-----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, LhNsm7o9gEDG9E2WoWpDmzAxpsrRpA68ZgrMaoq1CxPXGZFw6AXjDPAGeXbh4acb yu/tCRSmizZu2tV06yQk5Q== 0000893220-00-000149.txt : 20000214 0000893220-00-000149.hdr.sgml : 20000214 ACCESSION NUMBER: 0000893220-00-000149 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000211 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: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20127 FILM NUMBER: 533528 BUSINESS ADDRESS: STREET 1: 351 EAST CONESTOGA ROAD STREET 2: PLZ LEVEL CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6106886830 MAIL ADDRESS: STREET 1: 351 EAST CONESTOGA ROAD CITY: WAYNE STATE: PA ZIP: 19087 FORMER COMPANY: FORMER CONFORMED NAME: INTELLIGENT SURGICAL LASERS INC DATE OF NAME CHANGE: 19930328 10-Q 1 FORM 10-Q ESCALON MEDICL 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 December 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to______ Commission File No. 0-20127 ESCALON MEDICAL CORP. (Exact name of Registrant as specified in its charter) Delaware 33-0272839 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 351 East Conestoga Road Wayne, PA 19087 (610) 688-6830 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Date: February 2, 2000 3,242,184 Shares of Common Stock, $0.001 par value ---------------- --------- 2 ESCALON MEDICAL CORP. AND SUBSIDIARIES INDEX
Part I. FINANCIAL INFORMATION PAGE Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1999 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 1998 and 1999 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1998 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 4. Submission of Matters to Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13
3 PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements ESCALON MEDICAL CORP. AND SUBSIDARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1999 1999 ------------ ------------ ASSETS (UNAUDITED) Current Assets: Cash and cash equivalents $ 3,854,240 $ 3,039,913 Cash and cash equivalents - restricted 1,000,000 1,000,000 Note Receivable 15,000 15,000 Accounts receivable, net 1,063,829 1,464,590 Inventory, net 1,117,208 1,017,481 Other current assets 142,235 195,143 ------------ ------------ Total current assets 7,192,512 6,732,127 Furniture and equipment, at cost, net 449,555 469,501 Long-term note receivable 150,000 150,000 License and distribution rights, net 537,138 251,585 Patents, net 495,923 183,459 Goodwill, net 1,510,207 1,187,385 Other assets 67,438 155,880 ------------ ------------ $ 10,402,773 $ 9,129,937 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable, bank $ 1,000,000 $ 1,000,000 Current portion of long-term debt 200,000 200,000 Accounts payable 434,308 282,800 Accrued and other liabilities 1,757,432 568,427 ------------ ------------ Total current liabilities 3,391,740 2,051,227 Long-term debt, net of current portion 733,332 633,330 ------------ ------------ Total liabilities 4,125,072 2,684,557 ------------ ------------ Shareholders' Equity: Common stock, no and $0.001 par value; 35,000,000 shares authorized; 3,377,164 and 3,242,184 shares issued, less 134,980 and 0 Treasury shares at June 30, 1999 and December 31, 1999, respectively 46,024,811 46,024,811 Treasury stock (118,108) -- Accumulated deficit (39,629,002) (39,579,431) ------------ ------------ Total shareholders' equity 6,277,701 6,445,380 ------------ ------------ $ 10,402,773 $ 9,129,937 ============ ============
Note: The consolidated balance sheet at June 30, 1999 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 4 ESCALON MEDICAL CORP. AND SUBSIDARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ----------------------------- ----------------------------- 1998 1999 1998 1999 ----------- ----------- ----------- ----------- Product revenues $ 1,774,675 $ 886,534 $ 3,460,097 $ 2,310,212 Costs and expenses: Cost of goods sold 792,148 421,358 1,509,004 1,154,198 Research and development 185,813 231,950 341,250 467,383 Marketing, general and administrative 715,010 1,039,468 1,397,973 1,978,070 ----------- ----------- ----------- ----------- Total costs and expenses 1,692,971 1,692,776 3,248,227 3,599,651 ----------- ----------- ----------- ----------- Income (loss) from operations 81,704 (806,242) 211,870 (1,289,439) ----------- ----------- ----------- ----------- Other income and expenses: Gain on sale of Silicone Oil product line -- -- -- 1,848,215 Write-off of Ocufit -- (455,112) -- (455,112) Interest income 33,090 44,903 70,018 93,787 Interest expense (1,426) (14,791) (1,451) (29,772) ----------- ----------- ----------- ----------- Total other income and expense 31,664 (425,000) 68,567 1,457,118 ----------- ----------- ----------- ----------- Net income (loss) $ 113,368 $(1,231,242) $ 280,437 $ 167,679 =========== =========== =========== =========== Basic