ENCISION INC (Form: 10-Q, Received: 11/15/2021 12:31:16)

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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 September 30, 2021

☐

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	11,676,501 Shares
(Class)	(outstanding at October 31, 2021)

ENCISION INC.

FORM 10-Q

For the Three and Six Months Ended September 30, 2021

INDEX

		Page Number
PART I. FINANCIAL INFORMATION
ITEM 1 - Condensed Interim Financial Statements:
	- Condensed Balance Sheets as of September 30, 2021 and March 31, 2020	3
	- Condensed Statements of Three and Six Months Ended September 30, 2021 and 2020	4
	- Condensed Statements of Cash Flows for the Six Months Ended September 30, 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		12
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

PART I FINANCIAL INFORMATION

ITEM 1 - Condensed Interim Financial Statements

Encision Inc.

Condensed Balance Sheets

(Unaudited)


	September 30, 2021			March 31, 2021
ASSETS
Current assets:
Cash	$	1,604,942		$	1,474,339
Accounts receivable, net of allowance for doubtful accounts of $0 at September 30, 2021 and $35,000 at March 31, 2021		1,052,196			1,024,370
Inventories, net of reserve for obsolescence of $39,000 at September 30, 2021 and $70,000 at March 31, 2021		1,521,499			1,445,134
Prepaid expenses and other assets		95,604			154,151
Total current assets		4,274,241			4,097,994
Equipment:
Furniture, fixtures and equipment, at cost		2,698,486			2,695,297
Accumulated depreciation		(2,451,585	)		(2,429,580	)
Equipment, net		246,901			265,717
Right of use asset		925,583			1,060,971
Patents, net of accumulated amortization of $255,260 at September 30, 2021 and $317,821 at March 31, 2021		198,012			213,368
Other assets		26,146			20,496
TOTAL ASSETS	$	5,670,883		$	5,658,546
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	527,883		$	389,088
Secured notes		18,400			20,397
Accrued compensation		204,800			181,686
Other accrued liabilities		442,526			282,102
Accrued lease liability		317,957			302,978
Total current liabilities		1,511,566			1,176,251
Long-term liability:
Secured notes		215,580			220,263
Accrued lease liability		764,651			926,808
Unsecured promissory note		—			533,118
Total liabilities		2,491,797			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; 11,676,501 issued and outstanding at September 30, 2021 and 11,582,641 issued and outstanding at March 31,2021		24,290,085			24,265,831
Accumulated (deficit)		(21,110,999	)		(21,463,725	)
Total shareholders’ equity		3,179,086			2,802,106
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,670,883		$	5,658,546

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

Encision Inc.

Condensed Statements of Operations

(Unaudited)


	Three Months Ended						Six Months Ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
NET REVENUE:
Product	$	1,895,196		$	1,781,260		$	3,613,600		$	3,094,139
Service		217,649			99,148			507,689			133,836
Total revenue		2,112,845			1,880,408			4,121,289			3,227,975

COST OF REVENUE:
Product		1,061,884			841,381			1,900,311			1,524,729
Service		106,386			51,432			249,436			68,776
Total cost of revenue		1,168,270			892,813			2,149,747			1,593,505
GROSS PROFIT		944,575			987,595			1,971,542			1,634,470
OPERATING EXPENSES:
Sales and marketing		561,545			564,617			1,090,019			932,265
General and administrative		340,485			338,541			667,205			625,625
Research and development		213,162			162,455			390,037			304,062
Total operating expenses		1,115,192			1,065,613			2,147,261			1,861,952
OPERATING (LOSS)		(170,617	)		(78,018	)		(175,719	)		(227,482	)
Interest expense, net		(1,806	)		(17,154	)		(3,612	)		(34,633	)
Extinguishment of debt income		533,118			—			533,118			—
Other income (expense), net		(1,128	)		103,958			(1,061	)		131,596
Interest expense, extinguishment of debt income and other income (expense), net		530,184			86,804			528,445			96,963
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		359,567			8,786			352,726			(130,519	)
Provision for income taxes		—			—			—			—
NET INCOME (LOSS)	$	359,567		$	8,786		$	352,726		$	(130,519	)
Net income (loss) per share—basic and diluted	$	0.03		$	0.00		$	0.03		$	(0.01	)
Weighted average shares—basic		11,610,958			11,582,641			11,594,619			11,582,641
Weighted average shares—diluted		11,819,567			11,745,161			11,776,137			11,582,641

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

Encision Inc.

Condensed Statements of Cash Flows

(Unaudited)


Six Months Ended	September 30, 2021			September 30, 2020
Cash flows provided by (used in) operating activities:
Net income (loss)	$	352,726		$	(130,519	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Extinguishment of debt income		(533,118	)		—
Depreciation and amortization		53,595			47,323
Stock-based compensation expense related to stock options		15,728			16,530
(Recovery from) doubtful accounts, net change		(35,000	)		(31,000	)
Provision for (recovery from) inventory obsolescence, net change		(31,000	)		23,000
Other income from release of accounts payable		—			(56,435	)
Change in operating assets and liabilities:
Right of use asset, net		(11,790	)		72,542
Accounts receivable		7,174			(126,046	)
Inventories		(45,365	)		45,576
Prepaid expenses and other assets		52,897			810
Accounts payable		138,795			(91,159	)
Accrued compensation and other accrued liabilities		183,538			66,514
Net cash provided by (used in) operating activities		148,180			(162,864	)
Cash flows (used in) investing activities:
Acquisition of property and equipment		(11,100	)		(363	)
Patent costs		(8,323	)		(9,928	)
Net cash (used in) investing activities		(19,423	)		(10,291	)
Cash flows from financing activities:
Net proceeds from options exercised		8,526			—
Borrowings from credit facility, net change		—			46,008
(Paydown of) secured notes		(6,680	)		—
Unsecured promissory note		—			598,567
EIDL loan		—			150,640
Net cash generated by financing activities		1,846			795,215

Net increase in cash		130,603			622,060
Cash, beginning of fiscal year		1,474,339			385,132
Cash, end of fiscal quarter	$	1,604,942		$	1,007,192

Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$	3,612		$	34,633

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

ENCISION INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

SEPTEMBER 30, 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 $21,110,999 at September 30, 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 $376,980 since March 31, 2021 as a result of our net income of $352,726, share-based compensation of $15,728 and net proceeds from stock options exercised of $8,526. 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-19”) situation and its impact globally. Our production facilities continued to operate during the year as they had prior to the COVID-19 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-19 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-19 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.

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 September 30, 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 September 30, 2021 of $1,052,196 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 September 30, 2021 and March 31, 2021 inventory consisted of the following:

Schedule of inventory
	September 30, 2021			March 31, 2021
Raw materials	$	1,199,069		$	1,038,094
Finished goods		361,430			477,040
Total gross inventories		1,560,499			1,515,134
Less reserve for obsolescence		(39,000	)		(70,000	)
Total net inventories	$	1,521,499		$	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 six months ended September 30, 2021 was $15,039 and $29,916, respectively, and for the three and six months ended September 30, 2020 was $13,859 and $32,277, 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 expensed as incurred and major additions, replacements and improvements are capitalized.

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

Patents. The costs of applying for patents are capitalized and amortized on a straight-line basis over the lesser of the patent’s economic or legal life (20 years from the date of application in the United States). Capitalized costs are expensed if patents are not issued. 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 September 30, 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 September 30, 2021 and March 31, 2021 includes a contract liability for customer prepayments and is included in other accrued liabilities. Deferred revenue as of September 30, 2021 and March 31, 2020 includes customer prepayments of $250,000 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 six months ended September 30, 2021 was $7,388 and $15,728, respectively and for the three and six months ended September 30, 2020 was $8,997 and $16,530, 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 September 30, 2021								Six Months Ended September 30, 2021
	Product			Service		Total			Product			Service		Total
Net revenue	$	1,895,196		$	217,649	$	2,112,845		$	3,613,600		$	507,689	$	4,121,289
Cost of revenue		1,061,884			106,386		1,168,270			1,900,311			249,436		2,149,747
Gross profit		833,312			111,263		944,575			1,713,289			258,253		1,971,542
Operating income (loss)		(281,880	)		111,263		(170,617	)		(433,972	)		258,253		(175,719	)
Depreciation and amortization		26,811			—		26,811			53,595			—		53,595
Patent and capital expenditures		5,142			—		5,142			19,423			—		19,423
Equipment and patents, net	$	444,913		$	—	$	444,913		$	444,913		$	—	$	444,913


	Three Months Ended September 30, 2020								Six Months Ended September 30, 2020
	Product			Service		Total			Product			Service		Total
Net revenue	$	1,781,260		$	99,148	$	1,880,408		$	3,094,139		$	133,836	$	3,227,975
Cost of revenue		841,381			51,432		892,813			1,524,729			68,776		1,593,505
Gross profit		939,879			47,716		987,595			1,569,410			65,060		1,634,470
Operating income (loss)		(125,734	)		47,716		(78,018	)		(292,542	)		65,060		(227,482	)
Depreciation and amortization		25,784			—		25,784			47,323			—		47,323
Patent and capital expenditures		4,334			—		4,334			10,291			—		10,291
Equipment and patents, net	$	479,085		$	—	$	479,085		$	479,085		$	—	$	479,085

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				Six Months Ended
	September 30, 2020				September 30, 2021
Net income (loss)	$	359,567	$	8,786	$	352,726	$	(130,519	)
Weighted-average basic shares outstanding		11,610,958		11,582,641		11,594,619		11,582,641
Effect of dilutive securities		208,609		162,520		181,518		—
Weighted-average diluted shares		11,819,567		11,745,161		11,776,137		11,582,641
Basic net income (loss) per share	$	0.03	$	0.00	$	0.03	$	(0.01	)
Diluted net income (loss) per share	$	0.03	$	0.00	$	0.03	$	(0.01	)
Antidilutive employee stock options		697,391		913,480		724,482		1,076,000

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 September 30, 2021 is as follows:

