ENCISION INC 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 June 30, 2023 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, 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” , “smaller reporting company” and “emerging growth” 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: Common Stock no par value (Class) 11,769,543 Shares (outstanding at July 31, 2023) ENCISION INC. FORM 10-Q For the Three Months Ended June 30, 2023 Page Number PART I. FINANCIAL INFORMATION ITEM 1 - Condensed Interim Financial Statements: - Condensed Balance Sheets as of June 30, 2023 and March 31, 2023 1 - Condensed Statements of Nine Months Ended June 30, 2023 and 2 - Condensed Statements of Cash Flows for the Three Ended June 30, 2023 and 2022 3 - Notes to Condensed Interim Financial Statements 4 ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 9 ITEM 4 - Controls and Procedures 15 PART II. OTHER INFORMATION ITEM 1 - Legal Proceedings 16 ITEM 1A - Risk Factors 16 ITEM 2 - Unregistered Sales of Equity Securities 16 ITEM 3 - Defaults on Senior Securities 16 ITEM 4 - Mine Safety Disclosures 16 ITEM 5 - Other Information 16 ITEM 6 - Exhibits 16 SIGNATURE 17 PART I FINANCIAL INFORMATION ITEM 1 - Condensed Interim Financial Statements Encision Inc. Condensed Balance Sheets (Unaudited) June 30, 2023 March 31, 2023 ASSETS Current assets: Cash $ 130,527 $ 188,966 Accounts receivable 912,617 920,721 Inventories, net of reserve for obsolescence of $ 60,000 at June 30, 2023 and $ 51,000 at March 31, 2023 1,866,791 1,899,202 Prepaid expenses 85,799 115,714 Total current assets 2,995,734 3,124,603 Equipment: Furniture, fixtures and equipment, at cost 2,615,676 2,615,676 Accumulated depreciation ( 2,328,177 ) ( 2,312,400 ) Equipment, net 287,499 303,276 Right of use asset 420,748 496,004 Patents, net of accumulated amortization of $ 313,419 at June 30, 2023 and $ 306,946 at March 31, 2023 157,159 163,133 Other assets 54,128 46,953 TOTAL ASSETS $ 3,915,268 $ 4,133,969 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 277,099 $ 252,957 Line of credit 178,736 177,402 Secured notes 44,639 44,491 Accrued compensation 219,360 217,724 Other accrued liabilities 66,139 84,578 Accrued lease liability 332,195 353,674 Total current liabilities 1,118,168 1,130,826 Long-term liability: Secured notes 255,563 268,512 Accrued lease liability 174,104 239,820 Total liabilities 1,547,835 1,639,158 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; 11,769,543 issued and outstanding at June 30, 2023 and March 31, 2023 24,361,150 24,348,075 Accumulated (deficit) ( 21,993,717 ) ( 21,853,264 ) Total shareholders’ equity 2,367,433 2,494,811 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 3,915,268 $ 4,133,969 The accompanying notes to financial statements are an integral part of these condensed statements. 1 Encision Inc. Condensed Statements of Operations (Unaudited) Three Months Ended June 30, 2023 June 30, 2022 NET REVENUE: Product $ 1,613,552 $ 1,696,029 Service 39,831 458,333 Total revenue 1,653,383 2,154,362 COST OF REVENUE: Product 770,037 869,905 Service 20,621 — Total cost of revenue 790,658 869,905 GROSS PROFIT 862,725 1,284,457 OPERATING EXPENSES: Sales and marketing 433,436 502,967 General and administrative 388,757 344,119 Research and development 168,420 170,469 Total operating expenses 990,613 1,017,555 OPERATING (LOSS) INCOME ( 127,888 ) 266,902 Interest expense, net ( 14,232 ) ( 2,363 ) Other income (expense), net 1,667 61 Interest expense, extinguishment of debt income and other income (expense), net ( 12,565 ) ( 2,302 ) (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES ( 140,453 ) 264,601 Provision for income taxes — — NET (LOSS) INCOME $ ( 140,453 ) $ 264,601 Net (loss) income per share—basic and diluted $ ( 0.01 ) $ 0.02 Weighted average shares—basic 11,769,543 11,719,543 Weighted average shares—diluted 11,769,543 12,021,280 The accompanying notes to financial statements are an integral part of these condensed statements. 2 Encision Inc. Condensed Statements of Cash Flows (Unaudited) Three Months Ended June 30, 2023 June 30, 2022 Cash flows (used in) operating activities: Net income (loss) $ ( 140,453 ) $ 264,601 Adjustments to reconcile net income (loss) to net cash (used in) operating activities: Depreciation and amortization 22,250 20,087 Stock-based compensation expense related to stock options 13,074 12,361 Provision for (recovery from) inventory obsolescence, net change 9,000 ( 1,052 ) Change in operating assets and liabilities: Right of use asset, net ( 11,939 ) ( 8,312 ) Accounts receivable 8,104 26,500 Inventories 23,411 ( 213,282 ) Prepaid expenses and other assets 22,740 10,888 Accounts payable 24,143 ( 188,304 ) Accrued compensation and other accrued liabilities ( 16,803 ) 20,481 Net cash (used in) operating activities ( 46,473 ) ( 56,032 ) Cash flows (used in) investing activities: Acquisition of property and equipment — ( 57,463 ) Patent costs ( 499 ) ( 4,866 ) Net cash (used in) investing activities ( 499 ) ( 62,329 ) Cash flows generated by financing activities: (Paydown of) secured notes ( 11,467 ) ( 3,340 ) Net cash generated by (used in) financing activities ( 11,467 ) ( 3,340 ) Net (decrease) in cash ( 58,439 ) ( 121,701 ) Cash, beginning of fiscal year 188,966 949,645 Cash, end of fiscal quarter $ 130,527 $ 827,944 Supplemental disclosures of cash flow information: Cash paid during the three months for interest $ 14,232 $ 2,363 The accompanying notes to financial statements are an integral part of these condensed statements. 