<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
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 No. 0-20127
ESCALON MEDICAL CORP.
(Exact name of Registrant as specified in its charter)
California 33-0272839
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
351 East Conestoga Road
Wayne, PA 19087
(610) 688-6830
(Address, including zip code, and
telephone number, including area code,
of Registrant's principal executive offices)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Date: February 8, 1999 3,242,185 Shares of Common Stock, no par value
<PAGE> 2
ESCALON MEDICAL CORP.
INDEX
Part I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended December 31, 1997 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1997 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of
Proceeds 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
ESCALON MEDICAL CORP. AND SUBSIDARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1998
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,263,967 $ 2,406,665
Investments 330,016 259,000
Note receivable -- 15,000
Accounts receivable, net 940,378 873,975
Other receivables 75,000 75,000
Inventory, net 462,042 688,079
Other current assets 79,088 264,954
------------ ------------
Total current assets 4,150,491 4,582,673
Furniture and equipment, at cost, net 134,734 130,522
Long-term note receivable 112,500 137,500
License and distribution rights, net 878,838 809,657
Patents, net 475,175 468,649
Goodwill, net 968,295 904,451
Other assets 14,095 14,930
------------ ------------
$ 6,734,128 $ 7,048,382
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 287,192 $ 505,922
Accrued and other liabilities 398,284 356,019
------------ ------------
Total current liabilities 685,476 861,941
------------ ------------
Shareholders' Equity:
Preferred stock, no par value; 2,000,000 shares authorized; 900 and 818
shares issued and outstanding at June 30, 1998
and December 31, 1998, respectively 747,321 679,231
Common stock, no par value; 35,000,000 shares authorized;
3,021,027 issued at June 30, 1998 and 3,152,164 shares issued
less 134,980 Treasury shares at December 31, 1998 45,253,597 45,321,687
Treasury stock -- (118,108)
Accumulated deficit (39,952,266) (39,696,369)
------------ ------------
Total shareholders' equity 6,048,652 6,186,441
------------ ------------
$ 6,734,128 $ 7,048,382
============ ============
</TABLE>
Note: The consolidated balance sheet at June 30, 1998 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements
3
<PAGE> 4
ESCALON MEDICAL CORP. AND SUBSIDARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Product revenues $ 1,509,476 $ 1,774,675 $ 2,880,640 $ 3,460,097
Costs and expenses:
Cost of goods sold 671,561 792,148 1,277,576 1,509,004
Research and development 120,089 185,813 216,478 341,250
Marketing, general and administrative 795,444 715,010 1,459,763 1,397,973
----------- ----------- ----------- -----------
Total costs and expenses 1,587,094 1,692,971 2,953,817 3,248,227
----------- ----------- ----------- -----------
Income (loss) from operations (77,618) 81,704 (73,177) 211,870
----------- ----------- ----------- -----------
Other income and expenses:
Other income 75,000 -- 75,000 --
Interest income 23,164 33,090 49,767 70,018
Interest expense (46) (1,426) (149) (1,451)
----------- ----------- ----------- -----------
Total other income and expense 98,118 31,664 124,618 68,567
----------- ----------- ----------- -----------
Net income $ 20,500 $ 113,368 $ 51,441 $ 280,437
=========== =========== =========== ===========
Basic net income per share $ 0.008 $ 0.034 $ 0.020 $ 0.084
=========== =========== =========== ===========
Diluted net income per share $ 0.008 $ 0.027 $ 0.019 $ 0.068
=========== =========== =========== ===========
Weighted average shares - basic 2,629,375 3,017,184 2,629,375 3,028,668
=========== =========== =========== ===========
Weighted average shares - diluted 2,682,847 4,181,743 2,656,111 4,103,394
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
ESCALON MEDICAL CORP. AND SUBSIDARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 51,441 $ 280,437
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 164,613 174,722
Net loss on retirement of fixed assets 3,860 --
Write off of patents -- 24,805
Change in operating assets and liabilities:
Accounts receivable (126,597) 66,403
Inventories (106,741) (226,037)
Other current assets 13,550 (185,866)
Accounts payable, accrued and other liabilities (179,456) 189,965
----------- -----------
Net cash provided from (used in) operating activities (179,330) 324,429
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments -- (259,000)
Proceeds from maturities of short-term investments 235,000 330,016
Short term note receivable -- (15,000)
Purchase of furniture and equipment (3,650) (24,643)
Proceeds from sale of furniture and equipment 1,000 --
Long term note receivable (25,000) (25,000)
Long term receivable (75,000) --
License and distribution rights cost (99,109) (2,924)
Patent costs (30,295) (28,197)
Other assets (3,586) (835)
----------- -----------
Net cash used in investing activities (640) (25,583)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock offering costs (36,750) --
Principal payments under capital lease obligations (1,690) --
Purchase of treasury stock -- (118,108)
Payment of preferred stock dividends -- (38,040)
----------- -----------
Net cash used in financing activities (38,440) (156,148)
----------- -----------
Net increase (decrease) in cash and cash equivalents (218,410) 142,698
Cash and cash equivalents, beginning of period 1,752,648 2,263,967
----------- -----------
Cash and cash equivalents, end of period $ 1,534,238 $ 2,406,665
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
ESCALON MEDICAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Escalon
Medical Corp. (formerly known as Intelligent Surgical Lasers, Inc.) and its
subsidiary Escalon Pharmaceutical Inc. (jointly referred to as "Escalon" or the
"Company") have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements presented in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented. Operating results for interim periods are not necessarily indicative
of the results that may be expected for the fiscal year ending June 30, 1999.