net income (loss) per share $ 0.034 $ (0.380) $ 0.084 $ 0.052 =========== =========== =========== =========== Diluted net income (loss) per share $ 0.027 $ (0.380) $ 0.068 $ 0.052 =========== =========== =========== =========== Weighted average shares - basic 3,017,184 3,242,184 3,028,668 3,242,184 =========== =========== =========== =========== Weighted average shares - diluted 4,181,743 3,242,184 4,116,861 3,254,250 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 4 5 ESCALON MEDICAL CORP. AND SUBSIDARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, --------------------------------- 1998 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 280,437 $ 167,679 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 174,722 155,099 Gain on sale of Silicone Oil product line -- (1,848,215) Write off of Ocufit cost -- 455,112 Write off of patents 24,805 -- Change in operating assets and liabilities: Accounts receivable 66,403 657,829 Inventories (226,037) 99,727 Other current assets (185,866) 1,148 Accounts payable, accrued and other liabilities 189,965 (224,514) ----------- ----------- Net cash provided from (used in) operating activities 324,429 (536,135) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (259,000) (6,043,060) Proceeds from maturities of short-term investments 330,016 6,043,060 Short-term note receivable (15,000) -- Purchase of furniture and equipment (24,643) (67,341) Proceeds from sale of Silicone Oil product line -- 1,058,590 Final payment for vascular access business -- (1,000,000) Long-term note receivable (25,000) -- License and distribution rights and goodwill (2,924) (11,107) Patent costs (28,197) (15,834) Other assets (835) (142,498) ----------- ----------- Net cash provided from (used in) investing activities (25,583) (178,190) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on term loan -- (100,002) Purchase of treasury stock (118,108) -- Payment of preferred stock dividends (38,040) -- ----------- ----------- Net cash used in financing activities (156,148) (100,002) ----------- ----------- Net increase (decrease) in cash and cash equivalents 142,698 (814,327) Cash and cash equivalents, beginning of period 2,263,967 3,854,240 ----------- ----------- Cash and cash equivalents, end of period $ 2,406,665 $ 3,039,913 =========== =========== NON-CASH FINANCING ACTIVITY: Treasury stock retired as part of reincorporation $ -- $ 118,108 =========== ===========
See notes to condensed consolidated financial statements. 5 6 ESCALON MEDICAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Escalon Medical Corp. (formerly known as Intelligent Surgical Lasers, Inc.) and its subsidiaries Escalon Pharmaceutical Inc. and Escalon Vascular Access, Inc. (jointly referred to as "Escalon" or the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Operating results for interim periods are not indicative of the results that may be expected for the fiscal year ending June 30, 2000. For more complete financial information, the accompanying condensed financial statements should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 1999 included in the Company's annual report on Form 10-K. 2. PER SHARE INFORMATION The Company follows Financial Accounting Standards Board Statement No. 128, "Earnings Per Share", in presenting basic and diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ----------------------------- -------------------------- 1998 1999 1998 1999 --------- ----------- --------- -------- Numerator: Numerator for basic earnings per share: Net income (loss) $ 113,368 $(1,231,242) $ 280,437 $167,679 Preferred stock dividends (12,270) -- (24,540) -- --------- ----------- --------- -------- Numerator for basic earnings per share-income available to Common shareholders 101,098 (1,231,242) 255,897 167,679 Effect of dilutive securities: Preferred stock dividends 12,270 -- 24,540 -- --------- ----------- --------- -------- Numerator for diluted earnings per share-income (loss) available to Common shareholders after assumed conversions $ 113,368 $(1,231,242) $ 280,437 $167,679 ========= =========== ========= ========
6 7 2. PER SHARE INFORMATION (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, -------------------------- -------------------------- 1998 1999 1998 1999 --------- --------- --------- --------- Denominator: Denominator for basic earnings per share - weighted average shares 3,017,184 3,242,184 3,028,668 3,242,184 Effect of dilutive securities: Convertible preferred stock 1,164,559 -- 1,088,193 -- Employee stock options -- -- -- 12,066 --------- --------- --------- --------- Denominator for diluted earnings per share - weighted average and assumed conversion 4,181,743 3,242,184 4,116,861 3,254,250 ========= ========= ========= ========= Basic earnings (loss) per share $ 0.034 $ (0.380) $ 0.084 $ 0.052 ========= ========= ========= ========= Diluted earnings (loss) per share $ 0.027 $ (0.380) $ 0.068 $ 0.052 ========= ========= ========= =========
