The KFLOP inputs are 3.3V inputs that can tolerate +5V. Most encoders run from a 5V supply. Yours appears to run from +12V. Do NOT connect 12V outputs to KFLOP. Do you have a specification on your encoder? If not you will need to scope the outputs to see what level they are. They might need pull up resistors. You might be able to reduce the voltage with a voltage divider.