<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 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 of outstanding stock of each of the issuer's
classes of common stock, as of the latest practicable date.
Date: November 5, 2000 3,242,184 Shares of Common Stock, $0.001 par value
<PAGE> 2
ESCALON MEDICAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000 and
September 30, 2000 3
Condensed Consolidated Statements of Operations for Three
Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2000 and 1999 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 12
Item 5. Other Information 13
Signatures 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
ESCALON MEDICAL CORP. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 177,106 $ 429,155
Accounts receivable, net 1,331,783 1,915,883
Inventory, net 1,574,678 1,543,242
Prepaid insurance 166,667 120,960
Other current assets 69,063 41,352
------------ ------------
Total current assets 3,319,297 4,050,592
Long-term note receivable 150,000 150,000
Furniture and equipment, net 479,018 466,316
Customer lists, net 7,464,722 7,336,389
Goodwill, net 2,278,576 2,237,482
Trademarks and trade names, net 2,229,722 2,191,439
License and distribution rights, net 266,843 257,429
Patents, net 215,006 212,323
Other assets 442,106 541,412
------------ ------------
Total assets $ 16,845,290 $ 17,443,382
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 4,032,105 $ 4,351,005
Current portion of long-term debt 1,400,000 1,400,000
Accounts payable 462,086 463,791
Accrued compensation 355,074 381,248
Other current liabilities 280,976 424,899
------------ ------------
Total current liabilities 6,530,241 7,020,943
Long-term debt, net of current portion 4,900,000 4,900,000
------------ ------------
Total liabilities 11,430,241 11,920,943
Shareholders' Equity:
Preferred stock, no par value; 2,000,000 shares
authorized; no shares issued -- --
Common stock, $0.001 par value; 35,000,000 shares
authorized, 3,242,184 shares issued at June 30, 2000
and September 30, 2000, respectively 3,242 3,242
Additional paid-in capital 46,021,569 46,021,569
Accumulated deficit (40,609,762) (40,502,372)
------------ ------------
Total shareholders' equity 5,415,049 5,522,439
Total liabilities and shareholders' equity $ 16,845,290 $ 17,443,382
============ ============
</TABLE>
Note: The consolidated balance sheet at June 30, 2000 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 SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 2000
----------- -----------
<S> <C> <C>
Revenues, net $ 1,423,677 $ 2,959,966
----------- -----------
Costs and expenses:
Cost of goods sold 732,840 1,044,671
Research and development 235,434 111,065
Marketing, general and administrative 938,601 1,356,305
----------- -----------
Total costs and expenses 1,906,875 2,512,041
----------- -----------
Income (loss) from operations (483,198) 447,925
----------- -----------
Other income and (expenses):
Gain on sale of Silicone Oil product line 1,848,215 --
Equity in loss of unconsolidated joint venture -- (54,822)
Interest income 48,885 2,918
Interest expense (14,981) (288,630)
----------- -----------
Total other income and expenses 1,882,119 (340,534)
----------- -----------
Net income $ 1,398,921 $ 107,391
=========== ===========
Basic net income per share $ 0.431 $ 0.033
=========== ===========
Diluted net income per share $ 0.429 $ 0.032
=========== ===========
Weighted average shares - basic 3,242,184 3,242,184
=========== ===========
Weighted average shares - diluted 3,264,610 3,309,033
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 2000
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,398,921 $ 107,390
Adjustments to reconcile net income to net cash provided
from (used in) operating activities:
Depreciation 80,705 253,719
Gain on sale of Silicone Oil (1,848,215) --
Change in operating assets and liabilities:
Accounts receivable 481,267 (584,100)
Inventories 203,504 31,437
Other current assets 8,595 (25,889)
Accounts payable, accrued and other liabilities (241,347) 165,091
----------- -----------
Net cash provided from (used in) operating activities 83,430 (52,352)
----------- -----------
Cash Flows From Investing Activities:
Purchase of short-term investments (8,366,508) --
Proceeds from maturities of short-term investments 8,366,508 --
Proceeds from sale of Silicone Oil product line 529,295 --
Purchase of furniture and equipment (11,861) (14,500)
Other assets (18,187) --
Patent costs (7,965) --
----------- -----------
Net cash provided from (used in) investing activities 491,282 (14,500)
----------- -----------
Cash Flows From Financing Activities:
Payment on line of credit (1,000,000) 318,901
Principal payments on term loan (50,001) --
----------- -----------
Net cash provided from (used in) financing activities (1,050,001) 318,901
----------- -----------
Net decrease in cash and cash equivalents (475,289) 252,049
Cash and cash equivalents, beginning of period 3,854,240 177,106
----------- -----------
Cash and cash equivalents, end of period $ 3,378,951 $ 429,155
=========== ===========
Supplemental Schedule of Cash Flow Information:
Interest paid during the three-month period $ 14,981 $ 195,064
=========== ===========
</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., Escalon
Vascular Access, Inc., Sonomed, Inc. and Escalon Digital Vision, 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, 2001.
