Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY PERIOD PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2019

Commission File Number 0-20127

Escalon Medical Corp.

(Exact name of registrant as specified in its charter)



Pennsylvania		33-0272839
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

435 Devon Park Drive, Building 100, Wayne, PA 19087

(Address of principal executive offices, including zip code)

(610) 688-6830

(Registrant’s telephone number, including area code)

N/A

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act: NONE

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company. or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 7,415,329 shares of common stock, $0.001 par value, outstanding as of November 13, 2019.

TABLE OF CONTENTS

		Page
	PART I Financial Information
Item I.	Unaudited Condensed Consolidated Financial Statements	2
	Condensed Consolidated Balance Sheets as of September 30, 2019 and June 30, 2019 (Unaudited)	2
	Condensed Consolidated Statements of Operations for the three-month periods ended September 30, 2019 and 2018 (unaudited)	3
	Condensed Consolidated Statements of Shareholders' Equity for the three-month periods ended September 30, 2019 and 2018(unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the three-month periods ended September 30, 2019 and 2018 (unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24

	PART II Other Information
Item 6.	Exhibits	25

ESCALON MEDICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30, 2019			June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	415,818		$	409,743
Restricted cash	253,404			253,135
Accounts receivable, net	1,355,105			1,496,105
Inventories	1,900,680			1,878,860
Other current assets	227,663			223,078
Total current assets	4,152,670			4,260,921
Property and equipment, net	60,903			67,896
Right-of-use assets	1,055,682			—
Trademarks and trade names	605,006			605,006
License, net	136,787			141,700
Other long term assets	62,788			51,915
Total assets	$	6,073,836		$	5,127,438
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	201,575		$	201,575
Current portion of note payable	3,491			3,401
Accounts payable	691,361			666,510
Accrued expenses	619,413			656,707
Related party accrued interest	112,389			112,389
Current portion of post-retirement benefits (related party)	8,491			101,891
Current portion of operating lease liabilities	281,085			—
Deferred revenue	426,470			426,803
Liabilities of discontinued operations	87,494			90,933
Total current liabilities	2,431,769			2,260,209
Note payable, net of current portion	13,984			14,896
Operating lease liabilities, net of current portion	844,471			—
Accrued post-retirement benefits, net of current portion (related party)	—			690,094
Total long-term liabilities	858,455			704,990
Total liabilities	3,290,224			2,965,199
Shareholders' equity:
Series A convertible preferred stock, $0.001 par value; 2,000,000 shares authorized; 2,000,000 shares issued and outstanding (liquidation value of $728,974 and $715,968)	645,000			645,000
Common stock, $0.001 par value; 35,000,000 shares authorized; 7,415,329 shares issued and outstanding	7,415			7,415
Additional paid-in capital	69,702,043			69,702,043
Accumulated deficit	(67,570,846		)	(68,192,219		)
Total shareholders’ equity	2,783,612			2,162,239
Total liabilities and shareholders’ equity	$	6,073,836		$	5,127,438

See notes to unaudited condensed consolidated financial statements



ESCALON MEDICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	For the Three Months Ended September 30,
	2019			2018
Net revenues:
Products	$	2,052,779		$	2,022,383
Service plans	235,209			236,000
Revenues, net	2,287,988			2,258,383
Costs and expenses:
Cost of goods sold	1,176,670			1,203,133
Marketing, general and administrative	999,427			1,002,237
Research and development	245,638			96,408
Total costs and expenses	2,421,735			2,301,778
Loss from operations	(133,747		)	(43,395		)
Other income (expense)
Other income	758,021			—
Interest income	1,083			2,510
Interest expense	(3,984		)	(6,851		)
Total other income, net	755,120			(4,341		)
Net income (loss)	621,373			(47,736		)
Undeclared dividends on preferred stocks	13,006			13,005
Net income (loss) applicable to common shareholders	$	608,367		$	(60,741	)
Net income (loss) per share
Basic income (loss) per share	$	0.08		$	(0.01	)
Diluted income (loss) per share	$	0.05		$	(0.01	)
Weighted average shares—basic	7,415,329			7,415,329
Weighted average shares—diluted	12,188,449			7,415,329

See notes to unaudited condensed consolidated financial statements

ESCALON MEDICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2018 (UNAUDITED)

	Series A Convertible Preferred Stock			Common Stock				Additional Paid-in Capital			Accumulated Deficit				Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2019	2,000,000	$	645,000	7,415,329	$	7,415		$	69,702,043		$	(68,192,219	)		$	2,162,239
Net income	—	—		—	—		—	—			621,373				621,373
Balance at September 30, 2019	2,000,000	$	645,000	7,415,329	$	7,415	—	$	69,702,043	—	$	(67,570,846	)	—	$	2,783,612



	Series A Convertible Preferred Stock				Common Stock				Additional Paid-in Capital			Accumulated Deficit				Total Shareholders’ Equity
	Shares		Amount		Shares	Amount
Balance at June 30, 2018	—		$	—	7,415,329	$	7,415		$	69,702,043		$	(67,942,203	)		$	2,412,255
Net loss	—		—		—	—			—			(47,736		)		(47,736		)
Balance at September 30, 2018	—	—	$	—	7,415,329	$	7,415	—	$	69,702,043	—	$	(67,989,939	)	—	$	2,364,519

See notes to unaudited condensed consolidated financial statements



ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	For the Three Months Ended September 30,
	2019			2018
Cash Flows from Operating Activities:
Net income (loss)	$	621,373		$	(47,736	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	11,906			13,186
Non cash lease expense	82,195			—
Non cash post-retirement benefits adjustment	(758,021		)	—
Change in operating assets and liabilities:
Accounts receivable	141,000			(35,343		)
Inventories	(21,820		)	58,232
Other current assets	(4,585		)	(7,427		)
Other long-term assets	(10,873		)	—
Accounts payable	24,851			150,153
Accrued expenses	33,295			(130,257		)
Accrued post-retirement benefits (related party)	(25,473		)	(6,360		)
Change in operating lease liability	(82,910		)	—
Deferred revenue	(333		)	17,106
Liabilities of discontinued operations	(3,439		)	278
Net cash provided by operating activities	7,166			11,832
Cash Flows from Investing Activities:
Purchase of equipment	—			(6,506		)
Net cash used in investing activities	—			(6,506		)
Cash Flows from Financing Activities:
Repayment of note payable	(822		)	(506		)
Proceeds from line of credit	—			36,575
Net cash (used in) provided by financing activities	(822		)	36,069
Net increase in cash, cash equivalents and restricted cash	6,344			41,395
Cash, cash equivalents and restricted cash, beginning of year	662,878			1,124,002
Cash, cash equivalents and restricted cash, end of year	$	669,222		$	1,165,397

Cash, cash equivalents and restricted cash consist of the following:
End of period
Cash and cash equivalents	$	415,818		$	914,616
Restricted cash	253,404			250,781
	$	669,222		$	1,165,397
Beginning of period
Cash and cash equivalents	409,743			874,002
Restricted cash	253,135			250,000
	$	662,878		$	1,124,002




Supplemental Schedule of Cash Flow Information:
Interest paid	$	5,827	$	35,648
Non Cash Finance Activities
Record right-of-use assets per ASC 842, net of deferred rent reclassification	$	1,137,878	$	—
Record lease liability per ASC 842	$	1,208,466	$	—

See notes to unaudited condensed consolidated financial statements

Escalon Medical Corp. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Basis of Presentation

Escalon Medical Corp. ("Escalon" or "Company") is a Pennsylvania corporation initially incorporated in California in 1987, and reincorporated in Pennsylvania in November 2001. Within this document, the “Company” collectively shall mean Escalon, which includes its division called "Trek" and its wholly owned subsidiaries: Sonomed, Inc. (“Sonomed”), Escalon Digital Solutions, Inc. (“EMI”), Escalon Holdings, Inc. (“EHI”), Escalon IP Holdings, Inc., and Sonomed IP Holdings, Inc.

The Company operates in the healthcare market, specializing in the development, manufacture, marketing and distribution of medical devices and pharmaceuticals in the area of ophthalmology. The Company and its products are subject to regulation and inspection by the United States Food and Drug Administration (the “FDA”). The FDA and other government authorities requires extensive testing of new products prior to sale and has jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing.