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, 1999 DECEMBER 31, 1999 ------------- ----------------- Raw materials/work in process $ 526,553 $ 673,593 Finished goods 623,655 422,488 ---------- ---------- 1,150,208 1,096,081 Valuation allowance (33,000) (78,600) ---------- ---------- $1,117,208 $1,017,481 ========== ==========
4. CONTINGENCIES Litigation As previously reported in reports filed with the Securities and Exchange Commission, on or about June 8, 1995, a purported class action complaint captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et al., 95 Civ. 4299, was filed in the U.S. District Court for the Southern District of New York as a "related action" to In Re Blech Securities Litigation (a litigation matter which the Company is no longer a party to). The plaintiff purports to represent a class of all purchasers of the Company's stock from November 17, 1993, to and including September 21, 1994. The complaint alleges that the Company, together with certain of its officers and directors, David Blech and D. Blech & Co., Inc., issued a false and misleading prospectus in November 1993 in violation of Sections 11, 12 and 15 of the Securities Act of 1933. The complaint also asserts claims under Section 10(b) of the Securities Exchange Act of 1934 and common law. Actual and punitive damages in an unspecified amount are sought, as well as a constructive trust over the proceeds from the sale of stock pursuant to the offering. On June 6, 1996, the court denied a motion by the Company and the named officers and directors to dismiss the Kozloski complaint and, on July 22, 1996, the Company Defendants filed an answer to the complaint denying all allegations of wrongdoing and asserting various affirmative defenses. 7 8 In an effort to curtail its legal expenses related to this litigation, while continuing to deny any wrongdoing, the Company has reached an agreement, subject to final court approval, to settle this action on its behalf and on behalf of its former and present officers and directors, for $500,000. The Company's directors and officers insurance carrier has agreed to fund a significant portion of the settlement amount. Both the Company and its insurance carrier have deposited such funds in an escrow account. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This document contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include certain information relating to the development of acquisition and joint venture opportunities, fluctuations in results of operations, as well as information contained elsewhere in this Report where statements are preceded by, followed by or include the words "believes," "expects," "anticipates," or similar expressions. For such statements the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this document are subject to risks and uncertainties that could cause the assumptions underlying such forward-looking statements and the actual results to differ materially from those expressed in or implied by the statements. The most important factors that could prevent the Company from achieving its goals -- and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements -- include, without limitation and in addition to those discussed in the documents filed by the Company with the Securities and Exchange Commission including future capital needs and the uncertainty of additional funding (whether through the financial markets, collaborative or other arrangements with strategic partners, or from other sources). OVERVIEW The following discussion should be read in conjunction with the interim financial statements and the notes thereto which are set forth elsewhere in this report on Form 10-Q. Escalon Medical Corp. and its subsidiaries Escalon Pharmaceutical Inc. and Escalon Vascular Access Inc. (jointly referred to as "Escalon" or the "Company"), operates in the healthcare market specializing in the development, marketing and distribution of ophthalmic medical devices, pharmaceutical and vascular access products. On February 12, 1996, the Company acquired all of the assets and certain liabilities of Escalon Ophthalmics, Inc. ("EOI"). Prior to the acquisition, the Company was in the development stage and devoting substantially all of its resources to the research and development of laser systems designed for the treatment of ophthalmic disorders. Upon completion of the acquisition, the Company changed its market focus and is now engaged in developing, marketing and distributing ophthalmic medical devices, pharmaceuticals and niche medical products. Sales of products acquired from EOI are made primarily to hospitals and physicians throughout the United States Escalon purchased the vascular access business unit of Radiance Medical Systems, Inc. in January 1999. This was significant as the Company's first step in diversification. The vascular access product line is the first niche product acquired outside the ophthalmic medical field. Vascular products are marketed to the pediatric and critical care providers through independent distributors. 