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, 2000
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
September 30,
1999 2000
---------- ----------
<S> <C> <C>
Numerator:
Numerator for basic and diluted earnings
per share:
Net income $1,398,921 $ 107,391
---------- ----------
Denominator:
Denominator for basic earnings
per share - weighted average shares 3,242,184 3,242,184
Effect of dilutive securities:
Employee stock options 22,426 66,849
---------- ----------
Denominator for diluted earnings
per share - weighted average and
assumed conversion 3,264,610 3,309,033
========== ==========
Basic earnings per share $ 0.431 $ 0.033
========== ==========
Diluted earnings per share $ 0.429 $ 0.032
========== ==========
</TABLE>
6
<PAGE> 7
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, September 30,
2000 2000
----------- -----------
<S> <C> <C>
Raw materials / work in process $ 1,336,755 $ 1,250,141
Finished goods 365,092 420,269
----------- -----------
1,701,847 1,670,410
Valuation allowance (127,168) (127,168)
----------- -----------
$ 1,574,679 $ 1,543,242
=========== ===========
</TABLE>
4. ACQUISITION OF SONOMED, INC.
On January 14, 2000, the Company purchased all of the outstanding capital stock
of Sonomed, Inc. ("Sonomed"), a privately-held manufacturer and marketer of
ophthalmic ultrasound diagnostic devices. This business combination was
accounted for as a purchase. The total cost of the acquisition was $12,250,540,
of which $11,148,826 was allocated to proprietary rights and intangible assets,
including: $7,700,000 to customer lists, $2,300,000 to trademarks and trade
names and $1,148,826 to goodwill. The intangible assets are being amortized on a
straight-line basis over a fifteen-year period.
In addition, the Company entered into a three-year employment agreement with the
president of Sonomed, which provides for a $175,000 annual salary (plus cost of
living adjustments). The Company also issued to key employees of Sonomed
incentive stock options exercisable for the purchase of 330,000 shares of the
Company's Common Stock and agreed to make available to key employees of Sonomed,
a bonus program of at least three percent of Sonomed's net quarterly sales for a
period of three years.
The following pro forma results of operations information has been prepared to
give effect to the purchase as if such transaction had occurred at the beginning
of the period being presented. The information presented is not necessarily
indicative of results of future operations of the combined companies.
PRO FORMA RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 2000
---------- ----------
<S> <C> <C>
Revenues(a) $3,024,000 $2,960,000
Net income(a) $1,939,221 $ 107,000
Basic net income per share $ 0.5981 $ 0.0330
Diluted net income per share $ 0.5940 $ 0.0323
Weighted average shares - basic 3,242,184 3,242,184
Weighted average shares - diluted 3,264,610 3,309,033
</TABLE>
7
<PAGE> 8
(a) The pro forma results for 1999 include Silicone Oil revenues of $575,000 and
a $1,848,000 gain from the sale of AdatoSil(R) 5000 Silicone Oil ("Silicone
Oil").