The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Security and Exchange Commission, and reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion of management, necessary to present fairly the unaudited condensed consolidated financial information required herein. Certain information and note disclosures normally included in financial statement prepared in accordance with accounting principles generally accepted in the United Statements of America ("US GAAP") have been condensed or omitted pursuant to such rules and regulations. While management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K filed with the Security and Exchange Commission for the fiscal year ended June 30, 2019. The results of operations for the three months ended September 30, 2019 are not ncecssarily indicative of the results to be expected for the full year.

The Company’s common stock trades on the OTCQB Market under the symbol “ESMC.”

2. Going Concern

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the continuous enhancement of the current products, development of new products; changes in domestic and foreign regulations; ability of manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products and its ability to raise capital to support its operations.

To date, the Company’s operations have not generated sufficient revenues to enable profitability. As of September 30, 2019, the Company had an accumulated deficient of $67.6 million, and incurred recurring losses from operations and incurred negative cash flows from operating activities in prior years. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company's continuance as a going concern is dependent on its future profitability and on the on-going support of its shareholders, affiliates and creditors. In order to mitigate the going concern issues, the Company is actively pursuing business partnerships, managing its continuing operations, implementing cost-cutting measures and seeking to sell certain assets. The Company may not be successful in any of these efforts.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally affected in the US GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For the purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and highly liquid investments with original maturities of 90 days or less to be cash and cash equivalents. From time to time cash balances exceed federal insurance limits.

Restricted Cash

As of September 30, 2019 and June 30, 2019 restricted cash included $253,404 and $253,135 respectively, which was pursuant to the requirements in the TD Bank Loan entered into June 2018 (see Note 7).

Foreign Currency Translation

The Company's functional currency is the US dollar. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Foreign currency transaction gains or losses included in net income (loss) were immaterial for the three months ended September 30, 2019 and 2018.

Accounts Receivable

Accounts receivable are recorded at net realizable value. The Company performs ongoing credit evaluations of customers’ financial condition and does not require collateral for accounts receivable arising in the normal course of business. The Company maintains allowances for potential credit losses based on the Company’s historical trends, specific customer issues and current economic trends. Accounts are written off against the allowance when they are determined to be uncollectible based on management’s assessment of individual accounts. The Company recorded an allowance for doubtful accounts of approximately $111,000 as of September 30, 2019 and June 30, 2019.

Inventories

Inventories include freight-in materials, labor and overhead costs, and are stated at the lower of cost (first-in, first-out) or net realizable value. The Company writes down its inventories as it becomes aware of any situation whereas the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions.

Intangible Assets and Long-Lived Assets

Intangible assets deemed to have indefinite lives (including trademark and trade names) are not amortized but, instead, are subject to an annual impairment assessment. Additionally, if events or conditions were to indicate the carrying value or a reporting unit may not be recoverable, the Company would evaluate the other intangible assets for impairment at that time.

Long-lived assets including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the projected undiscounted cash flows from the asset are less than the carrying value of the asset the asset is considered to be impaired. The impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

During the three months ended September 30, 2019 and September 30, 2018, no impairments were recorded.

Accrued Warranties

The Company provides a limited one-year warranty against manufacturer’s defects on its products sold to customers. The Company’s standard warranties require the Company to repair or replace, at the Company’s discretion, defective parts during such warranty period. The Company accrues for its product warranty liabilities based on estimates of costs to be incurred during the warranty period, based on historical repair information for warranty costs.

Fair Value of Financial Instruments

The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of their short-term maturity. The carrying amount of the accrued post retirement benefits approximates fair value since the Company utilizes approximate current market interest rates to calculate the liability. The Company determined that the carrying amount of the note payable and lease liabilities approximates fair value since such debt borrowing bears interest at the approximate current market rate. While the Company believes the carrying value of the assets and liabilities are reasonable, considerable judgment is used to develop estimates of fair value; thus the estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.

Revenue Recognition

The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period.

The Company generates product revenue from the sale of medical device products and the sale and installation of the Company's AXIS image management system software. Revenue for service plans relate to the customer care plans for the Company’s equipment and AXIS image management system software.

Revenue is recognized upon transfer of control of the promised goods or services to the customer for an amount that reflects the consideration that the Company expects to be entitled in exchange for those goods or services. The Company’s performance obligations are for product sales, installation of AXIS image management system software and customer care plans. The performance obligations are determined at contract inception based upon promises within the contract that are distinct.

The product sales and installation of AXIS image management system software performance obligations are satisfied at a point in time, which is upon shipment for product sales and upon successful installation for the AXIS image management system. The performance obligation for customer care plans is satisfied over time as the customer receives and consumes the Company’s services.

The Company invoices its customers upon shipment for product sales. For the installation of AXIS image management system software and customer care plans, the Company invoices its customers upon successful installation. Invoice payments are generally due within 30 days of invoice date. The transaction price is determined based on fixed consideration in the Company’s customer contracts and is recorded net of variable consideration. In determining the transaction price, a significant financing component does not exist since the timing from when the Company invoices its customers to when payment is received as it is less than one year.

Revenue for product sales and installation of AXIS image management system software is recognized when delivered or installed. The customer care plan revenues are recognized proportionately over the service period, which is a 12-month period.

The Company has elected the following practical expedients in applying ASC 606:

•

Unsatisfied Performance Obligations - all performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC 606 and therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.


•	Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in

duration.


•	Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.


•	Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.


•	Shipping and Handling Activities - the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation.


•	Portfolio Approach - the Company applied the Portfolio Approach to contract reviews within its identified revenue streams that have similar characteristics and the Company believes this approach would not differ materially than if applying Topic 606 to each individual contract.

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to payments received for the customer care plans for a 12-month period. The consideration received is recognized monthly over the service period.



(in thousands)	Three Months Ended September 30,
	2019		2018
Beginning of Period	$	427	$	481
Additions	235		252
Revenue Recognized	235		235
End of Period	$	426	$	498

Earnings (Loss) Per Share

Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. All outstanding stock options are considered potential common stock. All outstanding convertible preferred stock are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. The dilutive effect, if any, of stock options is calculated using the treasury stock method. As of September, 2019 and 2018, the average market prices for the three-month period then ended are less than the exercise price of all the outstanding stock options and, therefore, the inclusion of the the stock options would be anti-dilutive. In addition, since the effect of common stock equivalents is anti-dilutive with respect to losses, the convertible preferred stock has also been excluded from the Company’s computation of loss per common for the three-month period ended September 30, 2018. Therefore, basic and diluted loss per common share for the three-month period ended September 30, 2018 are the same. For the three-month period ended September 30, 2019, the if-converted method was used for the convertible preferred stock to calculate the dilutive earnings per share.



	For the Three Months Ended September 30,
	2019			2018
Numerator:
Numerator for basic earnings (loss) per share:
Net income (loss)	$	621,373		$	(47,736	)
Undeclared dividends on preferred stock	13,006			13,005
Net income (loss) applicable to common shareholders	$	608,367		$	(60,741	)
Numerator for diluted earnings per share:
Net income (loss) applicable to common shareholders	$	608,367		$	(60,741	)
Undeclared dividends on preferred stock	13,006			—
Net income (loss)	$	621,373		$	(60,741	)
Denominator:
Denominator for basic earnings (loss) per share - weighted average shares outstanding	7,415,329			7,415,329
Weighted average preferred stock converted to common stock	4,773,120			—
Denominator for diluted earnings (loss) per share - weighted average and assumed conversion	12,188,449		—	7,415,329
Net income (loss) per share:
Basic net income (loss) per share	$	0.08		$	(0.01	)
Diluted net income (loss) per share	$	0.05		$	(0.01	)

The following table summarizes convertible preferred stock and securities that, if exercised would have an anti-dilutive effect

on earnings per share.



	For the Three Months Ended September 30,
	2019	2018
Stock options	213,000	213,000
Convertible preferred stock	—	4,515,820
Total potential dilutive securities not included in income per share	213,000	4,728,820

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. As of September 30, 2019 and June 30, 2019, the Company has a fully recorded valuation allowance against its deferred tax assets.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying unaudited condensed consolidated statements of operations. As of September 30, 2019 and June 30, 2019, no accrued interest or penalties were required to be included on the related tax liability line in the unaudited condensed consolidated balance sheets.

Leases

The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use ("ROU") assets are included in right-of-use assets on the unaudited condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current portion of operating lease liabilities and operating lease liabilities, net of current portion, respectively on the unaudited condensed consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Reclassifications

Lease deposits of $51,915 in the June 30, 2019 consolidated balance sheet has been reclassed from other current assets to the other assets be conformity with the current period presentation.

