<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, 1999
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)
Delaware 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 2, 2000 3,242,184 Shares of Common Stock, $0.001 par value
---------------- ---------
<PAGE> 2
ESCALON MEDICAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended December 31, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to Vote of Security Holders 11
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 SUBSIDARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1999
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,854,240 $ 3,039,913
Cash and cash equivalents - restricted 1,000,000 1,000,000
Note Receivable 15,000 15,000
Accounts receivable, net 1,063,829 1,464,590
Inventory, net 1,117,208 1,017,481
Other current assets 142,235 195,143
------------ ------------
Total current assets 7,192,512 6,732,127
Furniture and equipment, at cost, net 449,555 469,501
Long-term note receivable 150,000 150,000
License and distribution rights, net 537,138 251,585
Patents, net 495,923 183,459
Goodwill, net 1,510,207 1,187,385
Other assets 67,438 155,880
------------ ------------
$ 10,402,773 $ 9,129,937
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank $ 1,000,000 $ 1,000,000
Current portion of long-term debt 200,000 200,000
Accounts payable 434,308 282,800
Accrued and other liabilities 1,757,432 568,427
------------ ------------
Total current liabilities 3,391,740 2,051,227
Long-term debt, net of current portion 733,332 633,330
------------ ------------
Total liabilities 4,125,072 2,684,557
------------ ------------
Shareholders' Equity:
Common stock, no and $0.001 par value; 35,000,000 shares authorized;
3,377,164 and 3,242,184 shares issued, less 134,980 and 0 Treasury
shares at June 30, 1999 and December 31, 1999, respectively 46,024,811 46,024,811
Treasury stock (118,108) --
Accumulated deficit (39,629,002) (39,579,431)
------------ ------------
Total shareholders' equity 6,277,701 6,445,380
------------ ------------
$ 10,402,773 $ 9,129,937
============ ============
</TABLE>
Note: The consolidated balance sheet at June 30, 1999 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 SUBSIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Product revenues $ 1,774,675 $ 886,534 $ 3,460,097 $ 2,310,212
Costs and expenses:
Cost of goods sold 792,148 421,358 1,509,004 1,154,198
Research and development 185,813 231,950 341,250 467,383
Marketing, general and administrative 715,010 1,039,468 1,397,973 1,978,070
----------- ----------- ----------- -----------
Total costs and expenses 1,692,971 1,692,776 3,248,227 3,599,651
----------- ----------- ----------- -----------
Income (loss) from operations 81,704 (806,242) 211,870 (1,289,439)
----------- ----------- ----------- -----------
Other income and expenses:
Gain on sale of Silicone Oil product line -- -- -- 1,848,215
Write-off of Ocufit -- (455,112) -- (455,112)
Interest income 33,090 44,903 70,018 93,787
Interest expense (1,426) (14,791) (1,451) (29,772)
----------- ----------- ----------- -----------
Total other income and expense 31,664 (425,000) 68,567 1,457,118
----------- ----------- ----------- -----------
Net income (loss) $ 113,368 $(1,231,242) $ 280,437 $ 167,679
=========== =========== =========== ===========
Basic net income (loss) per share $ 0.034 $ (0.380) $ 0.084 $ 0.052
=========== =========== =========== ===========
Diluted net income (loss) per share $ 0.027 $ (0.380) $ 0.068 $ 0.052
=========== =========== =========== ===========
Weighted average shares - basic 3,017,184 3,242,184 3,028,668 3,242,184
=========== =========== =========== ===========
Weighted average shares - diluted 4,181,743 3,242,184 4,116,861 3,254,250
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
ESCALON MEDICAL CORP. AND SUBSIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
---------------------------------
1998 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 280,437 $ 167,679
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 174,722 155,099
Gain on sale of Silicone Oil product line -- (1,848,215)
Write off of Ocufit cost -- 455,112
Write off of patents 24,805 --
Change in operating assets and liabilities:
Accounts receivable 66,403 657,829
Inventories (226,037) 99,727
Other current assets (185,866) 1,148
Accounts payable, accrued and other liabilities 189,965 (224,514)
----------- -----------
Net cash provided from (used in) operating activities 324,429 (536,135)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (259,000) (6,043,060)
Proceeds from maturities of short-term investments 330,016 6,043,060
Short-term note receivable (15,000) --
Purchase of furniture and equipment (24,643) (67,341)
Proceeds from sale of Silicone Oil product line -- 1,058,590
Final payment for vascular access business -- (1,000,000)
Long-term note receivable (25,000) --
License and distribution rights and goodwill (2,924) (11,107)
Patent costs (28,197) (15,834)
Other assets (835) (142,498)
----------- -----------
Net cash provided from (used in) investing activities (25,583) (178,190)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term loan -- (100,002)
Purchase of treasury stock (118,108) --
Payment of preferred stock dividends (38,040) --
----------- -----------
Net cash used in financing activities (156,148) (100,002)
----------- -----------
Net increase (decrease) in cash and cash equivalents 142,698 (814,327)
Cash and cash equivalents, beginning of period 2,263,967 3,854,240
----------- -----------
Cash and cash equivalents, end of period $ 2,406,665 $ 3,039,913
=========== ===========
NON-CASH FINANCING ACTIVITY:
Treasury stock retired as part of reincorporation $ -- $ 118,108
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
ESCALON MEDICAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Escalon Medical Corp. (formerly known as Intelligent Surgical Lasers, Inc.)
