0001079973-17-000112.txt : 20170214 0001079973-17-000112.hdr.sgml : 20170214 20170214135054 ACCESSION NUMBER: 0001079973-17-000112 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 42 CONFORMED PERIOD OF REPORT: 20161231 FILED AS OF DATE: 20170214 DATE AS OF CHANGE: 20170214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENCISION INC CENTRAL INDEX KEY: 0000930775 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 841162056 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11789 FILM NUMBER: 17606677 BUSINESS ADDRESS: STREET 1: 6797 WINCHESTER CIRCLE CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034442600 MAIL ADDRESS: STREET 1: 6797 WINCHESTER CIRCLE CITY: BOULDER STATE: CO ZIP: 80301 FORMER COMPANY: FORMER CONFORMED NAME: ELECTROSCOPE INC DATE OF NAME CHANGE: 19960502 10-Q 1 encia_10q-123116.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

For the quarterly period ended December 31, 2016

[_] 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)

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 and posted 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 and post 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 (Do not check if a smaller reporting company)	☐	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

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

Common Stock, no par value	10,683,355 Shares
(Class)	(outstanding at January 31, 2017)

ENCISION INC.

FORM 10-Q

For the Three and Nine Months Ended December 31, 2016

INDEX

			Page Number
PART I.	FINANCIAL INFORMATION
ITEM 1	–	Condensed Interim Financial Statements:
	–	Condensed Balance Sheets as of December 31, 2016 and March 31, 2016	3
	–	Condensed Statements of Operations for the Three and Nine Months Ended December 31, 2016 and 2015	4
	–	Condensed Statements of Cash Flows for the Nine Months Ended December 31, 2016 and 2015	5
	–	Notes to Condensed Interim Financial Statements	6

ITEM 2	–	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

ITEM 4	–	Controls and Procedures	17
	–
PART II.	OTHER INFORMATION

ITEM 6	–	Exhibits	18

SIGNATURE			19

PART I FINANCIAL INFORMATION

ITEM 1 - CONDENSED INTERIM FINANCIAL STATEMENTS

Encision Inc.

Condensed Balance Sheets

(unaudited)


	December 31, 2016			March 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	63,867		$	292,840
Restricted cash		25,000			25,000
Accounts receivable, net of allowance for doubtful accounts of $20,000 at December 31, 2016 and $9,000 at March 31, 2016		1,078,673			839,850
Inventories, net of reserve for obsolescence of $170,000 at December 31, 2016 and $410,000 at March 31, 2016		1,135,975			1,730,747
Prepaid expenses		137,264			91,989
Total current assets		2,440,779			2,980,426
Equipment, at cost:
Furniture, fixtures and equipment		3,160,388			3,950,710
Accumulated depreciation		(2,647,395	)		(3,389,533	)
Equipment, net		512,993			561,177
Patents, net of accumulated amortization of $195,433 at December 31, 2016 and $153,494 at March 31, 2016		257,875			252,889
Other assets		16,392			15,926
TOTAL ASSETS	$	3,228,039		$	3,810,418
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	508,417		$	355,890
Accrued compensation		220,733			246,203
Other accrued liabilities		234,682			257,506
Line of credit		283,670			387,491
Deferred rent		30,384			30,384
Total current liabilities		1,277,886			1,277,474
Long-term liability:
Deferred rent		48,109			70,896
Total liabilities		1,325,995			1,348,370
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; 10,683,355 shares issued and outstanding at December 31 and March 31, 2016		23,734,776			23,682,365
Accumulated (deficit)		(21,832,732	)		(21,220,317	)
Total shareholders' equity		1,902,044			2,462,048
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	3,228,039		$	3,810,418

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

Encision Inc.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 31, 2016			December 31, 2015			December 31, 2016			December 31, 2015
NET REVENUE	$	2,229,870		$	2,292,663		$	6,657,875		$	7,047,424
COST OF REVENUE		1,165,414			1,118,658			3,394,204			3,519,205
GROSS PROFIT		1,064,456			1,174,005			3,263,671			3,528,219
OPERATING EXPENSES:
Sales and marketing		638,735			626,001			1,882,337			1,952,191
General and administrative		383,106			354,397			1,087,239			1,087,641
Research and development		300,392			339,746			880,760			929,400
Total operating expenses		1,322,233			1,320,144			3,850,336			3,969,232
OPERATING LOSS		(257,777	)		(146,139	)		(586,665	)		(441,013	)
Interest expense, net		(15,093	)		(10,047	)		(44,681	)		(27,448	)
Other income (expense), net		(1,295	)		(43,843	)		18,931			(129,075	)
Interest expense and other income (expense), net		(16,388	)		(53,890	)		(25,750	)		(156,523	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(274,165	)		(200,029	)		(612,415	)		(597,536	)
Provision for income taxes		––			––			––			––
NET LOSS	$	(274,165	)	$	(200,029	)	$	(612,415	)	$	(597,536	)
Net loss per share—basic and diluted	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)
Weighted average shares—basic and diluted		10,678,344			10,673,225			10,674,548			10,673,225

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

Encision Inc.

Condensed Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	December 31, 2016			December 31, 2015
Operating activities:
Net loss	$	(612,415	)	$	(597,536	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		168,357			243,867
Share-based compensation expense		52,411			56,396
Provision for (recovery from) doubtful accounts, net		11,000			(4,500	)
(Recovery from) provision for inventory obsolescence, net		(240,000	)		40,762
Changes in operating assets and liabilities:
Accounts receivable		(249,823	)		107,910
Inventories		834,772			295,958
Prepaid expenses and other assets		(45,741	)		(16,996	)
Accounts payable		152,527			(232,709	)
Accrued compensation and other accrued liabilities		(71,081	)		(160,351	)
Net cash generated by (used in) operating activities		7			(267,199	)
Investing activities:
Acquisition of property and equipment		(104,057	)		(36,104	)
Patent costs		(21,102	)		(20,125	)
Net cash (used in) investing activities		(125,159	)		(56,229	)
Financing activities:
Paydown of credit facility, net change		(103,821	)		(171,986	)
Net cash (used in) financing activities		(103,821	)		(171,986	)
Net decrease in cash and cash equivalents		(228,973	)		(151,442	)
Cash and cash equivalents, beginning of period		292,840			258,656
Cash and cash equivalents, end of period	$	63,867		$	107,214

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

ENCISION INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

DECEMBER 31, 2016

(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 $21,832,732 at December 31, 2016. Operating funds have been provided primarily by issuances of our common stock and warrants, a line of credit, 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.

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

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, filed on June 14, 2016.

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. In the quarter ended December 31, 2016, we changed the method of apportioning overhead costs to certain inventory with a higher turnover rate than inventory in general. The effect of this change in estimate was an approximately $127 thousand and $190 thousand decrease in operating and net income for the three and nine month periods ended December 31, 2016, respectively. The effect on both basic earnings per share and diluted earnings per share was a decrease of $0.01 and $0.02 for the three and nine months ended December 31, 2016, respectively.

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. Restricted cash is cash that was deposited to obtain a letter of credit for our importing and exporting activities.

Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, short-term trade receivables, payables and a line of credit. The carrying values of cash and cash equivalents, short-term trade receivables, payables and line of credit approximate their fair value due to their short maturities.

Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents, accounts receivable and a line of credit. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at December 31, 2016. We believe that cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.

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

Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at December 31, 2016 of $1,078,673 and at March 31, 2016 of $839,850 included no more than 5% from any one customer.

Warranty Accrual. We provide for the estimated cost of product warranties at the time sales are recognized and include it as other accrued liabilities. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is based upon historical experience and is also affected by product failure rates and material usage incurred in correcting a product failure. Should actual product failure rates or material usage costs differ from our estimates, revisions to the estimated warranty liability would be required.

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or market. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At December 31, 2016 and March 31, 2016, inventory consisted of the following:

	December 31, 2016			March 31, 2016
Raw materials	$	822,741		$	1,469,630
Finished goods		483,234			671,117
Total gross inventories		1,305,975			2,140,747
Less reserve for obsolescence		(170,000	)		(410,000	)
Total net inventories	$	1,135,975		$	1,730,747

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. 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 December 31, 2016, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.

Revenue Recognition. Revenue from product sales is recorded when we ship the product and title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. 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. Revenue from engineering services is recognized when the service is performed.

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

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

Stock-based compensation expense recognized under ASC 718 for the three and nine months ended December 31, 2016 was $17,998 and $52,411, respectively, and for the three and nine months ended December 31, 2015 was $18,801 and $56,396, respectively, which consisted of stock-based compensation expense related to grants of employee stock options and restricted stock units ("RSUs").

Segment Reporting. We have concluded that we have one operating segment.

Recent Accounting Pronouncements. We have reviewed all recently issued, but not yet effective, accounting pronouncements. The Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2017. The Company does not expect ASU 2014-09 to have a material/significant impact on its financial statements.

The Financial Accounting Standards Board has also issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (the ASU), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The ASU requires management to perform an assessment every reporting period (including interim periods) to determine whether there is substantial doubt about a company's ability to continue as a going concern and to provide related footnote disclosures. The ASU also defines that substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating this new guidance and the related impact on the financial statements.

In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, ("ASU 2015-11"). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect ASU 2015-11 to have a material/significant impact on its financial statements.

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. ASU 2016-02 will be effective for the Company beginning in its third quarter of 2020 and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new lease standard on its consolidated financial statements.

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 and RSUs 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 loss per share:

	Three Months Ended						Nine Months Ended
	December 31, 2016			December 31, 2015			December 31, 2016			December 31, 2015
Net loss	$	(274,165	)	$	(200,029	)	$	(612,415	)	$	(597,536	)
Weighted-average shares — basic		10,678,344			10,673,225			10,674,548			10,673,225
Effect of dilutive potential common shares		—			—			—			—
Weighted-average shares — diluted		10,678,344			10,673,225			10,674,548			10,673,225
Net income (loss) per share — basic	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)
Net income (loss) per share — diluted	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)
Antidilutive employee stock options and RSUs		954,286			708,924			954,286			708,924

Note 4. COMMITMENTS AND CONTINGENCIES

Effective December 1, 2013, we extended our noncancelable lease agreement through July 31, 2019 for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease includes $172,176 of leasehold improvements granted by the landlord. The $172,176 was recorded on our condensed balance sheets as leasehold improvements and deferred rent. The leasehold improvements are being amortized over the lesser of the lease term or the assets life and the deferred rent is being amortized against rent expense over the lease term. The minimum future lease payment, by fiscal year, as of December 31, 2016 is as follows:

Fiscal Year	Amount
2017 (three months remaining)		69,183
2018		285,034
2019		293,585
2020		99,800
Total	$	747,602

In March 2016, we entered into a loan and security agreement with Crestmark Bank. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 2%, with a floor of 5.5%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively. As of December 31, 2016, we had $283,670 of borrowings from the credit facility and had an additional $406,592 available to borrow.