Schedule of principal U.S. Bank payment
Fiscal Year	Amount
2022	$	181,250
2023		372,167
2024		386,667
2025		232,139
Total	$	1,172,223

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 September 30, 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 September 30, 2021 is as follows:

Schedule of principal U.S. Bank payment
Fiscal Year	Amount
2022		—
2023		3,091
2024		3,208
2025		3,331
2026		3,457
Thereafter		141,433
Total	$	154,520

The minimum future principal U.S. Bank payment, by fiscal year, as of September 30, 2021 is as follows:

Schedule of principal U.S. Bank payment
Fiscal Year	Amount
2022		18,400
2023		18,400
2024		18,400
2025		18,400
2026		5,860
Total	$	79,460

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 September 30, 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 six months ended September 30, 2021 and 2020, which was allocated as follows:


	Three Months Ended					Six Months Ended
	September 30, 2021			September 30, 2020		September 30, 2021		September 30, 2020
Cost of sales	$	(387	)	$	1,116	$	531	$	1,834
Sales and marketing		1,516			1,277		2,734		2,435
General and administrative		5,797			5,999		11,455		11,170
Research and development		462			605		1,008		1,091
Stock-based compensation expense	$	7,388		$	8,997	$	15,728	$	16,530

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 10,000 stock options granted, 93,860 stock options exercised and 41,140 stock options forfeited during the three and six months ended September 30, 2021. There were 70,000 stock options granted and 12,000 stock options forfeited during the three months ended September 30, 2020, and 90,000 stock options granted and 12,000 stock options forfeited during the six months ended September 30, 2020.

As of September 30, 2021, approximately $59,000 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 $13,600 and $42,416 to an entity owned by one of our directors during the three and six months ended September 30, 2021, respectively, and $14,500 and $29,103 during the three and six months ended September 30, 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.

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 six months ended September 30, 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.

We have an accumulated deficit of $21,110,999 at September 30, 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 six months ended September 30, 2021, we generated $148,180 of cash in our operating activities and used $11,100 for investments in property and equipment. As of September 30, 2021, we had $1,604,942 and at March 31, 2021 we had $1,474,339 in cash available to fund future operations, an increase of $130,603 from March 31, 2021. Our working capital was $2,762,675 at September 30, 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.

We have been actively monitoring the COVID-19 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-19 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-19 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-19 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 $21,110,999 at September 30, 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.

Results of Operations

For the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020.

Net Product revenue. Net product revenue for the quarter ended September 30, 2021 was $1,895,196 compared to $1,781,260 for the quarter ended September 30, 2020, an increase of 6%. The increase of AEM product net revenue is attributable to normalization of hospitals that used AEM technology during the quarter.

Net Service revenue. Net service revenue for the quarter ended September 30, 2021 was $217,649 compared to $99,148 for the quarter ended September 30, 2020. 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 September 30, 2021 of $944,575 represented a decrease of 4% from gross profit of $987,595 for the quarter ended September 30, 2020. Gross profit decreased as a result of higher material costs. Gross profit as a percentage of sales (gross margins) was 45% for the quarter ended September 30, 2021 and 53% for the quarter ended September 30, 2020. The gross margin decrease from last year’s quarter was primarily the result of higher material costs.

Sales and marketing expenses. Sales and marketing expenses of $561,545 for the quarter ended September 30, 2021 represented a decrease of 1% from sales and marketing expenses of $564,617 for the quarter ended September 30, 2020. The decrease was the result of lower trade samples.

General and administrative expenses. General and administrative expenses of $340,485 for the quarter ended September 30, 2021 represented an increase of 1% from general and administrative expenses of $338,541 for the quarter ended September 30, 2020. The increase was the result of an increase to compensation.

Research and development expenses. Research and development expenses of $213,162 for the quarter ended September 30, 2021 represented an increase of 31% compared to $162,455 for the quarter ended September 30, 2020. The increase was the result of an increase of test materials.

Net income. Net income was $359,567 for the quarter ended September 30, 2021 compared to net income of $8,786 for the quarter ended September 30, 2020. The net income increase was principally a result of operating loss that was primarily offset by extinguishment of debt income.

For the six months ended September 30, 2021 compared to the six months ended September 30, 2020.

Net Product revenue. Net product revenue for the six months ended September 30, 2021 was $3,613,600 compared to $3,094,139 for the six months ended September 30, 2020, an increase of 17%. The increase of AEM product net revenue is attributable to normalization of hospitals that used AEM technology during the six months.

Net Service revenue. Net service revenue for the six months ended September 30, 2021 was $507,689 compared to $133,836 for the six months ended September 30, 2020. 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 six months ended September 30, 2021 of $1,971,542 represented an increase of 21% from gross profit of $1,634,470 for the six months ended September 30, 2020. Gross profit increased in line with increased revenue. Gross profit as a percentage of sales (gross margins) was 48% for the six months ended September 30, 2021 and 51% for the six months ended September 30, 2020.

Sales and marketing expenses. Sales and marketing expenses of $1,090,019 for the six months ended September 30, 2021 represented an increase of 17% from sales and marketing expenses of $932,265 for the six months ended September 30, 2020. The increase was the result of higher commissions on higher sales, advertising costs and travel.

General and administrative expenses. General and administrative expenses of $667,205 for the six months ended September 30, 2021 represented an increase of 7% from general and administrative expenses of $625,625 for the six months ended September 30, 2020. The increase was the result of an increase to compensation.

Research and development expenses. Research and development expenses of $390,037 for the six months ended September 30, 2021 represented an increase of 28% compared to $304,062 for the six months ended September 30, 2020. The increase was the result of an increase of compensation and test materials.

Net income. Net income was $352,726 for the six months ended September 30, 2021 compared to net loss of $130,519 for the six months ended September 30, 2020. The net income increase was principally a result of higher service revenue and extinguishment of debt income.

The results of operations for the three and six months ended September 30, 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 $24,290,085 from inception through September 30, 2021.

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

Our operations generated $148,180 of cash during the six months ended September 30, 2021 on net revenue of $4,121,289. Cash was principally generated by an increase to net income and accounts payable. The amounts of cash provided by operations for the six months ended September 30, 2021 are not necessarily indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2021. At September 30, 2021, we had $1,604,942 in cash available to fund future operations. Our working capital was $2,762,675 at September 30, 2021 compared to $2,921,743 at March 31, 2020. Current liabilities were $1,511,566 at September 30, 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.

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 September 30, 2021 is as follows:

Fiscal Year		Amount
	2022	$	181,250
	2023		372,167
	2024		386,667
	2025		232,139
	Total	$	1,172,223

The minimum future EIDL payment, by fiscal year, as of September 30, 2021 is as follows:

Fiscal Year		Amount
	2022		—
	2023		3,091
	2024		3,208
	2025		3,331
	2026		3,457
	Thereafter		141,433
	Total	$	154,520

The minimum future principal U.S. Bank payment, by fiscal year, as of September 30, 2021 is as follows:

Fiscal Year		Amount
	2022		18,400
	2023		18,400
	2024		18,400
	2025		18,400
	2026		5,860
	Total	$	79,460

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 September 30, 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	$	1,172,223	$	367,334	$	688,820	$	116,069	$	—
EIDL loan		154,520		—		6,299		6,788		141,433
U.S. Bank loan		79,460		18,400		36,800		24,260		—
Total	$	1,406,203	$	385,734	$	731,919	$	147,117	$	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.

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.

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 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 September 30, 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 September 30, 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.

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 six months ended September 30, 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.

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 September 30, 2021, 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.

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.

November 15, 2021

By:

/s/ Mala Ray

Date

Mala Ray

Controller

Principal Accounting Officer &

Principal Financial Officer

Exhibit 10.1

CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS DOCUMENT BECAUSE IT IS BOTH NOT MATERIAL AND WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED, AND HAS BEEN MARKED WITH “[***]” TO INDICATE WHERE OMISSIONS HAVE BEEN MADE

SUPPLY AGREEMENT

This SUPPLY AGREEMENT, effective as of the last date of signature below (the “Effective Date”), is entered into between Auris Health, Inc., (“Buyer”) a Delaware company with offices located at 150 Shoreline Drive, Redwood City CA 94065 and Encision Inc. (“Seller”), a Colorado company with offices located 6797 Winchester Circle, Boulder CO 80301, USA. Both Buyer and Seller are referred to herein individually as a “Party” and collectively as the “Parties.”

WHEREAS, Seller is engaged in the manufacturing and selling of Products (as defined below);

WHEREAS, Buyer desires to purchase Products from Seller pursuant to the terms of this Agreement; and

WHEREAS, Buyer desires to license certain intellectual property of Seller in connection with the Products purchased from Seller pursuant to the terms of this Agreement:

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained herein, the Parties hereto further agree as follows:

1 Definitions

As used throughout this Agreement, each of the following terms shall have the respective meaning set forth below:

1.1

“AADF” shall mean the warehouse storage facility used by Buyer to store Products used in Buyer’s manufacturing operations located in [***] or such successor storage facility as Buyer may specify by notice to Seller.

1.2

“AEM Technology” shall mean Seller’s Active Electrode Monitoring^TM technology. A proprietary and patented means intended to safely shunt intraoperative capacitive energy from surgical instruments and a means of rapid insulation failure detection intended to safeguard patients and users from injuries from aforementioned stray energy.

1.3

“Affiliate” of a Party shall mean any entity or person that directly or indirectly controls, is controlled by or is under common control with such Party. For purposes of this definition, “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.

1.4

“Agreement” shall mean this Supply Agreement, including the appendices, exhibits, and attachments hereto, and any modifications made hereto or thereto.

1.5

“Authorized to Ship” shall mean the quantity of Products that appear in the Buyer Scheduling System or in purchase orders requested by Buyer for shipment.

1.6

“Background IP” shall mean a Party’s intellectual property rights acquired or developed by or for it (i) prior to the Effective Date of the MSA; or (ii) after the Effective Date of the MSA and independently of the Party’s performance of its obligations under the MSA or this Agreement, and without using the confidential information or intellectual property of the other Party, or any modifications thereof.