and its subsidiaries Escalon Pharmaceutical Inc. and Escalon Vascular Access,
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 indicative of the results that may be expected for the fiscal year
ending June 30, 2000.
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, 1999 included in the Company's
annual report on Form 10-K.
2. PER SHARE INFORMATION
The Company follows Financial Accounting Standards Board Statement No.
128, "Earnings Per Share", in presenting basic and diluted earnings per share.
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,
----------------------------- --------------------------
1998 1999 1998 1999
--------- ----------- --------- --------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share:
Net income (loss) $ 113,368 $(1,231,242) $ 280,437 $167,679
Preferred stock dividends (12,270) -- (24,540) --
--------- ----------- --------- --------
Numerator for basic earnings per
share-income available to Common
shareholders 101,098 (1,231,242) 255,897 167,679
Effect of dilutive securities:
Preferred stock dividends 12,270 -- 24,540 --
--------- ----------- --------- --------
Numerator for diluted earnings per
share-income (loss) available to
Common shareholders after
assumed conversions $ 113,368 $(1,231,242) $ 280,437 $167,679
========= =========== ========= ========
</TABLE>
6
<PAGE> 7
2. PER SHARE INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Denominator:
Denominator for basic earnings per
share - weighted average shares 3,017,184 3,242,184 3,028,668 3,242,184
Effect of dilutive securities:
Convertible preferred stock 1,164,559 -- 1,088,193 --
Employee stock options -- -- -- 12,066
--------- --------- --------- ---------
Denominator for diluted earnings per
share - weighted average and
assumed conversion 4,181,743 3,242,184 4,116,861 3,254,250
========= ========= ========= =========
Basic earnings (loss) per share $ 0.034 $ (0.380) $ 0.084 $ 0.052
========= ========= ========= =========
Diluted earnings (loss) per share $ 0.027 $ (0.380) $ 0.068 $ 0.052
========= ========= ========= =========
</TABLE>
3. 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, 1999 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Raw materials/work in process $ 526,553 $ 673,593
Finished goods 623,655 422,488
---------- ----------
1,150,208 1,096,081
Valuation allowance (33,000) (78,600)
---------- ----------
$1,117,208 $1,017,481
========== ==========
</TABLE>
4. 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.
7
<PAGE> 8
In an effort to curtail its legal expenses related to this litigation,
while continuing to deny any wrongdoing, the Company has reached an agreement,
subject to final court approval, to settle this action on its behalf and on
behalf of its former and present officers and directors, for $500,000. The
Company's directors and officers insurance carrier has agreed to fund a
significant portion of the settlement amount. Both the Company and its insurance
carrier have deposited such funds in an escrow account.
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 the development of acquisition and joint venture
opportunities, 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 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).
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.
Escalon Medical Corp. and its subsidiaries Escalon Pharmaceutical Inc.
and Escalon Vascular Access Inc. (jointly referred to as "Escalon" or the
"Company"), operates in the healthcare market specializing in the development,
marketing and distribution of ophthalmic medical devices, pharmaceutical and
vascular access products.
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, pharmaceuticals and niche medical
products. Sales of products acquired from EOI are made primarily to hospitals
and physicians throughout the United States
Escalon purchased the vascular access business unit of Radiance Medical
Systems, Inc. in January 1999. This was significant as the Company's first step
in diversification. The vascular access product line is the first niche product
acquired outside the ophthalmic medical field. Vascular products are marketed to
the pediatric and critical care providers through independent distributors.
8
<PAGE> 9
Escalon's market strategy is to locate and acquire profitable niche
medical products that it owns and controls the rights to. To finance this
program, the Company sold its license and distribution rights to Betadine(R)5%
Sterile Ophthalmic Prep Solution ("Betadine") and Adatosil(R)5000 Silicone Oil
("Silicone Oil"), in third quarter of fiscal 1999 and the first quarter of
fiscal 2000, respectively.
To further develop and commercialize its proprietary laser technology,
in October 1997, the Company licensed its intellectual laser properties to a
newly formed company, IntraLase, in return for an equity interest in IntraLase
and future royalties on product sales. IntraLase has the responsibility of
funding and developing the laser technology through to commercialization.
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.