Aside from the operating lease, we do not have any material contractual commitments requiring settlement in the future.

We are subject to regulation by the United States Food and Drug Administration ("FDA"). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects us and other manufacturers to determine compliance with these regulations. We believe that we were in substantial compliance with all known regulations at December 31, 2016. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in October 2015.

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, RSUs and employee stock purchases for the three and nine months ended December 31, 2016 and 2015, which was allocated as follows:

	Three Months Ended				Nine Months Ended
	December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Cost of sales	$	819	$	573	$	2,073	$	1,716
Sales and marketing		3,406		2,955		9,484		8,866
General and administrative		12,231		14,226		36,999		42,674
Research and development		1,542		1,047		3,855		3,140
Stock-based compensation expense	$	17,998	$	18,801	$	52,411	$	56,396

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 105,000 and 285,000 stock options granted, and 11,000 and 11,000 forfeited during the three and nine months ended December 31, 2016, respectively. Share-based compensation cost for RSUs is measured based on the closing fair market value of the Company's common stock on the date of grant. There were 10,130 RSUs exercised and 10,508 forfeited during the three and nine months ended December 31, 2016.

As of December 31, 2016, $230,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

Note 6. RELATED PARTY TRANSACTION

We paid consulting fees of $16,309 and $57,484 to an entity owned by one of our directors during the three and nine months ended December 31, 2016, respectively, and $22,054 and $63,780 during the three and nine months ended December 31, 2015.

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 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, 2016.

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 ("CMS") recently published its Hospital-Acquired Condition Reduction Program effective October 1, 2015. At that time, the program began to levy as much as a 1% penalty on Medicare reimbursements to hospitals in the lower quadrant of performance for selected quality indicators, including accidental puncture and laceration ("APL"). Examples of APL include the use of a cautery device (electrosurgery) or scissors to dissect a tissue plane that errantly causes an injury to underlying bowels.

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

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

AEM technology has been recommended and endorsed by many groups involved in MIS. Surgeons, nurses, biomedical engineers, the medicolegal community, malpractice insurance carriers and electrosurgical device manufacturers advocate the use of AEM technology. We have focused our marketing strategies to date on expanding the market awareness of the AEM technology and our broad independent endorsements and have continued efforts to improve and expand the AEM technology penetration.

When a hospital or surgery center changes to AEM technology, we receive recurring revenue from sales of replacement instruments. We believe that there is no directly competing technology to supplant AEM products. The replacement market of reusable and disposable AEM products in hospitals and surgery centers that use our AEM technology represented over 90% of our product revenue during the three months ended December 31, 2016. 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 $21,832,732 at December 31, 2016. Operating funds have been provided primarily by issuances of our common stock and warrants, and the exercise of stock options to purchase our common stock. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital.

During the nine months ended December 31, 2016, we generated $7 of cash by our operations and used $104,057 for investments in property and equipment. As of December 31, 2016, we had $63,867 in cash and cash equivalents available to fund future operations, a decrease of $228,973 from March 31, 2016. Our working capital was $1,162,893 at December 31, 2016 compared to $1,702,952 at March 31, 2016.

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 11 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 e∙Edge™ scissors, our EM3 AEM Monitor and our AEM EndoShield Burn Protection System. 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 2017. Our objectives for the remainder of fiscal year 2017 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.

The Patient Protection and Affordable Care Act included a provision that imposes a 2.3% excise tax on the sale of certain medical devices by a manufacturer, producer or importer of such devices in the United States. Effective January 1, 2016, the excise tax was suspended for two years. Most of our product revenue is subject to the tax. We include the medical device tax in other expense.

Possibility of Operating Losses: We have an accumulated deficit of $21,832,732 at December 31, 2016. 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 2017. 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. 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 December 31, 2016 compared to the quarter ended December 31, 2015.

Net Revenue. Net revenue for the quarter ended December 31, 2016 was $2,229,870 compared to $2,292,663 for the quarter ended December 31, 2015, a decrease of 3%. The decrease of net revenue is attributable to business lost from hospitals that reduced, or stopped, using AEM technology during the quarter.

Gross profit. Gross profit for the quarter ended December 31, 2016 of $1,064,456 represented a decrease of 9% from gross profit of $1,174,005 for the quarter ended December 31, 2015. Gross profit as a percentage of sales (gross margins) decreased from 51% for the quarter ended December 31, 2015 to 48% for the quarter ended December 31, 2016. Of the total overhead costs, higher overhead costs were applied to faster turnover inventory and lower overhead costs were applied to slower turnover inventory in the quarter ended December 31, 2016. The change in inventory apportionment resulted in a faster recognition of costs and a decreased gross margin of approximately 6%. The decreased difference to gross margin should reach equilibrium by the end of the March 31, 2017 quarter. The counter effect of the change is that inventory balances are decreased by a like amount so that there is no difference to our cash flow with respect to the change.

Sales and marketing expenses. Sales and marketing expenses of $638,735 for the quarter ended December 31, 2016 represented an increase of 2% from sales and marketing expenses of $626,001 for the quarter ended December 31, 2015. The increase was the result of an increase to compensation for one additional sales representative. The increase in expense was partially offset by a decrease to commissions and advertising.

General and administrative expenses. General and administrative expenses of $383,106 for the quarter ended December 31, 2016 represented an increase of 8% from general and administrative expenses of $354,397 for the quarter ended December 31, 2015. The increase was principally the result of legal fees as incurred in connection with a lawsuit that we are not a party to. While we are not a party to the lawsuit, we incurred these expenses while responding to subpoenas which were issued by the plaintiff and defendant in this case.

Research and development expenses. Research and development expenses of $300,392 for the quarter ended December 31, 2016 represented a decrease of 12% compared to $339,746 for the quarter ended December 31, 2015. The decrease was the result of decreased compensation and outside services. The decrease in expense was partially offset by an increase in test materials.

Other income and expense, net. Other income and expense, net includes medical device excise tax of $49,751 for the quarter ended December 31, 2015. Effective January 1, 2016, the excise tax was suspended for two years.

Net loss. Net loss was $274,165 for the quarter ended December 31, 2016 compared to net loss of $200,029 for the quarter ended December 31, 2015. The net loss increase was principally a result of lower revenue and gross profit and was partially offset by suspended medical device tax, as explained above.

For the nine months ended December 31, 2016 compared to the nine months ended December 31, 2015.

Net Revenue. Net revenue for the nine months ended December 31, 2016 was $6,657,875 compared to $7,047,424 for the nine months ended December 31, 2015, a decrease of 6%. The decrease of net revenue is attributable to business lost from hospitals that reduced, or stopped, using AEM technology during the nine months.

Gross profit. Gross profit for the nine months ended December 31, 2016 of $3,263,671 represented a decrease of 7% from gross profit of $3,528,219 for the nine months ended December 31, 2015. Gross profit as a percentage of sales (gross margins) was 49% and 50% for the nine months ended December 31, 2016 and 2015, respectively. Of the total overhead costs, higher overhead costs were applied to faster turnover inventory and lower overhead costs were applied to slower turnover inventory in the nine months ended December 31, 2016. The change in inventory apportionment resulted in a faster recognition of costs and a decreased gross margin of approximately 3%. The decreased difference to gross margin should reach equilibrium by the end of the March 31, 2017 quarter. The counter effect of the change is that inventory balances are decreased by a like amount so that there is no difference to our cash flow with respect to the change. Gross margin was benefitted in the nine months ended December 31, 2016 by lower costs for scrap and costs in manufacturing operations.

Sales and marketing expenses. Sales and marketing expenses of $1,882,337 for the nine months ended December 31, 2016 represented a decrease of 4% from sales and marketing expenses of $1,952,191 for the nine months ended December 31, 2015. The decrease was the result of decreased sales commissions. The decrease in expense was partially offset by an increase to compensation for one additional sales representative.

General and administrative expenses. General and administrative expenses of $1,087,239 for the nine months ended December 31, 2016 represented a minimal decrease from general and administrative expenses of $1,087,641 for the nine months ended December 31, 2015. The decrease was the result of decreased compensation, investors' relation costs and outside services. The decrease in expense was partially offset by an increase of legal fees as a result of legal fees incurred in connection with a lawsuit that we are not a party to. While we are not a party to the lawsuit, we incurred these expenses while responding to subpoenas which were issued by the plaintiff and defendant in this case.

Research and development expenses. Research and development expenses of $880,760 for the nine months ended December 31, 2016 represented a decrease of 5% compared to $929,400 for the nine months ended December 31, 2015. The decrease was the result of decreased compensation and outside services. The decrease in expense was partially offset by an increase to test materials.

Other income and expense, net. Other income and expense, net includes medical device excise tax of $154,072 for the nine months ended December 31, 2015. Effective January 1, 2016, the excise tax was suspended for two years.

Net loss. Net loss was $612,415 for the nine months ended December 31, 2016 compared to net loss of $597,536 for the nine months ended December 31, 2015. The net loss increase was a result of lower revenue and gross profit and was partially offset by reduced total operating expenses and suspended medical device tax, as explained above.

The results of operations for the three and nine months ended December 31, 2016 are not indicative of the results of operations for all or any part of the balance of the fiscal year.

Liquidity and Capital Resources

To date, a significant portion of our operating funds have been provided by issuances of our common stock and warrants, the exercise of stock options to purchase our common stock and, in some years, by operating profits. Common stock and additional paid in capital totaled $23,734,776 from inception through December 31, 2016.

Our operations generated $7 of cash during the nine months ended December 31, 2016 on net revenue of $6,657,875. Cash was principally generated by decreased inventories and increased accounts payable. Cash generated was principally offset by our net loss. The amounts of cash used by operations for the nine months ended December 31, 2016 are not indicative of the expected amounts of cash to be generated from or used in operations in fiscal year 2017. During the nine months ended December 31, 2016, we invested $104,057 in the acquisition of property and equipment. As of December 31, 2016, we had $63,867 in cash and cash equivalents available to fund future operations. Working capital was $1,162,893 at December 31, 2016 compared to $1,702,952 at March 31, 2016. The decrease of working capital at December 31, 2016 was the result of our net loss and a decrease of inventories. The decrease was partially offset by an increase of accounts receivable. Current liabilities were $1,277,886 at December 31, 2016, compared to $1,277,474 at March 31, 2016.