New Accounting Pronouncements

Recently Issued Accounting Standards

The Company considers the applicability and impact of all accounting standards updates ("ASUs"). Management periodically reviews new accounting standards that are issued.

New Accounting Pronouncements Recently Adopted

Effective July 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), using the cumulative effect adjustment method and elected certain practical expedients allowed under the standard. Upon adoption, the Company

recognized ROU assets and a lease liability of $1,137,878 and $1,208,466 respectively. The adoption didn't materially impact the Company's unaudited condensed consolidated statements of operations or cash flows. See Note 11 for additional information on the Company's adoption of this standard.

In June 2018 the FASB issued ASU 2018-07 Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) that expands the scope to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted. The adoption of ASU 2018-07 did not have a material impact on the Company's unaudited condensed consolidated financial statements.

New Accounting Pronouncements Not yet Adopted

In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.The adoption of this standard is not expected to have a material impact to the Company’s unaudited condensed consolidated financial statements.

4. Inventories



	September 30,	June 30,
(in thousands)	2019	2019
Inventories, net:
Raw Material	706	875
Work-In-Process	231	225
Finished Goods	964	779
Total	1,901	1,879

5. Discontinued Operations

BH Holdings, S.A.S ("BHH")

Drew Scientific, Inc. ("Drew"), an inactive subsidiary of the Company which was sold in 2012, has a controlling interest in BHH Holidngs, S.A.S ("BHH). On January 12, 2012 BHH, initiated the filing of an insolvency declaration with the Tribunal de Commerce de Rennes, France ("Commercial Court"). The Commercial Court on January 18, 2012 opened the liquidation proceedings with continuation of BHH's activity for three months and named an administrator to manage BHH. Since Drew no longer had a controlling financial interest in BHH it was deconsolidated in the December 31, 2011 quarterly unaudited condensed consolidated financial statements and prior period amounts are presented as discontinued operations.

Assets and liabilities of discontinued operations of BHH included in the consolidated balance sheets are summarized as follows at September 30, 2019 and June 30, 2019 (in thousands):



	September 30,			June 30,
	2019			2019
Assets
Total assets	$	—		$	—
Liabilities
Accrued lease termination costs	87			91
Total liabilities	87			91
Net liabilities of discontinued operations	$	(87	)	$	(91	)

During fiscal year 2015 the Company was informed by French Counsel that the total amount claimed by the BHH landlord in the liquidation of BHH was approximately $86,000. The Company did not have insight into the French liquidation process due to the Liquidator's reticence to communicate with the Company. As such, the Company had accrued the present value of the maximum amount potentially due under the lease guaranteed by the Company on behalf of BHH. The landlord's claim under liquidation of approximately $86,000 cannot be revisited by the landlord and can only be potentially increased by interest or sundry expenses. Beginning in 2016 any changes to this liability are included in continuing operations. As of September 30, 2019 and June 30, 2019 the liability was approximately $87,000 and $91,000, respectively.

6. Related Party Transactions and Preferred Stock

Richard J. DePiano Sr., (“Mr. DePiano Sr.”), the Company’s Chairman, participated in an accounts receivable factoring program that was implemented by the Company. Under the program, Mr. DePiano Sr. advanced the Company $645,000 prior to the Debt Exchange Agreement noted below. Interest on the transaction was 1.25% per month. The transactions excluded fees typically charged by the factoring agent and provided much needed liquidity to the Company. There was no related party interest expense for the three months ended ended September 30, 2019 and 2018. As of September 30, 2019 and June 30, 2019, accrued interest of $112,389 was payable under the factoring agreement.

On February 14, 2018, the Company entered into a Debt Exchange Agreement (the “Exchange Agreement”) with Mr. DePiano Sr., the Company's Chairman and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano Sr. is the sole owner and sole trustee (the “Holders”). Pursuant to the terms of the Exchange Agreement, effective February 15, 2018, the Holders exchanged a total of $645,000 principal amount of debt related to the accounts receivable factoring program the Company owes the Holders for 2,000,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”).

Each share of Preferred Stock entitles the Holder thereof to 13 votes per share and will vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the Company’s stockholders. As a result of this voting power, the Holders as of September 30, 2019 beneficially own approximately 77.81% of the voting power on all actions to be taken by the Company’s shareholders.

Subject to the terms and conditions of Preferred Stock, the holder of any share or shares of the Preferred Stock has the right, at its option at any time, to convert each such share of Preferred Stock (except that, upon any liquidation of the Company, the right of conversion will terminate at the close of business on the business day fixed for payment of the amounts distributable on the Preferred Stock) into 2.15 shares of Common Stock (the “Conversion Ratio”). The Conversion Ratio is subject to standard provisions for adjustment in the event of a subdivision or combination of the Company’s Common Stock and upon any reorganization or reclassification of the capital stock of the Company. If the Holders were to convert their shares of Preferred Stock into Common Stock at the Conversion Ratio the Holders would receive a total of 4,300,000 shares of Common Stock, or approximately 36.70% of the then outstanding shares of Common Stock assuming such conversion.

Each outstanding share of the Preferred Stock accrues dividends calculated cumulatively at the annual rate of $.0258 per share (such amount subject to equitable adjustment in the event of any stock dividend, stock split, combination, reclassification other similar event), payable upon the earlier of (i) a liquidation, dissolution or winding up of the Company or (ii) conversion of the Preferred Stock into Common Stock. Upon either of such events, all such accrued and unpaid dividends, whether or not earned or declared, to and until the date of such event, will become immediately due and payable and will be paid in full. The dividends payable to the holders of the Preferred Stock is payable in cash or, at the election of any such holder, in a number of additional shares of Common Stock equal to the amount of the dividend expressed in dollars divided by the then applicable Conversion Ratio, described above. As of September 30, 2019 and June 30, 2019 the cumulative dividends payable is $83,973 ($0.0420 per share) and $70,968 ($0.0355 per share), respectively.

Mr. DePiano Sr. passed away on October 3, 2019 and left a will by which he appointed Richard J. DePiano, Jr., the Chief Executive Officer of the Company, as executor. When Mr. DePiano, Jr. qualifies as executor, which is expected to take place on or before November 15, 2019, he will have control over the listed shares in his capacity as executor of Mr. DePiano Sr.'s estate.

7. Line of Credit

On June 29, 2018 the Company entered a business loan agreement with TD bank receiving a line of credit evidenced by a promissory note of $250,000. The interest is subject to change based on changes in an independent index which the Wall Street Journal Prime. The index rate at the date of the agreement is 5.000% per annum. Interest on the unpaid principal balance of the note is calculated using a rate of 0.740 percentage points over the index, adjusted if necessary for any minimum and maximum rate limitations, resulting in an initial rate of 5.740% per annum based on a year of 360 days. The interest rate was 6.24% as of September 30, 2019. The Company was required to put $250,000 in the TD bank savings account as collateral. Mr. Richard J. DePiano Sr., chairman of the Company executed a guarantee of the loan in favor of TD Bank. Mr. DePiano Sr. passed away on October 3, 2019, therefore the guarantee is now assumed by his estate. Upon signing the agreement the Company also authorizes TD bank to payoff the line of credit with Newtek Business Credit ("Netwtek"). The total payment was $201,575 which includes $165,000 of outstanding line of credit, $2,579 accrued interest, administrative/legal fee of $1,000, prime plus fee through July 12, 2018 of $1,895 and underminimum fees of $28,797. The line of credit from Newtek was paid off on July 3, 2018.

As of September 30, 2019 and June 30, 2019, the line of credit balance was $201,575 with TD bank. The line of credit interest expense was approximately $4,000 and $7,000 for the three months ended ended September 30, 2019 and 2018, respectively.

8. Concentration of Credit Risk

Credit Risk

Financial Instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, restricted cash and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas principally within the United States and international. The Company routinely address the financial strength of its customer and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral.

Major Customer

One customer accounted for more than 10% of net sales during the three months ended September 30, 2019. No customer accounted for more than 10% of net sales during the three months ended September 30, 2018.

As of September 30, 2019 the Company had one customer that represents more than 10% of the total accounts receivable balance. As of June 30, 2019 the Company had no customer that represents more than 10% of the total accounts receivable balance.

Major Supplier

The Company's two largest suppliers accounted for 15% and 25% of the total purchase for the three-month period ended September 30, 2019. The Company's two largest suppliers accounted for of total purchases for more than 12% and 24% of total purchase for the three-month period ended September 30, 2018.

