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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-2
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended JUNE 30, 1997
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ___________
COMMISSION FILE NUMBER 0-20127
ESCALON MEDICAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER.)
California 33-0272839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
182 Tamarack Circle
Skillman, New Jersey 08558
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 609-497-9141
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class: Name of each exchange on which registered:
-------------------- ------------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, without par value
-------------------------------
Class A Redeemable Common Stock Purchase Warrants, exercisable for the purchase
of one share of Common Stock, without par value
- --------------------------------------------------------------------------------
Class B Redeemable Common Stock Purchase Warrants, exercisable for the purchase
of one share of Common Stock, without par value
- --------------------------------------------------------------------------------
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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $2,657,434. Such aggregate market value was computed
by reference to the bid and asked price of the Common Stock in the when-issued
trading market on September 11, 1997. For purposes of making this calculation
only, the registrant has defined affiliates as including all directors and
beneficial owners of more than ten percent of the Common Stock of the Company.
The number of shares of the registrant's Common Stock outstanding as of
September 11, 1997 was 10,517,519.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PRELIMINARY NOTE:
This Form 10-K/A-2 is being filed to replace Item 1, Business, and Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations, in their entirety.
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Escalon Medical Corp. (formerly known as Intelligent Surgical Lasers,
Inc.) ("Escalon" or the "Company") operates in the healthcare market
specializing in the development, marketing and distribution of ophthalmic
medical devices and pharmaceutical products. In addition, it is currently
developing its proprietary ophthalmic drug delivery system. In February 1996,
the Company acquired substantially all of the assets and certain liabilities of
Escalon Ophthalmics, Inc. ("EOI"), a developer and distributor of ophthalmic
surgical products. Prior to the acquisition, the Company devoted substantially
all of its resources to the research and development of its ultrafast laser
systems designed for the treatment of ophthalmic disorders. As a result of the
acquisition of EOI, Escalon changed its market focus to its surgical products
and pharmaceutical business and while it is no longer manufacturing laser
systems, it is continuing its efforts to find a strategic partner to develop and
commercialize its proprietary laser technology. During the fourth quarter of
fiscal year 1996, the Company moved its corporate headquarters from San Diego,
California to Skillman, New Jersey.
SURGICAL PRODUCTS BUSINESS
The Company develops, manufactures and distributes over 40 ophthalmic
surgical products which are utilized primarily by the vitreoretinal ophthalmic
surgeon. In addition, the Company contract manufactures certain of its products
for other third-party companies. The following is a summary of the Company's key
surgical product lines:
AdatoSil(R) 5000 Silicone Oil ("AdatoSil 5000")
AdatoSil 5000, which the Company distributes under a license and
distribution agreement with Adatomed/Chiron Vision, is a specialty product used
in "worst case" detached retina surgery as a mechanical aid in the reattachment
procedure. The use of highly purified silicone oil, like AdatoSil 5000, as a
tamponade has become a standard of care in AIDS patients suffering from retinal
detachment secondary to CMV retinitis infection. During fiscal 1997, sales of
AdataSil 5000 accounted for approximately 56% of the Company's revenues.
ISPAN Intraocular Gases
The Company distributes two intraocular gas products, C3F8 and SF6,
which are used by vitreoretinal surgeons as a temporary tamponade in detached
retina surgery. Under a non-exclusive distribution agreement from Scott Medical
Products ("Scott"), Escalon distributes packages of Scott gases in canisters
containing 25 grams or less of gas. Along with the intraocular gases, the
Company manufactures and distributes a patented disposable universal gas kit
which delivers the gas from the canister to the patient.
Viscous Fluid Transfer Systems
To complement the use of AdatoSil 5000, Escalon markets several viscous
fluid transfer systems and related disposable syringe products which aids the
surgeon in the process of injecting and extracting the oil. Adjustable pressures
and vacuums provided by the equipment allow the surgeon to manipulate the flow
of oil during surgery.
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Fiber Optic Light Source Products
Light source and fiber optic products are widely used by the
vitreoretinal surgeon during surgery. The Company offers the surgeon a complete
line of light sources along with a variety of fiber optic probes and illuminated
tissue manipulators.