Fiscal Year	Amount
2017 (three months remaining)		69,183
2018		285,034
2019		293,585
2020		99,800
Total	$	747,602

Aside from the operating lease and line of credit obligation, we do not have any material contractual commitments requiring settlement in the future.

As of December 31, 2016, 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

747,602

282,959

464,643

––

Line of credit obligation

283,670

––

1,031,272

566,629

464,643

––

Our fiscal year 2017 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 and cash equivalents for fiscal year 2017. In March 2016, we entered into a loan and security agreement with Crestmark Bank. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 2%, with a floor of 5.5%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively. As of December 31, 2016, we had $283,670 of borrowings from the credit facility and had an additional $406,592 available to borrow. 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, 2016, net operating loss carryforwards totaling approximately $11.1 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, 2019. 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, warranty, 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 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 market 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 and RSUs at 20% 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

(a) We have carried out an evaluation under the supervision and with the participation of our management, including our President and CEO and Principal Accounting and Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the President and CEO and the Principal Accounting and Financial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures were effective.

(b) During the quarter ended December 31, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. Exhibits

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

10.1

Employment Agreement, dated November 14, 2016, between Encision and Gregory J. Trudel †.

31.1

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

31.2

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

32.1

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

101

The following materials from Encision Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016, 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.

†

Denotes management contract or compensatory plan or arrangement.

SIGNATURE

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

Encision Inc.


February 14, 2017			/s/ Mala Ray
Date			Mala Ray Controller Principal Accounting Officer & Principal Financial Officer

EX-3.1 2 ex31x1.htm EXHIBIT 31.1

Exhibit 31.1

CERTIFICATIONS

I, Gregory Trudel, certify that:

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

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

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

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,

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

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: February 14, 2017

	/s/ Gregory Trudel
	Gregory Trudel President and CEO

EX-31.2 3 ex31x2.htm EXHIBIT 31.2

Exhibit 31.2

CERTIFICATIONS

I, Mala Ray, certify that:

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

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

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

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

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

Dated: February 14, 2017

	/s/ Mala Ray
	Mala Ray Controller, Principal Accounting Officer and Principal Financial Officer

EX-32.1 4 ex32x1.htm EXHIBIT 32.1

Exhibit 32.1

CERTIFICATIONS OF PERIODIC REPORT

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

the Quarterly Report on Form 10-Q of the Company for the three months ended December 31, 2016 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

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

Dated: February 14, 2017

	/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: February 14, 2017

	/s/ Mala Ray
	Mala Ray Controller, Principal Accounting Officer and Principal Financial Officer

EX-10.1 5 ex10x1.htm EXHIBIT 10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is made and effective 14 Nov 2016,

BETWEEN:

Gregory J. Trudel (the "Executive"), an individual with his main address at: 3327 Alexander Way, Broomfield, CO 80023.

AND:	Encision Inc. (the "Company"), an entity organized and existing under the laws of Colorado, with its head office located at: 6797 Winchester Circle, Boulder, CO 80301.

RECITALS

In consideration of the covenants and agreements herein contained and the moneys to be paid hereunder, the Company hereby employs the Executive and the Executive hereby agrees to perform services as an Executive of the Company, upon the following terms and conditions:

TERM

Commencing November 14, 2016, (the "Start Date") the Company employs Executive to serve as President and Chief Executive Officer and to serve in such additional position or positions as the Company may determine in its sole discretion. The term of employment shall be for a period of two (2) years ("Employment Period") to commence on the Start Date, unless earlier terminated as set forth herein.

This Agreement shall continue in effect until the earliest of:

The effective date of any subsequent employment agreement between the Company and the Executive;

The effective date of any termination of employment as provided elsewhere herein; or

Two years from the Start Date, provided, that this Employment Agreement shall automatically renew for successive periods of one year each unless either party gives written notice to the other that it does not wish to automatically renew this Agreement, which written notice must be received by the other party no less than ninety days prior to the expiration of the applicable term.

2.	DUTIES AND RESPONSIBILITIES

Within the limitations established by the By-laws of the Company, the Executive shall preside at all meetings of the shareholders, shall have general supervision of the affairs of the Company, and such other or different duties on behalf of the Company, as may be assigned from time to time by the Board of Directors. Particular emphasis is placed upon growing sales, increasing revenue, profitability and earnings, and upon keeping in mind such items as required product developments, quality, and overall risk management.

LOCATION

The initial principal location at which Executive shall perform services for the Company shall initially be 6797 Winchester Circle, Boulder, CO 80301. The Company may move its offices to another location in the Denver-Boulder metro area without being in violation of this Agreement.

4.	ACCEPTANCE OF EMPLOYMENT

Executive accepts employment with the Company upon the terms set forth above and agrees to devote all Executive's time, energy and ability to the interests of the Company, and to perform Executive's duties in an efficient, trustworthy and business-like manner.

5.	DEVOTION OF TIME TO EMPLOYMENT

The Executive shall devote the Executive's best efforts and substantially all of the Executive's working time to performing the duties on behalf of the Company. The Executive shall provide services during the normal business hours of the Company as determined by the Company. Reasonable amounts of time may be allotted to personal or outside business, charitable and professional activities and shall not constitute a violation of this Agreement provided such activities do not materially interfere with the services required to be rendered hereunder or violate another provision of this Agreement.

6.	COMPENSATION

6.1.

Base Salary

Executive shall be paid a base salary ("Base Salary") at the annual rate of $214,725, payable in bi-weekly installments consistent with Company's payroll practices. In consideration of the services under this Agreement, Executive shall be paid the aggregate of basic compensation, bonus and benefits as hereinafter set forth. At the time that the Company has achieved three months of profitability, (i) Base Salary shall be increased from $214,725 to $230,000 and (ii) Executive shall be entitled to receive a cash bonus in the amount equal to $1,273 times the number of months elapsed from the Start Date. Such bonus shall be paid to Executive upon departure from the Company, upon sale of the Company, or upon a Change of Control of the Company.

6.2.

Payment

Payment of all compensation to Executive hereunder shall be made in accordance with the relevant Company policies in effect from time to time, including normal payroll practices. However, severance payments are payable as provided below.

6.3.

Bonus

From time to time, the Company may pay a bonus to Executive.

Payment of any bonus compensation shall be at the sole discretion of the Board of Directors or the compensation committee of the Board of Directors and the Executive shall have no entitlement to such amount absent a decision by the Company as aforesaid to make such bonus compensation.

Executive shall also be entitled to a bonus determined as follows:

An annual bonus pool for each year starting with the fiscal year ending 3/31/16 and continuing through the Employment Period, will be established in an amount that is equal to 10% of the increase in pre-tax GAAP income in each fiscal year compared to the preceding fiscal year. When comparing a fiscal year over a prior fiscal year, losses in any fiscal year will be considered for the bonus computation. For this Article 6.3, for the fiscal year ending 3/31/16, any pre-tax GAAP loss shall not exceed $500,000. In addition, in any fiscal year ending after 3/31/16, and as determined by the Board of Directors or the compensation committee of the Board of Directors, any incremental expense, or reduced expense, that occurs as a result of raising capital for such purpose shall be excluded as an expense, or as income, from the pre-tax GAAP income calculation,

50% of the bonus pool will be allocated to the CEO,

50% of the bonus pool will be allocated to executive officers (presently defined to include 5 executive officers, excluding the CEO) in ratio to their base pay.

Eligibility for participation in the bonus pool for a year includes a requirement that the person must be employed during the 2-½ months following the end of such fiscal year. A payment will not be made under the bonus pool if the Executive has been terminated for Cause before the payment is received. The bonus pool rules and interpretation will favor the Company, as opposed to participants, and will be subject to interpretation and oversight by the Board of Directors. A bonus will not be paid under this bonus pool in respect to any income resulting from a Change of Control as defined in the Company's 2014 Equity Incentive Plan. The term "pre-tax GAAP income" means GAAP net income before taxes and excluding extraordinary items as defined by GAAP. This bonus will be paid by June 15 of the following fiscal year. Payment may be by cash or equity options equal to the fair value of the stock on such date. There are no third party beneficiaries of this provision, and no non-executive officer or executive officer has a claim to a bonus payment due to this provision nor is the consent of any such person required to modify this bonus provision.

Acquisition bonus. In the event of the sale at a price, agreed upon by a majority of the Directors, that results in a Change of Control of the Company during the term of Executive's employment, Executive will be entitled to a $50,000.00 acquisition bonus. The acquisition bonus will be paid within thirty (30) days after closing of the acquisition.

6.4.

Benefits

The Company shall provide Executive with such benefits as are provided to other senior management of the Company. Benefits shall include at a minimum (i) paid vacation of twenty days per year of full employment, exclusive of legal holidays, as long as the scheduling of Executive's vacation does not interfere with the Company's normal business operations, (ii) medical and dental coverage, and life and disability insurance plans under the same terms as offered to other executives of the Company, (iii) retirement and profit sharing programs as offered to other executives of the Company, (iv) paid holidays as per the Company's policies, and (v) such other benefits and perquisites as are approved by the Board of Directors. The Company has the right to modify conditions of participation, terminate any benefit, or change insurance plans and other providers of such benefits in its sole discretion.

6.5.

Withholding

All sums payable to Executive under this Agreement will be reduced by all federal, state, local, and other withholdings and similar taxes and payments required by applicable law.

7.	OTHER EMPLOYMENT BENEFITS

7.1.

Business Expenses

Upon submission of itemized expense statements in the manner specified by the Company, Executive shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred by Executive in the performance of his duties under this Agreement.

7.2.

Stock Options

Executive will retain and continue to vest his existing stock options in accordance with the existing stock option agreements and the Executive's prior employment agreement.

Executive shall be granted 70,000 non-qualified stock options to acquire shares of the common stock of the Company under the Company's 2014 Equity Incentive Plan. Vesting will be in accordance with the Company's standard option agreements (5 years, with 20% vesting after one year and the balance monthly thereafter).

The initial exercise price for the options shall be at the fair market value of the Company's stock at the signing date of the Agreement by both parties.

The vesting of the 70,000 options referred to above will accelerate immediately prior to a Change of Control as defined in the Company's 2014 Equity Incentive Plan.

Any vested portion of the 70,000 options referred to above shall be exercisable for ninety days after termination of Executive's employment with the Company, or in the case of death or disability (as provided in the Company's 2014 Equity Incentive Plan), unless termination is for Cause in which case the options will terminate at the time of termination of employment. No additional vesting of options shall occur after Executive's death, disability, or cessation of employment with the Company for any reason or no reason.

Issuance of the 70,000 options shall be in accordance with all applicable securities laws and shall have other terms and conditions as generally provided for in the Company's 2014 Equity Incentive Plan and form of the Stock Option Agreement thereunder.