Foreign Sales

Domestic and international sales from continuing operations are as follows:



( in thousands)	For the Three Months Ended September 30,
	2019				2018
Domestic	$	1,467	64.1	%	$	1,469	65.1	%
Foreign	821		35.9	%	789		34.9	%
Total	$	2,288	100.0	%	$	2,258	100.0	%

9. Retirement and Post-Retirement Plans

On June 23, 2005 the Company entered into a Supplemental Executive Retirement Benefit Agreement with its Chairman, Richard DePiano, Sr. (Mr. DePiano Sr.). The agreement provided for the payment of supplemental retirement benefits to the covered executive in the event of the covered executive’s termination of services. In January 2013 the covered executive retired and the Company was obligated to pay the executive $8,491 per month for life, with payments commencing the month after retirement.

As of June 30, 2019 approximately $792,000 was accrued for Mr. DePiano Sr.'s retirement benefits. The amount represented the approximate present value of the supplemental retirement benefits awarded using a discount rate of 4.5% as of June 30, 2019. Mr. DePiano Sr. passed away on October 3, 2019. According to the agreement, the benefits terminate upon Mr. DePiano Sr.'s death. Therefore, the Company recognized a gain with the termination of the retirement benefit obligation of $758,000, which has been reported as other income for the three-month period ended September 30, 2019. The remaining $8,491 accrual as of September 30, 2019 represents the final payment that was made on October 1, 2019.

10. Leases

The Company adopted ASC Topic 842-Leases as of July 1, 2019, using the cumulative effective adjustment method wherein the Company applied the new lease standard at adoption date. Accordingly, all periods prior to July 1, 2019 were presented in accordance with the previous ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease ROU and operating lease liabilities of approximately $1,138,000 and $1,208,000 respectively, as of July 1, 2019. The adoption did not materially impact the Company's unaudited condensed consolidated statements of operations or cash flows.

The Company determines if a contract contains a lease at inception. US GAAP requires that the Company's leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonable certain and failure to exercise such option which result in an economic penalty.

The Company has operating leases for manufacturing, research and corporate office facilities and certain equipment. Leases with an initial term of 12 months or less are not recorded in the balance sheet. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. these are expensed as incurred and recorded as variable lease expense.

ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company's lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the Company's operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the comment date in determining the present value of future lease payments.

The components of lease costs included in cost of goods sold and marketing, general and administrative costs were as follows:



	Three Months Ended
	September 30, 2019
Operating lease costs:
Fixed	104,449
Total:	$	104,449

Supplemental cash flow information was as follows:



	Three Months Ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	99,569
Total	$	99,569

Leases recorded on the balance sheet consist of the following:



		September 30,
Leases (operating)	Classification on the Balance Sheet	2019
Assets
Operating lease ROU assets	Right-of-use asset	$	1,055,682
Liabilities
Current	Current portion of operating lease liabilities	281,085
Non-current	Operating lease liabilities	844,471

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate)

under noncancelable operating leases with terms of more than one year to the total operating lease liabilities

recognized on the unaudited condensed consolidated balance sheets as of September 30, 2019:

The aggregate future lease payments for operating leases as of September 30, 2019 were as follows:



	Operating

2020 (excluding the three months ending September 30, 2019)	$	260,858
2021	276,894
2022	260,628
2023	189,848
2024	189,790
Thereafter	96,830
Total lease payments	1,274,848
Less interest	149,292
Present value of lease liabilities	$	1,125,556

Average lease terms and discount rates were as follows:



	September 30,
	2019
Weighted-average remaining lease terms (years)
Operating leases	4.48
Weighted-average discount rate
Operating leases	5.65	%

As of September 30, 2019,the Company has an additional operating lease for its Pennsylvania headquarters location that has not yet commenced with a present value of approximately $285,000. The relocation date is the later of January 1, 2020 and the date that the leasehold improvements are substantially completed. It is anticipated that the operating lease will commence in the third quarter of fiscal year 2020 with a lease term of 5 years.

Disclosures related to periods prior to adoption of ASU 2016-02

The Company adopted ASU 2016-02 using a modified retrospective adoption method at July 1, 2019 as noted in note 3. As required, the following disclosure is provided for periods prior to adoption. Minimum operating lease commitments as of June 30, 2019 that have initial or remaining lease terms in excess of one year are as follows:



	Operating

2019	$	356,414
2020	272,881
2021	256,311
2022	188,755
2023	189,790
Thereafter	96,830
Total lease payments	$	1,360,981

The rent expense for the three months ended September 30 2018 was approximately $115,000.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Certain statements contained in, or incorporated by reference in, this report are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,”

“expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will,” and similar words or expressions. The Company's forward-looking statements include certain information relating to general business strategy, growth strategies, financial results, liquidity, the Company's ability to continue as a going concern, discontinued operations, research and development, product development, the introduction of new products, the potential markets and uses for the Company's products, the Company's ability to increase its sales campaign effectively, the Company's regulatory filings with the FDA, acquisitions, dispositions, the development of joint venture opportunities, intellectual property and patent protection and infringement, the loss of revenue due to the expiration on termination of certain agreements, the effect of competition on the structure of the markets in which the Company competes, increased legal, accounting and Sarbanes-Oxley compliance costs, defending the Company in litigation matters and the Company's cost saving initiatives. The reader must carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by assumptions that fail to materialize as anticipated. Consequently, no forward-looking statement can be guaranteed, and actual results may vary materially. It is not possible to foresee or identify all factors affecting the Company's forward-looking statements, and the reader therefore should not consider the list of such factors contained in its periodic report on Form 10-K for the year ended June 30, 2019 and this Form 10-Q quarterly report to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.

Executive Overview—three-month periods ended ended September 30, 2019 and 2019

The following highlights are discussed in further detail within this Form 10-Q. The reader is encouraged to read this Form 10-Q in its entirety to gain a more complete understanding of factors impacting Company performance and financial condition.

•

Consolidated net revenue increased approximately $30,000 or 1.3%, to $2,288,000 during the three months ended September 30, 2019 as compared to same period of the last fiscal year. The increase in net revenue is attributed to an increase in sales of Trek products of $92,000 mainly due to back ordered items shipped in the three months ended September 30, 2019. The increase is offset by a decrease in EMI's total product sales of $56,000, related to a decrease in ophthalmic fundus photography system product sales of $55,000 and a decrease in revenue from service plans of $1,000, and a decrease in sales in Sonomed's ultrasound products of $6,000.


•	Consolidated cost of goods sold totaled approximately $1,177,000, or 51.4%, of total revenue or the three months ended September 30 2019, as compared to $1,203,000, or 53.3%, of total revenue for the three months of the last fiscal year. The decrease of 1.9% in cost of goods sold as a percentage of total revenue is mainly due to changes in product sales mix and improved pricing.


•	Consolidated marketing, general and administrative expenses decreased $3,000, or 0.3%, to $999,000 for the three months ended September 30 2019, as compared to the same period of last fiscal year. There are no significant changes for the marketing, general and administrate expenses.

•

Consolidated research and development expenses increased $150,000 or 156.3%, to $246,000 for the three months ended September 30 2019, as compared to the same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is mainly due to expense for AXIS software development work and ultrasound certification costs incurred during the three months ended September 30, 2019.

Company Overview

The following discussion should be read in conjunction with the interim unaudited condensed consolidated financial statements and the notes thereto, which are set forth in Item 1 of this report.

The Company operates in the healthcare market specializing in the development, manufacture, marketing and distribution of medical devices and pharmaceuticals in the area of ophthalmology. The Company and its products are subject to regulation and inspection by the FDA. The FDA requires extensive testing of new products prior to sale and has jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing. The Company's Internet address is www.escalonmed.com. Under the trade name of Sonomed-Escalon the Company develops, manufactures and markets ultrasound systems used for diagnosis or biometric applications in ophthalmology, develops, manufactures and distributes ophthalmic surgical products under the Trek Medical Products name, and manufactures and markets digital camera systems for ophthalmic fundus photography and image management systems.

Critical Accounting Policies

The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact amounts reported therein. The most significant of those involve the application of FASB-issued authoritative guidance concerning revenue recognition, and intangible assets, discussed further in the notes to consolidated financial statements included in the Form 10-K for the year ended June 30, 2019. The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), and, as such, include amounts based on informed estimates and judgments of management. For example, estimates are used in determining valuation allowances for deferred income taxes, uncollectible receivables, obsolete inventory, sales returns and rebates, warranty liabilities, right-of-use assets and related lease liabilities, and valuation of purchased intangible assets. Actual results achieved in the future could differ from current estimates. The Company used what it believes are reasonable assumptions and, where applicable, established valuation techniques in making its estimates.