PHARMACEUTICAL PRODUCTS BUSINESS
Betadine(R) 5% Sterile Ophthalmic Prep Solution ("Betadine 5%")
Currently, Escalon distributes one pharmaceutical product, Betadine 5%,
a prescription pre-operative povidone-iodine preparation used to sterilize the
cornea, conjunctiva, and periocular (surfaces around the eye) regions of the eye
prior to ophthalmic surgery. Betadine 5% is distributed by Escalon under a
license and distribution agreement with The Purdue Frederick Company. Escalon's
objective is to have this product used in most of the two million ophthalmic
surgeries which take place in the United States each year. Sales of this product
accounted for approximately 15% of the Company's revenues in fiscal 1997.
Povidone-Iodine 2.5% Solution -- Ophthalmia Neonatorum
In an effort to prevent ophthalmia neonatorum, newborns in the United
States are treated with erythromycin or silver nitrate. However, bacterial
resistance to erythromycin can occur and chemical toxicity is common with the
use of silver nitrate. Povidone-iodine, a broad spectrum antimicrobial, active
against bacteria, viruses and fungi, has often been suggested as a viable
alternative for the prevention of this disease. Recently, a clinical study
completed outside the United States by Drs. Isenberg, Apt and Wood of UCLA has
provided support for this hypothesis. A patent claiming this use was issued to
UCLA and Escalon has acquired an exclusive license from UCLA to develop and
market the 2.5% solution. The Company's intent is to seek joint venture or
strategic partnership arrangements to fund the development and potential
commercialization of this product.
Ocufit SR(R)
One of the Company's major development projects relates to its Ocufit SR
(sustained release) drug delivery system. Ocufit SR is designed to make the
treatment of eye disease easier and more effective for people requiring topical
eye drop therapy.
The patented Ocufit SR ocular insert, a flexible rod-shaped formulation
made of medical grade silicone rubber, can be loaded with a variety of drugs.
This insert, which can be retained comfortably in the upper or lower fornix, is
not affected by eye or lid movement. Drug release can be controlled so that
targeted amounts of drug are delivered for defined time periods, lasting weeks
to months.
The first Ocufit SR product, which is being developed jointly by Escalon
and The West Company ("West"), which has expertise in injection molded
elastomers and drug delivery systems development, is Ocufit diclofenac.
Diclofenac, a non-steroidal anti-inflammatory drug ("NSAID"), is prescribed
post-operatively to reduce inflammation of the ocular tissue. Current U.S. sales
of diclofenac in a topical drop form approximates $30 million per year. It is
anticipated that this market will grow as NSAID compounds are becoming more
widely prescribed.
Escalon anticipates filing an Investigational New Drug application with
the Food and Drug Administration by the end of calendar year 1997 and begin the
Phase I clinical trial by June 1998. The Company's overall strategy is to seek
strategic partnership arrangements for the further development and
commercialization of Ocufit diclofenac and other Ocufit applications.
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ULTRAFAST LASER PRODUCTS BUSINESS
The Company for the past several years has devoted substantially all of
its resources to the development of its proprietary ultrafast laser systems for
the treatment of a broad range of eye disorders. Escalon's solid-state
picosecond (one trillionth of a second) Nd: YLF
(Neodymium:Yitrium-Lithium-Fluoride) laser systems are designed to be more
precise than lasers systems utilizing currently available technologies.
With the acquisition of EOI, the Company has chosen to change its focus
to its surgical products and pharmaceutical business and as such, is no longer
manufacturing its laser systems. In order to further develop and commercialize
it laser technology, Escalon is currently negotiating a joint venture
arrangement in which the Company, along with an academic institution partner,
will license their intellectual laser properties to a newly formed company in
return for an equity interest in the new company and future royalties on product
sales. If created, this joint venture company would have the responsibility of
funding and developing the laser technology through to commercialization. No
assurances can be given, however, that the above noted negotiations will be
successful. If such negotiations are not successful, the Company's intends to
continue its search for a strategic partner to fund and develop the ultrafast
laser technology.