For more complete financial information, the accompanying condensed
financial statements should be read in conjunction with the audited consolidated
financial statements for the year ended June 30, 1998 included in the Company's
annual report on Form 10-K.
2. REVERSE STOCK SPLIT
On November 20, 1997, the Company held its annual meeting of
shareholders at which time the shareholders approved a one-for-four reverse
stock split (the "Reverse Split") of the Company's Common Stock (the "Common
Stock"). As a result of the Reverse Split, each shareholder now has one share of
Common Stock for every four shares owned before the Reverse Split. The Reverse
Split caused certain adjustments to be made to the Company's Class A, B and C
Redeemable Common Stock Purchase Warrants. The number of warrants necessary for
purchase of a Common Stock share has been increased by a factor of four.
All references in the condensed financial statements with regard to
shares, per share amounts and share prices have been adjusted for the Reverse
Split.
3. PER SHARE INFORMATION
In December 1997, the Company adopted the Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" ("SFAS No.128").
Earnings per share information has been restated for all prior periods presented
as prescribed by SFAS No. 128. Outstanding warrants have not been included in
computing basic and diluted net income per share for the three or six-month
periods ended December 31, 1997 and 1998 because their exercise prices exceed
market price and the effect of any conversion would be antidilutive. Employee
stock options are included in these computations when the average market price
exceeds their exercise price. This situation is reflected for the periods ending
December 31, 1997.
6
<PAGE> 7
3. PER SHARE INFORMATION (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share:
Net income $ 20,500 $ 113,368 $ 51,441 $ 280,437
Preferred stock dividends -- (12,270) -- (24,540)
----------- ----------- ----------- -----------
Numerator for basic earnings per
share-income available to Common
shareholders 20,500 101,098 51,441 255,897
Effect of dilutive securities:
Preferred stock dividends -- 12,270 -- 24,540
----------- ----------- ----------- -----------
Numerator for diluted earnings per
share-income available to Common
shareholders after assumed conversions $ 20,500 $ 113,368 $ 51,441 $ 280,437
Denominator:
Denominator for basic earnings per
share - weighted average shares 2,629,375 3,017,184 2,629,375 3,028,668
Effect of dilutive securities:
Convertible preferred stock -- 1,164,559 -- 1,074,726
Employee stock options 53,472 -- 26,736 --
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
weighted average and
assumed conversion 2,682,847 4,181,743 2,656,111 4,103,394
=========== =========== =========== ===========
Basic earnings per share $ 0.008 $ 0.034 $ 0.020 $ 0.084
=========== =========== =========== ===========
Diluted earnings per share $ 0.008 $ 0.027 $ 0.019 $ 0.068
=========== =========== =========== ===========
</TABLE>
4. INVENTORIES
Inventories, stated at the lower of cost (determined on a first-in,
first-out basis) or market, consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1998
<S> <C> <C>
Raw materials/work in process $ 170,370 $ 145,143
Finished goods 472,672 728,936
---------- -----------
643,042 874,079
Valuation allowance (181,000) (186,000)
---------- -----------
$ 462,042 $ 688,079
========== ===========
</TABLE>
7
<PAGE> 8
5. SHAREHOLDERS' EQUITY
The following table summarizes the changes in the Company's
shareholders' equity accounts for the six-months ended December 31, 1998.