Accounts Receivable

Inventories

Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. The Company writes down its inventories as it becomes aware of any situation whereas the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions.

Intangible Assets and Long-Lived Assets

During the three months ended September 30, 2019 and 2018, no impairments were recorded.

Accrued Warranties

Revenue Recognition

Income Taxes

Earnings (loss) Per Share

Results of Operations

Three Months ended Ended September 30, 2019 and 2018

The following table shows consolidated net revenue, as well as identifying trends in revenues for the three months ended September 30, 2019 and 2018. Table amounts are in thousands:



	For the Three Months Ended September 30,
	2019		2018		% Change
Net Revenue:
Products	$	2,053	$	2,022	1.5	%
Service plans	$	235	$	236	(0.4	)%
Total	$	2,288	$	2,258	1.3	%

Consolidated net revenue increased approximately $30,000 or 1.3%, to $2,288,000 during the three months ended September 30, 2019 as compared to the same period of last fiscal year.The increase in net revenue is attributed to a an increase in sales of Trek products of $92,000 mainly due to back ordered items shipped in the three months ended September 30, 2019. The increase is offset by a decrease in EMI's total product sales of $56,000, related to a decrease in ophthalmic fundus photography system product sales of $55,000 and a decrease in revenue from service plans of $1,000, and a decrease in sales in Sonomed's ultrasound products of $6,000.

The table amounts are in thousands:



	For the Three Months Ended September 30,
	2019				2018
Domestic	$	1,467	64.1	%	$	1,469	65.1	%
Foreign	821		35.9	%	789		34.9	%
Total	$	2,288	100.0	%	$	2,258	100.0	%

The following table presents consolidated cost of goods sold and as a percentage of revenues for the thee months ended September 30, 2019 and 2018. Table amounts are in thousands:



	For the Three Months Ended September 30,
	2019		%		2018		%
Cost of Goods Sold:
	$	1,177	51.4	%	$	1,203	53.3	%
Total	$	1,177	51.4	%	$	1,203	53.3	%

Consolidated cost of goods sold totaled approximately $1,177,000, or 51.4%, of total revenue for the three months ended September 30, 2019, as compared to $1,203,000, or 53.3%, of total revenue of the same period of last fiscal year. The decrease of 1.9% in cost of goods sold as a percentage of total revenue is mainly due to changes in product sales mix and improved pricing.

The following table presents consolidated marketing, general and administrative expenses for the three months ended September 30, 2019 and 2018. Table amounts are in thousands:



	For the Three Months Ended September 30,
	2019		2018		% Change
Marketing, General and Administrative:
	$	999	$	1,002	(0.3	)%
Total	$	999	$	1,002	(0.3	)%

Consolidated marketing, general and administrative expenses decreased $3,000, or 0.3%, to $999,000 for the three months ended September 30, 2019, as compared to the same period of last fiscal year. There are no significant changes for the marketing, general and administrate expenses.

The following table presents consolidated research and development expenses for the three months ended ended September 30, 2019 and 2018.

Table amounts are in thousands:



	For the Three Months Ended September 30,
	2019		2018		% Change
Research and Development:
	$	246	$	96	156.3	%
Total	$	246	$	96	156.3	%

Consolidated research and development expenses increased $150,000, or 156.3%, to $246,000 for the three months ended September 30, 2019, as compared to the same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is due to expense for AXIS software development work and certification costs incurred in the three months ended September 30, 2019.

Other income (expense)

The Company did not have significant other income during the three months ended September 30, 2018. As of June 30, 2019, $792,000 was accrued for Mr. DePiano's retirement benefits. The amount represent the approximate present value of the supplemental retirement benefits awarded using a discount rate of 4.5% as of June 30, 2019. Richard DePiano Sr. passed away on October 3, 2019. According to the agreement, the benefits terminate upon Mr. DePiano Sr.'s death. Therefore, the Company recognized a gain with the termination of the retirement benefit obligation of $758,000, which has been reported as other income for the three-month period ended September 30, 2019.

Liquidity and Capital Resources

Our total cash on hand as of September 30, 2019 was approximately $416,000 excluding restricted cash of approximately $253,000 compared to approximately $410,000 of cash on hand and restricted cash of $253,000 as of June 30, 2019. Approximately $48,000 was available under our line of credit as of September 30, 2019.

Because our operations have not historically generated sufficient revenues to enable profitability we will continue to monitor costs and expenses closely and may need to raise additional capital in order to fund operations.

We expect to continue to fund operations from cash on hand and through capital raising sources if possible and available, which may be dilutive to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. Additionally, we may seek to sell additional equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness in connection with a debt financing would result in increased fixed obligations and could contain covenants that would restrict our operations.

As of September 30, 2019 we had an accumulated deficit of approximately $67.6 million, incurred recurring losses from operations and negative cash flows from operating activities in prior years. These factors raise substantial doubt regarding our ability to continue as a going concern, and our ability to generate cash to meet our cash requirements for the following twelve months as of the date of this form 10-Q.

The following table presents overall liquidity and capital resources as of September 30, 2019 and June 30, 2019. Table amounts are in thousands:



	September 30,	June 30,
	2019	2019
Current Ratio:
Current assets	$4,153	$4,261
Less: Current liabilities	2,432	2,260
Working capital	$1,721	$2,001
Current ratio	1.71 to 1	1.89 to 1
Debt to Total Capital Ratio:
Line of credit, note payable and lease liabilities	$1,345	$220
Total debt	1,345	220
Total equity	2,784	2,162
Total capital	$4,129	$2,382
Total debt to total capital	32.6%	9.2%

Working Capital Position

Working capital decreased approximately $280,000 as of September 30, 2019, and the current ratio decreased to 1.71 to 1 from 1.89 to 1 when compared to June 30, 2019.

Overall total current assets decreased approximately $108,000 to approximately $4,153,000 as of September 30, 2019 from $4,261,000 as of June 30, 2019. Total current liabilities, which consists of line of credit, current portion of post-retirement pension benefits, current portion of operating lease liabilities, accounts payable, accrued expenses, deferred revenue and liabilities of discontinued operations, increased approximately $172,000 to $2,432,000 as of September 30, 2019 from $2,260,000 as compared to June 30, 2019. The decrease in current assets is mainly because of collection efforts which reduced accounts receivable in the three months ended September 30, 2019. The increase in current liabilities is result of adoption of the ASU No. 2016-02, Leases (Topic 842).

Debt to total capital ratio was 32.6% and 9.2% as of September 30, 2019 and June 30, 2019, respectively. The decrease in the working capital ratio and increase in the debt to total capital ratio is due to adoption of the ASU No. 2016-02, Leases (Topic 842).

Cash Flow Provided By Operating Activities

During the three months ended September 30, 2019 the Company provided approximately $7,000 of cash from operating activities as compared to providing cash of approximately $12,000 for operating activities during the three months ended September 30, 2018.

For the three months ended September 30, 2019, the Company had a net income of approximately $621,000, which includes non cash post-retirement adjustment of $758,000. Cash inflows were mainly due to a decrease in accounts receivable of $141,000, an increase in accrued expenses of $33,000, an increase in accounts payable of $25,000, an increase in non cash lease expense of $82,000, a decrease in liabilities of discontinued operations of $3,000, and an increase in non-cash expenditure on depreciation and amortization of approximately $12,000. The cash inflow is offset by a decrease in accrued post retirement benefits of $25,000, a decrease in operating lease liability of $83,000, an increase in inventory of $22,000, an increase in other current assets of $5,000 and an increase in other assets of $11,000.

For the three-month period ended September 30, 2018, the Company had a net loss of approximately $48,000. Cash inflows were mainly due to the cash inflow from an increase in accounts payable and accrued expenses of $20,000, a decrease in inventory of $58,000. The cash inflow is offset by an increase in accounts receivable of $35,000, an increase in other current assets of $7,000, and a decrease in accrued post retirement benefits of $6,000.

Cash Flows Used In Investing Activities

There is no cash flow provided by or used in investing activities for the three months ended September 30, 2019.

Cash flows used in investing activities for the three-month period ended September 30, 2018 were due to purchase of equipment of $7,000.