3 ENCISION INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2023 (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 $ 21,993,717 at June 30, 2023. A significant portion of our operating funds have been provided by issuances of our common stock and warrants, the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Shareholders’ equity decreased by $127,378 since March 31, 2023 as a result of our net loss of $ 140,453 and share-based compensation of $ 13,075 . 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. 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, 2023 filed on June 28, 2023. 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. We had net loss of $ 140,453 for the three months ended June 30, 2023. At June 30, 2023, we had cash of $ 130,527 , current borrowings of $ 178,736 and borrowing capacity up to $ 1,000,000 , as restricted by our eligible accounts receivable, under our line of credit. Working capital was $ 1,877,566 , a decrease of $ 116,211 from March 31, 2023. We used $ 46,473 of cash in the fiscal three months ended June 30, 2023, primarily as a result of our net loss. The principal reason for our loss for the three months ended June 30, 2023 was reduced revenue and higher material costs. Management is developing plans to ensure that we have the working capital necessary to fund operations. We will increase our pricing on products to mitigate our higher material costs. Management concludes that it is probable that our cash resources and line of credit will be sufficient to meet our cash requirements for twelve months from the issuance of the condensed financial statements. Therefore, the accompanying condensed financial statements have been prepared assuming that we will continue as a going concern. 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. 4 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 June 30, 2023. 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. The net accounts receivable balance at June 30, 2023 of $ 912,617 and at March 31, 2023 of $ 920,721 included no more than 8% 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 June 30, 2023 and March 31, 2023 inventory consisted of the following: Schedule of inventory June 30, 2023 March 31, 2023 Raw materials $ 1,504,256 $ 1,456,473 Finished goods 422,535 493,729 Total gross inventories 1,926,791 1,950,202 Less reserve for obsolescence ( 60,000 ) ( 51,000 ) Total net inventories $ 1,866,791 $ 1,899,202 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 months ended June 30, 2023 and 2022 was $ 15,776 and $ 12,091 , 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 June 30, 2023, 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. 5 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. 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 months ended June 30, 2023 and 2022 was $ 13,074 and $ 12,361 , 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. Information, by segment, for the three months ended June 30, 2023 and 2022 follows: Schedule of reporting segments Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Product Service Total Product Service Total Net revenue $ 1,613,552 $ 39,831 $ 1,653,383 $ 1,696,029 $ 458,333 $ 2,154,362 Cost of revenue 770,037 20,621 790,658 869,905 — 869,905 Gross profit 843,515 19,210 862,725 826,124 458,333 1,284,457 Operating income (loss) ( 147,098 ) 19,210 ( 127,888 ) ( 191,431 ) 458,333 266,902 Depreciation and amortization 22,250 — 22,250 20,087 — 20,087 Patent and capital expenditures ( 499 ) — ( 499 ) 62,329 — 62,329 Equipment and patents, net $ 444,658 $ — $ 444,658 $ 412,258 $ — $ 412,258 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: Schedule of basic and diluted net income (loss) per share Three Months Ended June 30, 2023 June 30, 2022 Net income (loss) $ ( 140,453 ) $ 264,601 Weighted-average basic shares outstanding 11,769,543 11,719,543 Effect of dilutive securities — 301,737 Weighted-average diluted shares 11,769,543 12,021,280 Basic net income (loss) per share $ ( 0.01 ) $ 0.02 Diluted net income (loss) per share $ ( 0.01 ) $ 0.02 Antidilutive employee stock options 1,049,000 756,263 6 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 June 30, 2023 is as follows: Schedule of principal U.S. Bank payment Fiscal Year Amount 2024 $ 274,160 2025 232,139 Total $ 506,299 On August 4, 2020, we received $ 150,000 principal 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. The Note may be prepaid in part or in full, at any time, without penalty. During January 2022, 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. During September 2022, we entered into a note agreement with U.S. Bank for $ 115,004 . The note is for five years at a 6 % interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment. On November 15, 2022, we entered into a loan and security agreement with Pathward, N.A. (formerly Crestmark Bank). The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 0.