-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KQ0VdF50A2R5p+KEK/lKQ/m6ZXnIQ+kd3zxtOrJS7uRBmL3yPSwVgbG41JFEsSK8 rzLh1F2URO48BS+PHk1whQ== 0000893220-96-001822.txt : 19961113 0000893220-96-001822.hdr.sgml : 19961113 ACCESSION NUMBER: 0000893220-96-001822 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESCALON MEDICAL CORP CENTRAL INDEX KEY: 0000862668 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 330272839 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20127 FILM NUMBER: 96658839 BUSINESS ADDRESS: STREET 1: 182 TAMARACK CIRCLE CITY: SKILLMAN STATE: NJ ZIP: 08558 BUSINESS PHONE: 609497-9141 MAIL ADDRESS: STREET 1: 182 TAMARACK CIRCLE CITY: SKILLMAN STATE: NJ ZIP: 08558 FORMER COMPANY: FORMER CONFORMED NAME: INTELLIGENT SURGICAL LASERS INC DATE OF NAME CHANGE: 19930328 10-Q 1 FORM 10-Q, ESCALON MEDICAL CORP. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to______ Commission File No. 0-20127 ESCALON MEDICAL CORP. (Exact name of Registrant as specified in its charter) California 33-0272839 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 182 Tamarack Circle Skillman, NJ 08558 (609)497-9141 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Date: November 1, 1996 10,518,814 Shares of Common Stock, no par value 2 ESCALON MEDICAL CORP. INDEX Part I. FINANCIAL INFORMATION PAGE Item 1. Condensed Financial Statements Condensed Balance Sheets as of June 30, 1996 and September 30, 1996 3 Condensed Statements of Operations for the Three Months Ended September 30, 1995 and 1996 4 Condensed Statements of Cash Flows for the Three Months Ended September 30, 1995 and 1996 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS ESCALON MEDICAL CORP. CONDENSED BALANCE SHEETS
JUNE 30, SEPTEMBER 30, 1996 1996 ------------ ------------ ASSETS (UNAUDITED) Current Assets: Cash and cash equivalents $ 2,584,503 $ 2,189,405 Investments 795,970 795,970 Accounts receivable, net 735,910 818,594 Inventories, net 669,996 672,992 Other current assets 80,891 79,908 ------------ ------------ Total current assets 4,867,270 4,556,869 Furniture and equipment, at cost, net 172,092 166,087 License and distribution rights, net 2,074,990 2,016,500 Patents, net 446,995 451,257 Goodwill, net 3,959,055 3,856,346 Other assets 79,494 82,071 ------------ ------------ $ 11,599,896 $ 11,129,130 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of capital lease obligations $ 7,510 $ 6,620 Accounts payable 653,871 514,840 Accrued and other liabilities 451,858 470,187 ------------ ------------ Total current liabilities 1,113,239 991,647 ------------ ------------ Long term capital lease obligations 3,235 2,247 ------------ ------------ Commitments Shareholders' Equity: Common stock, no par value; 35,000,000 shares authorized; 10,518,814 shares issued and outstanding at June 30, 1996 and September 30, 1996 44,645,440 44,645,440 Accumulated deficit (34,162,018) (34,510,204) ------------ ------------ Total shareholders' equity 10,483,422 10,135,236 ------------ ------------ $ 11,599,896 $ 11,129,130 ============ ============
Note: The balance sheet at June 30, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed financial statements. 3 4 ESCALON MEDICAL CORP. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1995 1996 ---------- ----------- Product revenues $ -- $ 1,435,223 Costs and Expenses: Cost of goods sold -- 720,989 Research and development 500,991 333,790 Marketing, general and administrative 480,018 773,612 ---------- ----------- Total costs and expenses 981,009 1,828,391 ---------- ----------- Loss from operations (981,009) (393,168) ---------- ----------- Other Income and Expenses: Interest income 78,862 45,430 Interest expense -- (448) ---------- ----------- Total other income and expense 78,862 44,982 ---------- ----------- Net loss $ (902,147) $ (348,186) ========== =========== Net loss per share $ (0.16) $ (0.03) ========== =========== Shares used in computation of net loss per share 5,762,000 10,518,814 ========== ===========
See notes to condensed financial statements. 4 5 ESCALON MEDICAL CORP. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1995 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (902,147) $ (348,186) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 134,156 184,796 Amortization of deferred compensation 16,344 -- Write off of patents 25,000 -- Net gain on sale of furniture and equipment -- (2,680) Change in current assets and liabilities (Increase) decrease in accounts receivable -- (82,684) (Increase) decrease in inventories 80,160 (2,996) (Increase) decrease in other current assets (5,181) 8,179 Increase (decrease) in accounts payable, accrued and other liabilities 136,439 (120,702) ---------- ---------- Net cash used in operating activities (515,229) (364,273) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of short-term investments 1,930,954 -- Purchase of furniture and equipment -- (15,456) Proceeds from sale of furniture and equipment -- 5,400 Other assets (116,575) (9,773) Patent costs (3,825) (9,118) ---------- ---------- Net cash provided from (used in) investing activities 1,810,554 (28,947) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock 32,939 -- Principal payments under capital lease obligations -- (1,878) ---------- ---------- Net cash provided from (used in) financing activities 32,939 (1,878) ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,328,264 (395,098) Cash and cash equivalents, beginning of period 3,518,410 2,584,503 ---------- ---------- Cash and cash equivalents, end of period $4,846,674 $2,189,405 ========== ==========