8.	POLICIES AND PROCEDURES

The Company shall have the authority to establish from time to time the policies and procedures not inconsistent with this Agreement to be followed by the Executive in performing services for the Company. Executive shall abide by the provisions of any contract entered into by the Company under which the Executive provides services.

9.	TERMINATION OF EMPLOYMENT

9.1.

For Cause

Notwithstanding anything herein to the contrary, the Company may terminate Executive's employment hereunder for cause for any one of the following reasons: 1) conviction of a felony, any crime involving moral turpitude, or a misdemeanor where imprisonment is imposed, 2) commission of any act of theft, fraud, dishonesty, or falsification of any employment or Company records, 3) improper disclosure of the Company's confidential or proprietary information, 4) any action by the Executive which has a material detrimental effect on the Company's reputation or business, 5) Executive's failure or inability to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to cure, such failure or inability, 6) any breach of this Agreement, which breach is not cured within thirty days following written notice of such breach, or repeated breaches of a similar nature even if cured after notice, 7) a course of conduct amounting to gross incompetence, 8) chronic and unexcused absenteeism, 9) unlawful appropriation of a corporate opportunity, or 10) material misconduct in connection with the performance of any of Executive's duties, including, without limitation, misappropriation of funds or property of the Company, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of the Company, misrepresentation to the Company, or any violation of law or regulations on Company premises or to which the Company is subject. Upon termination of Executive's employment with the Company for cause, the Company shall be under no further obligation to Executive, except to pay all accrued but unpaid base salary, accrued bonuses, and accrued vacation, to the date of termination thereof, and provide such benefits as Executive is entitled to as a matter of law.

9.2.

Without Cause

The Company may terminate Executive's employment hereunder at any time without cause, provided, however, that Executive shall be entitled to severance pay, as discussed below, in addition to accrued but unpaid Base Salary, accrued bonuses, and accrued vacation, but if, and only if, Executive executes a valid and comprehensive release of any and all claims that the Executive may have against the Company, its officers, directors and employees, in a form provided by the Company and Executive executes such form within thirty days of tender or such longer period as the Company may specify. Such release need not release (i) rights under directors and officers and insurance policies; (ii) rights to indemnification to Executive under the Company's certificate of incorporation or bylaws;(iii) vested rights to purchase stock from the Company that are not contingent on the reason for termination of employment; and (iv) rights under this Agreement. No severance payments will be paid until such release is received from Executive and all rescission periods under the release have expired. The severance payments are the sole rights to payment upon termination.

Severance for termination without cause will be in an amount equal to:

X × (24-Y) ÷ 24.

X is Base Salary then in effect.

Y is the number of whole months elapsed between the Start Date and the date of termination of employment.

So, for example, if the termination without cause occurred one month after the Start Date the payment would be 23/24^th of Base Salary then in effect.

The severance payments will be paid in equal installments over the twelve month period after termination, with each payment being on the first banking day of the month. Notwithstanding the prior sentence, if termination is without cause and occurs upon the closing of a Change of Control, as defined in the Company's 2014 Equity Incentive Plan, then severance equal to Base Salary then in effect will be paid in one payment within twenty days after the later of the closing of the Change of Control and such release is received from Executive and all rescission periods under the release have expired.

A failure to renew or extend the term of this Agreement is not a termination without cause.

9.3.

Resignation

Upon termination of employment, Executive shall have automatically resigned from the Board of Directors of the Company and any subsidiary or parent, from all employment positions with the Company, a subsidiary or parent, and from each position as a trustee or administrator of any benefit plan of the Company or any subsidiary or parent. Employee is not entitled to any severance if he resigns from the Company other than upon a resignation for Good Reason (as defined below).

9.4.

Resignation for Good Reason

If the Company has breached a material term of this Agreement and has not cured such breach within thirty (30) days after written notice of the breach from Executive to the Chairman of the Board of Directors and the Chief Financial Officer, then Executive may resign his employment and such resignation will be deemed a resignation for "Good Reason". Executive may also resign for "Good Reason" if there is a Change of Control of the Company that is not the result of a purchase or exchange of stock for Company's outstanding stock. Change of Control shall be determined under the definition of Change of Control within the Company's 2014 Equity Incentive Plan. Upon a resignation for Good Reason Executive will be entitled to the payments and benefits he would receive upon a termination by the Company without cause, so long as Executive has complied with the provisions hereof regarding payments and benefits, including delivering the release provided for in Section 9.2, and subject to the right of the Company to terminate payments under Section 9.6. If Executive does not comply with this Section 9.4 he is only entitled to the payments and benefits he is entitled to if he resigned without Good Reason and Executive has no further claim or right to damages against any person or entity for breach of this Agreement by the Company.

9.5.

Cooperation

After notice of termination, Executive shall cooperate with the Company, as reasonably requested by the Company, to effect a transition of Executive's responsibilities and to ensure that the Company is aware of all matters being handled by Executive.

9.6.

Compensation After Notice of Termination

After notice of termination has been given by either Company or Executive, as provided in this Article, Executive shall be entitled to receive the compensation provided for in this Agreement until the notice period has expired. It is understood that after the written notice is given by either Company or Executive, Executive shall continue to devote substantially all of the Executive's time to the Executive's normal services for the Company during the notice period.

9.7.

Effect of Breach

Without limiting any other rights of the Company, it has no obligation to make any further severance payments if Executive violates Articles 11, 12 or 13.

10.	DISABILITY OF EXECUTIVE

The Company may terminate this Agreement without liability if Executive shall be permanently prevented from properly performing his essential duties hereunder with reasonable accommodation by reason of illness or other physical or mental incapacity for a period of more than sixty consecutive days. Upon such termination, Executive shall be entitled to all accrued but unpaid Base Salary and vacation, such benefits as Executive is entitled to as a matter of law, and the other payments described in this Article 10.

10.1.

Definitions

For purposes of this Agreement, whenever used in this Article 10:

"Total disability" shall mean that the Executive is unable, mentally or physically, whether it is due to sickness, accident, age or other infirmity, to engage in more than fifty percent (50%) of any aspect of the Executive's normal duties as set forth in this Agreement.

"Partial disability" shall mean that the Executive is not subject to total disability and is able to engage in more than fifty percent (50%) of every aspect of the Executive's normal duties as set forth in this Agreement, but that the Executive is unable, mentally or physically, to devote the same amount of time and ability to such services as was devoted prior to the occurrence of such sickness or accident.

10.2.

Total Disability

During a single period of total disability of the Executive, the Executive shall be entitled to receive from the Company, the Executive's Base Salary for the shorter of first three (3) months of disability or until any disability insurance policy available through the Executive's employment begins to pay benefits. If the single period of disability should continue beyond three (3) months, the Executive shall receive only such amount as the Executive shall be entitled to receive under disability insurance coverage on the Executive, if any.

10.3.

Partial Disability

During a period of partial disability of the Executive, the Executive shall receive an amount of compensation computed as follows:

That portion of the Executive's Base Salary which bears the same ratio to the Executive's Base Salary as the amount of time which the Executive is able to devote to the usual performance of services on behalf of the Company during such period bears to the total time the Executive devoted to performing such services prior to the commencement date of the single period of partial disability, and

Such amount shall be calculated by multiplying the Executive's Base Salary by a fraction, the numerator of which shall be the percentage of normal services that the Executive is able to perform and the denominator which shall be the total services that the Executive is able to perform absent the partial disability.

10.4.

Combination of Total and Partial Disability

If a single period of disability of the Executive consists of a combination of total disability and partial disability, the maximum total disability compensation to which the Executive shall be entitled from the Company under this disability provision shall not exceed an amount equal to one (1) times the Executive's Base Salary.

10.5.

Broken Periods of Disability

A period of disability may be continuous or broken. If broken into partial periods of disability which are separated by intervening periods of work, there shall be aggregated together all of such successive partial periods of disability except any period prior to the time when any single period of work extends for six months or longer; and such aggregated periods of disability shall be treated as a single period in determining the amount of disability compensation to which Executive shall be entitled under any provision of this Section.

10.6.

Termination Due to Disability

If and when the period of total or partial disability of the Executive totals six months, Executive's employment with the Company shall automatically terminate. Upon such termination, Executive is entitled to all accrued but unpaid Base Salary, accrued bonuses, and accrued vacation, to the date of termination, and such benefits as the spouse or estate is entitled to as a matter of law. Notwithstanding the foregoing, if the disabled Executive and the Company agree, the disabled Executive may thereafter be employed by the Company upon such terms as may be mutually agreeable.

10.7.

Commencement Date of Disability

The commencement date of a period of disability, whether it is a continuous period or the aggregate of successive partial periods, shall be the first day on which the Executive is disabled.

10.8.

Dispute Regarding Existence of Disability

Any dispute regarding the existence, extent or continuance of the disability shall be resolved by the determination of a majority of three (3) competent physicians, one (1) of whom shall be selected by the Company, one (1) of whom shall be selected by the Executive and the third (3rd) of whom shall be selected by the other two (2) physicians so selected.

10.9.

Death of Executive

In the event the Executive shall die during the term hereof, the Company shall pay to the Executive's surviving spouse, or if the Executive shall leave no surviving spouse, then to the Executive's estate, all accrued but unpaid Base Salary, accrued bonuses, and accrued vacation, to the date of termination thereof, and such benefits as the spouse or estate is entitled to as a matter of law, as well as an amount equal to the payment upon a termination by the Company without cause.

11.	CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENTS

Executive recognizes and acknowledges that all records and information with respect to clients, business associates, vendors, customer or referral lists, contracting parties and referral sources of the Company, and all personal, financial and business and proprietary information of the Company, its employees, officers, directors and shareholders obtained by the Executive during the term of this Agreement and not generally known in the public (the "Confidential Information") are valuable, special, unique and proprietary assets of the Company. The Executive hereby agrees that during the term of this Agreement and following the termination of this Agreement, whether the termination shall be voluntary or involuntary, or with or without cause, or whether the termination is solely due to the expiration of the term of this Agreement, the Executive will not at any time, directly or indirectly, disclose any Confidential Information, in full or in part, in written or other form, to any person, firm, Company, association or other entity, or utilize the same for any reason or purpose whatsoever other than for the benefit of and pursuant to authorization granted by the Company. "Confidential Information" shall also include any information (including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, an idea, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers) that: (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In the case of Company's business, Company's Trade Secrets include (without limitation) information regarding names and addresses of any customers, sales personnel, account invoices, training and educational manuals, administrative manuals, prospective customer leads, in whatever form, whether or not computer or electronically accessible "on-line." For the avoidance of doubt, Confidential Information does not include the names and addresses of customers or any other information, if the fact the person is a customer or such other information is publically known in the public domain or already known to Executive prior to the signing of this Agreement unless the information was conveyed to Executive by the Company.