RESEARCH AND DEVELOPMENT
The Company conducts its medical device product development at its
Mukwonago, Wisconsin facility. The Ocufit SR research and development is being
conducted at The West Company laboratories pursuant to a collaborative
arrangement. Given the change in market focus, research and development
activities at its laser laboratory in Irvine, California has been limited during
fiscal 1997. Research and development expenditures for fiscal years 1997, 1996
and 1995 amounted to $1.6 million, $1.7 million and $2.8 million, respectively.
MANUFACTURING AND DISTRIBUTION
Escalon leases 7,500 square feet of space in Mukwonago, Wisconsin for
its Surgical Products operations. The facility is currently used for
engineering, product design and development and manufacturing and product
assembly. Various vendors are used for subcontract component manufacture,
assembly and sterilization. Manufacturing facilities include a class 10,000
clean room. All of the Company's Surgical Products are distributed from its
Wisconsin facility. Livingston Healthcare Services Inc., New Castle, Delaware,
currently serves as a warehousing and distribution facility for Betadine 5%. For
each new product Escalon develops, the manufacture, testing and marketing of
such product entails risk of product liability. Product liability insurance is
carried by Escalon to cover the primary risk.
Although the Company no longer manufactures laser systems, it is seeking
to establish a joint venture arrangement for the further development and
commercialization of its laser technology.
MARKETING AND SALES
Escalon's independent sales force carries out direct promotion and sales
of its products. Currently, Escalon sells most of its ophthalmic device and
instrument products directly to the end user. However, Betadine 5% is primarily
sold through traditional drug wholesale channels.
The Company's five independent sales representatives are based in New
Jersey, Wisconsin, Missouri, Florida and California. These independent sales
representatives market to teaching institutions, key hospitals and eye surgery
centers, focusing primarily on physicians and operating room personnel
performing vitreoretinal surgery. Notwithstanding Escalon's vitreoretinal
interest, these sales representatives pursue leads for Betadine 5% in all
institutions and promote other products as required.
The Company does not anticipate additional sales of its current laser
systems given its change in market focus.
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SERVICE AND SUPPORT
Escalon maintains a full service program for all products sold.
Warranties exist on all products against defects and performance. Surgical
Product repairs are made at the Wisconsin facility and returns are handled by
customer service personnel.
The Company maintains its laser systems through Company-trained
independent technicians. Service for the laser products is coordinated from the
Company's Wisconsin facility. Service and maintenance are available on a time
and materials basis.
THIRD PARTY REIMBURSEMENT
It is expected that the Company's products will be purchased primarily
by ophthalmologists and hospitals, which will then bill various
third-party-payers for the health care services provided to their patients.
These payers include Medicare, Medicaid and private insurers. Government
agencies generally reimburse at a fixed rate based on the procedure performed.
In addition, third-party-payers may deny reimbursement if they determine that
any procedure performed using any one of the Company's products was unnecessary,
inappropriate, not cost-effective, experimental or used for a non-approved
indication.
PATENTS AND ROYALTIES
The pharmaceutical and medical device communities place considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. Escalon's policy is to protect its technology by
aggressively obtaining patent protection for all of its developments and
products, both in the United States and in selected countries outside the United
States. The Company's Surgical Products and pharmaceutical technology are
covered by thirteen issued United States patents and one issued Taiwanese patent
which expire at varying dates between 2005 and 2012. In addition, one United
States patent is currently pending. With respect to the Company's ultrafast
laser systems, fourteen patents have been issued or allowed and two additional
patent applications have been filed by the Company in the United States. The
patents related to the Company's ultrafast laser systems expire at varying dates
between 2006 and 2013. It is the Company's policy to file for patent protection
in those foreign countries in which the Company believes that protection is
necessary to protect its economic interests. The Company intends to vigorously
defend its patents if the need arises.
The Company licenses a laser patent from Patlex Corporation. Under the
patent license agreement, the Company has agreed to pay royalties on a
royalty-bearing component of the laser systems with respect to laser system
sales until the expiration of the licensed patent in May 2005.