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Accumulated
------------------------------ -----------------------------
Shares Amount Shares Amount Stock Deficit
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 900 $ 747,321 3,021,027 $ 45,253,597 $ -- $(39,952,266)
Preferred stock conversion (82) (68,090) 131,137 68,090 -- --
Purchase of treasury stock -- -- -- -- (118,108) --
Preferred stock dividends -- -- -- -- -- (24,540)
Net income -- -- -- -- -- 280,437
============ ============ ============ ============ ============ ============
Balance at December 31,1998 818 $ 679,231 3,152,164 $ 45,321,687 $ (118,108) $(39,696,369)
============ ============ ============ ============ ============ ============
</TABLE>
7. CONTINGENCIES
Litigation
As previously reported in reports filed with the Securities and
Exchange Commission, on or about June 8, 1995, a purported class action
complaint captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et
al., 95 Civ. 4299, was filed in the U.S. District Court for the Southern
District of New York as a "related action" to In Re Blech Securities Litigation
(a litigation matter which the Company is no longer a party to). The plaintiff
purports to represent a class of all purchasers of the Company's stock from
November 17, 1993, to and including September 21, 1994. The complaint alleges
that the Company, together with certain of its officers and directors, David
Blech and D. Blech & Co., Inc., issued a false and misleading prospectus in
November 1993 in violation of Sections 11, 12 and 15 of the Securities Act of
1933. The complaint also asserts claims under Section 10(b) of the Securities
Exchange Act of 1934 and common law. Actual and punitive damages in an
unspecified amount are sought, as well as a constructive trust over the proceeds
from the sale of stock pursuant to the offering. On June 6, 1996, the court
denied a motion by the Company and the named officers and directors to dismiss
the Kozloski complaint and, on July 22, 1996, the Company Defendants filed an
answer to the complaint denying all allegations of wrongdoing and asserting
various affirmative defenses. On March 31, 1997, the court issued Pretrial Order
No. 2, which set discovery cut off and ready trial dates, as well as providing
for certain coordination of discovery in the Kozloski case, and certain related
cases involving other issuers and D. Blech & Co. Discovery in the related
actions is ongoing. It currently is scheduled to be completed by March 15, 1999
and the cases ready for trial by May 20, 1999. Class certification motions have
been dismissed for failure to prosecute, with leave to renew.
In an effort to curtail its legal expenses related to this litigation,
while continuing to deny any wrongdoing, the Company has reached an agreement in
principle to settle this action on its behalf and on behalf of its former and
present officers and directors, for $500,000. This settlement is subject to
agreement upon final documentation and court approval. The Company's directors
and officers insurance carrier has agreed to fund a significant portion of the
settlement amount. In view of the anticipated settlement, no discovery or motion
practice is proceeding in the Kozloski case.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains certain forward-looking statements that are
subject to risks and uncertainties. Forward-looking statements include certain
information relating to pursuit of future acquisitions and joint venture
opportunities, expenses associated with defending itself in litigation matters
and the effect of such matters on the Company's operations, liquidity and
capital resources, fluctuations in results of operations, as well as information
contained elsewhere in this Report where statements are preceded by, followed by
or include the words "believes," "expects," "anticipates," or similar
expressions. For such statements the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The forward-looking statements contained in this
document are subject to risks and uncertainties that could cause the assumptions
underlying such forward-looking statements and the actual results to differ
materially from those expressed in or implied by the statements. The most
important factors that could prevent the Company from achieving its goals -- and
cause the assumptions underlying the forward-looking statements and the actual
results to differ materially from those expressed in or implied by those
forward-looking statements -- include, without limitation and in addition to
those discussed in the documents filed by the Company with the Securities and
Exchange Commission (including Amendment No. 3 to a Registration Statement on
Form S-3 filed by the Company with the Securities and Exchange Commission on
April 30, 1998 (Registration No. 333-44513)), the following: (i) Future capital
needs and the uncertainty of additional funding (whether through the financial
markets, collaborative or other arrangements with strategic partners, or from
other sources); and (ii) The outcome of, and costs associated with, litigation
matters.
OVERVIEW
The following discussion should be read in conjunction with the interim
financial statements and the notes thereto which are set forth elsewhere in this
report on Form 10-Q.