8 9 Escalon's market strategy is to locate and acquire profitable niche medical products that it owns and controls the rights to. To finance this program, the Company sold its license and distribution rights to Betadine(R)5% Sterile Ophthalmic Prep Solution ("Betadine") and Adatosil(R)5000 Silicone Oil ("Silicone Oil"), in third quarter of fiscal 1999 and the first quarter of fiscal 2000, respectively. To further develop and commercialize its proprietary laser technology, in October 1997, the Company licensed its intellectual laser properties to a newly formed company, IntraLase, in return for an equity interest in IntraLase and future royalties on product sales. IntraLase has the responsibility of funding and developing the laser technology through to commercialization. The Company expects that results of operations may fluctuate from quarter to quarter for a number of reasons, including: (i) anticipated order and shipment patterns of the Company's products; (ii) lead times to produce the Company's products; and (iii) general competitive and economic conditions of the health care market. RESULTS OF OPERATIONS Three and Six-Month Periods Ended December 31, 1998 and 1999 Product revenues decreased $888,141, or 50%; to $886,534 for the three-month period ended December 31, 1999 as compared to $1,774,675 for the same period ended December 31, 1998. Product revenues declined $1,366,200 as a result of the sales of the Silicone Oil and Betadine product lines. The license and distribution rights to these product lines were sold in August and March of 1999, respectively. Revenue from the vascular access business, acquired in January 1999, provided $562,600 to partially replace this lost revenue. In the second quarter of fiscal 2000, Escalon also experienced a decline in unit sales of OEM and ISPAN(TM) gas products of $61,800 and $16,800, respectively. Contract manufacturing revenues vary from quarter to quarter depending on when orders are received and the lead times to produce such products. For the six-month period ended December 31, 1999, the Company experienced a $1,149,885, or 33%, decline in revenues from the same period in fiscal 1998. Loss of revenues from discontinued product lines amounted to $2,053,400 between the two periods. Addition of vascular products offset that amount by $1,071,200. The Company also experienced a decline of $122,800 in OEM product sales for this six-month period, as well as a $44,900 decline in combined unit sales of its disposables, capital equipment and gas products. Cost of goods sold totaled $421,358, or 48% of revenue, for the three-month period ended December 31, 1999, as compared to $792,148, or 45% of revenue, for the same period last year. Discontinued product lines reduced comparative quarterly costs by $567,500. Vascular product line costs rose for the current quarter to $249,200, there were no comparable cost for the same period last year. Ophthalmic product manufacturing costs decreased $52,500 in the second quarter of fiscal 2000 when compared to the second fiscal quarter of 1999. For the six-month period ended December 31, 1999, cost of goods sold totaled $1,154,198, or 50% of revenue, compared with $1,509,004, or 44% of revenue, for the first six months of fiscal 1999. Costs associated with discontinued product lines decreased $828,500 in fiscal 2000. Vascular product costs rose by $502,300 and ophthalmic device costs decreased $28,600 for the like period of fiscal 1999. Research and development expenses increased $46,137, or 25%, for the three-month period ended December 31, 1999 when compared to the same period in 1998. Expenses for clinical trials related to providone-iodine 2.5% and Ocufit SR(R) increased $40,300 over the same quarter of fiscal 1999. When comparing the six-month periods ending December 31, 1999 and 1998, research and development costs increased $126,133, or 37%. Expenses for clinical trials increased $91,200 and vascular research costs 9 10 increased $51,900 over the same period in fiscal 1999. The Company did experience favorable reductions in patent and various other developmental costs that reduced the fiscal 2000 increases by $17,000. Marketing, general and administrative expenses increased $324,458, or 45%, for the three-month period ended December 31, 1999 compared to the same period last year. Expenses for the vascular access product line were $331,800; there were no