COMPETITION
There are numerous direct and indirect competitors of Escalon in the
United States and abroad. These companies include: ophthalmic-oriented companies
that market a broad portfolio of products, including prescription ophthalmic
pharmaceuticals, ophthalmic devices, consumer products (such as contact lens
cleaning solution) and other eye care products; large integrated pharmaceutical
companies that market a limited number of ophthalmic pharmaceuticals in addition
to many other pharmaceuticals; and smaller specialty pharmaceutical and
biotechnology companies that are engaged in the development and
commercialization of prescription ophthalmic pharmaceuticals and products, and
possibly drug delivery systems.
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The ophthalmic market is highly fragmented with several large companies
dominating the industry. The Company believes that these large companies capture
approximately 50% of the overall ophthalmic market. The balance of the market is
composed of smaller companies ranging from start-up entities to established
niche market players. The ophthalmic market in general is intensely competitive
with each company eager to expand its market share. As a result of the intense
competition, the Company believes that many of the industry's smaller companies
will either consolidate or fail. Escalon's strategy is to compete primarily on
the basis of technological innovation to which it has proprietary rights.
Escalon believes, therefore, that its success will depend in large part upon
obtaining and maintaining exclusive marketing rights covering its current and
future products through licenses, the issuance of patents and certain other
government actions. At the same time, Escalon recognizes that there are other
young and innovative companies which may develop competitive technologies.
Although the Company has numerous competitors in the vitreoretinal
market, Escalon believes that it is in a niche market with regards to its Ocufit
SR business. Specifically, the Company is unaware of any competitors which have
sustained drug release technology similar to Ocufit SR. There is, however, at
least one company that Escalon is aware of that has developed technology based
on "once-a-day" drug release. The Company can make no assurance that additional
competition will not develop in the vitreoretinal market.
HUMAN RESOURCES
As of June 30, 1997, Escalon employed 18 full-time employees and two
part-time employees. Eight of Escalon's full-time employees are in general
administrative and marketing positions, six are in Surgical Products
manufacturing, three are in Surgical Products engineering and one is in quality
assurance. In addition, the Company utilizes one consultant to handle the
Company's regulatory and clinical affairs. Escalon also has five independent
sales representatives who market primarily Escalon products. Escalon's employees
are not covered by a collective bargaining agreement and Escalon considers its
relations with employees to be good.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and the notes thereto which are set forth elsewhere herein.
OVERVIEW
On February 12, 1996, the Company acquired all of the assets and certain
liabilities of Escalon Ophthalmics, Inc. ("EOI"). Prior to the acquisition, the
Company was in the development stage and devoting substantially all of its
resources to the research and development of laser systems designed for the
treatment of ophthalmic disorders. Upon completion of the acquisition, the
Company changed its market focus and is now engaged in developing, marketing and
distributing ophthalmic medical devices and pharmaceuticals. The Company is also
developing its ophthalmic drug delivery system to complement its other
businesses. Although the Company is no longer manufacturing laser systems, the
Company is attempting to find a strategic partner to further develop and
commercialize its ophthalmic laser technology. The results of operations for the
year ended June 30, 1996 include the results of operations of EOI subsequent to
the acquisition. Sales of products acquired from EOI are made primarily to
hospitals and physicians throughout the United States. As a result of the
acquisition, the Company is no longer in the development stage for financial
reporting purposes.
The Company has recorded losses from inception and expects that
operating losses will continue as the Company continues research and development
relating to the application of its drug delivery technology and until product
sales generate sufficient revenues to fund its continuing operations.
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The Company expects that results of operations may fluctuate from
quarter to quarter for a number of reasons, including: (i) anticipated order and
shipment patterns of the Company's products; and (ii) general competitive and
economic conditions of the health care market.