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. In order to further develop and commercialize its laser technology,
the Company, in October 1997, licensed its intellectual laser properties to a
newly formed company, IntraLase Corporation, in return for an equity interest
and future royalties on product sales. IntraLase will have the responsibility of
funding and developing the laser technology through to commercialization. Sales
of products acquired from EOI are made primarily to hospitals and physicians
throughout the United States.
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; (ii) lead times to produce the
Company's products; and (iii) general competitive and economic conditions of the
health care market.
9
<PAGE> 10
RESULTS OF OPERATIONS
Three and Six-month Periods Ended December 31, 1997 and 1998
Product revenues increased $265,199, or 18%, to $1,774,675 for the
three-month period ended December 31, 1998 as compared to $1,509,476 for the
quarter ended December 31, 1997. For the six-month period ended December 31,
1998, product revenues increased $579,457, or 20%, to $3,460,097 as compared to
$2,880,640 for the same interim period in 1997. The revenue growth for the
quarter reflects continued growth in unit sales of Adatosil(R)5000 Silicone Oil,
Betadine(R)5% Sterile Ophthalmic Prep Solution, disposable products and
accessories. These gains were partially offset by decreased unit sales of
ISPAN(TM)Intraocular Gases, OEM products and the Company's capital equipment
products. For the six-month period ended December 31, 1998, the Company
experienced unit sales increases for all of its product lines when compared to
1997. Contract manufacturing revenues vary from period to period depending on
when orders are received and the lead times to produce the product.
Cost of goods sold totaled $792,148, or 45% of revenues, for the
three-month period ended December 31, 1998 as compared to $671,561, or 44% of
revenues, for the same period last year. For the six-month period ended December
31, 1998, cost of good sold totaled $1,509,004, or 44% of revenues, as compared
to $1,277,576, or 44% of revenues for the same period last year. Escalon has
experienced unfavorable cost increases for both the quarter and year-to-date due
to a weakening U.S. dollar against the German mark. This increases the cost
associated with the purchasing Adatosil(R)5000 Silicone Oil, the Company's
primary product. The on-going emphasis on cost control in our manufacturing
operations has allowed the Company to maintain these margins.
Research and development expenses increased $65,724, or 55%, for the
three-month period ended December 31, 1998 when compared to the same period in
1997. When compared to the six-month period ended December 31, 1998 expenses
increased $124,772, or 58%, from 1997. On a quarterly basis this increase
resulted from expenses relating to pre-clinical trails, prototype development
and ISO/CE certification costs. The increase on a six-month basis when compared
to 1997, resulted from the write-off of patent costs, increased staff salaries,
consulting fees, prototype and ISO/CE expenditures, and pre-clinical trial
expenditures. On December 28th, an Investigational New Drug (IND) application
for Ocufit SR(R) (sustained release) drug delivery system was filed with the
U.S. Food and Drug Administration (FDA). Initial human clinical trials are
expected to begin in early 1999, upon FDA clearance.
Marketing, general and administrative expenses decreased $80,434, or
10%, for the three-month period ended December 31, 1998 when compared to the
same period in 1997; and decreased $61,790, or 4%, for the six-month periods
ending December 31, 1998 and 1997. The quarterly savings resulted from
consolidation of corporate functions (instituted in January 1998), reduced
litigation expenses, changes to the commission structure and reduction of
advertising expenses. In the second quarter of fiscal 1998, the Company
experienced a $101,000 favorable accrual reversal as a result of licensing its
laser technology to IntraLase Corp. When the six-month periods are compared, the
aforementioned savings were mitigated by foreign currency losses and spending
related to stock listing issues.
In the second quarter of fiscal 1998, the Company reported $75,000 of
one-time income related to licensing its laser technology. For both the quarter
and six-months ended December 31, 1998, there was no comparable event.
10
<PAGE> 11
Interest income increased to $33,090 and $70,018 for the three and
six-month periods ended December 31, 1998 from $23,164 and $49,767 for the same
period in 1997. The increase is the result of increased cash and cash
equivalents available for investment. The January 1998 convertible preferred
stock offering and positive earnings provided these additional resources.