1.7

“Buyer Materials” means any intellectual property or other materials, including trade secrets, know-how, expertise, experience, technical design, engineering and test data and other information including prints, drawings, computer discs, technical brochures, parts lists, test specifications and vendor lists known, owned, or controlled by Buyer which are provided to Seller to fulfill and perform its obligations under this Agreement.

1.8

“Buyer Scheduling System” shall mean the system used by Buyer to create binding orders for Products by written or electronic purchase order (or by any other means agreed to by the Parties, which may include Buyer’s web-based supplier portal currently located at www.endosupplier.com) to Seller, which shall set forth the quantity of Products that Buyer requests for shipment.

1.9

“Change of Control” shall mean any transaction or series of related transactions occurring after the date of this Agreement resulting in: (a) any acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or “group” (as defined under Section 13(d) of the Exchange Act) of beneficial ownership of more than fifty percent (50%) of the outstanding voting securities of the Seller or any tender offer or exchange offer that if consummated would result in any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or “group” (as defined under Section 13(d) of the Exchange Act) beneficially owning more than fifty percent (50%) of the outstanding voting securities of the Seller; (b) any merger, consolidation, business combination, recapitalization, reorganization or other similar transaction involving the Seller or its subsidiaries (i) pursuant to which any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or “group” (as defined in or under Section 13(d) of the Exchange Act), other than the Seller stockholders (as a group) immediately prior to the consummation of such transaction, would hold, directly or indirectly, equity interests in the surviving or resulting entity of such transaction representing more than fifty percent (50%) of the voting power of the surviving or resulting entity or (ii) as a result of which the Seller stockholders (as a group) immediately prior to the consummation of such transaction would hold, directly or indirectly, equity interests in the surviving or resulting entity of such transaction representing less than fifty percent (50%) of the voting power of the surviving or resulting entity; (c) any sale or disposition of more than fifty percent (50%) of the assets of the Seller and its subsidiaries on a consolidated basis (determined on a fair market value basis); or (d) any liquidation or dissolution of the Seller.

1.10

“CoC Notice” has the meaning set forth in Section 9.7.1.

1.11

“Consumable Tools” shall mean those parts that shall be replaced as normal tear and wear of the Tooling occurs. Consumable Tools are parts such as injector pins and cavity cores but are not limited to these.

1.12 “Encision-Contributed IP” shall mean all Seller Background IP incorporated into, included with, or otherwise necessary for Buyer to fully exploit any deliverable identified in the MSA or any Statement of Work issued thereunder, including without limitation the Encision-Contributed IP identified and described by Seller in the attached Exhibit C (Encision Contributed IP), and any Improvement to the foregoing.

1.13

“End of Life Plan” shall mean a plan to support the disengagement of the Parties from the transactions contemplated herein for the development, manufacture and purchase of Products upon termination of the Agreement or obsolescence of the Product.

1.14

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules and regulations thereto.

1.15 “FCA” shall have the meaning described in Incoterms 2020, including that (i) Seller is responsible for loading the Products or having the Products loaded to designated carrier at Seller’s facility; (ii) Buyer must carry out all tasks of export & import clearance; (iii) carriage and insurance is to be arranged by the Buyer unless otherwise agreed by the Parties; and (iv) risk of loss as well as title will pass to Buyer after the Products are loaded to Buyer’s designated carrier.

1.16 “FDA” means the United States Food and Drug Administration.

1.17

“Finished Goods” shall mean all manufactured Products ready for sale by Seller to Buyer.

1.18

“Firm Commit” shall mean the mutually agreed quantity of Finished Goods, either currently at Seller’s inventory or Work In Process set forth in the Buyer Scheduling System, which shall become Buyer’s liability at termination of this Agreement.

1.19

“Improvement” shall mean any change, modification, development, invention or discovery (whether or not patentable) relating to the Products, the method of using the Products, Raw Materials, or the Specifications, or the method or process of manufacturing or producing the Products, solely in connection with the provision of services under this Agreement.

1.20

“Insolvency” shall have the meaning set forth in Section 9.3 of the Agreement.

1.21

“JVSF” shall mean the warehouse storage facility used by Buyer to store Products used in Buyer’s manufacturing operations located in [***].

1.22

“Material Commit” shall mean the mutually agreed quantity of Raw Material stock, either currently at Seller’s inventory or on commitment to purchase by Seller from its suppliers, set forth in the Buyer Scheduling System, which shall become Buyer’s liability upon termination of Agreement.

1.23

“MNDA” means the Mutual Confidentiality Nondisclosure Agreement dated May 22, 2019 as amended by that certain Amendment No. 1 to the Mutual Confidentiality and Nondisclosure Agreement dated November 2, 2020.

1.24

“MSA” shall mean the Master Services Agreement entered into by the Parties and effective March 3, 2020.

1.25

“Non-conforming Products” shall have the meaning set forth in Section 6.1 of the Agreement.

1.26

“Offer” has the meaning set forth in Section 9.7.1.

1.27

“Offeror” has the meaning set forth in Section 9.7.1.

1.28

“Products (each a Product)” shall mean those products produced by Seller for Buyer, as listed on Exhibit A (Products List) to this Agreement, manufactured in accordance with the Specifications (as hereinafter defined), along with any Improvements thereto.

1.29

“Quality Agreement” means the Supplier Quality Agreement between Buyer and Seller dated March 5, 2021

1.30

“Raw Material Specification” shall mean the specifications for the composition, manufacture, packaging, and/or quality control of the Raw Materials.

1.31

“Raw Materials” shall mean the materials and components required to manufacture and package the Products in accordance with the Specifications.

1.32

“Regulatory Authority” shall mean all governmental agencies or authorities regulating the manufacture, packaging, sale, shipment, storage, supply, sale and distribution of the Product.

1.33 Intentionally Reserved.

1.34

“Seller Initiated Notice” has the meaning set forth in Section 9.7.2.

1.35

“Specifications” shall mean the specifications for the design, composition, product safety assurance, manufacture, packaging, and/or quality control of the Products agreed upon by the Parties. Specifications shall include any such Specifications included in the MSA and any Statements of Work thereunder.

1.36

“Supplier Managed Inventory Program” shall mean an inventory program whereby Buyer will provide target inventory levels that will be managed by Seller. Seller will provide suitable storage facilities for maintaining an inventory of Products sufficient to satisfy Buyer’s purchase orders and all such inventory shall be segregated from all other of Seller’s inventory. Seller will monitor inventory, maintaining accurate Product counts and determine replenishment amounts of Products to ship to Buyer on predetermined replenishment days. Seller will ship at least the quantity suggested by Buyer. Buyer will create a purchase order based on Seller’s shipped quantity to receive Product into Buyer’s designated warehouse facilities. Seller agrees to ship Products to support Buyer’s production as reasonable as possible and Buyer reserves the right to return Seller’s Products shipped in excess of such ordered quantities.

1.37

“Term” has the meaning set forth in Section 2.3 of the Agreement.

1.38

“Tooling” shall mean any mold, equipment or capital asset purchased by Buyer or acquired on Buyer’s behalf and used in the production of Products by Seller for Buyer.

1.39

“Transaction Proposal” means any expression of interest, inquiry, proposal or offer from any person (other than Buyer or its Affiliates) relating to, or that could reasonably be expected to lead to a Change of Control of Seller.

1.40 “Work in Process” shall mean all Products that are not ready for shipment at Seller’s facility.

Upfront Payment, Milestone Payment and Term of Agreement

2.1 Upfront Payment. Buyer shall make a non-refundable payment in an amount equal to the Upfront Amount (as set forth on Exhibit A) to Seller within 30 days after the Effective Date.

2.2 Milestone Payment: Buyer shall make a Milestone Payment (as set forth in Exhibit A) within 60 days after achievement of both (i) completion of all development work necessary for commercialization of all of the Products as determined by Buyer in its reasonable discretion; and (ii) regulatory approval or clearance, as applicable, of all of the Products with all applicable Regulatory Authorities necessary for sale and distribution of all of the Products in [***].

2.3 Term. This Agreement shall commence on the date hereof and remain in effect until the third anniversary of the Effective Date, unless terminated sooner as expressly provided under the terms of this Agreement (the “Term”).

Supply of Products

3.1

Purchased Products. During the Term of this Agreement, Seller shall supply Products listed on Exhibit A (Products List), which shall conform to all Specifications that Buyer provides to Seller or that the Parties otherwise agree upon in writing. Seller shall not change the Specifications for any Products to be supplied to Buyer without obtaining Buyer’s prior written consent. Notwithstanding anything in this Agreement to the contrary, Seller will not subcontract any portion of the supply or manufacture of the Products without Buyer’s prior written consent.

3.2

Exclusivity of Purchases. During the Term, Buyer agrees to buy all Products that convey, monitor, or shield AEM Technology exclusively from Seller.

3.3 Forecasts.

3.3.1 After the initial period of Product ramp-up, trials, and Product release, Buyer and Seller will establish and maintain twelve month rolling forecasts, with the amounts for the first [***] months of such rolling forecast being considered a firm forecast (“Material Commit Period”), the next [***] months permitted to vary by up to [***] (“Firm Commit Period”) prior to entering the Material Commit Period, and the last [***] months being considered non-binding (“Authorized to Ship Period”). The Parties mutually agree to accommodate impact orders and variation in the amounts in order to respond to business demands. The initial forecast shall be the initial delivery schedule. Seller acknowledges and agrees that any forecasts provided by Buyer under this Agreement are highly sensitive Confidential Information of Buyer and that Buyer would suffer an irreparable injury if Seller were to disclose such forecasts to any person or entity in breach of Section 14 (Confidentiality; Intellectual Property) and the MNDA attached as Exhibit G.