See notes to condensed financial statements. 5 6 ESCALON MEDICAL CORP. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of Escalon Medical Corp. (formerly known as Intelligent Surgical Lasers, Inc.) (the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Operating results for the three-month period ended September 30, 1996 are not indicative of the results that may be expected for the fiscal year ended June 30, 1997. For more complete financial information, the accompanying condensed financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 1996 included in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission. 2. PER SHARE INFORMATION Per share data has been computed using the weighted average number of shares outstanding. Common share equivalents issuable upon exercise of outstanding stock options and warrants have been excluded from the computation as their effect would be anti-dilutive. 3. INVENTORIES Inventories, stated at the lower of cost (determined on a first-in, first-out basis) or market, consisted of the following:
JUNE 30, 1996 SEPTEMBER 30, 1996 ------------- ------------------ Raw materials/work in process $ 623,460 $ 630,279 Finished goods 643,915 640,092 ---------- ---------- 1,267,375 1,270,371 Valuation allowance (597,379) (597,379) ---------- ---------- $ 669,996 $ 672,992 ========== ==========
4. CONTINGENCIES Litigation As previously reported in reports previously filed with the Securities and Exchange Commission, on April 3, 1995, the Company was served with a pleading entitled Amended Consolidated Class Action Complaint in an action captioned In Re Blech Securities Litigation, 94 Civ. 9696, which was filed in the United States 6 7 District Court for the Southern District of New York on or about March 28, 1995. On June 6, 1996, the court granted in part and denied in part motions by the Company and certain of the other defendants to dismiss the complaint which dismissed all claims against the Company. On July 26, 1996, the plaintiffs filed an amended complaint. The amended complaint does not name the Company as a defendant. On or about June 8, 1995, a purported class action complaint captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et al., 95 Civ. 4299, was filed in the U.S. District Court for the Southern District of New York as a "related action" to In Re Blech Securities Litigation. The plaintiff purports to represent a class of all purchasers of the Company's stock from November 17, 1993, to and including September 21, 1994. The complaint alleges that the Company, together with certain of its officers and directors, David Blech and D. Blech & Co., Inc., issued a false and misleading prospectus in November 1993 in violation of Section 11, 12 and 15 of the Securities Act of 1933. The complaint also asserts claims under Section 10(b) of the Securities Exchange Act of 1934 and common law. Actual and punitive damages in an unspecified amount are sought, as well as a constructive trust over the proceeds from the sale of stock pursuant to the Offering. On June 6, 1996, the court denied a motion by the Company and the named officers and directors to dismiss the Kozloski complaint and, on July 22, 1996, the Company Defendants filed an answer to the complaint denying all allegations of wrongdoing and asserting various affirmative defenses. On August 15, 1996, the Company, together with three other companies against whom similar claims have been asserted in separate actions filed as "related" to In Re Blech Securities Litigation, filed a motion for permission to appeal. On October 10, 1996, the court heard oral arguments on the motion for permission to appeal and a decision is pending. The Company believes it has meritorious defenses and intends to vigorously defend the Kozloski litigation. Regardless of the outcome, the Company could be required to incur substantial expense in defending this lawsuit. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the interim financial statements and the notes thereto which are set forth elsewhere in this report on Form 10-Q. On February 12, 1996, the Company acquired all of the assets and certain liabilities of Escalon Ophthalmics, Inc. ("EOI"). Prior to the acquisition, the Company was in the development stage and devoting substantially all of its resources to the research and development of laser systems designed for the treatment of ophthalmic disorders. Upon completion of the acquisition, the Company changed its market focus and is now engaged in developing, marketing and distributing ophthalmic medical devices and pharmaceuticals. The Company is also developing its ophthalmic laser and drug delivery systems to complement its other businesses. Sales of products acquired from EOI are made primarily to hospitals and physicians throughout the United States. As a result of the acquisition, the Company is no longer in the development stage for financial reporting purposes. The Company expects that operating losses will continue as the Company continues research and development relating to the application of its various laser and drug delivery technologies and until product sales generate sufficient revenues to fund its continuing operations. The Company expects that results of operations may fluctuate from quarter to quarter for a number of reasons, including: (i) limited laser system sales in the near term as the Company pursues required regulatory clearances and approvals for its laser systems; (ii) anticipated order and shipment patterns of the Company's other products; and (iii) general competitive and economic conditions of the health care market. RESULTS OF OPERATIONS