5. BANK LOANS
In connection with the acquisition of Sonomed, PNC Bank, N.A. refinanced the
Company's $2,000,000 credit facility. In doing so, it released the $1,000,000
restricted cash held as collateral for the term loan. The Company repaid the
outstanding balances on its letter of credit ($1,000,000) and the term loan
($833,330). PNC Bank then granted a new $12,000,000 credit facility to assist
with the acquisition. This included a $7,000,000 five-year term loan and a
$5,000,000 reducing line of credit. The interest rate on the term loan is based
on prime plus 1.0% and the line of credit is based on prime plus 0.75%. An
interest rate cap agreement was entered into to cover the $7,000,000 term loan
through January 2003 and $3,000,000 of the line of credit though January 2002.
The maximum interest rate that may be charged on the term loan for calendar year
2000 is 9% and 9% on the protected portion of the line of credit. Escalon also
paid $100,000 in finance fees that are recorded in other assets. These fees will
be amortized over the term of the loans using the effective interest method. All
of the Company's assets, collateralize these agreements.
6. CONTINGENCY
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 lawsuit to which
the Company is no longer a party). The plaintiff purports to represent a class
of all purchasers of the Company's stock from November 17, 1983, 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.
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 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.
7. REVENUES, NET
Revenues, net include quarterly payments earned in connection with the sale of
the Silicone Oil product line. This revenue totaled $346,000 for the period
beginning on the commencement date of August 11, 2000 through September 23,
2000. The Company is entitled to receive additional consideration, in varying
amounts, through fiscal 2005. The receivable related to this revenue has been
included in accounts receivable.
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 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, 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, Sonomed, Inc.,
Escalon Pharmaceutical Inc., Escalon Vascular Access Inc. and Escalon Digital
Vision, Inc., (jointly referred to as "Escalon" or the "Company") operate in the
healthcare market specializing in the development, manufacture, marketing and
distribution of ophthalmic diagnostic, surgical and pharmaceutical products, as
well as, vascular access devices.
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 the completion of the
acquisition, the Company changed its market focus and is now engaged in
developing, manufacturing, marketing and distributing ophthalmic diagnostic,
surgical and pharmaceutical products as well as niche medical products. Sales of
the 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 was
the first niche product acquired outside the ophthalmic medical field. Vascular
products are marketed to cardiac catheterization laboratories through a series
of independent distributors.
In January 2000, the Company purchased Sonomed, Inc., a
privately held manufacturer and marketer of ophthalmic ultrasound diagnostic
devices. These products are sold domestically and internationally either
directly to the customer or through a series of independent distributors.
The Company entered into a joint venture with MegaVision, Inc.
in April 2000. The joint venture has been named Escalon Medical Imaging, LLC
("Imaging"). The purpose of Imaging is to develop, manufacture and market
hardware and software to retro-fit existing ophthalmic photographic equipment to
digital technology. The Company and MegaVision, Inc. each own 50% of Imaging.
Escalon's market strategy is to locate and acquire profitable
niche medical products that it will own and control 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,
in the third quarter of fiscal 1999 and the first quarter of 2000, respectively.
9
<PAGE> 10
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; (iii) general competitive and economic
conditions of the healthcare market; and (iv) availability from suppliers of
component parts and supplies.
RESULTS OF OPERATIONS
The Company currently operates in three business units: Medical, which includes
the original ophthalmic surgical products; Sonomed, which includes ophthalmic
diagnostic devices; and Vascular, which includes vascular access devices.
Three-Month Periods Ended September 30, 1999 and 2000
Product revenues increased $1,190,000 or 83.57%, to $2,614,000 for the
three-month period ended September 30, 2000 as compared to $1,424,000 for the
same period ended September 30, 1999. In the Company's Medical business unit,
product revenue from Silicone Oil declined $575,000 from the fiscal 1999 period
as a result of the sale of the license and distribution rights of the product
line in August of 1999. Revenues from the balance of the Medical product line
increased $242,000, mainly due to a $225,000 increase in the sale of disposable
products. The $1,536,000 revenue contributed by the Sonomed business unit, which
was acquired in January 2000, greatly exceeded the revenue decline experienced
from Silicone Oil. The Vascular business unit experienced a nominal $14,000
decreased compared to the same period last year.