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $300,000, a loan fee of 0.5% at closing and annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively. The minimum future EIDL payment, by fiscal year, as of June 30, 2023 is as follows: Schedule of principal U.S. Bank payment Fiscal Year Amount 2024 $ 2,406 2025 3,331 2026 3,457 Thereafter 149,832 Total $ 159,026 7 During January 2022, 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 June 30, 2023 is as follows: Schedule of principal U.S. Bank payment Fiscal Year Amount 2024 $ 13,800 2025 18,400 2026 13,800 Total $ 46,000 During September 2022, we entered into a note agreement with U.S. Bank for $ 115,004 . The note is for five years at a 6 % interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment. The minimum future principal U.S. Bank payment, by fiscal year, as of June 30, 2023 is as follows: Schedule of principal U.S. Bank payment Fiscal Year Amount 2024 $ 17,250 2025 23,000 2026 23,000 Thereafter 31,926 Total $ 95,176 Aside from the operating lease, EIDL loan and U.S. Bank loans, 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 June 30, 2023. 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 months ended June 30, 2023 and 2022, which was allocated as follows: Schedule of summarizes stock-based compensation Three Months Ended June 30, 2023 June 30, 2022 Cost of sales $ — $ 158 Sales and marketing 1,779 1,656 General and administrative 10,253 9,429 Research and development 1,042 1,118 Stock-based compensation expense $ 13,074 $ 12,361 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 no stock options granted, exercised or forfeited during the three months ended June 30, 2023 and 2022. As of June 30, 2023, approximately $ 181,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years. Note 6. RELATED PARTY TRANSACTION We paid consulting fees of $ 16,285 and $ 13,728 to an entity owned by one of our directors during the three months ended June 30, 2023 and 2022, 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. 8 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, 2023. 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. Approximately one in every three surgeons may have a patient injury each year from preventable stray energy burns. 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 which 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 months ended June 30, 2023. 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. 9 A number of factors are contributing to a decrease in surgical procedures that take away from top line results. COVID resurgences continued to negatively impact surgical procedure volumes. In addition, MarketWatch announced that, “A record share of U.S. adults said they or a family member delayed medical care last year due to affordability issues. According to a Gallup poll, thirty-eight percent of Americans said they or a family member avoided treatment over cost in 2022, a full 12 percentage points higher than the year prior.” Finally, hospitals are struggling to maintain critical staffing levels to enable them to keep up with even the decreased demand for procedures. We have an accumulated deficit of $21,993,717 at June 30, 2023. A significant portion of our operating funds have been provided by issuances of our common stock and warrants and the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital. During the three months ended June 30, 2023, we used $46,473 of cash in our operating activities and used $0 for investments in property and equipment. At June 30, 2023, we had $130,527 and at March 31, 2023 we had $188,966 in cash available to fund future operations, a decrease of $58,439 from March 31, 2023. The decrease to cash was principally the result of net loss. Our working capital was $1,877,566 at June 30, 2023 compared to $1,993,777 at March 31, 2023. 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 2024. Our objectives for the remainder of fiscal year 2024 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. On April 20, 2020, we entered into a Master Services Agreement (“MSA”) with Auris Health, Inc. (“Auris Health”), which is based in Redwood City, CA and a part of Johnson & Johnson Medical Devices Companies. The MSA (and the initial related Statement of Work thereunder) were effective as of March 3, 2020. Under the MSA, we and Auris Health collaborated on the development of equipment designed to enable the compatibility of our AEM technology with monopolar instruments produced by Auris Health. The MSA had a term of up to three years, but either party could terminate the MSA sooner upon 10 business days’ prior written notice. On August 23, 2022, we entered into a Supply Agreement with Auris Health, Inc. On May 5, 2022, the parties mutually agreed to terminate all of our agreements. 10 Possibility of Operating Losses : We have an accumulated deficit of $21,993,717 at June 30, 2023. A significant portion of our operating funds have been provided by issuances of our common stock and warrants and the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Should our liquidity be diminished in the future because of operating losses, we may be required to 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 2024 . 