RESULTS OF OPERATIONS
Three and Six-Month Periods Ended December 31, 1998 and 1999
Product revenues decreased $888,141, or 50%; to $886,534 for the
three-month period ended December 31, 1999 as compared to $1,774,675 for the
same period ended December 31, 1998. Product revenues declined $1,366,200 as a
result of the sales of the Silicone Oil and Betadine product lines. The license
and distribution rights to these product lines were sold in August and March of
1999, respectively. Revenue from the vascular access business, acquired in
January 1999, provided $562,600 to partially replace this lost revenue. In the
second quarter of fiscal 2000, Escalon also experienced a decline in unit sales
of OEM and ISPAN(TM) gas products of $61,800 and $16,800, respectively. Contract
manufacturing revenues vary from quarter to quarter depending on when orders are
received and the lead times to produce such products. For the six-month period
ended December 31, 1999, the Company experienced a $1,149,885, or 33%, decline
in revenues from the same period in fiscal 1998. Loss of revenues from
discontinued product lines amounted to $2,053,400 between the two periods.
Addition of vascular products offset that amount by $1,071,200. The Company also
experienced a decline of $122,800 in OEM product sales for this six-month
period, as well as a $44,900 decline in combined unit sales of its disposables,
capital equipment and gas products.
Cost of goods sold totaled $421,358, or 48% of revenue, for the
three-month period ended December 31, 1999, as compared to $792,148, or 45% of
revenue, for the same period last year. Discontinued product lines reduced
comparative quarterly costs by $567,500. Vascular product line costs rose for
the current quarter to $249,200, there were no comparable cost for the same
period last year. Ophthalmic product manufacturing costs decreased $52,500 in
the second quarter of fiscal 2000 when compared to the second fiscal quarter of
1999. For the six-month period ended December 31, 1999, cost of goods sold
totaled $1,154,198, or 50% of revenue, compared with $1,509,004, or 44% of
revenue, for the first six months of fiscal 1999. Costs associated with
discontinued product lines decreased $828,500 in fiscal 2000. Vascular product
costs rose by $502,300 and ophthalmic device costs decreased $28,600 for the
like period of fiscal 1999.
Research and development expenses increased $46,137, or 25%, for the
three-month period ended December 31, 1999 when compared to the same period in
1998. Expenses for clinical trials related to providone-iodine 2.5% and Ocufit
SR(R) increased $40,300 over the same quarter of fiscal 1999. When comparing the
six-month periods ending December 31, 1999 and 1998, research and development
costs increased $126,133, or 37%. Expenses for clinical trials increased $91,200
and vascular research costs
9
<PAGE> 10
increased $51,900 over the same period in fiscal 1999. The Company did
experience favorable reductions in patent and various other developmental costs
that reduced the fiscal 2000 increases by $17,000.
Marketing, general and administrative expenses increased $324,458, or
45%, for the three-month period ended December 31, 1999 compared to the same
period last year. Expenses for the vascular access product line were $331,800;
there were no comparable costs in the second fiscal quarter of 1999. Salaries
and wages increased $45,600, office expense rose $21,400 and legal/investor
relations costs increased $66,700 (annual meeting costs, reincorporation and
legal expenses related to acquisition incurred in second quarter fiscal 2000).
The aforementioned costs were reduced by $123,400 for commissions, royalties and
amortization for discontinued product lines and $17,700 in advertising expense.
When comparing the six-month periods ending December 31, 1999 and 1998,
marketing, general and administrative costs increased $580,097, or 42%. Vascular
product expenses contributed $634,000. Increases were also observed in salaries
and wages, $89,200; and legal/investor relations costs, $116,100. The Company
realized a favorable $225,400 reduction in commissions, royalties and
amortization related to discontinued product lines and $33,800 in advertising
costs.
In August 1999, the Company reported the sale of its license and
distribution rights for the Adatosil(R) 5000 Silicone Oil product line. This
sale resulted in a $1,848,215 gain after writing off of the remaining net book
value of license and distribution rights associated with that product line.
Beginning in the second quarter of fiscal 2001, the Company will also receive
additional payments based on future sales of Adatosil(R) Silicone Oil over the
next five years.
After completing the initial Phase I human clinical trials in late
December 1999, management re-evaluated its Ocufit SR(R) ophthalmic drug delivery
system project. It was decided that further expenditures on this project were
not in the shareholders' best interest, and the project was discontinued. This
decision resulted in the Company taking a one-time non-cash charge of $455,112
in the second quarter of fiscal 2000, which included write-off of the net book
value for remaining goodwill and patent cost associated with this project.
Interest income increased to $44,903 and $93,787 for the three- and
six-month periods ended December 31, 1999 from $33,090 and $70,018 for the same
periods in 1998. This increase is a result of increased cash and cash
equivalents available for investment, due to proceeds received from sale of the
Silicone Oil and Betadine product lines.