Any necessary capital expenditures have generally been funded out of cash from operations, and the Company is not aware of any factors that would cause historical capital expenditure levels to not be indicative of capital expenditures in the future and, accordingly, does not believe that the Company will have to commit material resources to capital investment for the foreseeable future.

Cash Flows Used in or Provided by Financing Activities

For the three months ended September 30, 2019 the cash used in financing activities of $1,000 was due to auto loan payment.

For the three-month period ended September 30, 2018 the cash inflow from financing activities of $36,000 were due to the increase in the line of credit.

Financing Facilities

As of September 30, 2019 and June 30, 2019, the line of credit balance was $201,575 with TD bank. The line of credit interest expense was $3,639 and $6,580 for the three months ended ended September 30, 2019 and 2018, respectively.

Preferred stock

Mr. DePiano, Sr. passed away on October 3, 2019 and left a will by which he appointed Richard J. DePiano, Jr. , the Chief Executive Officer of the Company, as executor. When Mr. DePiano, Jr. qualifies as executor, which is expected to take place on or before November 15, 2019, he will have control over the listed shares in his capacity as executor of Mr. DePiano, Sr.'s estate.

Post-retirement Plans

On June 23, 2005 the Company entered into a Supplemental Executive Retirement Benefit Agreement with its Chairman, Richard DePiano, Sr. (Mr. DePiano Sr.).The agreement provided for the payment of supplemental retirement benefits to the covered executive in the event of the covered executive’s termination of services. In January 2013 the covered executive retired and the Company was obligated to pay the executive $8,491 per month for life, with payments commencing the month after retirement.

As of June 30, 2019, approximately $792,000 was accrued for Mr. DePiano Sr.'s retirement benefits. The amount represented the approximate present value of the supplemental retirement benefits awarded using a discount rate of 4.5% as of June 30, 2019. Mr. DePiano Sr. passed away on October 3, 2019. According to the agreement, the benefits terminate upon Mr. DePiano Sr.'s death. Therefore, the Company recognized a gain with the termination of the retirement benefit obligation of $758,000, which has been reported under other income for the three-month period ended September 30, 2019. The remaining $8,491 accrual at September 30, 2019 represents the final payment made on October 1, 2019.

Off-balance Sheet Arrangements and Contractual Obligations

The Company was not a party to any off-balance sheet arrangements during the three-month periods ended September 30, 2019 and 2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

None

Item 4. Controls and Procedures

(A) Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Principal Financial and Accounting Officer, have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company's financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2019, the Chief Executive Officer and Principal Financial and Accounting Officer of the Company have concluded that such disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure.

(B) Internal Control over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act), during the first quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 6. Exhibits

31.1 Certificate of Chief Executive Officer under Rule 13a-14(a).

31.2 Certificate of Principal Financial and Accounting Officer under Rule 13a-14(a).

32.1 Certificate of Chief Executive Officer under Section 1350 of Title 18 of the United States Code.

32.2 Certificate of Principal Financial and Accounting Officer under Section 1350 of Title 18 of the United States Code

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, 2019	By:	/s/ Richard J. DePiano, Jr.
		Richard J. DePiano, Jr.
		Chief Executive Officer

Date: November 14, 2019	By:	/s/ Mark Wallace
		Mark Wallace
		Chief Operating Officer and Principal Accounting & Financial Officer

Related Party Transactions	3 Months Ended
Related Party Transactions	Sep. 30, 2019
Related Party Transactions [Abstract]
Related Party Transactions	Related Party Transactions and Preferred Stock Richard J. DePiano Sr., (“Mr. DePiano Sr.”), the Company’s Chairman, participated in an accounts receivable factoring program that was implemented by the Company. Under the program, Mr. DePiano Sr. advanced the Company $645,000 prior to the Debt Exchange Agreement noted below. Interest on the transaction was 1.25% per month. The transactions excluded fees typically charged by the factoring agent and provided much needed liquidity to the Company. There was no related party interest expense for the three months ended ended September 30, 2019 and 2018. As of September 30, 2019 and June 30, 2019, accrued interest of $112,389 was payable under the factoring agreement. On February 14, 2018, the Company entered into a Debt Exchange Agreement (the “Exchange Agreement”) with Mr. DePiano Sr., the Company's Chairman and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano Sr. is the sole owner and sole trustee (the “Holders”). Pursuant to the terms of the Exchange Agreement, effective February 15, 2018, the Holders exchanged a total of $645,000 principal amount of debt related to the accounts receivable factoring program the Company owes the Holders for 2,000,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”). Each share of Preferred Stock entitles the Holder thereof to 13 votes per share and will vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the Company’s stockholders. As a result of this voting power, the Holders as of September 30, 2019 beneficially own approximately 77.81% of the voting power on all actions to be taken by the Company’s shareholders. Subject to the terms and conditions of Preferred Stock, the holder of any share or shares of the Preferred Stock has the right, at its option at any time, to convert each such share of Preferred Stock (except that, upon any liquidation of the Company, the right of conversion will terminate at the close of business on the business day fixed for payment of the amounts distributable on the Preferred Stock) into 2.15 shares of Common Stock (the “Conversion Ratio”). The Conversion Ratio is subject to standard provisions for adjustment in the event of a subdivision or combination of the Company’s Common Stock and upon any reorganization or reclassification of the capital stock of the Company. If the Holders were to convert their shares of Preferred Stock into Common Stock at the Conversion Ratio the Holders would receive a total of 4,300,000 shares of Common Stock, or approximately 36.70% of the then outstanding shares of Common Stock assuming such conversion. Each outstanding share of the Preferred Stock accrues dividends calculated cumulatively at the annual rate of $.0258 per share (such amount subject to equitable adjustment in the event of any stock dividend, stock split, combination, reclassification other similar event), payable upon the earlier of (i) a liquidation, dissolution or winding up of the Company or (ii) conversion of the Preferred Stock into Common Stock. Upon either of such events, all such accrued and unpaid dividends, whether or not earned or declared, to and until the date of such event, will become immediately due and payable and will be paid in full. The dividends payable to the holders of the Preferred Stock is payable in cash or, at the election of any such holder, in a number of additional shares of Common Stock equal to the amount of the dividend expressed in dollars divided by the then applicable Conversion Ratio, described above. As of September 30, 2019 and June 30, 2019 the cumulative dividends payable is $83,973 ($0.0420 per share) and $70,968 ($0.0355 per share), respectively. Mr. DePiano Sr. passed away on October 3, 2019 and left a will by which he appointed Richard J. DePiano, Jr., the Chief Executive Officer of the Company, as executor. When Mr. DePiano, Jr. qualifies as executor, which is expected to take place on or before November 15, 2019, he will have control over the listed shares in his capacity as executor of Mr. DePiano Sr.'s estate.

Line of credit (Details) - USD ($)	3 Months Ended
Line of credit (Details) - USD ($)	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 29, 2018
Line of Credit Facility [Line Items]
Line of Credit Facility, Fair Value of Amount Outstanding	$ 201,575
Line of Credit Facility, Periodic Payment, Interest	$ 3,639	$ 6,580
Line of Credit Facility, Interest Rate at Period End	6.24%
Repayments of Lines of Credit		201,575
Accrued expenses	$ 619,413		$ 656,707
Line of Credit [Member]
Line of Credit Facility [Line Items]
Repayments of Lines of Credit		165,000
Interest paid		2,579
General and Administrative Expense		1,000
Line Of Credit Facility, Prime Plus Fee		1,895
Accrued expenses				$ 28,797
Notes Payable to Banks [Member]
Line of Credit Facility [Line Items]
Notes Payable to Bank					$ 250,000
Debt Instrument, Interest Rate, Stated Percentage					5.00%
Debt Instrument, Basis Spread on Variable Rate	74.00%
Debt Instrument, Interest Rate During Period	5.74%
Line of Credit Facility, Collateral Fees, Amount		$ 250,000