3.3.2

Buyer will be responsible for purchasing all quantities of Products forecast within the Material Commit Period. Buyer will be responsible for all Raw Materials purchased to support the Firm Commit Period forecast to the extent such Raw Materials purchases are (i) reasonably consistent with prior Raw Materials purchases made in support forecast Product purchases, with evidence of such consistency provided to Buyer; and (ii) physically counted and verified, with evidence of such count and verification provided to Buyer. Further, Seller shall use all reasonable efforts to mitigate Buyer’s liability for any Raw Materials purchased by Seller for the Firm Commit Period forecast, including by using such Raw Materials to manufacture products for Seller’s other customers and returning such Raw Materials to Seller’s suppliers. Seller agrees that Buyer will not be liable for any Raw Materials disposed of as part of such mitigation efforts.

3.4

Inventory Management. Seller agrees to maintain a target inventory level for Raw Material, Work In Process and Finished Goods for each Product. Buyer will designate these targeted inventory levels as Material Commit, Firm Commit and Authorized to Ship in the Buyer’s Scheduling System, and Buyer shall be liable for payment to Seller therefor. Seller will maintain sufficient inventory of Raw Materials at its facility to support Buyer’s forecast plus [***] and will consume such Raw Materials as close as a first-in, first-out basis as commercially reasonable. Seller agrees not to source Raw Materials from unauthorized suppliers without prior written approval from Buyer. Seller shall be responsible for the quality of the Raw Materials and for their conformity with the Raw Materials Specifications and the Quality Agreement.

3.5

Seller Changes. Unless otherwise specified in the Quality Agreement, Seller will make commercially reasonable efforts to provide Buyer with at least [***] month’s advance written notice of its intent to: make changes to the Products, including but not limited to design, location of manufacture, manufacturing process or materials, programming or other inputs that would potentially impact the form, fit, function, performance or reliability of the Product. Without limiting the foregoing, Seller will not ship any such changed Product to Buyer without Buyer’s prior written consent. Seller will send the official change notification to [***] and copy the Buyer mentioned in the order information section on the ordering document. In the event a change to any Product is necessary in order to comply with applicable laws, rules and regulations (including current good manufacturing practices), Seller agrees to make commercially reasonable efforts to make any such minor changes at Seller’s sole cost and expense. More significant changes (changes that create a [***] or more increase in materials or processing costs) will be made with the collaboration and shared expense of the Buyer (including a mutually agreed change to the price of such changed Products). In the event any change to any Product is implemented under this Section, Buyer shall establish an appropriate qualification protocol, and Buyer and Seller shall determine an appropriate inventory level for the pre-change Product (if applicable) in order to cover on-going requirements during the qualification process.

3.6

Seller Suppliers. Seller agrees, where reasonably acceptable, to have written contracts in place with its suppliers and sub-contractors that include anti-counterfeit, tampering and quality provisions and Buyer will have the right to audit such contracts for the purpose of verifying compliance with this provision. Seller agrees to disclose to Buyer such information about Seller’s suppliers that details the upstream supply chain for all Raw Materials necessary for Product manufacturing. Such disclosure shall include controlled material flow documents.

3.7

Orders. Seller shall supply Buyer with those quantities of Products as (i) ordered by Buyer and/or (ii) Buyer has allowed Seller to ship under a Supplier Managed Inventory Program. All Products ordered by Buyer under this Agreement shall be delivered on or before the mutually agreed upon delivery date set forth in the purchase order but in no event shall Products be delivered earlier than two weeks prior to such delivery date without Buyer’s express written consent. Subject to the forecasts of Section 3.3 (Forecasts), the Parties acknowledge that Buyer is not obligated to buy any specific amount of Products under this Agreement. All purchase orders shall provide the Effective Price shown on Exhibit A (Products List) hereto. Any changes to or discrepancies in such pricing shall be approved by both Parties, in writing, prior to the fulfillment of the purchase order. All purchase orders shall be governed by the terms and conditions of this Agreement.

3.8

Shipping. Seller will ship all Finished Goods to AADF, JVSF or such other destination as FCA Seller’s facility, using Buyer’s designated logistics provider. All freight charges, except expedited shipping costs due to Seller caused delays, shall be borne by Buyer. All shipments must be accompanied by a packing slip and other required documentation, including those required by the Quality Agreement, which describes the articles, states the purchase order number and shows the shipment’s destination. Seller will pack all Products ordered hereunder in a manner suitable for shipment and sufficient to enable the Products to withstand normal and reasonable effects of shipping, including handling during loading and unloading as per Buyer’s packaging specification.

3.9

Discontinuing Products. Seller shall not discontinue Products during the Term of this Agreement.

3.10

Supply of Products to Affiliates. During the Term of this Agreement, an Affiliate of Buyer and Seller may agree for Seller to supply certain Products to such Buyer Affiliate, subject to the terms of a Participating Affiliate Supply Agreement. Each Participating Affiliate Supply Agreement shall set out the Products which Seller shall supply to such Buyer Affiliate and shall note any terms and conditions that differ from those of this Agreement. Except to the extent otherwise agreed in the Participating Affiliate Supply Agreement, the remaining terms and conditions of this Agreement shall apply to the Participating Affiliate Supply Agreement. Notwithstanding any other provision of this Agreement or such Participating Affiliate Supply Agreement, Seller agrees that each Buyer Affiliate acts on its own behalf only and in no event shall Buyer be liable to Seller for any activities conducted under a Participating Affiliate Supply Agreement. A sample Participating Affiliate Supply Agreement is attached to this Agreement in the form of Exhibit F (Form of Participating Affiliate Supply Agreement).

3.11

Performance Metrics Data.

3.11.1

On-time-delivery and defective parts delivered measurements and other performance metrics will be discussed regularly between Buyer and Seller as opportunities to enhance supplier performance. Seller states its objective of achieving Buyer’s performance targets, which will be communicated in writing to Seller.

3.12

Licenses. The Parties acknowledge that the Products incorporate both Parties’ intellectual property rights.

3.12.1

Subject to Section 3.12.4 (Post-Termination Rights), Seller hereby grants to Buyer [***.] For the avoidance of doubt, the specific license granted under this Section 3.12.1 shall terminate upon the termination or expiration of this Supply Agreement. Upon termination or expiration of this Supply Agreement the license provisions of Section 3.12.4 shall apply.

3.12.2

During the Term, Buyer hereby grants to Seller [***]. Seller shall not use, sell or transfer any Products (or any products made using any part of Buyer Materials or Tooling) to any person or entity other than Buyer. At Buyer’s option, Seller shall either destroy Non-Conforming Products (including components) using mutually agreed methods or dispose of Non-Conforming Products to an entity that has been pre-approved by Buyer in writing. [***] The license granted in this Section 3.12.2 automatically terminates upon termination of this Agreement. Upon termination of this Agreement, Seller shall immediately cease its use of the Buyer Materials and Tooling.

3.12.3

Subject to the terms and conditions of this Agreement, Seller hereby grants to Buyer [***] solely for inclusion on Buyer’s products incorporating the Product, as well as all related documentation, packaging, and promotional materials.

3.12.4

Notwithstanding Seller’s indemnification obligations as set forth in Section 12, in the event Buyer determines at its discretion that the Seller Trademarks may infringe, dilute or otherwise violate any registered or unregistered trademark of any third-party in a region or country or any third party makes a claim or threatens to make a claim against Buyer or Seller [***.]

If Buyer’s products incorporating a Product becomes, or at Seller’s discretion is likely to become, subject to a Seller Trademark Claim, Seller shall, at its sole option and expense, notify Buyer of such potential Seller Trademark Claim and advise Buyer as to steps being undertaken by Seller to rectify or remediate the matter.

3.12.5

Post Termination Rights. Upon expiration or termination of this Agreement for any reason, in accordance with Section 3.12.1, Seller hereby grants Buyer a [***].

3.13

Improvements.

3.13.1

From time to time during the Term, Buyer or Seller may submit to the other written proposals for the adoption, implementation or development of any Improvement to the Product as envisaged and developed within the terms and conditions set forth in this Agreement. In no event shall any such Improvement be implemented or made without the prior written approval of both Parties. If the Parties agree on any such Improvement, they shall modify the Specifications to reflect the same and shall review the Effective Price to be charged for such Product.

3.13.2

In the event any Improvement is implemented under this Section 3.13, Buyer shall establish an appropriate qualification protocol, and Buyer and Seller shall determine an appropriate inventory level for the pre-change Product in order to cover on-going requirements during the qualification process.

3.13.3

For any Improvement that is agreed by Buyer and Seller to be implemented into a Product, Seller shall exclusively retain all rights and ownership in such Improvement related to Encision-Contributed IP and Buyer (and Buyer’s employees, inventors, and agents) shall assign and hereby assigns all right, title and interest in such Improvement to Seller. Buyer shall cooperate to the extent necessary, at Seller’s expense, for Seller to perfect its ownership interest in such Improvement to Encision-Contributed IP, including, but not limited to, by executing any document necessary to record an assignment, execute a declaration in connection with any patent application, or any other such document that is required or requested by Seller in order to perfect its ownership rights in such Improvement.

3.13.4

Buyer shall own any and all rights in any Improvement that is not an Improvement to Encision-Contributed IP and that is agreed by Buyer and Seller to be implemented into a Product, and Seller (and Seller’s employees, inventors, and agents) shall assign and hereby assigns all right, title and interest in such Improvement to Buyer. Seller shall cooperate to the extent necessary, at Buyer’s expense, for Buyer to perfect its ownership interest in such Improvement, including, but not limited to, by executing any document necessary to record an assignment, execute a declaration in connection with any patent application, or any other such document that is required or requested by Buyer to perfect its ownership rights in such Improvement.

3.14

Support. Seller shall provide at least [***] hours of initial training related to the Products as well as relevant Product documentation to various Buyer personnel designated by Buyer, and thereafter shall make commercially reasonable efforts to provide Buyer with those technical, training, and support services and Product documentation related to the Products (collectively, the “Support Services”) commensurate with services and documentation provided to Seller’s other customers, as may be reasonably requested by Buyer and which can be delivered by Seller without material expense; provided that to the extent Buyer requests Support Services in writing and Seller cannot provide such Support Services without material expense to Seller, Seller shall provide such Support Services to Buyer at mutually agreed upon rates.