Executive agrees that all Intellectual Property (as hereinafter defined) conceived or made by him while he is employed by the Company belongs to the Company. Executive will promptly disclose all Intellectual Property to the other officers of the Company. Executive hereby assigns, and will further assign, Executive's full right, title and interest to all Intellectual Property and will execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights (including without limitation the execution and delivery of instruments of further assurance or confirmation) reasonably requested by the Company to assign such Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights and other proprietary rights to such Intellectual Property. All copyrightable works that Executive creates that constitute Intellectual Property shall be considered "work made for hire." For purposes of this Agreement, "Intellectual Property" means inventions, innovations, improvements, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during Executive's employment with the Company that relate to any business, venture or activity being conducted or, to Executive's knowledge, proposed to be conducted by the Company at any time during Executive's employment with the Company.

Upon request, Executive will return any Company property to the Company.

The term "Company" in this Article includes any subsidiary of the Company. This Article will survive termination of this Agreement.

12.	EXCLUSIVE EMPLOYMENT; NON-COMPETE

During employment with the Company, Executive will not do anything to compete with the Company's present or contemplated business, nor will he or she plan or organize any competitive business activity. Executive will not enter into any agreement which conflicts with his duties or obligations to the Company. Executive will not during his employment or within one year after it ends, without the Company's express written consent, directly or indirectly, solicit or encourage any employee, agent, independent contractor, supplier, customer, consultant or any other person or company to terminate or alter a relationship with the Company.

Should Executive wish to serve on other boards of directors or have other minor non-company activities, the Executive will supply a list of all such activities, and to update the list quarterly, including the amount of time spent on each. The Company requests that such activities be held to a reasonable minimum.

The term "Company" in this Article includes any subsidiary of the Company. This Article will survive termination of this Agreement.

If, at the time of enforcement of Articles 12 or 13 of this Agreement, a court or arbitrator holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. By action of its Board the Company may also unilaterally reduce the duration, type of activity, geographic area, or other scope, of Articles 12 or 13.

13.

HIRING

The Executive agrees that during the Executive's employment with the Company and for a period of one year following the termination of this Agreement, whether the termination shall be voluntary or involuntary, or with or without cause, or whether the termination is solely due to the expiration of the term of this Agreement, the Executive will not attempt to hire any employee or independent contractor of the Company or otherwise encourage or attempt to encourage any other Executive or independent contractor of the Company to leave the Company's employ.

The term "Company" in this Article includes any subsidiary of the Company. This Article will survive termination of this Agreement.

14.	ASSIGNMENT AND TRANSFER

Executive's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void. This Agreement may be assumed (but need not be) by any purchaser of substantially all of Company's assets, any corporate successor to Company or any assignee thereof. The Company may assign its rights under Articles 12 and 13 of this Agreement in whole or in part to, a person or entity who buys the assets of the Company, a person or entity who buys the business of the Company related to Executive's line of work with the Company, or a person or entity who buys or is licensed inventions or other proprietary work product with which Executive was involved. Among other things, this means that Executive could be subject to Article 12 and 13 of this Agreement as to more than one person or entity.

15.	NO INCONSISTENT OBLIGATIONS

Executive is aware of no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with his undertaking employment with the Company. Executive will not disclose to the Company, or use, or induce the Company to use, any proprietary information or trade secrets of others. Executive represents and warrants that he has returned all property and confidential information belonging to all prior employers.

16.	INJUNCTIVE RELIEF; ATTORNEYS' FEES

The parties hereto agree that, in the event of breach or threatened breach of any covenants of Executive, the damage or imminent damage to the value and the goodwill of the Company's business shall be inestimable, and that therefore any remedy at law or in damages shall be inadequate. Accordingly, the parties hereto agree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any of such provisions by Executive, in addition to any other relief (including damages) available to the Company under this Agreement or under law. The prevailing party in any action instituted pursuant to this Agreement shall be entitled to recover from the other party its reasonable attorneys' fees and other expenses incurred in such action.

In the event that either party is required to engage the services of legal counsel to enforce the terms and conditions of this Agreement against the other party, regardless of whether such action results in litigation or arbitration, the prevailing party shall be entitled to reasonable attorneys' fees, costs of legal assistants, and other costs from the other party, which shall include any fees or costs incurred at trial or in any appellate proceeding, and expenses and other costs, including any accounting expenses incurred.

17.	GOVERNING LAW

This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado without regard to conflict of law principles that would result in the application of another law.

18.

AMENDMENT

This Agreement may be amended only by a writing signed by Executive and by a duly authorized representative of the Company.

19.	SEVERABILITY

If any term, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Agreement and such term, provision, covenant or condition as applied to other persons, places and circumstances shall remain in full force and effect.

20.	CONSTRUCTION

The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and not strictly for or against the Company or Executive.

21.	RIGHTS CUMULATIVE; EXCLUSIVE RIGHTS TO PAYMENTS AND BENEFITS

The rights and remedies provided by this Agreement are cumulative, and the exercise of any right or remedy by either party hereto (or by its successor), whether pursuant to this Agreement, to any other agreement, or to law, shall not preclude or waive its right to exercise any or all other rights and remedies. The rights to payments and benefits herein are Executive's exclusive rights to payment and benefits from the Company in the event of termination of this Agreement or employment except for amounts which the Company is required to pay under applicable law, and payments under insurance policies (if any) which are not duplicative of payments provided for herein.

22.

NONWAIVER

No failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by an officer of the Company (other than Executive) or other person duly authorized by the Company.

23.

NOTICES

Any and all notices or other communication provided for herein, shall be given by registered or certified mail, return receipt requested, in case of the Company to its principal office, and in the case of the Executive to the Executive's residence address set forth on the first page of this Agreement or to such other address as may be designated by the Executive.

24.	ASSISTANCE IN LITIGATION

Executive shall, during and after termination of employment, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its parent, subsidiaries or affiliates is, or may become a party; provided, however, that such assistance following termination shall be furnished at mutually agreeable times and for mutually agreeable compensation. This Article will survive termination of this Agreement.

25.	ARBITRATION

Any controversy, claim or dispute arising out of or relating to this Agreement or the employment relationship, either during the existence of the employment relationship or afterwards, between the parties hereto, their assignees, their affiliates, their attorneys, or agents, shall be resolved by arbitration in Boulder or Denver, Colorado, such site to be determined by the Company. Such arbitration shall be conducted by the Judicial Arbiters Group (JAG) in accordance with the rules of the American Arbitration Association for commercial arbitration. The following provisions will govern the arbitration. (a) one arbitrator shall be chosen; (b) each party to the arbitration will pay its pro rata share of the expenses and fees of the arbitrator(s), together with other expenses of the arbitration incurred or approved by the arbitrator(s); and (c) arbitration may proceed in the absence of any party if written notice of the proceedings has been given to such party. The parties agree to abide by all decisions and awards rendered in such proceedings. Such decisions and awards rendered by the arbitrator shall be binding, final and conclusive and may be entered in any court having jurisdiction thereof as a basis of judgment and of the issuance of execution for its collection. All such controversies, claims or disputes shall be settled in this manner in lieu of any action at law or equity; provided however, that nothing in this subsection shall be construed as precluding the Company from bringing an action for injunctive relief or other equitable relief or relief under the confidentiality, return of property, no hire, non-solicitation, and invention assignment provisions. The arbitrator shall not have the right to award punitive damages, consequential damages, or speculative damages to either party, but may award lost profits even if they are consequential damages. The parties shall keep confidential the existence of the claim, controversy or disputes from third parties (other than the arbitrator), and the determination thereof, unless otherwise required by law or necessary for the business of the Company. The arbitrator(s) shall be required to follow applicable law.

IF FOR ANY REASON THIS ARBITRATION CLAUSE BECOMES NOT APPLICABLE, AND AS TO ANY MATTER FOR WHICH LITIGATION IS PERMITTED HEREUNDER, THEN EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER MATTER INVOLVING THE PARTIES HERETO, AND SUBMITS TO THE VENUE AND JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN DENVER AND BOULDER COUNTY COLORADO.

26.	COVENANTS INDEPENDENT

Each restrictive covenant on the part of the Executive set forth in this Agreement shall be construed as a covenant independent of any other covenant or provisions of this Agreement or any other agreement which the Company and the Executive may have, fully performed and not executory, and the existence of any claim or cause of action by the Executive against the Company whether predicated upon another covenant or provision of this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any other covenant.

27.	INJUNCTIVE AND EQUITABLE RELIEF

Executive and Company recognize and expressly agree that the extent of damages to Company in the event of a breach by Executive of any restrictive covenant set forth herein would be difficult to ascertain, that the irreparable harm arising out of any breach shall be irrefutably presumed, and that the remedy at law for any breach may be inadequate to compensate the Company. Consequently, the Executive agrees that in the event of a breach of any such covenant, in addition to any other relief to which Company may be entitled, Company shall be entitled to enforce the covenant by injunctive or other equitable relief ordered by a court of competent jurisdiction.

28.	INDEMNIFICATION

The Executive hereby agrees to indemnify and hold the Company and its officers, directors, shareholders and Executives harmless from and against any loss, claim, damage or expense, and/or all costs of prosecution or defense of their rights hereunder, whether in judicial proceedings, including appellate proceedings, or whether out of court, including without limiting the generality of the foregoing, attorneys' fees, and all costs and expenses of litigation, arising from or growing out of the Executive's breach or threatened breach of any representation, warranty or covenant contained herein.

The Company hereby agrees to indemnify and hold Executive harmless from and against any loss, claim, damage or expense, and/or all costs of prosecution or defense of his rights hereunder, whether in judicial proceedings, including appellate proceedings, or whether out of court, including without limiting the generality of the foregoing, attorneys' fees, and all costs and expenses of litigation, arising from or growing out of the Company's breach or threatened breach of any representation, warranty or covenant contained herein.

29.	ACKNOWLEDGMENT

The Executive acknowledges that when this Agreement is concluded, the Executive will be able to earn a living without violating the foregoing restrictions and that the Executive's recognition and representation of this fact is a material inducement to the execution of this Agreement and to Executive's continued relationship with the Company.

30.	SURVIVAL OF COVENANTS

All restrictive covenants contained in this Agreement shall survive the termination of this Agreement.

31.	REPRESENTATION AND WARRANTY OF EXECUTIVE

The Executive acknowledges and understands that the Company has extended employment opportunities to Executive based upon Executive's representation and warranty that Executive is able to perform the work contemplated by this Agreement for the term hereof.