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. Results of Operations For the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022. Net Product revenue. Net product revenue for the quarter ended June 30, 2023 was $1,613,552 compared to $1,696,029 for the quarter ended June 30, 2022, a decrease of 5%. The decrease of net product revenue is attributable to decreased demand for our products and supply chain issues which resulted in lost business from hospitals that used AEM technology during the year. Net Service revenue. Net service revenue for the quarter ended June 30, 2023 was $39,831 compared to $458,333 for the quarter ended June 30, 2022. Net service revenue for the quarter ended June 30, 2022 was for engineering services performed under a Master Services Agreement with Auris Health. G ross profit . Gross profit for the quarter ended June 30, 2023 of $862,725 represented a decrease of 33% from gross profit of $1,284,457 for the quarter ended June 30, 2022. Gross profit decreased as a result of higher total revenue for the quarter ended June 30, 2022. Gross profit on product net revenue as a percentage of sales (gross margin) was 52% for the quarter ended June 30, 2023 and 49% for the quarter ended June 30, 2022. Gross profit on net revenue increased as a result of higher operating efficiencies. Sales and marketing expenses . Sales and marketing expenses of $433,436 for the quarter ended June 30, 2023 represented a decrease of 14% from sales and marketing expenses of $502,967 for the quarter ended June 30, 2022. The decrease was the result of lower salaries and commissions. General and administrative expenses . General and administrative expenses of $388,757 for the quarter ended June 30, 2023 represented an increase of 13% from general and administrative expenses of $344,119 for the quarter ended June 30, 2022. The increase was primarily the result of a reclassification of an employee from production to administration. 11 Research and development expenses . Research and development expenses of $168,420 for the quarter ended June 30, 2023 represented a decrease of 1% compared to $170,469 for the quarter ended June 30, 2022. The decrease was the result of a decrease to compensation that was primarily offset by an increase to test materials. Net loss. Net loss was $140,453 for the quarter ended June 30, 2023 compared to net income of $264,601 for the quarter ended June 30, 2022. The net decrease was principally a result of higher service revenue for the quarter ended June 30, 2022. The results of operations for the three months ended June 30, 2023 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, the exercise of stock options to purchase our common stock, loans, and (in some periods) by operating profits. Common stock and additional paid in capital totaled $24,361,150 from inception through June 30, 2023. On August 4, 2020, we received $150,000 principal 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. The Note may be prepaid in part or in full, at any time, without penalty. During January 2022, 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. During September 2022, we entered into a note agreement with U.S. Bank for $115,004. The note is for five years at a 6% interest rate and the proceeds were used to purchase equipment. The note is secured by the equipment. On November 15, 2022, we entered into a loan and security agreement with Pathward, N.A. (formerly Crestmark Bank). The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 0.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $300,000, a loan fee of 0.5% at closing and annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively. Our operations used $46,473 of cash during the three months ended June 30, 2023 on net revenue of $1,653,383. The amounts of cash used by operations for the three months ended June 30, 2023 are not necessarily indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2024. At June 30, 2023, we had $130,527 in cash available to fund future operations and a line of credit for up to $1,000,000, restricted by eligible account receivables. Our working capital was $1,877,566 at June 30, 2023 compared to $1,993,777 at March 31, 2023. Current liabilities were $1,118,168 at June 30, 2023 compared to $1,130,826 at March 31, 2023. 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. 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 June 30, 2023 is as follows: Fiscal Year Amount 2024 $ 274,160 2025 232,139 Total $ 506,299 The minimum future EIDL payment, by fiscal year, as of June 30, 2023 is as follows: Fiscal Year Amount 2024 $ 2,406 2025 3,331 2026 3,457 Thereafter 149,832 Total $ 159,026 12 The minimum future principal U.S. Bank payment, by fiscal year, as of June 30, 2023 is as follows: Fiscal Year Amount 2024 $ 13,800 2025 18,400 2026 13,800 Total $ 46,000 The minimum future principal U.S. Bank payment, by fiscal year, as of June 30, 2023 is as follows: Fiscal Year Amount 2024 $ 17,250 2025 23,000 2026 23,000 Thereafter 31,926 Total $ 95,176 Aside from the operating lease, EIDL loan and U.S. Bank loans, we do not have any material contractual commitments requiring settlement in the future. As of June 30, 2023, 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 $ 506,299 $ 332,195 $ 174,104 $ — $ — Line of credit 178,736 178,736 — — — EIDL loans 159,026 3,239 5,645 6,788 143,354 U.S. Bank loan 46,000 18,400 27,600 — — U.S. Bank loan 95,176 23,000 46,000 26,176 — Total $ 985,237 $ 555,570 $ 253,349 $ 32,964 $ 143,354 Our fiscal year 2024 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 2024. 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. Income Taxes As of March 31, 2023, net operating loss carryforwards totaling approximately $7.3 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, 2024. 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. 