There is no provision for income taxes for the three and six-month
periods ended December 31, 1998 due to the utilization of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents of
$2,406,665 as compared to $2,263,967 at June 30, 1998. The Company's short-term
investments at December 31, 1998 and June 30, 1998 were $259,000 and $330,016,
respectively. The net increase in cash and cash equivalents of $142,698 arises
from increased profitability. While increasing inventory levels, acquiring
treasury stock and making a deposit to be applied to the retirement of the
preferred stock, the Company increased its cash position.
The Company anticipates that the cash and cash equivalents and the
interest earned thereon, together with funds generated from future product sales
and external financing, should be adequate to satisfy its capital requirements,
based on current levels of operations, through December 31, 1999. In the longer
term, however, the Company will continue to pursue corporate partnering,
licensing and other fund raising opportunities to satisfy the significant
expenditures anticipated with development of its pharmaceutical products and
drug delivery programs.
In September, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Common Stock. The price, timing and manner of
these purchases are at the discretion of management. No stock has been
repurchased pursuant to this authority.
On January 21, 1999, Escalon completed acquisition of the Vascular
Access Business Unit of Radiance Medical Systems, Inc. (formerly CardioVascular
Dynamics Inc.) The initial payment of $1.1 million was made using the Company's
cash reserves. An additional $1.0 million is payable when operations relocate to
Wisconsin, a move anticipated within the next six to nine months.
Escalon obtained a $2.0 million credit facility with PNC Bank on
January 25, 1999. This includes a $1.0 million working line of credit and a $1.0
million five-year term loan. Portions of these funds were used to repurchase the
outstanding Series A 6% Convertible Preferred Stock. The remainder will be used
to complete funding of the Vascular Access acquisition.
In November, the Company acquired an option to repurchase all
outstanding Series A 6% Convertible Preferred Stock. On February 1, 1999 the
Company exercised that option and repurchased its Preferred Stock for $818,000,
plus accrued dividends. As part of that agreement, the Company also issued
225,000 shares of its Common Stock.
The Company anticipates additional expenditures may be incurred in
connection with the legal proceedings as discussed in Part II. See "Part II.
Item 1. Legal Proceedings."
11
<PAGE> 12
YEAR 2000 ISSUES
As previously reported on in Form 10-K, that the Company is addressing
the potential millennium problem. A Year 2000 software upgrade for the financial
module is on-site and being evaluated. None of the manufacturing equipment or
products use date sensitive software, thereby minimizing our risk. The Company
also believes that the products and equipment acquired for the Vascular Access
business similarly provide minimal exposure for the same reason. The cost of
further remediation will not have a material adverse impact on the Company's
financial position.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 7 of the Notes to Condensed Financial
Statements in Part I is incorporated herein by reference thereto.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In November, the Company acquired an option to repurchase all
outstanding Series A 6% Convertible Preferred Stock. On February 1, 1999 the
Company exercised that option and repurchased its Preferred Stock for $818,000,
plus accrued dividends. As part of that agreement, the Company also issued
225,000 shares of its Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 21, 1999, the Company held its Annual Meeting of
Shareholders. The results of that meeting will be provided in Form 10-Q for the
quarter ending March 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on January 21, 1999 and is
incorporated herein by reference. The content of that report is
summarized below:
The Company reported that on January 21, 1999, Escalon Vascular
Access, Inc. (a wholly owned subsidiary) and Radiance Medical
Systems, Inc. entered into an Asset Sale and Purchase Agreement.
Pursuant to this agreement, the Company acquired the assets of
Radiance's Vascular Access Business for an aggregate purchase
price of $2,104,442.19 in cash. The Company also agreed to pay
royalties based on future sales of products of the Vascular
Access Business for a period of five years following the closing
of this sale. A $1,104.442.19 payment was made at closing and
the remaining $1 million will be payable upon completion of
transfer of Vascular Access Business to the Company's New
Berlin, Wisconsin production facility. During the interim
period, Radiance will continue manufacturing vascular access
products on a subcontract basis.
12
<PAGE> 13
SIGNATURES
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.
ESCALON MEDICAL CORP.
(Registrant)
DATE: February 12, 1999 By: /s/ Richard J. DePiano
-----------------------------------------
Richard J. DePiano
Chairman and Chief Executive Officer
DATE: February 12, 1999 By: /s/ Douglas R. McGonegal
-----------------------------------------
Douglas R. McGonegal
Vice President Finance and Chief Financial
Officer (Principal Financial
and Accounting Officer) and Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,406,665
<SECURITIES> 259,000
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0
679,231
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</TABLE>