Cost of goods sold totaled $1,045,000, or 39.98% of revenue, for the three-month
period ended September 30, 2000, as compared to $733,000, or 51.47% of revenue
for the same period last year. The reduction in cost of goods sold as a
percentage of revenue is due to a favorable product mix resulting from the
acquisition of Sonomed. Cost of goods sold in the Sonomed unit totaled $494,000,
or 32.19% of revenue. Cost of goods sold in the Medical unit decreased $164,000
to $316,000. This reduction is due mainly to the discontinuation of the sale of
Silicone Oil. Cost of goods sold as a percentage of revenue increased to 54.17%
from 52.43% during the same period last year. This slight increase is also due
to sale of the Silicone Oil product line. Cost of goods sold in the Vascular
unit decreased $18,000 to $235,000, or 47.39% of sales, as compared to 49.76% of
sales during the same period last year.
Research and development expenses decreased $124,000, or 52.77%, for the
three-month period ended September 30, 2000 when compared to the same period
last fiscal year. Research and development expense in the Sonomed unit totaled
$74,000, with no comparable expenses last fiscal year. Research and development
in the Medical and Vascular business units decreased $189,000 when compared to
the same period last year. The Company has suspended development of
Povidone-Iodine 2.5% and are seeking a partner for further development of this
product line; development of Ocufit SR(R) has been terminated. The Company's
future strategy for research and development entails undertaking shorter-term
projects with quicker anticipated returns.
Marketing, general and administrative expenses increased $417,000, or 44.41%,
for the three-month period ended September 30, 2000 when compared to the same
period last fiscal year. Marketing, general and administrative expenses in the
Sonomed unit totaled $437,000 with no comparable expenses last year.
Amortization of intangible assets was $181,000, while salaries and other
employee-related expenses represent $154,000 of the total Sonomed balance.
Marketing, general and administrative expenses in the Medical and Vascular
business units decreased $24,000, or 2.55%. This decrease is attributable to a
decline in travel-related expenses for sales personnel in the Vascular business
unit of $33,000.
10
<PAGE> 11
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 $1,848,000 gain after writing off the remaining net book value of license and
distribution rights associated with that product line.
Interest income decreased $46,000 to $3,000 for the three-month period ended
September 30, 2000 as compared to the same period last year. On a quarterly
basis, the Company's cash balance has been substantially lower than during the
same period last fiscal year. This decrease resulted from the decrease in cash
and cash equivalents available for investment due to significant changes in the
Company, namely, the sale of the Silicone Oil product line and the Sonomed
acquisition.
Interest expense increased $274,000 to $289,000 for the three-month period ended
September 30, 2000 as compared to the same period last year. This is a result of
corporate borrowing arrangements that did not exist until the third quarter of
fiscal 2000. In connection with the Sonomed acquisition, PNC Bank refinanced its
existing debt, providing $12,000,000 of financing to the Company.
There is no provision for federal income taxes for the periods presented due to
a change in the deferred tax valuation allowance as a result of utilization of
net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash and cash equivalents of $429,000 as
compared to $177,000 at June 30, 2000, an increase of $252,000. This increase
consists of $319,000 additional borrowing against the line of credit, offset by
$52,000 used in operating activities.
On January 14, 2000, the Company replaced its $2,000,000 credit facility
obtained in January 1999. PNC Bank granted a new $12,000,000 credit facility to
assist with the Sonomed acquisition. This included a $7,000,000 five-year term
loan and 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. The interest rate
on the term loan is based on prime plus 1.0% and the line of credit is based on
prime plus 0.75%. Interest rate cap agreements are used to reduce the potential
impact of increases in interest rates on the floating-rate term loan and line of
credit. At September 30, 2000, the Company was party to interest rate cap
agreements covering the $7,000,000 term loan through January 1, 2003 and
$3,000,000 of the reducing line of credit through January 1, 2002. The
agreements entitle the Company to receive from the Bank, the counter-party to
both agreements, on a monthly basis the amounts, if any, by which the Company's
interest payments on the $3,000,000 protected portion of the line of credit
exceed 9%. Payments are also due monthly from the Bank if the interest rate on
the $7,000,000 term loan exceeds 9% through January 1, 2001, 9.5% for the period
January 1, 2001 through January 1, 2002 and 10% for the period January 1, 2002
through January 1, 2003. Escalon also paid $100,000 in finance fees that are
recorded in other assets. These fees will be amortized over the term of the
loans using the effective interest method. 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
currently expected to be made under this authority.