13 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 our revenue comes from multiple products within a line of medical devices. Our engineering service contracts are billed on a time and materials basis and revenue is recognized over time as the services are performed. We record deferred revenue when funds are received prior to the recognition of the associated revenue. We record a contract liability to deferred revenue which includes customer prepayments and is included in other accrued liabilities. We 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. 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. ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. 14 ITEM 4 - C ontrols 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 June 30, 2023. 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 June 30, 2023. Remediation Activities Regarding Material Weakness As disclosed in our Annual Report on Form 10-K for the March 31, 2023 fiscal year, management determined that (i) we had a material weakness over our entity level control environment as of March 31, 2023 and (ii) our internal control over financial reporting was not effective as of March 31, 2023. Our preventive and review controls failed to detect errors related to the valuation of inventory and cutoff of service revenue. Management has been actively engaged in remediating the above described material weaknesses. The following remedial actions have been taken: · We have made changes in our policy regarding how contract revenue and related costs are booked. Under the revised policy, such revenue and costs are now booked in the same month as the related work is performed. · We have changed our policy regarding reserves for slow moving inventory. Under our revised, policy we now book additional inventory reserves for all inventory older than 18 months, even if management believes such inventory is still salable. The Company will design and implement additional procedures during fiscal 2024 in order to assure that audit/accounting personnel are more involved with the Company’s inventory activities and service revenue to monitor and earlier identify accounting issues that may be raised by the Company’s ongoing activities. While progress has been made to enhance our internal control over financial reporting, we are still in the process of implementing these processes, procedures and controls. Additional time is required to complete implementation and to assess and ensure the sustainability of these procedures. We believe the above actions will be effective in remediating the material weaknesses described above and we will continue to devote significant time and attention to these remedial efforts. However, the material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded that these controls are operating effectively. Changes In Internal Control Over Financial Reporting Other than the applicable remediation efforts described above, there were no significant changes in our internal control over financial reporting during the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 15 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. I tem 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, 2023. 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, 2023. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. 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 3.1 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 Lease Agreement dated June 3, 2004 between Encision Inc. and DaPuzzo Investment Group, LLC (Incorporated by reference from Quarterly Report on Form 10-QSB filed on November 14, 2004). 10.2 Encision Inc. 2007 Stock Option Plan (Incorporated by reference from Proxy Statement dated June 30, 2007). † 10.3 Encision Inc. First Amended and Restated 2014 Stock Option Plan (Incorporated by reference from Proxy Statement dated July 6, 2020. † 10.4 Employment Agreement, dated November 14, 2016, between Encision Inc. and Gregory J. Trudel (Incorporated by reference to Exhibit 10-1 to our Current Report on Form 8-K filed on November 18, 2016). † 10.5 Fifth Amendment to Office Building Lease dated November 9, 2017 (Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed February 12, 2018). 10.6 PPP Promissory Note dated as of April 17, 2020 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 23, 2020). 10.8 Economic Injury Disaster Loan dated as of August 1, 2022 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on August 12, 2022). 10.9 US Bank Note dated January 21, 2021. (Incorporated by reference to Exhibit 10.9 to Quarterly Report on Form 10-Q filed August 12, 2022) 10.10 PPP Promissory Note dated as of February 8, 2022 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on February 12, 2021. 10.11 Supply Agreement dated August 23, 2022 between Auris Health, Inc. and Encision Inc. (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on November 15, 2021).+ 10.12 New Line of Credit and Security Agreement with Pathward, N.A. dated November 15, 2022 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 17, 2022). 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 June 30, 2023, formatted in XBRL (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. 16 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. August 10, 2023 By: /s/ Mala Ray Date Mala Ray Controller Principal Accounting Officer & Principal Financial Officer                                                                                                17