4 Products Prices

4.1

Products Prices. The prices (“Effective Prices”) for Products shipped by Seller during the Term of this Agreement shall be as set forth on the then current Effective Prices, expressed in Exhibit A (Products List) hereto, provided that the Parties may annually, in good faith, re-negotiate the Effective Prices to reflect material and documented changes in the costs paid by Seller for Raw Materials on a pass-through basis without markup where such changes in cost are in excess of [***]. Unless otherwise agreed in writing, Products shall be priced in US dollars. The prices charged by Seller to Buyer as set forth on such Exhibit shall be based on the shipping terms expressed in Section 3.8 of the Agreement.

4.2

Cost Improvement Projects. Seller agrees to collaborate with Buyer and use commercially reasonable efforts to achieve cost improvements that will reduce Product prices by a minimum average of [***]% per annum throughout the Term of this Agreement. Seller will submit any proposed changes to Buyer in writing and shall require Buyer’s approval prior to implementation. The Parties will negotiate the effective date for implementing any such mutually agreed upon cost improvement and Exhibit A (Products List) shall be modified by written amendment.

4.3

Payment Terms. Both Parties agree to manage payment terms depending on the type of order generated by Buyer. Payment terms to Seller for undisputed invoiced amounts shall be Net [***] days from Buyer’s receipt of invoices unless otherwise explicitly set forth in the purchase order.

4.4

Taxes.

4.4.1

Except as set forth in this Agreement, Buyer shall make all payments to Seller under this Agreement without deduction or withholding for any sales, use, gross receipts, excise, value-added, business, consumption, services, goods and services, withholding, personal property or other taxes (each individually referred to as “Tax”), except to the extent that any such deduction or withholding is required by applicable law or treaty. Each Party shall be responsible for taxes based on its own income, employment taxes of its own employees and for taxes on any property it owns or leases.

4.4.2

If any taxing authority imposes a VAT, GST, sales, use, service, consumption, business or similar Tax upon payments under this Agreement, then Buyer agrees to pay that amount if specified in a valid invoice or supply exemption documentation; provided, however, that applicable law requires Seller to charge and collect such Tax from Buyer and no valid exemption documentation has been supplied by Buyer to Seller. Seller is solely responsible for identifying, billing and collecting such required Taxes in all relevant federal, state, county, municipal and other taxing jurisdictions and for filing all required Tax returns in a timely manner. To the extent that Seller does not provide Buyer a valid invoice (i.e., an invoice compliant with this Agreement and the rules and regulations of the jurisdictions of both Seller and Buyer, including separate identification of the Tax where legally required), Seller shall assume any and all responsibility for non-compliance, including payment of the Tax and any interest and penalties. To the extent that a Tax is required by applicable law to be separately identified in Seller’s billings to Buyer, Seller shall separately identify the Tax and assume any and all responsibility for non-compliance, including payment of the Tax and any interest and penalties. Each Party shall provide and make available to the other any resale certificates, information regarding out-of-state sales, treaty certification and any other exemption certificates or information requested by a Party.

5 Asset Management

5.1

Seller shall maintain an updated list of all of Buyer’s Tooling located at Seller’s facility. Such list shall be available in writing, at Buyer’s request, and shall include any Tooling acquired or any disposed of during the preceding year.

5.2

Seller agrees to keep and maintain service life history, including routine and general maintenance, as well as calibration, for all Tooling used by Seller in the production of Products, where Seller is responsible for the Tooling service contracts. Buyer shall be responsible for all maintenance and repairs of Buyer’s Tooling during the warranty period. Buyer shall be responsible for all Consumable Tools during the Term of this Agreement.

5.3

Seller is responsible for providing a forecast to Buyer, including cost, timing and justification, of all Tooling replacement, acquisition and maintenance not later than June 30^th of each year this Agreement is in effect for the following operating calendar year.

5.4

The Parties explicitly agree that all Tooling shall become and remain the property of Buyer at the time payment in full for the Tooling is received by Seller. Tooling shall be used by Seller only for the benefit of Buyer. Upon request by Buyer, Seller shall prepare Tooling for shipment ExWorks to Buyer’s designated logistics provider at Buyers cost. If Buyer requests the return of any Tooling from Seller, and Seller determines the return of such Tooling prevents Seller from providing the Products to Buyer, then Seller shall inform Buyer in writing, and Buyer and Seller shall negotiate a mutually acceptable resolution.

5.5

Seller will not sell, pledge, transfer or remove any buyer owned Tooling from its then-current site without prior written consent from Buyer.

6 Acceptance of Products; Corrective Actions.

6.1

After receipt of any Products at Buyer’s facility, Buyer is responsible for examining the Products to determine if they conform to the Specifications and are free from defects in material and workmanship, and, on the basis of such examination, Buyer shall accept or reject such shipment. Any claims for failure to conform to the Specifications or other defects (such claims “Claims” and such non-conforming products, “Non-conforming Products”) shall be made in writing by Buyer to Seller, indicating the nonconforming characteristics of the Products. Non-conforming Products will either be (i) returned to Seller at Seller’s expense for remedial process, (ii) destroyed by Buyer as mutually agreed upon, or (iii) accepted by Buyer subject to the non-conforming condition as mutually agreed upon.

6.2

Without prejudice to any other remedy which Buyer may have, Seller shall replace at its own cost and expense (including reimbursement of freight, Raw Materials and disposition costs) all Non-conforming Products. Without limiting the generality of the foregoing, in such case Buyer reserves the right to (a) have Seller manufacture and supply Product on an expedited basis to replace the Non-conforming Product, or (b) have Seller credit Buyer for the amount and value of Non-conforming Product. Buyer will control the disposition process and will inform Seller thereof. The foregoing shall be without prejudice to the Buyer’s other rights and remedies, including, without limitation, the right to claim all damages and losses incurred, including, without limitation, incidental and consequential damages.

6.3

Upon Buyer’s examination and acceptance of Products to Specifications, Buyer hereby releases Seller from all Claims for non-conformity except Claims for defects not reasonably detectable at the time of acceptance. Except as provided herein, Buyer’s acceptance of such Products shall not constitute a waiver of any rights of Buyer or a release of any obligations of Seller.

6.4

In the event any governmental agency having jurisdiction shall request or order, or if Buyer shall determine to undertake, any corrective action with respect to any Product (but not with respect to any finished product containing or contained in any Product), including any recall, corrective action or market action, and the cause or basis of such recall or action is attributable to a breach by Seller of any of its warranties, guarantees, representations, obligations or covenants contained herein, then Seller shall be liable, and shall reimburse Buyer for the reasonable costs of such action including the cost of any Product.

7 Regulatory Matters.

7.1

If required, Seller shall register its manufacturing facility or facilities for Products with the appropriate Regulatory Authority, and permit representatives of the Regulatory Authority to inspect any such facility upon request. Unless otherwise agreed in this Agreement, the MSA, or a Statement of Work between the parties, Seller shall be responsible (at Buyer’s expense and subject to Buyer’s prior written approval) for obtaining Regulatory Authority approval for the Products in the timelines agreed upon in this Agreement, the MSA, or a written Statement of Work, as needed and required by the applicable Regulatory Authority, to sell, manufacture and distribute its products. Upon request, Seller shall provide Buyer with Product Specifications, testing, procedures, labeling, data and/or any other pertinent data, as required to support regulatory filings.

7.2

Subject to Section 7.3, Seller shall keep full, complete and proper records and accounts of all information relating to the Products, their manufacture, and prices charged to Buyer in sufficient detail to enable the verification of Seller’s compliance with this Agreement. Buyer shall have the right to audit, inspect, and copy (or appoint an independent certified public accounting firm to that end) the records of Seller as necessary to verify Seller’s compliance with this Agreement. Such audit shall be at Buyer’s expense. Buyer may exercise its right of audit no more frequently than once in any calendar year. Seller shall preserve and maintain all records and accounts required under this Section 7.2 during the Term and for a period of two (2) years thereafter. All information obtained during any inspection shall be considered the Confidential Information of Seller and subject to the confidentiality restrictions herein.

7.3

Unless otherwise specified in the Quality Agreement, Seller (and their respective Affiliates, subcontractors and agents) shall use all paper or electronic records, files, documents, work papers and other information in any form, whether marked “confidential” or not (the “Files and Work Papers”) relating to any of the activities set forth herein only as permitted by the terms and conditions set forth under Exhibit I (the "Records Policy"). Seller (and their respective Affiliates, subcontractors and agents) shall maintain the records necessary to demonstrate compliance with the Records Policy and shall provide to the Buyer, upon request, a written certification of such compliance while this Agreement is in force.

8 Non-Exclusive Agreement. This is a non-exclusive agreement and nothing in this Agreement shall restrict or exclude the Seller from selling Products to any party and engaging in commercial transactions, activities and relationships with other parties regarding its products and technology including, without limitation, with respect to standard or robotic surgical applications.

Termination

9.1

Termination by Buyer without Cause. Buyer reserves the right to terminate this Agreement at any time without cause during the Term upon one hundred eighty (180) days prior written notice to Seller.

9.2

Breach. This Agreement may be terminated at any time by either Party by giving written notice of termination, stating the grounds therefor if the other Party shall materially breach or materially fail to perform any representation, warranty, guarantee, covenant or obligation under this Agreement. The Party receiving the notice of termination shall have sixty days from the date of receipt thereof to cure the breach or failure. In the event such breach or failure is cured, the notice of termination shall be of no effect.

9.3

This Agreement may be terminated by either Party in the event of the other Party’s insolvency (“Insolvency”), which shall be defined as follows:

9.3.1

the other Party hereto shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or

9.3.2

the other Party hereto shall (1) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (2) make a general assignment for the benefit of its creditors, (3) commence a voluntary case under the United States Bankruptcy Code, as now or hereafter in effect (the “Bankruptcy Code”), (4) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (5) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in any involuntary case under the Bankruptcy Code, or (6) take any corporate action for the purpose of effecting any of the foregoing; or

9.3.3

a proceeding or case shall be commenced against the other Party hereto in any court of competent jurisdiction, seeking (1) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (2) the appointment of a trustee, receiver, custodian, liquidator or the like of the Party or of all or any substantial part of its assets, or (3) similar relief in respect of the Party under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstained and in effect for a period of 60 days; or an order for relief against the other Party hereto shall be entered in an involuntary case under the Bankruptcy Code.