The Company anticipates that the cash generated from future product sales,
together with cash received from the Silicone Oil divestment should be adequate
to satisfy its capital requirements, based on current levels of operations. In
the longer term, the Company will seek corporate partnering, licensing and other
significant expenditures needed to fund its' aggressive
growth-through-acquisition strategy.
The Common Stock is currently listed on the Nasdaq SmallCap Market. In order to
continue to be listed on the Nasdaq SmallCap Market, certain listing
requirements must be met. If the Company's securities were delisted, an investor
could find it more difficult to dispose of them, or to obtain accurate
quotations as to the market value of the Company's securities.
11
<PAGE> 12
SEGMENTAL REPORTING
Reportable Segments
<TABLE>
<CAPTION>
Medical Vascular Sonomed Other Total
------- -------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue, net 929,000 495,000 1,536,000 -- 2,960,000
Interest income -- -- -- -- 3,000
Interest expense -- (35,000) (254,000) -- (289,000)
Equity in loss of
unconsolidated joint venture -- -- -- -- (55,000)
Income (loss) before taxes 376,000 (162,000) (59,000) (46,000) 109,000
Depreciation and amortization 30,000 31,000 189,000 4,000 254,000
Assets 2,773,000 2,292,000 12,141,000 238,000 17,444,000
Expenditures for long
lived assets 8,000 -- 7,000 -- 15,000
</TABLE>
During the three-month period ended September 30, 2000, Medical derived the
majority of its revenues from the sales of ISPAN(TM) gas products and disposable
products and from additional consideration in connection with the sale of the
Silicone Oil product line. Vascular derives the majority of its revenues from
the sales of Smartneedles and PD Access needles, both of which are used by
personnel in the medical field to aid in locating difficult arteries and veins.
Sonomed derives the majority of its revenues from the sales of A-Scans, B-Scans
and pachymeters, which are ultrasound systems used for diagnostic or biometric
applications in ophthalmology.
During the three-month period ended September 30, 2000, the Company had one
customer, Bausch & Lomb, from which greater than 10% of consolidated net
revenues were derived. Revenues from Bausch & Lomb were $544,000, or 18.36% of
consolidated net revenues, during the period. This revenue is recorded in the
Medical business segment. Of the external revenues reported above, $1,000, $-0-
and $639,000 were derived internationally in Medical, Vascular and Sonomed,
respectively.
Refer to the Results of Operations section of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in this Form
10Q for analysis between the fiscal 2001 information disclosed here and the
comparative results from fiscal 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 6 of the Notes to Condensed
Consolidated Financial Statements in Part I is incorporated herein by reference
thereto.
ITEM 2. CHANGES IN SECURITIES
The Company has Class A and Class B Redeemable Common Stock Purchase Warrants,
four Warrants plus $25 and $30, respectively, exercisable for one share of
Common Stock. These Warrants will expire on November 17, 2000.
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ITEM 5. OTHER INFORMATION
The proposal to approve amendments to the Company's 1999 Equity Incentive Plan
to increase the number of shares available for award under the Plan from 235,000
shares to 435,000 shares was approved by the shareholders at the Annual Meeting
of Stockholders held on November 2, 2000. Details of the Plan and the amendments
were filed on Form S-8 on February 25, 2000 and Form DEF 14A on September 30,
2000, respectively.
The proposal to approve the Company's Equity Incentive Plan for Employees of
Sonomed, Inc. was approved by the shareholders at the Annual Meeting of
Stockholders held on November 2, 2000. Details of the Plan were filed on Form
S-8 on February 25, 2000.
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: November 14, 2000 By: /s/ Richard J. DePiano
-------------------------
Richard J. DePiano
Chairman and
Chief Executive Officer
DATE: November 14, 2000 By: /s/ Harry M. Rimmer
-------------------------
Harry M. Rimmer
Vice President - Corporate Development
and Finance, Secretary
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