32.	INVALID PROVISION; SEVERABILITY

The invalidity or unenforceability of a particular provision of this Agreement shall not affect the other provisions hereof, and the Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

33.	MODIFICATION

No change or modification of this Agreement shall be valid unless the same is in writing and signed by the parties hereto.

34.

409A

This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A") and shall be construed accordingly. It is the intention of the parties that payments or benefits payable under this Agreement not be subject to the additional tax or interest imposed pursuant to Section 409A. To the extent such potential payments or benefits are or could become subject to Section 409A, the parties shall amend this Agreement with the goal of giving Executive the economic benefits described herein in a manner that does not result in such tax or interest being imposed, so long as such amendment does not adversely affect the Company. Executive shall, at the request of the Company, take any reasonable action (or refrain from taking any action), required to comply with any correction procedure promulgated pursuant to Section 409A.

If a payment that could be made under this Agreement would be subject to additional taxes and interest under Section 409A, the Company in its sole discretion may accelerate some or all of a payment otherwise payable under the Agreement to the time at which such amount is includible in the income of Executive, provided that such acceleration shall only be permitted to the extent permitted under Treasury Regulation § 1.409A-3(j)(4)(vii) and the amount of such acceleration does not exceed the amount permitted under Treasury Regulation § 1.409A-3(j)(vii).

No payment to be made under this Agreement shall be made at a time earlier than that provided for in this Agreement unless such payment is (i) an acceleration of payment permitted to be made under Treasury Regulation § 1.409A-3(j)(4) or (ii) a payment that would otherwise not be subject to additional taxes and interest under Section 409A.

The right to each payment described in this Agreement shall be treated as a right to a series of separate payments and a separately identifiable payment for purposes of Section 409A.

The definition of Good Reason is intended to constitute "good reason" as such term is used in Treas. Reg. §1.409A-1(n)(2) and shall be interpreted and construed accordingly, and to the maximum extent permitted by Section 409A and guidance thereunder, a termination for Good Reason shall be an "involuntary separation from service" as such term is used in Treas. Reg. §1.409A-1(n).

For purposes of Article 9 of this Agreement, "termination" (or any similar term) when used in reference to Executive's employment shall mean "separation from service" with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance issued thereunder, and Executive shall be considered to have terminated employment with the Company when, and only when, Executive incurs a "separation from service" with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance issued thereunder.

35.	ENTIRE AGREEMENT

This Agreement and the related option agreements contain the entire agreement and supersede all prior agreements and understandings, oral or written, with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification, or discharge is sought.

IN WITNESS HEREOF, each party to this Agreement has caused it to be executed on November 14, 2016.

EXECUTIVE COMPANY

/s/ Gregory J. Trudel By: /s/ Robert H. Fries

Gregory J. Trudel Robert H. Fries -- Director

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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 $21,832,732 at December 31, 2016. Operating funds have been provided primarily by issuances of our common stock and warrants, a line of credit, 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.   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.

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, 2016, filed on June 14, 2016.   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. In the quarter ended December 31, 2016, we changed the method of apportioning overhead costs to certain inventory with a higher turnover rate than inventory in general. The effect of this change in estimate was an approximately $127 thousand and $190 thousand decrease in operating and net income for the three and nine month periods ended December 31, 2016, respectively. The effect on both basic earnings per share and diluted earnings per share was a decrease of $0.01 and $0.02 for the three and nine months ended December 31, 2016, respectively.   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. Restricted cash is cash that was deposited to obtain a letter of credit for our importing and exporting activities.   Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, short-term trade receivables, payables and a line of credit. The carrying values of cash and cash equivalents, short-term trade receivables, payables and line of credit approximate their fair value due to their short maturities.   Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents, accounts receivable and a line of credit. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at December 31, 2016. We believe that cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.   We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.   Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at December 31, 2016 of $1,078,673 and at March 31, 2016 of $839,850 included no more than 5% from any one customer.   Warranty Accrual. We provide for the estimated cost of product warranties at the time sales are recognized and include it as other accrued liabilities. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is based upon historical experience and is also affected by product failure rates and material usage incurred in correcting a product failure. Should actual product failure rates or material usage costs differ from our estimates, revisions to the estimated warranty liability would be required.   Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or market. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At December 31, 2016 and March 31, 2016, inventory consisted of the following:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="font-size: 10pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2016</td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="border-bottom: Black 1pt solid">March 31, 2016</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 56%; text-align: left; padding-left: 5.4pt">Raw materials</td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">822,741</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1,469,630</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Finished goods</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">483,234</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">671,117</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-left: 5.4pt">Total gross inventories</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">1,305,975</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">2,140,747</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Less reserve for obsolescence</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(170,000</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(410,000</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Total net inventories</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">1,135,975</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">1,730,747</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>   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. 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 December 31, 2016, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.   Revenue Recognition. Revenue from product sales is recorded when we ship the product and title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. 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. Revenue from engineering services is recognized when the service is performed.   Research and Development Expenses. We expense research and development costs for products and processes as incurred.   Stock-Based Compensation. Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations.   Stock-based compensation expense recognized under ASC 718 for the three and nine months ended December 31, 2016 was $17,998 and $52,411, respectively, and for the three and nine months ended December 31, 2015 was $18,801 and $56,396, respectively, which consisted of stock-based compensation expense related to grants of employee stock options and restricted stock units (“RSUs”).   Segment Reporting. We have concluded that we have one operating segment.   Recent Accounting Pronouncements. We have reviewed all recently issued, but not yet effective, accounting pronouncements. The Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2017. The Company does not expect ASU 2014-09 to have a material/significant impact on its financial statements.   The Financial Accounting Standards Board has also issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (the ASU), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The ASU requires management to perform an assessment every reporting period (including interim periods) to determine whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The ASU also defines that substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating this new guidance and the related impact on the financial statements.   In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, (“ASU 2015-11”). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect ASU 2015-11 to have a material/significant impact on its financial statements.   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. ASU 2016-02 will be effective for the Company beginning in its third quarter of 2020 and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new lease standard on its consolidated financial statements.

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 and RSUs 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 loss per share:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="font-size: 10pt; text-align: justify"> </td><td style="font-size: 10pt; padding-bottom: 1pt"> </td> <td colspan="7" style="font-size: 10pt; padding-bottom: 1pt; text-align: center; vertical-align: bottom">Three Months Ended</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; vertical-align: bottom">Nine Months Ended</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: justify"> </td><td style="font-size: 10pt; padding-bottom: 1pt"> </td> <td colspan="7" style="font-size: 10pt; padding-bottom: 1pt; border-bottom: Black 1pt solid; text-align: center; vertical-align: bottom">December 31, 2015</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; vertical-align: bottom">December 31, 2016</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 40%; text-align: left; padding-left: 0pt">Net loss</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(274,165</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(200,029</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(612,415</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(597,536</td><td style="width: 1%; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 0pt">Weighted-average shares — basic</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,678,344</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,673,225</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,674,548</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,673,225</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Effect of dilutive potential common shares</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt; padding-left: 0pt">Weighted-average shares — diluted</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,678,344</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,673,225</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,674,548</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,673,225</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Net income (loss) per share — basic</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.03</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.02</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Net income (loss) per share — diluted</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.03</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.02</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Antidilutive employee stock options and 	RSUs</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">954,286</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">708,924</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">954,286</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">708,924</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>

Effective December 1, 2013, we extended our noncancelable lease agreement through July 31, 2019 for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease includes $172,176 of leasehold improvements granted by the landlord. The $172,176 was recorded on our condensed balance sheets as leasehold improvements and deferred rent. The leasehold improvements are being amortized over the lesser of the lease term or the assets life and the deferred rent is being amortized against rent expense over the lease term. The minimum future lease payment, by fiscal year, as of December 31, 2016 is as follows:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td colspan="3" style="font-weight: bold; border-bottom: Black 1pt solid">Fiscal Year</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; border-bottom: Black 1pt solid; text-align: center">Amount</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 1%; text-align: left"> </td><td style="width: 43%; text-align: left">2017 (three months remaining)</td><td style="width: 1%; text-align: left"> </td><td style="width: 10%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 43%; text-align: right">69,183</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left"> </td><td style="text-align: left">2018</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">285,034</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"> </td><td style="text-align: left">2019</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">293,585</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: left">2020</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">99,800</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: left">Total</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">747,602</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>   In March 2016, we entered into a loan and security agreement with Crestmark Bank. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 2%, with a floor of 5.5%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively. As of December 31, 2016, we had $283,670 of borrowings from the credit facility and had an additional $406,592 available to borrow.   Aside from the operating lease, we do not have any material contractual commitments requiring settlement in the future.   We are subject to regulation by the United States Food and Drug Administration (“FDA”). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects us and other manufacturers to determine compliance with these regulations. We believe that we were in substantial compliance with all known regulations at December 31, 2016. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in October 2015.

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, RSUs and employee stock purchases for the three and nine months ended December 31, 2016 and 2015, which was allocated as follows:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="font-size: 10pt; text-align: justify"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three Months Ended</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nine Months Ended</td></tr> <tr style="vertical-align: bottom"> <td style="font-size: 10pt; text-align: justify"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2016</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2015</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2016</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2015</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 40%; text-align: justify; padding-left: 5.4pt">Cost of sales</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">819</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">573</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">2,073</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">1,716</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: justify; padding-left: 5.4pt">Sales and marketing</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">3,406</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">2,955</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">9,484</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">8,866</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: justify; padding-left: 5.4pt">General and administrative</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">12,231</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">14,226</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">36,999</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">42,674</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Research and development</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,542</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,047</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">3,855</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">3,140</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Stock-based compensation 	expense</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">17,998</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">18,801</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">52,411</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">56,396</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>   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 105,000 and 285,000 stock options granted, and 11,000 and 11,000 forfeited during the three and nine months ended December 31, 2016, respectively. Share-based compensation cost for RSUs is measured based on the closing fair market value of the Company's common stock on the date of grant. There were 10,130 RSUs exercised and 10,508 forfeited during the three and nine months ended December 31, 2016.   As of December 31, 2016, $230,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

We paid consulting fees of $16,309 and $57,484 to an entity owned by one of our directors during the three and nine months ended December 31, 2016, respectively, and $22,054 and $63,780 during the three and nine months ended December 31, 2015.

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 financial statements.

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expense during the reporting period. Actual results could differ from those estimates. In the quarter ended December 31, 2016, we changed the method of apportioning overhead costs to certain inventory with a higher turnover rate than inventory in general. The effect of this change in estimate was an approximately $127 thousand and $190 thousand decrease in operating and net income for the three and nine month periods ended December 31, 2016, respectively. The effect on both basic earnings per share and diluted earnings per share was a decrease of $0.01 and $0.02 for the three and nine months ended December 31, 2016, respectively.