Interest expense increased to $14,791 and $29,772 for the three- and
six-month periods ended December 31, 1999 from $1,426 and $1,451 for the same
periods in 1998. This is the result of corporate borrowing arrangements that did
not exist until the third quarter of fiscal 1999.
There is no provision for income taxes for the three- or six-month
periods ended December 31, 1999 and 1998 due to the utilization of net operating
loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents of
$3,039,913 as compared to $3,854,240 at June 30, 1999. Cash and cash equivalents
decreased by $814,327. During the second quarter, the Company paid off
$1,000,000, the final amount due Radiance for purchase of the vascular product
line. Partially offsetting this reduction in cash was a receipt of the second
$529,295 installment paid on the Silicone Oil product line sale.
10
<PAGE> 11
On January 14, 2000, the Company completed the acquisition of Sonomed,
Inc. ("Sonomed"), a manufacturer of ophthalmic ultrasound diagnostic devices.
The purchase price was $12,550,000, of which $12,050,000 was paid in cash and
$500,000 was represented by a promissory note, bearing interest at 10% per annum
and due in 125 days.
On January 14, 2000, the Company replaced the $2,000,000 credit
facility obtained in January 1999. PNC Bank N.A. ("PNC Bank" or "Bank") granted
a new $12,000,000 credit facility to assist in the Sonomed acquisition. This
includes a $7,000,000 five-year term loan, a $5,000,000 reducing line of credit
and the release of the requirement to maintain a $1,000,000 certificate of
deposit with the Bank. All of the Company's assets, including those acquired
from Sonomed, collateralize these agreements.
The Board of Directors has authorized the repurchase of up to 500,000
shares of the Company's common stock. The price, timing and manner of these
purchases will be at the discretion of management. No purchases have been made,
nor are any expected to be made, under this authority.
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 December 31, 2000. In the longer term, however,
the Company will seek corporate partnering, licensing and other financing
opportunities to satisfy the significant expenditures anticipated with
development of its surgical products, pharmaceutical products and vascular
access devices.
YEAR 2000 ISSUES
January 1, 2000 has passed without incident and management does not
expect any new issues to emerge. Therefore, the Company will no longer comment
on this matter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 4 of the Notes to Condensed
Consolidated Financial Statements in Part I is incorporated herein by reference
thereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on November 9, 1999. The
following matters were acted upon:
1. The following persons were elected as directors of the Company for the next
year until their successors are elected and qualified.
Nominees for Director For Against Withheld
--------------------- --- ------- --------
Richard J. DePiano 2,549,163 85,541 0
Dr. Jay L. Federman 2,549,163 85,541 0
Fred G. Choate 2,549,263 85,441 0
William Kwan 2,542,429 92,275 0
Jeffrey F. O'Donnell 2,549,263 85,441 0
11
<PAGE> 12
There were no broker held non-voted shares represented at the meeting
with respect to this matter.
2. The shareholders approved the Company's 1999 Equity Incentive Plan.
For Against Abstain
--- ------- -------
1,275,517 76,853 11,378
There were 1,270,956 broker held non-voted shares represented at the
meeting with respect to this matter.
3. The shareholders approved the reincorporation of the Company from California
to Delaware.
For Against Abstain
--- ------- -------
1,341,168 17,739 4,841
There were 1,270,956 broker held non-voted shares represented at the
meeting with respect to this matter.
4. The shareholders ratified the appointment of Parente Randolph Orlando Carey &
Associates, LLC as the Company's independent auditors for fiscal year 2000.
For Against Abstain
--- ------- -------
2,560,544 68,319 5,841
There were no broker held non-voted shares represented at the meeting
with respect to this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on November 17, 1999, reporting,
pursuant to Item 5, the reincorporation of Escalon Medical Corp. from California
to Delaware.
A report on Form 8-K was filed on January 14, 2000, a reporting,
pursuant to Item 2, the purchase of all the outstanding capital stock of
Sonomed, Inc.
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<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 10, 2000 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,039,913
<SECURITIES> 0
<RECEIVABLES> 1,525,380
<ALLOWANCES> (45,790)
<INVENTORY> 1,017,481
<CURRENT-ASSETS> 6,732,127
<PP&E> 679,083
<DEPRECIATION> (209,582)
<TOTAL-ASSETS> 9,129,937
<CURRENT-LIABILITIES> 2,051,227
<BONDS> 0
0
0
<COMMON> 46,024,811
<OTHER-SE> (39,579,431)
<TOTAL-LIABILITY-AND-EQUITY> 9,129,937
<SALES> 886,534
<TOTAL-REVENUES> 886,534
<CGS> 421,358
<TOTAL-COSTS> 421,358
<OTHER-EXPENSES> 1,271,418
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 14,791
<INCOME-PRETAX> (1,231,242)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,231,242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,231,242)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