Leases (Details) - USD ($)	3 Months Ended
Leases (Details) - USD ($)	Sep. 30, 2019	Sep. 30, 2018	Jul. 01, 2019	Jun. 30, 2019
Leases 842 [Abstract]
Net present value of future lease payments of new lease	$ 285,000
Short-term Lease Payments	99,569
Net present value of new lease future payments	$ 1,125,556
Lessee, Operating Lease, Term of Contract	5 years
Operating Lease, Weighted Average Remaining Lease Term	4 years 5 months 23 days
Operating Leases, Future Minimum Payments Receivable, Remainder of Fiscal Year	$ 260,858			$ 356,414
Finance Lease, Liability, Payments, Due Year Two	276,894			272,881
Operating Leases, Rent Expense	104,449	$ 115,000
Operating Lease, Right-of-Use Asset	$ 1,055,682		$ 1,137,878	0
Operating Lease, Liability			$ 1,208,000
Lessor, Operating Lease, Term of Contract	12 months
Finance Lease, Liability, Payments, Due Year Three	$ 260,628			256,311
Finance Lease, Liability, Payments, Due Year Four	189,848			188,755
Finance Lease, Liability, Payments, Due Year Five	189,790			189,790
Operating Leases, Future Minimum Payments, Due Thereafter	96,830			96,830
Operating Leases, Future Minimum Payments Due	$ 1,274,848			1,360,981
Interest portion in the future lease payments				149,292
Operating Lease, Weighted Average Discount Rate, Percent	0.00%
Operating Lease, Liability, Current	$ 281,085			0
Operating Lease, Liability, Noncurrent	$ 844,471			$ 0

Label	Element	Value
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents	$ 1,124,002
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents	662,878
Cash	us-gaap_Cash	1,124,002
Cash	us-gaap_Cash	$ 662,878

Document And Entity Information	3 Months Ended
Document And Entity Information	Sep. 30, 2019 shares
Document And Entity Information [Abstract]
Entity Registrant Name	ESCALON MEDICAL CORP.
Entity Central Index Key	0000862668
Current Fiscal Year End Date	--06-30
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding	7,415,329
Entity Current Reporting Status	Yes


1.	I have reviewed this annual report on Form 10-Q of Escalon Medical Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



/s/ Richard J. DePiano Jr.
Richard J. DePiano Jr.
Chief Executive Officer
Date: November 14, 2019


1.	The Quarterly Report of Escalon Medical Corp. on Form 10Q for the quarterly period ended September 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Consolidated Statements Of Shareholders' Equity and Comprehensive Loss - USD ($)	Total	Common Stock [Member]	Preferred Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]
Preferred Stock, Shares Outstanding			0
Preferred Stock, Value, Issued			$ 0
Balance at Jun. 30, 2018	$ 2,412,255	$ 7,415		$ 69,702,043	$ (67,942,203)
Balance, shares at Jun. 30, 2018		7,415,329
Net income (loss)	(47,736)	$ 0	$ 0	0	(47,736)
Balance at Sep. 30, 2018	2,364,519	$ 7,415		69,702,043	(67,989,939)
Balance, shares at Sep. 30, 2018		7,415,329
Preferred Stock, Shares Outstanding			0
Preferred Stock, Value, Issued			$ 0
Preferred Stock, Shares Outstanding			2,000,000
Preferred Stock, Value, Issued	645,000		$ 645,000
Balance at Jun. 30, 2019	2,162,239	$ 7,415		69,702,043	(68,192,219)
Balance, shares at Jun. 30, 2019		7,415,329
Net income (loss)	621,373	$ 0	$ 0	0	621,373
Balance at Sep. 30, 2019	$ 2,783,612	$ 7,415		$ 69,702,043	$ (67,570,846)
Balance, shares at Sep. 30, 2019		7,415,329
Preferred Stock, Shares Outstanding			2,000,000
Convertible Preferred Stock, Shares Issued upon Conversion	2.15
Preferred Stock, Value, Issued	$ 645,000		$ 645,000

Significant Accounting Policies Earning per share details (Details) - USD ($)	3 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Net income (loss)	$ 621,373	$ (47,736)
Preferred Stock Dividends, Income Statement Impact	13,006	13,005
Net Income (Loss) Available to Common Stockholders, Diluted	$ 621,373	$ (60,741)
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	213,000	4,728,820
Net Income (Loss) from Continuing Operations Available to Common Shareholders, Basic	$ 608,367	$ (60,741)
Convertible Preferred Dividends, Net of Tax	$ 13,006
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Convertible Securities		$ 0
Weighted average shares - basic	7,415,329	7,415,329.0
Incremental Common Shares Attributable to Dilutive Effect of Conversion of Preferred Stock	4,773,120	0
Weighted average shares - diluted	12,188,449	7,415,329
Earnings (Loss) Per Share, Basic	$ 0.08	$ (0.01)
Earnings (Loss) Per Share, Diluted	$ 0.05	$ (0.01)
Convertible Preferred Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	213,000	213,000
Equity Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	4,515,820

Going concern (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019
Going concern [Abstract]
Retained Earnings (Accumulated Deficit)	$ (67,570,846)	$ (68,192,219)

Consolidated Statements Of Operations - USD ($)	3 Months Ended
Consolidated Statements Of Operations - USD ($)	Sep. 30, 2019	Sep. 30, 2018
Revenue from External Customer [Line Items]
Revenue from Contract with Customer, Including Assessed Tax	$ 2,287,988	$ 2,258,383
Costs and expenses:
Cost of Goods and Services Sold	1,176,670	1,203,133
Marketing, general and administrative	999,427	1,002,237
Research and development	245,638	96,408
Total costs and expenses	2,421,735	2,301,778
Loss from operations	(133,747)	(43,395)
Other (expense) income:
Other Nonoperating Income (Expense)	758,021	0
Interest income	1,083	2,510
Interest expense	(3,984)	(6,851)
Total other (expense) income	755,120	(4,341)
Net income (loss)	621,373	(47,736)
Preferred Stock Dividends, Income Statement Impact	13,006	13,005
Net Income (Loss) Available to Common Stockholders, Basic	$ 608,367	$ (60,741)
Net income (loss) per share
Earnings (Loss) Per Share, Basic	$ 0.08	$ (0.01)
Earnings (Loss) Per Share, Diluted	$ 0.05	$ (0.01)
Weighted average shares - basic	7,415,329	7,415,329.0
Weighted average shares - diluted	12,188,449	7,415,329
Product [Member]
Revenue from External Customer [Line Items]
Revenue from Contract with Customer, Including Assessed Tax	$ 2,052,779	$ 2,022,383
Service [Member]
Revenue from External Customer [Line Items]
Revenue from Contract with Customer, Including Assessed Tax	$ 235,209	$ 236,000

Going concern (Notes)	3 Months Ended
Going concern (Notes)	Sep. 30, 2019
Going concern [Abstract]
Liquidity Disclosure [Policy Text Block]	. Going Concern The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the continuous enhancement of the current products, development of new products; changes in domestic and foreign regulations; ability of manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products and its ability to raise capital to support its operations. To date, the Company’s operations have not generated sufficient revenues to enable profitability. As of September 30, 2019, the Company had an accumulated deficient of $67.6 million, and incurred recurring losses from operations and incurred negative cash flows from operating activities in prior years. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These unaudited condensed consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuance as a going concern is dependent on its future profitability and on the on-going support of its shareholders, affiliates and creditors. In order to mitigate the going concern issues, the Company is actively pursuing business partnerships, managing its continuing operations, implementing cost-cutting measures and seeking to sell certain assets. The Company may not be successful in any of these efforts.

Significant Accounting Policies Goodwill and intangible assets (Details)	3 Months Ended
	Sep. 30, 2019 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Impairment of Intangible Assets (Excluding Goodwill)	$ 0

Significant Accounting Policies (Inventory) (Details) - USD ($)	Sep. 30, 2019	Jun. 30, 2019
schedule of inventory [Abstract]
Inventory, Raw Materials, Net of Reserves	$ 706,000	$ 875,000
Inventory, Work in Process, Net of Reserves	231,000	225,000
Inventory, Finished Goods, Net of Reserves	964,000	779,000
Inventory, net	$ 1,900,680	$ 1,878,860

Related Party Transactions (Details) - USD ($)	3 Months Ended			12 Months Ended
Related Party Transactions (Details) - USD ($)	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2019	Feb. 14, 2018
Related Party Transaction [Line Items]
Related Party Transaction, Amounts of Transaction			$ 645,000
Related Party Transaction, Rate		1.25%
accrued interest related party	$ 112,389
Related Party Transaction, Due from (to) Related Party	$ 1,208,466			$ 0	$ 645,000
Preferred Stock, Shares Issued	2,000,000			2,000,000	2,000,000
Common Stock, Voting Rights	0.7781
Convertible Preferred Stock, Shares Issued upon Conversion	2.15
Common Stock, Conversion Basis	4300000
Equity Method Investment, Ownership Percentage	36.70%
Dividends Payable, Date to be Paid	$ 83,973			$ 70,968
Dividends Payable, Amount Per Share	$ (0.0420)			$ (0.04)	$ (0.03)