RESULTS OF OPERATIONS
Years Ended June 30, 1996 and 1997
Product revenues increased to $5,431,282 in fiscal year 1997 from
$2,341,073 in fiscal year 1996. This increase of $3,090,209, or 132%, relates
primarily to having twelve months of sales in fiscal 1997 from product lines
acquired from EOI as compared to only five months of like-kind sales during
fiscal year 1996. However, trends in the Company's product lines are showing
increases in unit sales of AdatoSil 5000 Silicone Oil, Betadine 5% Sterile
Ophthalmic Prep Solution and ISPAN intraocular gases coupled with decreases in
unit sales of the Company's capital equipment and related disposable product
lines. With regards to product revenues from AdatoSil 5000, the Company
anticipates that a competitor's product will be introduced during fiscal 1998
which may result in a decrease in future unit sales and related revenues.
Additionally, subsequent to the year ended June 30, 1997, the Company's
distributorship relating to the ISPAN intraocular gases was modified from an
exclusive to a non-exclusive basis as a result of not meeting the minimum unit
purchase requirement. The Company believes that this contractual change will not
have a material impact on the Company's current or future operations.
Cost of goods sold totaled $2,650,360, or 49% of revenues, for the year
ended June 30, 1997 as compared to $1,228,907, or 52% of revenues, for fiscal
year 1996. The overall dollar increase in cost of goods sold for fiscal 1997 is
due to the increase in sales noted above. The decrease in cost of goods sold as
a percentage of product revenues has resulted primarily from a 3% increase in
the selling price of AdatoSil 5000 Silicone Oil, the Company's primary product,
coupled with the strengthening of the U.S. dollar against the German mark which
has lowered the costs associated with AdatoSil 5000 Silicone Oil purchases.
Research and development expenses decreased from $1,722,998 in fiscal
year 1996 to $1,570,674 in fiscal year 1997, a decrease of $152,324 or 9%. The
decrease in research and development expenses relates to a decrease of $847,161
in the expenditures associated with the Company's laser development program
offset by an increase of $694,837 in expenditures associated with the Company's
surgical products and ophthalmic drug delivery programs acquired from EOI. The
reduction in the laser development program is a direct result of a reduction is
workforce and other cost reduction programs implemented during the fiscal year
1996 in connection with the change in the Company's market focus. The Company's
research and development expenses consist primarily of direct expenses
associated with compensation and benefits, consulting and research and
development arrangements with third parties and indirect expenses such as
materials, equipment and supplies.
Marketing and general and administrative expenses increased $992,121 or
36% to $3,715,727 for the year ended June 30, 1997 as compared to $2,723,606 in
fiscal year 1996. Of this increase, (i) $2,439,255 relates to the inclusion of
the marketing and general and administrative operations acquired from EOI for
twelve months in fiscal 1997 as compared to only five months in fiscal year
1996; (ii) $107,079 is related to legal fees associated with the Company's
ongoing litigation; and (iii) offset by a decrease of $1,554,213 in marketing
and general and administrative expenses associated with the Company's laser
development projects resulting from the aforementioned cost reduction programs.
Included in the results of operations for the year ended June 30, 1996
is a $1.0 million non-cash charge for the in-process technology acquired from
EOI. At June 30, 1997, the Company took a non-cash charge to operations of
$3,318,888 in connection with the write down of goodwill and license and
distribution rights acquired from EOI. This write down is due to the impairment
of value resulting from changes in the estimates of future sales associated with
the license and distribution agreements.
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Interest income decreased to $140,705 in fiscal year 1997 from $257,093
in fiscal year 1996. The decrease is due to a reduction in the levels of cash
and cash equivalents available for investment.
Years Ended June 30, 1995 and 1996
Product revenues increased to $2,341,073 in fiscal year 1996 from
$170,000 in fiscal year 1995. This increase of $2,171,073 is attributable to the
February 12, 1996 EOI acquisition, offset by a decrease in laser system sales of
approximately $33,000. The Company's ability to sell its laser systems in the
United States is subject to certain FDA limitations based on the status of the
Company's various clinical trials. International sales of its laser systems,
while not directly limited by the FDA, are also indirectly impacted by the
status of these clinical trials in the United States. In addition, the Company
has reduced the size of its laser operations workforce in order to preserve
working capital. Given these factors, it is not likely that laser sales volumes
will increase significantly beyond the current levels, until such time as the
viability of these various applications are further demonstrated through FDA
approvals to advance into later phases of the clinical trials.