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. Restricted cash is cash that was deposited to obtain a letter of credit for our importing and exporting activities.

Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, short-term trade receivables, payables and a line of credit. The carrying values of cash and cash equivalents, short-term trade receivables, payables and line of credit approximate their fair value due to their short maturities.

Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents, accounts receivable and a line of credit. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at December 31, 2016. We believe that cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.   We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.   Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at December 31, 2016 of $1,078,673 and at March 31, 2016 of $839,850 included no more than 5% from any one customer.

Warranty Accrual. We provide for the estimated cost of product warranties at the time sales are recognized and include it as other accrued liabilities. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is based upon historical experience and is also affected by product failure rates and material usage incurred in correcting a product failure. Should actual product failure rates or material usage costs differ from our estimates, revisions to the estimated warranty liability would be required.

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or market. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At December 31, 2016 and March 31, 2016, inventory consisted of the following:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="font-size: 10pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2016</td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="border-bottom: Black 1pt solid">March 31, 2016</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 56%; text-align: left; padding-left: 5.4pt">Raw materials</td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">822,741</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1,469,630</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Finished goods</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">483,234</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">671,117</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-left: 5.4pt">Total gross inventories</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">1,305,975</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">2,140,747</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Less reserve for obsolescence</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(170,000</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(410,000</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Total net inventories</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">1,135,975</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">1,730,747</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>

<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="font-size: 10pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2016</td><td style="padding-bottom: 1pt"> </td> <td colspan="3" style="border-bottom: Black 1pt solid">March 31, 2016</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 56%; text-align: left; padding-left: 5.4pt">Raw materials</td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">822,741</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1,469,630</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Finished goods</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">483,234</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">671,117</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-left: 5.4pt">Total gross inventories</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">1,305,975</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">2,140,747</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Less reserve for obsolescence</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(170,000</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(410,000</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Total net inventories</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">1,135,975</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">1,730,747</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>

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. 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 December 31, 2016, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.

Revenue Recognition. Revenue from product sales is recorded when we ship the product and title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. 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. Revenue from engineering services is recognized when the service is performed.

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

Stock-Based Compensation. Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations.   Stock-based compensation expense recognized under ASC 718 for the three and nine months ended December 31, 2016 was $17,998 and $52,411, respectively, and for the three and nine months ended December 31, 2015 was $18,801 and $56,396, respectively, which consisted of stock-based compensation expense related to grants of employee stock options and restricted stock units (“RSUs”).

Segment Reporting. We have concluded that we have one operating segment.

Recent Accounting Pronouncements. We have reviewed all recently issued, but not yet effective, accounting pronouncements. The Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 (Revenue from Contracts with Customers), which is effective for annual reporting periods beginning after December 15, 2017. The Company does not expect ASU 2014-09 to have a material/significant impact on its financial statements.   The Financial Accounting Standards Board has also issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (the ASU), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The ASU requires management to perform an assessment every reporting period (including interim periods) to determine whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The ASU also defines that substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating this new guidance and the related impact on the financial statements.   In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, (“ASU 2015-11”). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect ASU 2015-11 to have a material/significant impact on its financial statements.   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. ASU 2016-02 will be effective for the Company beginning in its third quarter of 2020 and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new lease standard on its consolidated financial statements.

<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="font-size: 10pt; text-align: justify"> </td><td style="font-size: 10pt; padding-bottom: 1pt"> </td> <td colspan="7" style="font-size: 10pt; padding-bottom: 1pt; text-align: center; vertical-align: bottom">Three Months Ended</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; vertical-align: bottom">Nine Months Ended</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: justify"> </td><td style="font-size: 10pt; padding-bottom: 1pt"> </td> <td colspan="7" style="font-size: 10pt; padding-bottom: 1pt; border-bottom: Black 1pt solid; text-align: center; vertical-align: bottom">December 31, 2015</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; vertical-align: bottom">December 31, 2016</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 40%; text-align: left; padding-left: 0pt">Net loss</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(274,165</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(200,029</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(612,415</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(597,536</td><td style="width: 1%; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 0pt">Weighted-average shares — basic</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,678,344</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,673,225</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,674,548</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">10,673,225</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Effect of dilutive potential common shares</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt; padding-left: 0pt">Weighted-average shares — diluted</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,678,344</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,673,225</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,674,548</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">10,673,225</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Net income (loss) per share — basic</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.03</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.02</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Net income (loss) per share — diluted</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.03</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.02</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">(0.06</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 0pt">Antidilutive employee stock options and 	RSUs</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">954,286</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">708,924</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">954,286</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">708,924</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>

<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td colspan="3" style="font-weight: bold; border-bottom: Black 1pt solid">Fiscal Year</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; border-bottom: Black 1pt solid; text-align: center">Amount</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 1%; text-align: left"> </td><td style="width: 43%; text-align: left">2017 (three months remaining)</td><td style="width: 1%; text-align: left"> </td><td style="width: 10%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 43%; text-align: right">69,183</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left"> </td><td style="text-align: left">2018</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">285,034</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left"> </td><td style="text-align: left">2019</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">293,585</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: left">2020</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">99,800</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: left">Total</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">747,602</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>

<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="font-size: 10pt; text-align: justify"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three Months Ended</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="7" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nine Months Ended</td></tr> <tr style="vertical-align: bottom"> <td style="font-size: 10pt; text-align: justify"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2016</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2015</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2016</td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2015</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 40%; text-align: justify; padding-left: 5.4pt">Cost of sales</td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">819</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">573</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">2,073</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">1,716</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: justify; padding-left: 5.4pt">Sales and marketing</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">3,406</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">2,955</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">9,484</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">8,866</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: justify; padding-left: 5.4pt">General and administrative</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">12,231</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">14,226</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">36,999</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">42,674</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Research and development</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,542</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,047</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">3,855</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">3,140</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Stock-based compensation 	expense</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">17,998</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">18,801</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">52,411</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">56,396</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> </table>

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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Dec. 31, 2016	Jan. 31, 2017
Document and Entity Information
Entity Registrant Name	ENCISION INC
Entity Central Index Key	0000930775
Document Type	10-Q
Document Period End Date	Dec. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		10,683,355
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3

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Condensed Balance Sheets - USD ($)	Dec. 31, 2016	Mar. 31, 2016
Current assets:
Cash and cash equivalents	$ 63,867	$ 292,840
Restricted cash	25,000	25,000
Accounts receivable, net of allowance for doubtful accounts of $20,000 at December 31, 2016 and $9,000 at March 31, 2016	1,078,673	839,850
Inventories, net of reserve for obsolescence of $170,000 at December 31, 2016 and $410,000 at March 31, 2016	1,135,975	1,730,747
Prepaid expenses	137,264	91,989
Total current assets	2,440,779	2,980,426
Equipment, at cost:
Furniture, fixtures and equipment	3,160,388	3,950,710
Accumulated depreciation	(2,647,395)	(3,389,533)
Equipment, net	512,993	561,177
Patents, net of accumulated amortization of $195,433 at December 31, 2016 and $153,494 at March 31, 2016	257,875	252,889
Other assets	16,392	15,926
TOTAL ASSETS	3,228,039	3,810,418
Current liabilities:
Accounts payable	508,417	355,890
Accrued compensation	220,733	246,203
Other accrued liabilities	234,682	257,506
Line of credit	283,670	387,491
Deferred rent	30,384	30,384
Total current liabilities	1,277,886	1,277,474
Long-term liabilities:
Deferred rent	48,109	70,896
Total liabilities	1,325,995	1,348,370
Commitments and contingencies (Note 4)
Shareholders' equity:
Preferred stock, no par value: 10,000,000 shares authorized; none issued and outstanding	0	0
Common stock and additional paid-in capital, no par value: 100,000,000 shares authorized; 10,683,355 shares issued and outstanding at December 31 and March 31, 2016	23,734,776	23,682,365
Accumulated (deficit)	(21,832,732)	(21,220,317)
Total shareholders' equity	1,902,044	2,462,048
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 3,228,039	$ 3,810,418

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Condensed Balance Sheets (Parenthetical) - USD ($)	Dec. 31, 2016	Mar. 31, 2016
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 20,000	$ 9,000
Inventories, reserve for obsolescence (in dollars)	170,000	410,000
Accumulated amortization	$ 195,433	$ 153,494
Preferred stock, par value	$ 0	$ 0
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock and additional paid-in capital, par value	$ 0	$ 0
Common stock and additional paid-in capital, shares authorized	100,000,000	100,000,000
Common stock and additional paid-in capital, shares issued	10,683,355	10,683,355
Common stock and additional paid-in capital, shares outstanding	10,683,355	10,683,355

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Condensed Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
Condensed Statements of Operations - USD ($)	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Income Statement [Abstract]
NET REVENUE	$ 2,229,870	$ 2,292,663	$ 6,657,875	$ 7,047,424
COST OF REVENUE	1,165,414	1,118,658	3,394,204	3,519,205
GROSS PROFIT	1,064,456	1,174,005	3,263,671	3,528,219
OPERATING EXPENSES:
Sales and marketing	638,735	626,001	1,882,337	1,952,191
General and administrative	383,106	354,397	1,087,239	1,087,641
Research and development	300,392	339,746	880,760	929,400
Total operating expenses	1,322,233	1,320,144	3,850,336	3,969,232
OPERATING LOSS	(257,777)	(146,139)	(586,665)	(441,013)
Interest expense, net	(15,093)	(10,047)	(44,681)	(27,448)
Other income (expense), net	(1,295)	(43,843)	18,931	(129,075)
Interest expense and other income (expense), net	(16,388)	(53,890)	(25,750)	(156,523)
LOSS BEFORE PROVISION FOR INCOME TAXES	(274,165)	(200,029)	(612,415)	(597,536)
Provision for income taxes	0	0	0	0
NET LOSS	$ (274,165)	$ (200,029)	$ (612,415)	$ (597,536)
Net loss per share-basic and diluted	$ (0.03)	$ (0.02)	$ (0.06)	$ (0.06)
Weighted average shares-basic and diluted	10,678,344	10,673,225	10,674,548	10,673,225

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Condensed Statements of Cash Flows - USD ($)	9 Months Ended
Condensed Statements of Cash Flows - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Operating activities:
Net loss	$ (612,415)	$ (597,536)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	168,357	243,867
Share-based compensation expense	52,411	56,396
Provision for (recovery from) doubtful accounts, net	11,000	(4,500)
(Recovery from) provision for inventory obsolescence, net	(240,000)	40,762
Change in operating assets and liabilities:
Accounts receivable	(249,823)	107,910
Inventories	834,772	295,958
Prepaid expenses and other assets	(45,741)	(16,996)
Accounts payable	152,527	(232,709)
Accrued compensation and other accrued liabilities	(71,081)	(160,351)
Net cash generated by (used in) operating activities	7	(267,199)
Investing activities:
Acquisition of property and equipment	(104,057)	(36,104)
Patent costs	(21,102)	(20,125)
Net cash (used in) investing activities	(125,159)	(56,229)
Financing activities:
Paydown of credit facility, net change	(103,821)	(171,986)
Net cash provided by financing activities	(103,821)	(171,986)
Net decrease in cash and cash equivalents	(228,973)	(151,442)
Cash and cash equivalents, beginning of period	292,840	258,656
Cash and cash equivalents, end of period	$ 63,867	$ 107,214

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ORGANIZATION AND NATURE OF BUSINESS

9 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND NATURE OF BUSINESS

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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

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, 2016, filed on June 14, 2016.