Three Month Periods Ended September 30, 1995 and 1996 Product revenues increased to $1,435,223 for the three-month period ended September 30, 1996. There were no revenues for the same interim period ended September 30, 1995. Product revenues for the three-month period ended September 30, 1996 relate directly to the EOI acquisition as there were no laser system sales during this period. The Company's ability to sell its laser systems in the U.S. is subject to certain Food and Drug Administration ("FDA") limitations based on the status of the Company's various clinical trials. International sales of its laser systems, while not directly limited by the FDA, are also indirectly impacted by the status of these U.S. clinical trials. In addition, the Company has reduced the size of its laser operations workforce in order to preserve working capital. Given these factors, it is not likely that laser sales volumes will increase until such time as the viability of these various applications are further demonstrated through FDA approvals to advance into later phases of the clinical trials. Cost of goods sold totaled $720,989, or 50% of product revenues for the three-month period ended September 30, 1996. The Company recognized no expense for cost of goods sold for the same interim period ended September 30, 1995. The increase in cost of goods sold is attributable to the EOI acquisition and as such any gross margin analysis between interim periods would not be meaningful. 8 9 Research and development expenses decreased $167,201 or 33% for the three-month period ended September 30, 1996 compared to the same three-month period ended September 30, 1995. Research and development expenses associated with the Company's laser operations decreased $321,145 offset by expenditures of $153,944 associated with the Company's surgical products and pharmaceutical/drug delivery research and development programs acquired from EOI. The reduction in laser research and development expenses is a direct result of a reduction in workforce and other cost reduction programs implemented during the fiscal year ended June 30, 1996 in connection with the Company's change in focus of its operations. The Company's research and development expenses consist primarily of direct expenses associated with compensation and benefits, consulting and research and development arrangements with third parties and indirect expenses such as materials, equipment and supplies. Marketing and general and administrative expenses increased $293,594 or 61% for the three-month period ended September 30, 1996 compared to the same period ended September 30, 1995. This increase relates primarily to (i) marketing and general and administrative operations associated with the EOI acquisition; (ii) legal fees associated with the Company's ongoing litigation; and (iii) offset by decreases in laser operations personnel, travel and marketing related costs, associated with the aforementioned workforce and other cost reduction programs. Interest income decreased to $45,430 for the three-month period ended September 30, 1996 from $78,862 for the same three-month period ended September 30, 1995. The decrease is due to a reduction in the levels of cash and cash equivalents available for investment. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1996, the Company had cash and cash equivalents of $2,189,405 as compared to $2,584,503 at June 30, 1996. The Company's short-term investments at September 30, 1996 and June 30, 1996 were $795,970. The net decrease in cash and cash equivalents of $395,098 relates primarily to the loss from operations. The Company anticipates that the cash and cash equivalents and the interest earned thereon, together with funds generated from future product sales, should be adequate to satisfy its capital requirements, based on current levels of operations, through the fiscal year ending June 30, 1997. In the longer term, however, the Company will seek corporate partnering, licensing and other fund raising opportunities to satisfy the significant expenditures anticipated with development of its surgical products, pharmaceutical/drug delivery and laser operations. Pursuant to a collaborative research and development agreement relating to the Company's drug delivery technology, the Company has committed to pay $250,000 during fiscal year 1997. During the three-month period ended September 30, 1996, approximately $60,000 of such commitment was paid. Other significant expenditures may be incurred in connection with the legal proceedings as discussed in Part II. See "Part II. Item 1. Legal Proceedings." 9 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information contained in Note 4 of the Notes to Condensed Financial Statements in Part I is incorporated herein by reference thereto. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: None 10 11 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 5, 1996 By: /s/ Sterling C. Johnson ------------------------------------------ Sterling C. Johnson President and Chief Executive Officer DATE: November 5, 1996 By: /s/ John T. Rich ------------------------------------------ John T. Rich Vice President Finance and Administration (Principal Financial and Accounting Officer) and Assistant Secretary 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 1 2,189,405 795,970 825,271 6,677 672,992 4,556,869 1,759,123 1,593,035 11,129,130 991,647 0 0 0 44,645,440 (34,510,204) 11,129,130 1,435,223 1,435,223 720,989 720,989 1,107,402 0 448 (348,186) 0 (348,186) 0 0 0 (348,186) (0.03) 0
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