Cost of sales totaled $1,228,907, or 52% of revenues, for the year ended
June 30, 1996 as compared to $98,803, or 58% of revenues, for fiscal year 1995.
The increase in cost of sales is attributable to the EOI acquisition.
As such, a gross margin analysis comparing fiscal years would not be meaningful.
Research and development expenses decreased from $2,776,474 in fiscal
year 1995 to $1,722,998 in fiscal year 1996, a decrease of $1,053,476 or 38%.
Research and development expenses decreased $1,502,434 as a direct result of a
reduction in workforce and other cost reduction programs implemented in
connection with the Company's change in focus of its operations. This decrease
was partially offset by (i) an increase in certain non-cash expenses of $308,696
relating to the write-down of inventories to anticipated net realizable value,
the ongoing depreciation of test and applications research systems, the
write-down of certain patents pending; and (ii) an increase of $140,262 relating
to the research and development operations acquired from EOI. The Company's
research and development expenses consist primarily of direct expenses
associated with compensation and benefits and indirect expenses such as
materials, equipment and supplies.
Marketing and general and administrative expenses increased $818,663 or
43% to $2,723,606 for the year ended June 30, 1996 as compared to $1,904,943 in
fiscal year 1995. This increase consisted of (i) $1,162,937 related to the
operations acquired from EOI; (ii) approximately $260,000 of severance costs
associated with the acquisition of EOI; and (iii) approximately $130,000 of
legal fees associated with the Company's ongoing litigation. The increase was
offset by a decrease in marketing, general and administrative expenses of
$734,274 resulting from decreases in personnel, travel and marketing costs
related to the workforce and other cost reduction programs involving the
Company's laser operations.
Included in the results of operations for the year ended June 30, 1996
is a $1.0 million non-cash charge for the in-process technology acquired from
EOI.
Interest income decreased to $257,093 in fiscal year 1996 from $341,685
in fiscal year 1995. The decrease is due to a reduction in the levels of cash
and cash equivalents available for investment.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of
$1,752,648 as compared to $2,584,503 at June 30, 1996. The Company's short-term
investments at June 30, 1997 and 1996 were $235,000 and $795,970, respectively.
The net decrease in short-term investments is attributable to the maturing of
short-term investments since June 30, 1996. The net decrease in cash and cash
equivalents and short-term investments of $1,392,825 relates primarily to the
loss from operations, excluding non-cash expenses.
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The Company anticipates that the cash and cash equivalents and the
interest earned thereon, together with funds generated from future product
sales, should be adequate to satisfy its capital requirements, based on current
levels of operations, through the end of fiscal year 1998. In the longer term,
however, the Company will seek corporate partnering, licensing and other fund
raising opportunities necessary to satisfy the significant expenditures
anticipated in connection with the development of its surgical products and
ophthalmic drug delivery operations.
Pursuant to various collaborative research and development, technology
license, and consulting arrangements relating to the Company's drug delivery
technology, the Company has financial commitments of $190,000 and $75,000 to be
paid during fiscal years 1998 and 1999, respectively. Other significant
expenditures may be incurred in connection with the legal proceedings discussed
in "Item 3. Legal Proceedings."
As of June 30, 1997, the Company had federal income tax and state income
tax net operating loss carryforwards of approximately $40.8 million and $16.6
million, respectively. Under the provision of Section 382 of the Internal
Revenue Code, use of the Company's net operating loss carryforwards is subject
to an annual limitation since a change in ownership of more than 50% occurred
within a three year specified testing period. Such annual limitation could range
from approximately $150,000 to $2.2 million. Federal and state net operating
loss carryforwards will begin to expire in 2001. The Company also had federal
and state research credit carryforwards of $562,000 and $174,000, respectively,
as of June 30, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ESCALON MEDICAL CORP.
(Registrant)
Dated: April 3, 1998
By: /s/JOHN T. RICH
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John T. Rich
Vice President, Finance and Administration
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