	December 31, 2016			March 31, 2016
Raw materials	$	822,741		$	1,469,630
Finished goods		483,234			671,117
Total gross inventories		1,305,975			2,140,747
Less reserve for obsolescence		(170,000	)		(410,000	)
Total net inventories	$	1,135,975		$	1,730,747

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

Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At December 31, 2016, 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.

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, companies 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.

Segment Reporting. We have concluded that we have one operating segment.

The Financial Accounting Standards Board has also issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (the ASU), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The ASU requires management to perform an assessment every reporting period (including interim periods) to determine whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The ASU also defines that substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating this new guidance and the related impact on the financial statements.

In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, (“ASU 2015-11”). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect ASU 2015-11 to have a material/significant impact on its financial statements.

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. ASU 2016-02 will be effective for the Company beginning in its third quarter of 2020 and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new lease standard on its consolidated financial statements.

XML 19 R8.htm IDEA: XBRL DOCUMENT

BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE

9 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE

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

	Three Months Ended						Nine Months Ended
	December 31, 2015						December 31, 2016
Net loss	$	(274,165	)	$	(200,029	)	$	(612,415	)	$	(597,536	)
Weighted-average shares — basic		10,678,344			10,673,225			10,674,548			10,673,225
Effect of dilutive potential common shares		—			—			—			—
Weighted-average shares — diluted		10,678,344			10,673,225			10,674,548			10,673,225
Net income (loss) per share — basic	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)
Net income (loss) per share — diluted	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)
Antidilutive employee stock options and RSUs		954,286			708,924			954,286			708,924

XML 20 R9.htm IDEA: XBRL DOCUMENT

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Fiscal Year		Amount
	2017 (three months remaining)		69,183
	2018		285,034
	2019		293,585
	2020		99,800
	Total	$	747,602

Aside from the operating lease, we do not have any material contractual commitments requiring settlement in the future.

We are subject to regulation by the United States Food and Drug Administration (“FDA”). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects us and other manufacturers to determine compliance with these regulations. We believe that we were in substantial compliance with all known regulations at December 31, 2016. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in October 2015.

XML 21 R10.htm IDEA: XBRL DOCUMENT

SHARE-BASED COMPENSATION

9 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHARE-BASED COMPENSATION

	Three Months Ended				Nine Months Ended
	December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Cost of sales	$	819	$	573	$	2,073	$	1,716
Sales and marketing		3,406		2,955		9,484		8,866
General and administrative		12,231		14,226		36,999		42,674
Research and development		1,542		1,047		3,855		3,140
Stock-based compensation expense	$	17,998	$	18,801	$	52,411	$	56,396

As of December 31, 2016, $230,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References + Details

XML 22 R11.htm IDEA: XBRL DOCUMENT

RELATED PARTY TRANSACTION	9 Months Ended
RELATED PARTY TRANSACTION	Dec. 31, 2016
Related Party Transactions [Abstract]
RELATED PARTY TRANSACTION	We paid consulting fees of $16,309 and $57,484 to an entity owned by one of our directors during the three and nine months ended December 31, 2016, respectively, and $22,054 and $63,780 during the three and nine months ended December 31, 2015.

XML 23 R12.htm IDEA: XBRL DOCUMENT

SUBSEQUENT EVENTS	9 Months Ended
SUBSEQUENT EVENTS	Dec. 31, 2016
Subsequent Events [Abstract]
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 financial statements.

XML 24 R13.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, filed on June 14, 2016.

Use of Estimates in the Preparation of Financial Statements

Cash and Cash Equivalents

Fair Value of Financial Instruments

Concentration of Credit Risk

Warranty Accrual

Inventories

	December 31, 2016			March 31, 2016
Raw materials	$	822,741		$	1,469,630
Finished goods		483,234			671,117
Total gross inventories		1,305,975			2,140,747
Less reserve for obsolescence		(170,000	)		(410,000	)
Total net inventories	$	1,135,975		$	1,730,747

Property and Equipment

Research and Development Expenses

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

Stock-Based Compensation

Segment Reporting

Segment Reporting. We have concluded that we have one operating segment.

Recent Accounting Pronouncements

The Financial Accounting Standards Board has also issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (the ASU), which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The ASU requires management to perform an assessment every reporting period (including interim periods) to determine whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The ASU also defines that substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating this new guidance and the related impact on the financial statements.

XML 25 R14.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Schedule of inventory

	December 31, 2016			March 31, 2016
Raw materials	$	822,741		$	1,469,630
Finished goods		483,234			671,117
Total gross inventories		1,305,975			2,140,747
Less reserve for obsolescence		(170,000	)		(410,000	)
Total net inventories	$	1,135,975		$	1,730,747

XML 26 R15.htm IDEA: XBRL DOCUMENT

BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE (Tables)

9 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Schedule of calculation of basic and diluted net loss per share

	Three Months Ended						Nine Months Ended
	December 31, 2015						December 31, 2016
Net loss	$	(274,165	)	$	(200,029	)	$	(612,415	)	$	(597,536	)
Weighted-average shares — basic		10,678,344			10,673,225			10,674,548			10,673,225
Effect of dilutive potential common shares		—			—			—			—
Weighted-average shares — diluted		10,678,344			10,673,225			10,674,548			10,673,225
Net income (loss) per share — basic	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)
Net income (loss) per share — diluted	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)
Antidilutive employee stock options and RSUs		954,286			708,924			954,286			708,924

XML 27 R16.htm IDEA: XBRL DOCUMENT

COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Schedule of minimum future lease payments, by fiscal year

Fiscal Year		Amount
	2017 (three months remaining)		69,183
	2018		285,034
	2019		293,585
	2020		99,800
	Total	$	747,602

XML 28 R17.htm IDEA: XBRL DOCUMENT

SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of stock-based compensation expense related to employee stock options

	Three Months Ended				Nine Months Ended
	December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Cost of sales	$	819	$	573	$	2,073	$	1,716
Sales and marketing		3,406		2,955		9,484		8,866
General and administrative		12,231		14,226		36,999		42,674
Research and development		1,542		1,047		3,855		3,140
Stock-based compensation expense	$	17,998	$	18,801	$	52,411	$	56,396

XML 29 R18.htm IDEA: XBRL DOCUMENT

ORGANIZATION AND NATURE OF BUSINESS (Details Narrative) - USD ($)	Dec. 31, 2016	Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accumulated deficit	$ 21,832,732	$ 21,220,317

XML 30 R19.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	Dec. 31, 2016	Mar. 31, 2016
Inventories
Raw materials	$ 822,741	$ 1,469,630
Finished goods	483,234	671,117
Total gross inventories	1,305,975	2,140,747
Less reserve for obsolescence	(170,000)	(410,000)
Total net inventories	$ 1,135,975	$ 1,730,747

XML 31 R20.htm IDEA: XBRL DOCUMENT

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Mar. 31, 2016
Property, Plant and Equipment [Line Items]
Federally insured limit	$ 250,000		$ 250,000
Accounts Receivable	1,078,673		1,078,673		$ 839,850
Stock-based compensation expense	$ 17,998	$ 18,801	$ 52,411	$ 56,396
Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			5 years
Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			7 years

XML 32 R21.htm IDEA: XBRL DOCUMENT

BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Earnings Per Share [Abstract]
Net loss	$ (274,165)	$ (200,029)	$ (612,415)	$ (597,536)
Weighted-average shares - basic	10,678,344	10,673,225	10,674,548	10,673,225
Effect of dilutive potential common shares	0	0	0	0
Weighted-average shares - diluted	10,678,344	10,673,225	10,674,548	10,673,225
Net income (loss) per share-basic	$ (.03)	$ (.02)	$ (.06)	$ (.06)
Net income (loss) per share-diluted	$ (0.03)	$ (0.02)	$ (0.06)	$ (0.06)
Antidilutive employee stock options and RSUs	954,286	708,924	954,286	708,924

XML 33 R22.htm IDEA: XBRL DOCUMENT

COMMITMENTS AND CONTINGENCIES (Details)	Dec. 31, 2016 USD ($)
Minimum future lease payments, by fiscal year
2017 (three months remaining)	$ 69,183
2018	285,034
2019	293,585
2020	99,800
Total	$ 747,602

XML 34 R23.htm IDEA: XBRL DOCUMENT

COMMITMENTS AND CONTINGENCIES (Details Narrative)	Dec. 31, 2016 USD ($)
Commitments And Contingencies Details Narrative
Amount of borrowings	$ 283,670
Amount available to borrow	$ 406,592

- Definition

The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.

+ References + Details

XML 35 R24.htm IDEA: XBRL DOCUMENT

SHARE-BASED COMPENSATION (Details) - USD ($)	3 Months Ended		9 Months Ended
SHARE-BASED COMPENSATION (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 17,998	$ 18,801	$ 52,411	$ 56,396
Cost Of Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	819	573	2,073	1,716
Selling And Marketing Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	3,406	2,955	9,484	8,866
General And Administrative Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	12,231	14,226	36,999	42,674
Research And Development Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Stock-based compensation expense	$ 1,542	$ 1,047	$ 3,855	$ 3,140

XML 36 R25.htm IDEA: XBRL DOCUMENT

SHARE-BASED COMPENSATION (Details Narrative)	Dec. 31, 2016 USD ($)
Share-based Compensation Details Narrative
Unrecognized compensation costs related to nonvested stock options	$ 230,000

XML 37 R26.htm IDEA: XBRL DOCUMENT

RELATED PARTY TRANSACTION (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
RELATED PARTY TRANSACTION (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Director [Member]
Related Party Transaction [Line Items]
Consulting fees paid	$ 16,309	$ 22,054	$ 57,484	$ 63,780

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