished goods	361,944	477,040
Total gross inventories	1,447,975	1,515,134
Less reserve for obsolescence	(42,186)	(70,000)
Total net inventories	$ 1,405,789	$ 1,445,134

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Product Information [Line Items]
Net revenue	$ 1,944,266	$ 2,162,600	$ 6,065,556	$ 5,390,575
Cost of revenue	934,945	1,057,002	3,084,692	2,650,507
Gross profit	1,009,321	1,105,598	2,980,864	2,740,068
Operating income (loss)	(16,265)	12,737	(191,984)	(214,745)
Depreciation and amortization	32,302	20,584	85,896	67,907
Patent and capital expenditures	11,382		30,805	4,144
Equipment and patents, net	423,994	387,549	423,994	387,549
Product [Member]
Product Information [Line Items]
Net revenue	1,733,658	1,998,979	5,347,259	5,093,118
Cost of revenue	828,153	975,581	2,728,464	2,500,310
Gross profit	905,505	1,023,398	2,618,795	2,592,808
Operating income (loss)	(120,081)	(69,463)	(554,053)	(362,005)
Depreciation and amortization	32,302	20,584	85,896	67,907
Patent and capital expenditures	11,382		30,805	4,144
Equipment and patents, net	423,994	387,549	423,994	387,549
Service [Member]
Product Information [Line Items]
Net revenue	210,608	163,621	718,297	297,457
Cost of revenue	106,792	81,421	356,228	150,197
Gross profit	103,816	82,200	362,069	147,260
Operating income (loss)	103,816	82,200	362,069	147,260
Depreciation and amortization
Patent and capital expenditures
Equipment and patents, net

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020	Mar. 31, 2021
Accounting Policies [Abstract]
Federally insured limit	$ 250,000		$ 250,000
Accounts receivable	1,029,015		1,029,015		$ 1,024,370
Depreciation expense	18,079	$ 13,277	47,995	$ 45,554
Unrecognized tax benefits	0		0
Uncertain tax positions	0		0
Deferred revenue	229,167		229,167		$ 0
Stock based compensation	$ 14,104	$ 8,483	$ 29,832	$ 25,014

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BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Earnings Per Share [Abstract]
Net (loss) income	$ (16,011)	$ 599,321	$ 336,714	$ 468,801
Weighted-average basic shares outstanding	11,677,921	11,582,641	11,598,768	11,582,641
Effect of dilutive securities		126,156	366,355	167,708
Weighted-average diluted shares	11,819,567	11,745,161	12,045,389	11,750,349
Basic net income (loss) per share	$ 0.00	$ 0.05	$ 0.03	$ 0.04
Diluted net income (loss) per share	$ 0.00	$ 0.05	$ 0.03	$ 0.04
Antidilutive employee stock options	1,076,000	909,844	709,645	868,292

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COMMITMENTS AND CONTINGENCIES (Details) - Lease Payment [Member]	Dec. 31, 2021 USD ($)
Defined Benefit Plan Disclosure [Line Items]
2022	$ 90,625
2023	372,167
2024	386,667
2025	232,139
Total	$ 1,081,598

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COMMITMENTS AND CONTINGENCIES (Details 1) - E I D L Payment [Member]	Dec. 31, 2021 USD ($)
Defined Benefit Plan Disclosure [Line Items]
2022
2023	3,091
2024	3,208
2025	3,331
2026	3,457
Thereafter	142,693
Total	$ 155,780

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COMMITMENTS AND CONTINGENCIES (Details 2) - U S Bank Payment [Member]	Dec. 31, 2021 USD ($)
Defined Benefit Plan Disclosure [Line Items]
2022	$ 4,600
2023	18,400
2024	18,400
2025	18,400
2026	15,060
Total	$ 74,860

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COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)			9 Months Ended
	Aug. 04, 2021	Aug. 01, 2020	Dec. 31, 2021	Dec. 31, 2020	Feb. 08, 2021	Apr. 17, 2020
S B A [Member]
Debt Instrument [Line Items]
Proceed from loan	$ 150,000
E I D L [Member]
Debt Instrument [Line Items]
Principal amount		$ 150,000
Interest rate		3.75%
Debt Instrument, Maturity Date		Aug. 01, 2050
P P P Loan [Member]
Debt Instrument [Line Items]
Principal amount					$ 533,118	$ 598,567
Debt Forgiveness				$ 598,567
Extinguishment of debt income			$ 533,118	$ 598,567

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SHARE-BASED COMPENSATION (Details) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Stock-based compensation expense related to grants of employee stock options	$ 14,104	$ 8,483	$ 29,832	$ 25,014
Cost of Sales [Member]
Stock-based compensation expense related to grants of employee stock options	(67)	917	464	2,751
Selling and Marketing Expense [Member]
Stock-based compensation expense related to grants of employee stock options	1,816	1,218	4,550	3,653
General and Administrative Expense [Member]
Stock-based compensation expense related to grants of employee stock options	10,953	5,803	22,408	16,974
Research and Development Expense [Member]
Stock-based compensation expense related to grants of employee stock options	$ 1,402	$ 545	$ 2,410	$ 1,636

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SHARE-BASED COMPENSATION (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Equity [Abstract]
Stock options granted	190,000	20,000	200,000	110,000
Number of shares exercised	2,533		96,393
Stock options forfeited	17,467	60,000	58,607	72,000
Unrecognized compensation costs	$ 135,000		$ 135,000

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RELATED PARTY TRANSACTION (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Director [Member]
Related Party Transaction [Line Items]
Consulting fees paid	$ 15,348	$ 16,000	$ 57,764	$ 45,103