9.4

Effect of Termination. Termination of this Agreement for any reason shall not release either Party hereto from any liability which at such time has already accrued or which thereafter accrues from a breach or default prior to such termination, nor affect in any way the survival of any other right, duty or obligation of either Party hereto which is expressly stated elsewhere in this Agreement to survive such termination. In the case of any termination with respect to one or more Products but not this entire Agreement, this Agreement as a whole shall remain valid and binding as to all Products not named in the notice of termination.

9.5

End of Life Supply Plan. The Parties agree that within (i) 60 days of Buyer exercising its termination rights under Section 9.1 (Termination by Buyer without Cause), or (ii) 30 days of Buyer exercising its termination rights under Section 9.2 (Breach), the Parties will develop a plan to wind down the Parties’ relationship (the “End of Life Plan”). Such plan shall maintain the then current pricing for the affected Products and shall set out the obligations of Seller’s continued supply of affected Products during the End of Life Supply Plan. Buyer agrees to pay for all inventory produced to support the [***] month Material Commit Period forecast and all Raw Materials purchased to support the rolling [***] month Firm Commit Period forecast that cannot be reasonably re-purposed for Seller’s other customers or returned to the applicable supplier in accordance with Section 3.32.

9.6

Transfer of Assets and Documentation. Upon (i) any termination of the Agreement by either Party either in whole or with respect to one or more specified Products; or (ii) any bankruptcy, insolvency or cessation of Seller’s business:

9.6.1

Seller will pack and have ready for shipment to the location determined by Buyer all of Buyer’s owned Tooling, equipment and material within two weeks after the completion of the End of Life Plan. Shipping terms associated to such materials will be ExWorks where title and risk of loss of the shipment as well as the freight will be the responsibility of Buyer as soon as the Tooling, equipment and material are suitable for shipment and Seller is capable of delivery to Buyer’s designated logistics provider.

9.7

Transaction Proposal

9.7.1

Upon receipt of a formal offer from any person or entity (other than Buyer or its Affiliates) (the “Offeror”) relating to, or reasonably likely to result in discussions or negotiations relating to a Transaction Proposal (an “Offer”) Seller shall promptly, and in any event, within 48 hours, notify Buyer in writing thereof (the “CoC Notice”). The CoC Notice shall include the identity of the Offeror and the substance of the Offer, except that the Parties agree that Seller shall not be required to disclose such identity or such substance in the CoC Notice if the terms of the Offer are (by its terms) confidential. Subject to the provisions of Section 9.7.3 Seller agrees that it will not enter into any agreement, arrangement or understanding with the Offeror or any third party relating to any Transaction Proposal or Offer, including any exclusivity arrangement, confidentiality agreement or indication of interest, sooner than seven (7) calendar days following the giving of the CoC Notice (“Transaction Proposal Waiting Period”). In the event that Seller has not executed a definitive agreement pertaining to a Transaction Proposal or Offer with the Offeror or any third party within 120 days of the giving of any CoC Notice, the provisions of this Section ‎9.7.1 shall apply again.

9.7.2

Seller shall not, directly or indirectly, offer, solicit, propose, discuss or negotiate any Transaction Proposal or otherwise take any action that would frustrate or circumvent this Section 9.7, unless it first provides written notice to Buyer (“Seller Initiated Notice”); provided further that, subject to the provisions of Section 9.7.3, Seller agrees that it will not enter into any agreement, arrangement or understanding relating to any Transaction Proposal, including any exclusivity arrangement, confidentiality agreement or indication of interest, sooner than seven (7) calendar days following the giving of the Seller Initiated Notice (the “Seller Initiated Notice Waiting Period”). In the event that Seller has not executed a definitive agreement pertaining to a Transaction Proposal within 120 days of the giving of any Seller Initiated Notice, the provisions of this Section ‎9.7.2 shall apply again.

9.7.3

The Parties agree that Seller shall not be required to comply with the provisions of 9.7.1 related to the Transaction Proposal Waiting Period or the proviso in Section 9.7.2 related to the Seller Initiated Notice Waiting Period in the event that Seller’s board of directors determines in good faith that compliance with such sections would conflict with the fiduciary duties of Seller’s board of directors under applicable law.

9.7.4

Sellers obligations under this Section 9.7 shall terminate upon any termination of this Agreement.

9.8

Survival. The following provisions shall survive termination of this Agreement: Sections 1, 2.3, 3.12.4, 3.13.3, 3.13.4, 3.14, 4.4, 5.4, 5.5, 6, 7, 9.4, 9.5, 9.6, 9.8, 10.2, 10.3, 10.4, 10.5, 11, 12, 14, 17, 18, 19, 20, 21, 22, 23 and 24. Notwithstanding the foregoing, the terms and conditions of this Agreement shall survive for any binding, blanket or repair purchase orders issued prior to the expiration or termination of this Agreement and such purchase orders shall continue to be subject to this Agreement until such purchase orders are completed, terminated or modified by mutual agreement of the Parties in accordance with this Agreement. For the avoidance of doubt, Buyer may sell any Product received or in its inventory after the termination or expiration of this Agreement, including Products from such purchase orders.

10 Representations and Warranties.

10.1

Seller represents and warrants to Buyer that all Products supplied in connection with this Agreement shall be free from defects in material and workmanship and shall be manufactured and provided by Seller (i) in accordance and conformity with the Specifications, (ii) in compliance with all applicable federal, state or municipal statutes, laws, rules or regulations, including those relating to the environment, food or drugs and occupational health and safety, (iii) without infringing or misappropriating the intellectual property rights of third parties, and (iv) in adherence to the Johnson & Johnson Responsibility Standards for Suppliers (posted on JNJ.com: https://www.jnj.com/partners/responsibility-standards-for-suppliers).

10.2

Seller shall not be liable under any circumstances for any losses arising from Buyer’s subsequent use or misuse of the Products which result from:

10.2.1

Buyer’s willful misconduct;

10.2.2

Buyer’s gross negligence, or that of its agents or employees; or

10.2.3

any alteration or repair of the Products by any manufacturing process or otherwise by any party besides Seller (or any third party making the alteration or repair at Seller’s instruction), save for any latent defect which means that the Products did not comply with the Specifications.

10.3

Without limiting the foregoing, Seller represents and warrants that, it shall comply with all present statutes, laws, ordinances and regulations relating to the manufacture, assembly and supply of the Products being provided hereunder, including, without limitation, those enforced by the FDA (including compliance with good manufacturing practices), MFDS, and PMDA, and International Standards Organization Rules 9,000 et seq. Seller further represents and warrants to Buyer that Seller has not been debarred by the applicable Health Authority, nor have debarment proceedings against Seller been commenced. Seller agrees to immediately notify Buyer if any such proceedings commence or if Seller is debarred by the FDA. Seller agrees to procure and maintain in full force and effect during the Term of this Agreement valid and collectible insurance policies in connection with its activities as contemplated hereby which policies shall be in compliance with Exhibit B (Seller Insurance Requirements) annexed hereto. Upon Buyer’s request, Seller shall provide to Buyer a certificate of coverage or other written evidence reasonably satisfactory to Buyer of such insurance coverage.

10.4

Subject to Section 6 (Acceptance of Products; Corrective Actions), as the exclusive warranty remedy, Seller will, during the period of 12 months after acceptance of a Product to Buyer, promptly repair or replace any Product that does not comply with Sections 10.1 and 10.3 at Seller’s sole cost and expense. All repaired and replaced Products, in whole or in part, will be re-delivered to Buyer at Seller’s sole cost and expense and will be subject to the same warranties set forth in this Section 10 (e.g., the 12 month warranty period will start over with respect to such repaired or replaced Product, in whole or in part). Seller’s warranty shall not apply to any Product has been altered or damaged because of misuse, negligence or improper maintenance.

10.5

Disclaimer of Implied Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO THE PRODUCTS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTE, OR OTHERWISE, AND SELLER SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES INCLUDING WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE.

Inspection of Premises and Financial Information.

11.1 Buyer shall have the right, upon reasonable notice to Seller and during regular business hours, to inspect and audit the facilities being used by Seller for production of the Products to assure compliance by Seller with applicable laws, rules and regulations, the Johnson & Johnson Policy on Employment of Young Persons set forth in Part E of the Supplemental Terms (as that term is defined below) (or such later version thereof as Buyer provides written notice to Seller) and with all other provisions of this Agreement. Seller shall within thirty (30) days remedy any deficiencies which may be noted in any such audit, and the failure by Seller to remedy any such deficiencies within such thirty (30) day period shall be deemed a material breach of this Agreement. Seller acknowledges that the provisions of this Section 11 granting Buyer certain audit rights shall in no way relieve Seller of any of its obligations under this Agreement, nor shall such provisions require Buyer to conduct any such audits.

11.2

Seller shall develop and maintain in effect at all times during the Term a comprehensive business continuity plan (“BCP”) for the supply of Product. The BCP for purposes of this Agreement is a detailed action plan designed for the uninterrupted supply of Product to Buyer.

12 Indemnification.

12.1

Each Party shall indemnify and hold harmless the other Party and each Party’s Affiliates and each of their respective officers, directors and employees from and against any and all third party claims, losses, damages, judgments, costs, awards, expenses (including reasonable attorneys’ fees) and liabilities of every kind (collectively, “Losses”) arising out of or resulting from (i) any breach by such Party of any of its obligations or warranties under this Agreement, (ii) in the case of Seller as the indemnifying Party, any product liability or similar claim asserted by any person attributable to the design or manufacture of any Product purchased by Buyer, or (iii) in the case of Buyer as the indemnifying Party, any product liability or similar claim asserted by any person attributable to the design or manufacture of any products sold by Buyer (but not related to Products purchased by Buyer from Seller hereunder).