Line of credit (Notes)	3 Months Ended
Line of credit (Notes)	Sep. 30, 2019
Line of Credit Facility [Line Items]
Debt Disclosure [Text Block]	Line of Credit On June 29, 2018 the Company entered a business loan agreement with TD bank receiving a line of credit evidenced by a promissory note of $250,000. The interest is subject to change based on changes in an independent index which the Wall Street Journal Prime. The index rate at the date of the agreement is 5.000% per annum. Interest on the unpaid principal balance of the note is calculated using a rate of 0.740 percentage points over the index, adjusted if necessary for any minimum and maximum rate limitations, resulting in an initial rate of 5.740% per annum based on a year of 360 days. The interest rate was 6.24% as of September 30, 2019. The Company was required to put $250,000 in the TD bank savings account as collateral. Mr. Richard J. DePiano Sr., chairman of the Company executed a guarantee of the loan in favor of TD Bank. Mr. DePiano Sr. passed away on October 3, 2019, therefore the guarantee is now assumed by his estate. Upon signing the agreement the Company also authorizes TD bank to payoff the line of credit with Newtek Business Credit ("Netwtek"). The total payment was $201,575 which includes $165,000 of outstanding line of credit, $2,579 accrued interest, administrative/legal fee of $1,000, prime plus fee through July 12, 2018 of $1,895 and underminimum fees of $28,797. The line of credit from Newtek was paid off on July 3, 2018. As of September 30, 2019 and June 30, 2019, the line of credit balance was $201,575 with TD bank. The line of credit interest expense was approximately $4,000 and $7,000 for the three months ended ended September 30, 2019 and 2018, respectively.

Consolidated Statements Of Cash Flows - USD ($)	3 Months Ended
Consolidated Statements Of Cash Flows - USD ($)	Sep. 30, 2019	Sep. 30, 2018
Cash Flows from Operating Activities:
Net income (loss)	$ 621,373	$ (47,736)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	11,906	13,186
Other Nonoperating Income (Expense)	(758,021)	0
Change in operating assets and liabilities:
Increaser(Decrease) in Accounts Receivable	141,000	(35,343)
Increase (Decrease) in Inventories	(21,820)	58,232
Increase (Decrease) in Other Operating Assets	(4,585)	(7,427)
Increase (Decrease) in Other Noncurrent Assets	(10,873)	0
Increase (Decrease) in Deferred Revenue	(333)	17,106
Increase (decrease) in liabilities of discontinued operations	(3,439)	278
Related Party Transaction, Due from (to) Related Party	1,208,466
Increase (Decrease) in Accounts Payable	24,851	150,153
Increase (Decrease) in Accrued Liabilities	33,295	(130,257)
Change in accrued post-retirement benefits	(25,473)	(6,360)
Payments for Leasing Costs	(82,910)	0
Other Operating Activities, Cash Flow Statement	82,195	0
Net Cash Provided by (Used in) Operating Activities	7,166	11,832
Cash Flows from Investing Activities:
Purchase of fixed assets	0	(6,506)
Net Cash Provided by (Used in) Investing Activities	0	(6,506)
Net Cash provided by (used in) Financing Activities:
Repayments of Notes Payable	(822)	(506)
Proceeds from (Repayments of) Lines of Credit	0	36,575
Net Cash Provided by (Used in) Financing Activities	(822)	36,069
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect	6,344	41,395
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	669,222	1,165,397
Cash and cash equivalents, beginning of period	415,818	914,616
Restricted Cash	253,404	250,781
Cash, cash equivalent and restricted cash, end of period	669,222	1,165,397
Supplemental Schedule of Cash Flow Information:
Interest Paid, Excluding Capitalized Interest, Operating Activities	5,827	35,648
Notes Assumed	$ 1,137,878	$ 0

Consolidated Balance Sheets - USD ($)	Sep. 30, 2019	Jun. 30, 2019
Current assets:
Cash and cash equivalents	$ 415,818	$ 409,743
Restricted Cash, Current	253,404	253,135
Accounts receivable, net	1,355,105	1,496,105
Inventory, net	1,900,680	1,878,860
Other current assets	227,663	223,078
Total current assets	4,152,670	4,260,921
Property and equipment, net	60,903	67,896
Operating Lease, Right-of-Use Asset	1,055,682	0
Trademarks and trade names	605,006	605,006
Finite-Lived Intangible Assets, Net	136,787	141,700
Deposits Assets, Noncurrent	62,788	51,915
Total assets	6,073,836	5,127,438
Current liabilities:
Short-term Debt	201,575	201,575
Other Notes Payable, Current	3,491	3,401
Accounts payable	691,361	666,510
Accrued expenses	619,413	656,707
Interest Payable, Current	112,389	112,389
Current portion of post-retirement benefits (related party)	8,491	101,891
Operating Lease, Liability, Current	281,085	0
Deferred Revenue, Current	426,470	426,803
Liabilities of discontinued operations	87,494	90,933
Total current liabilities	2,431,769	2,260,209
Other Notes Payable, Noncurrent	13,984	14,896
Operating Lease, Liability, Noncurrent	844,471	0
Accrued post-retirement benefits, net of current portion (related party)	0	690,094
Total long-term liabilities	858,455	704,990
Total liabilities	3,290,224	2,965,199
Shareholders equity:
Series A convertible preferred stock, $0.001 par value; 2,000,000 shares authorized;2,000,000 issued and outstanding	645,000	645,000
Common stock, $0.001 par value; 35,000,000 shares authorized; 7,415,329 shares issued and outstanding	7,415	7,415
Additional paid-in capital	69,702,043	69,702,043
Accumulated deficit	(67,570,846)	(68,192,219)
Total shareholders' equity	2,783,612	2,162,239
Total liabilities and shareholders' equity	$ 6,073,836	$ 5,127,438

Discontinued operation (Details) - USD ($) $ in Thousands	Jan. 18, 2012	Sep. 30, 2019	Jun. 30, 2019	Jun. 30, 2015
BH Holdings, S.A.S [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Disposal Group, Including Discontinued Operation, Assets		$ 0	$ 0
Disposal Group, Including Discontinued Operation, Other Liabilities, Current		87	91	$ 86
Disposal Group, Including Discontinued Operation, Liabilities		87	91
Assets (Liabilities) of Disposal Group, Including Discontinued Operation, Net		$ (87)	$ (91)
BH Holdings, S.A.S [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Bankruptcy Proceedings, Operating Period During Liquidation	3 months

Organization and Description of Business	3 Months Ended
Organization and Description of Business	Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization and Description of Business and Business Conditions	Escalon Medical Corp. ("Escalon" or "Company") is a Pennsylvania corporation initially incorporated in California in 1987, and reincorporated in Pennsylvania in November 2001. Within this document, the “Company” collectively shall mean Escalon, which includes its division called "Trek" and its wholly owned subsidiaries: Sonomed, Inc. (“Sonomed”), Escalon Digital Solutions, Inc. (“EMI”), Escalon Holdings, Inc. (“EHI”), Escalon IP Holdings, Inc., and Sonomed IP Holdings, Inc. The Company operates in the healthcare market, specializing in the development, manufacture, marketing and distribution of medical devices and pharmaceuticals in the area of ophthalmology. The Company and its products are subject to regulation and inspection by the United States Food and Drug Administration (the “FDA”). The FDA and other government authorities requires extensive testing of new products prior to sale and has jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing. The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Security and Exchange Commission, and reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion of management, necessary to present fairly the unaudited condensed consolidated financial information required herein. Certain information and note disclosures normally included in financial statement prepared in accordance with accounting principles generally accepted in the United Statements of America ("US GAAP") have been condensed or omitted pursuant to such rules and regulations. While management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K filed with the Security and Exchange Commission for the fiscal year ended June 30, 2019. The results of operations for the three months ended September 30, 2019 are not ncecssarily indicative of the results to be expected for the full year. The Company’s common stock trades on the OTCQB Market under the symbol “ESMC.”

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2019	Jun. 30, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred Stock, Shares Issued	2,000,000	2,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	35,000,000	35,000,000
Common stock, shares issued	7,415,329	7,415,329
Common stock, shares outstanding	7,415,329	7,415,329

Significant Accounting Policies (Accounts Receivable) (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Accounting Policies [Abstract]
Allowance for Doubtful Accounts Receivable	$ 111