12.2

Each indemnified Party agrees to give the indemnifying Party prompt written notice of any matter upon which such indemnified Party intends to base a claim for indemnification (an “Indemnity Claim”) under this Section 12. The indemnifying Party shall have the right to participate jointly with the indemnified Party in the indemnified Party’s defense, settlement or other disposition of any Indemnity Claim. With respect to any Indemnity Claim relating solely to the payment of money damages and which could not result in the indemnified Party’s becoming subject to injunctive or other equitable relief or otherwise adversely affect the business of the indemnified Party in any manner, and as to which the indemnifying Party shall have acknowledged in writing the obligation to indemnify the indemnified Party hereunder, the indemnifying Party shall have the sole right to defend, settle or otherwise dispose of such Indemnity Claim, on such terms as the indemnifying Party, in its sole discretion, shall deem appropriate; provided that the indemnifying Party shall provide reasonable evidence of its ability to pay any damages claimed and with respect to any such settlement shall have obtained the written release of the indemnified Party from the Indemnity Claim. The indemnifying Party shall obtain the written consent of the indemnified Party, which consent shall not be unreasonably withheld, prior to ceasing to defend, settling or otherwise disposing of any Indemnity Claim if as a result thereof the indemnified Party would become subject to injunctive or other equitable relief or the business of the indemnified Party would be adversely affected in any manner.

12.3

IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR OTHERWISE, SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY INCIDENTAL DAMAGES, EXEMPLARY DAMAGES, PUNITIVE DAMAGES, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS), OR LOSS OF BUSINESS, RECORDS, DATA, USE, REVENUE, OR ANTICIPATED SAVINGS, OR OTHER ECONOMIC LOSS, WHETHER OR NOT THE PARTY OR ITS AFFILIATES WERE INFORMED OR AWARE OF THE POSSIBILITY OF SUCH DAMAGES OR LOSS. SOME JURISDICTIONS DO NOT ALLOW THE LIMITATION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES; IN SUCH JURISDICTIONS. IN NO EVENT SHALL THE TOTAL LIABILITY OF SELLER UNDER THIS AGREEMENT EXCEED THE AMOUNTS PAID TO SELLER UNDER THIS AGREEMENT. THE Disclaimers and limitations OF LIABILITY IN THIS SECTION 12.3 DO NOT APPLY TO INDEMNIFICATION OBLIGATIONS UNDER SECTION 12.1 (INDEMNIFICATION), FRAUD, WILLFUL OR INTENTIONAL MISCONDUCT or gross negligence, EITHER PARTY’S BREACH OF ITS OBLIGATIONS UNDER SECTION 14 (CONFIDENTIALITY; Intellectual Property), Seller’s FAILURE TO COMPLY WITH ITS DATA PROTECTION OBLIGATIONS UNDER SECTION 23.1, or either party’s failure to comply with applicable law.

13 Force Majeure.

13.1

If either Party is prevented from performing any of its obligations hereunder (except payment of money) due to any cause which is both unforeseeable and beyond the non-performing Party’s reasonable control, including fire, explosion, flood, or other acts of God; acts, regulations, or laws of any government; war or civil commotion; strike, lock-out or labor disturbances; or failure of public utilities or common carriers (a “Force Majeure Event”), such non-performing Party shall not be liable for breach of this Agreement with respect to such non-performance to the extent any such non-performance is due to a Force Majeure Event. Such non-performance will be excused for three months or as long as such event shall be continuing (whichever occurs sooner), provided that the nonperforming Party gives prompt written notice to the other Party of the Force Majeure Event. Such non-performing Party shall exercise all reasonable efforts to eliminate the Force Majeure Event and to resume performance of its affected obligations as soon as practicable. For the avoidance of doubt, any impact on performance of a Party’s obligations under this Agreement as a result of COVID-19 will not be covered under this Section 13.1. COVID-19 is now a foreseeable event and performance related issues caused by COVID-19 related issues cannot be excused under this Section 13.1. Other than a Force Majeure Event subject to the parameters of this Section 13.1, neither Party will assert any excuse or defense to a breach of contract claim under the doctrine of “impossibility,” “impracticability” or “frustration of purpose” or other similar legal argument.

13.2

In the event a Force Majeure Event or a shortage of Raw Materials that causes Seller to allocate limited resources among Seller’s customers, Seller will not give other non-end-user customers priority over Buyer with respect to such resources.

13.3

Subject to the provisions of Section 13.1, in the event that due to the occurrence of a Force Majeure Event, Seller is unable to supply Products under this Agreement in such quantities as Buyer requests in compliance with the delivery periods set forth in this Agreement for a period of thirty days, Buyer may seek temporary alternate sourcing of the Products. Seller should use all reasonable efforts to assist Buyer, including providing any product specifications and other documentation necessary to manufacture the Products in the event Buyer seeks temporary alternate sourcing of the Products under this Section 13.3. Subject to the provisions of Section 13.1, in the event that due to the occurrence of a Force Majeure Event, Seller is unable to supply Products under this Agreement in such quantities as Buyer requests in compliance with the delivery periods set forth in this Agreement for a period of three months, Buyer may suspend or terminate this Agreement immediately by providing notice to Seller.

Confidentiality; Intellectual Property.

14.1 The Parties acknowledge and agree that the MNDA attached hereto as Exhibit G, is incorporated by reference into this Agreement and subject to the terms of this Section 14 shall govern and be binding on the Parties with respect to the disclosure, receipt and use of Confidential Information (as defined in the MNDA) in connection with this Agreement. The Parties further agree that notwithstanding the term stated in the MNDA, (i) each Party’s obligations with respect to the Confidential Information of the other Party under the MNDA and this Agreement shall survive in accordance with Section 9.8 (Survival); (ii) the MNDA shall be coterminous with this Agreement and neither Party may terminate the MNDA separate from this Agreement; and (iii) the Purpose, as defined in the MNDA, shall be deemed to encompass the terms and conditions of this Agreement in addition to those of the MNDA.

14.2

Without limiting the foregoing, Seller agrees that neither Seller nor any of its Affiliates shall sell or distribute, or authorize the sale or distribution by any third party of, the Products using Tooling or Buyer’s Specifications provided or any other intellectual property rights of Buyer to any third party.

14.3

The Parties acknowledge that Buyer may suffer an irreparable injury if Seller were to breach the provisions contained in this Section 14 and that Buyer is, by reason of such breach or threatened breach, entitled to seek injunctive relief in a court of appropriate jurisdiction, in addition to any other remedies available at law or in equity.

15 Compliance with Certain Laws.

15.1

Seller agrees to comply with the applicable provisions of any Federal or state law and all executive orders, rules and regulations issued thereunder, whether now or hereafter in force, including Executive Order 11246, as amended, Chapter 60 of Title 41 of the Code of Federal Regulations, as amended, prohibiting discrimination against any employee or applicant for employment because of race, color, religion, sex or national origin; Section 60-741.1 of Chapter 60 of 41 Code of Federal Regulations, as amended, prohibiting discrimination against any employee or applicant for employment because of physical or mental handicap; Section 60.250.4 of Chapter 60 of 41 Code of Federal Regulations, as amended, providing for the employment of disabled veterans and veterans of the Vietnam era; Chapter 1 of Title 48 of the Code of Federal Regulations, as amended, Federal Acquisition Regulations; Sections 6, 7 and 12 of the Fair Labor Standards Act, as amended, and the regulations and orders of the United States Department of Labor promulgated in connection therewith; and any provisions, representations or agreement required thereby to be included in this Agreement are hereby incorporated by reference. If any Products is ordered by Buyer under U.S. government contracts, Seller agrees that all applicable federal statutes and regulations applying to Buyer as a contractor are accepted and binding upon Seller insofar as Seller may be deemed a subcontractor.

Relationship of the Parties.

16.1 The relationship of Buyer and Seller established by this Agreement is that of independent contractors, and nothing contained herein shall be construed to (i) give either Party any right or authority to create or assume any obligation of any kind on behalf of the other or (ii) constitute the Parties as partners, joint ventures, co-owners or otherwise as participants in a joint or common undertaking.

17 Publicity.

17.1

Neither Party shall originate any publicity, news release, or other announcement, written or oral, whether to the public press, the trade, any customers of either Party or otherwise, relating to this Agreement, or to performance hereunder or the existence of an arrangement between the Parties nor file this Agreement with any governmental entity or other person, without the other Party’s prior written consent. Notwithstanding the foregoing provisions of this Section 17, either Party may make any public written disclosure it believes in good faith, based upon the reasonable opinion of its counsel, such disclosure is required by applicable law; provided that prior to making such disclosure, the Party seeking to make such disclosure shall first provide the other Party with a copy of the materials proposed to be disclosed (or the content of any oral disclosure proposed to be disclosed) as soon as practical prior to such disclosure to provide the other Party with an opportunity to review and comment on the proposed disclosure and such Party shall consider in good faith any comments or redactions provided by the other Party; provided further that in the event either Party proposes to file with the Securities and Exchange Commission or the securities regulators of any state or other jurisdiction a registration statement or any other disclosure document which, in the reasonable opinion of such Party’s counsel or independent financial auditor, requires disclosure of this Agreement, the terms and conditions of this Agreement or other information relating to this Agreement or the transactions contemplated hereby under the Securities Act of 1933, as amended, the Exchange Act or any other applicable securities law, such Party shall notify the other Party of such intention and opinion and shall provide such other Party with a copy of relevant portions of the proposed filing as soon as practical prior to such filing, including any exhibits thereto, and the Party making such filing shall seek confidential treatment of this Agreement, the terms and conditions of this Agreement or other information relating to this Agreement or the transactions contemplated hereby or any portion thereof that such other Party reasonably requests be kept confidential (and/or redact such portions that such other Party reasonably requests be kept confidential).

18 Dispute Resolution.

18.1

Any controversy or claim arising out of or relating to this Agreement shall be resolved by arbitration before a single arbitrator in accordance with the then current CPR Non-Administered Arbitration Rules (“CPR Rules”) (www.cpradr.org), except where those rules conflict with this provision, in which case this provision controls. The arbitrator shall be selected within twenty (20) business days from commencement of the arbitration from the CPR Panel of Distinguished Neutrals, unless a candidate not on such panel is approved by both Parties. Within forty-five (45) days of initiation of arbitration, the Parties shall reach agreement upon and thereafter follow procedures, including limits on discovery, assuring that the arbitration will be concluded and the award rendered within no more than eight (8) months from selection of the arbitrator or, failing agreement, procedures meeting such time limits will be designed by the arbitrator and adhered to by the Parties. The arbitration shall be held in New York, New York and the arbitrator shall apply the substantive law controlling this Agreement, except that the interpretation and enforcement of this arbitration provision shall be governed by the Federal Arbitration Act. Any court with jurisdiction shall enforce this clause and enter judgment on any award. The arbitrator may award the costs and expenses of the arbitration as provided in the CPR Rules, but each Party shall bear its own attorney fees.

18.2

Prior to commencement of arbitration, the Parties must attempt to mediate their dispute using a professional mediator selected by agreement from American Arbitration Association, the CPR Institute for Dispute Resolution or like organization or, absent agreement, through selection procedures administered by the CPR. Within a period of forty-five (45) days after the request for mediation, the Parties agree to convene with the mediator, with business representatives present, for at least one session to attempt to resolve the matter. In no event will mediation delay commencement of the arbitration for more than forty-five (45) days absent agreement of the Parties or interfere with the availability of emergency relief. Rule 14 of the CPR Rules does not apply to this Agreement. All aspects of the mediation and arbitration shall be treated as confidential.

18.3

Each Party has the right to seek from the appropriate court provisional remedies to avoid irreparable harm, maintain the status quo, or preserve the subject matter of the dispute. Each Party acknowledges that if there is a breach or threatened breach of Sections 3.9, 7, 14, 15, and 18.4, Buyer’s remedies at law would be inadequate, and that the damages arising from any such breach are not readily measured in monetary terms. Accordingly, in the event of such breach or threatened breach, Buyer, in addition to any monetary damages, will be entitled to seek immediate injunctive relief and may obtain an order restraining any threatened or further breach without the posting of a bond or proof of monetary damages.

18.4

Seller will continue performing its obligations while a dispute is being resolved except to the extent the issue in dispute precludes performance (disputes regarding amounts owed will not be deemed to preclude performance). Buyer will not withhold undisputed payments for product delivered to Buyer.

18.5

EACH PARTY HERETO WAIVES: (1) ITS RIGHT TO TRIAL OF ANY ISSUE BY JURY, AND (2) ANY CLAIM FOR ATTORNEY FEES, COSTS AND PREJUDGMENT INTEREST.

18.6

BUYER SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATING TO ITS PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT.

Entire Agreement; Amendments and Conflicts.

19.1 It is the mutual desire and intent of the Parties to provide certainty as to their respective future rights and remedies against each other by defining the extent of their mutual undertakings as provided herein. The Parties have, in this Agreement, incorporated all representations, warranties, covenants, commitments and understandings on which they have relied in entering into this Agreement, and, except as provided for herein, neither Party makes any covenant or other commitment to the other concerning its future action. Accordingly, this Agreement (i) constitutes the entire Agreement and understanding between the Parties with respect to the subject matter hereof and there are no promises, representations, conditions, provisions or terms related thereto other than those set forth in this Agreement and (ii) supersedes all previous understandings, Agreements and representations between the Parties, written or oral.

19.2

No modification, change or amendment to this Agreement shall be effective unless in writing signed by each of the Parties hereto, and to the extent of any conflict or inconsistency between this Agreement and any purchase order, purchase order release, invoice, confirmation, acceptance or any other similar document in connection with this Agreement, the terms of this Agreement shall govern unless expressly stated otherwise in a writing signed by each of the Parties hereto and such writing includes the section number of this Agreement that both Parties agree no longer governs for the matter(s) covered thereby.

Notices.

20.1 All notices and other communications hereunder shall be in writing and delivered personally or mailed by overnight U.S. mail, postage prepaid, or by certified or registered U.S. mail, return receipt requested, postage prepaid, or sent by Federal Express or another nationally recognized courier service (billed to sender), to the Parties at the following addresses:

If to Seller:

Gregory J. Trudel

President & CEO

Encision Inc.

6797 Winchester Circle

Boulder, CO 80301

If to Buyer:

[***]

Director of Procurement

Auris Health, Inc.

150 Shoreline Drive

Redwood City, CA 94065

With copies to:

[***]

Vice President of Law

Auris Health, Inc.

150 Shoreline Drive

Redwood City, CA 94065

or to such other place as a Party may designate by written notice to the other.

21 Assignment. This Agreement may not be assigned by any Party without the prior written consent of the other, except that Buyer may assign its rights and/or obligations hereunder to any of its Affiliates, with prior written notice to Seller. For purposes of this Section 22, a Change of Control of Seller will not be deemed (i) an assignment which requires the prior written consent of Buyer or (ii) an event which would provide Buyer a right to terminate this Agreement. Any assignment in contravention to this Section 22 shall be null and void. Subject to the foregoing sentence, this Agreement shall bind and inure to the benefit of the Parties hereto and their respective successors and assigns.

22 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, to the extent the economic benefits conferred by this Agreement to both Parties remain substantially unimpaired, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction.

Data Protection, Record Keeping, Supplier Diversity and Product Stewardship

23.1 Seller acknowledges that Seller has read Part D and Part F of Buyer’s Supplemental Terms Governing Agreements for Services Performed for Ethicon, Inc., Ethicon, LLC, Ethicon US, LLC, Ethicon Endo-Surgery, Inc. Ethicon Endo-Surgery, LLC, Obtech Medical Sàrl or Sterilmed, Inc. (the “Supplemental Terms”) available at:

https://www.ethicon.com/na/supplemental-contract-terms-overview

(or if Seller does not have Internet access that Buyer has provided Seller with a hard copy of the Supplemental Terms). Seller agrees that Part D and Part F of the Supplemental Terms in effect as of the effective date of this Agreement are hereby incorporated into this Agreement by reference, having the same force and effect as if fully set forth herein.

23.2 Intentionally Omitted.

23.3 Material Declaration. Seller agrees to execute and deliver to Buyer a Negative Material Declaration in the form of Exhibit D (Negative Material Disclosure Declaration) contemporaneously with Seller’s execution of this Agreement. During the Term of the Agreement, Seller further agrees to provide an updated Negative Material Declaration to Buyer in the event of any change to a previously provided Negative Material Declaration and in any event not less than once per year.

23.4 Wood Pallets. Seller agrees that it shall comply with Buyer’s Policy for Wood Pallets, set forth on Exhibit E (Policy on Wood Pallets) to this Agreement. Further, Seller shall certify compliance with such policy at least annually. Such certification shall be sent to Buyer pursuant to the notice provisions set forth in Section 20 (Notices). Buyer has the right to reject any product or materials that fail to comply with this policy.

24 Governing Law

24.1 The UN Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. This Agreement instead shall be construed according to and governed by the laws of the State of New Jersey excluding any conflict of law provisions thereof that might cause the laws of another jurisdiction to apply.

24.2 Seller agrees to comply with the provisions set out on Exhibit H (FCPA/Anti-Bribery).

[signature page follows]

IN WITNESS WHEREOF, the Parties hereto have caused this Supply Agreement to be executed by their duly authorized respective representatives as of the date set forth below.

Auris Health, Inc. Encision, Inc.

By: /s/ Céline Martin

Name: Céline Martin

Title: Company Group

Chairman Digital Surgery

Date: 8/23/2021

By: /s/ Gregory J. Trudel

Name: Gregory J. Trudel

Title: President and CEO

Date: 8/23/2021

EXHIBITS:

EXHIBIT A – PRODUCTS LIST

EXHIBIT B – SELLER INSURANCE REQUIREMENTS

EXHIBIT C – ENCISION CONTRIBUTED IP

EXHIBIT D – NEGATIVE MATERIAL DISCLOSURE DECLARATION

EXHIBIT E – POLICY ON WOOD PALLETS

EXHIBIT F – FORM OF PARTICIPATING AFFILIATE SUPPLY AGREEMENT

EXHIBIT G – MUTUAL CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT

EXHIBIT H – FCPA/ANTI-BRIBERY

EXHIBIT I – RECORDS POLICY

EXHIBIT J – RESERVED

EXHIBIT K – SELLER TRADEMARKS

EXHIBIT A

PRODUCTS LIST

Buyer Part Number	Seller Part Number	Product or Service Description
304-006628-00	EM3	AEM® EM3 Burn Protection Monitor
300-020450-00	EM3-60A	[***]
OTT400 (Product code)	ES4107A	[***]

EFFECTIVE PRICES PER UNIT

[***]	$[***] each (ES4107A)
[***]	$[***] each (EM3-60A)
EM3 Capital	$[***] each (EM3)

UPFRONT AMOUNT: $[***]

MILESTONE PAYMENT: $[***]

Other Products (and prices for such Products) to be added as agreed by the Parties.

EXHIBIT C

ENCISION CONTRIBUTED IP

[***]

Exhibit 31.1

CERTIFICATIONS

I, Gregory Trudel, certify that:

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

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;

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;

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:

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;

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;

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

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,

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):

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

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: November 15, 2021
	By:	/s/ Gregory Trudel
		Gregory Trudel President and CEO

Exhibit 31.2

CERTIFICATIONS

I, Mala Ray, certify that:

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

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: November 15, 2021
	By:	/s/ Mala Ray
		Mala Ray Controller, Principal Accounting Officer and Principal Financial Officer

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 six months ended September 30, 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: November 15, 2021
	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 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: November 15, 2021
	By:	/s/ Mala Ray
		Mala Ray Controller, Principal Accounting Officer and Principal Financial Officer