comparable costs in the second fiscal quarter of 1999. Salaries and wages increased $45,600, office expense rose $21,400 and legal/investor relations costs increased $66,700 (annual meeting costs, reincorporation and legal expenses related to acquisition incurred in second quarter fiscal 2000). The aforementioned costs were reduced by $123,400 for commissions, royalties and amortization for discontinued product lines and $17,700 in advertising expense. When comparing the six-month periods ending December 31, 1999 and 1998, marketing, general and administrative costs increased $580,097, or 42%. Vascular product expenses contributed $634,000. Increases were also observed in salaries and wages, $89,200; and legal/investor relations costs, $116,100. The Company realized a favorable $225,400 reduction in commissions, royalties and amortization related to discontinued product lines and $33,800 in advertising costs. In August 1999, the Company reported the sale of its license and distribution rights for the Adatosil(R) 5000 Silicone Oil product line. This sale resulted in a $1,848,215 gain after writing off of the remaining net book value of license and distribution rights associated with that product line. Beginning in the second quarter of fiscal 2001, the Company will also receive additional payments based on future sales of Adatosil(R) Silicone Oil over the next five years. After completing the initial Phase I human clinical trials in late December 1999, management re-evaluated its Ocufit SR(R) ophthalmic drug delivery system project. It was decided that further expenditures on this project were not in the shareholders' best interest, and the project was discontinued. This decision resulted in the Company taking a one-time non-cash charge of $455,112 in the second quarter of fiscal 2000, which included write-off of the net book value for remaining goodwill and patent cost associated with this project. Interest income increased to $44,903 and $93,787 for the three- and six-month periods ended December 31, 1999 from $33,090 and $70,018 for the same periods in 1998. This increase is a result of increased cash and cash equivalents available for investment, due to proceeds received from sale of the Silicone Oil and Betadine product lines. Interest expense increased to $14,791 and $29,772 for the three- and six-month periods ended December 31, 1999 from $1,426 and $1,451 for the same periods in 1998. This is the result of corporate borrowing arrangements that did not exist until the third quarter of fiscal 1999. There is no provision for income taxes for the three- or six-month periods ended December 31, 1999 and 1998 due to the utilization of net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, the Company had cash and cash equivalents of $3,039,913 as compared to $3,854,240 at June 30, 1999. Cash and cash equivalents decreased by $814,327. During the second quarter, the Company paid off $1,000,000, the final amount due Radiance for purchase of the vascular product line. Partially offsetting this reduction in cash was a receipt of the second $529,295 installment paid on the Silicone Oil product line sale. 10 11 On January 14, 2000, the Company completed the acquisition of Sonomed, Inc. ("Sonomed"), a manufacturer of ophthalmic ultrasound diagnostic devices. The purchase price was $12,550,000, of which $12,050,000 was paid in cash and $500,000 was represented by a promissory note, bearing interest at 10% per annum and due in 125 days. On January 14, 2000, the Company replaced the $2,000,000 credit facility obtained in January 1999. PNC Bank N.A. ("PNC Bank" or "Bank") granted a new $12,000,000 credit facility to assist in the Sonomed acquisition. This includes a $7,000,000 five-year term loan, a $5,000,000 reducing line of credit and the release of the requirement to maintain a $1,000,000 certificate of deposit with the Bank. All of the Company's assets, including those acquired from Sonomed, collateralize these agreements. The Board of Directors has authorized the repurchase of up to 500,000 shares of the Company's common stock. The price, timing and manner of these purchases will be at the discretion of management. No purchases have been made, nor are any expected to be made, under this authority. The Company anticipates that the cash and cash equivalents and the interest earned thereon, together with funds generated from future product sales, should be adequate to satisfy its capital requirements, based on current levels of operations, through December 31, 2000. In the longer term, however, the Company will seek corporate partnering, licensing and other financing opportunities to satisfy the significant expenditures anticipated with development of its surgical products, pharmaceutical products and vascular access devices. YEAR 2000 ISSUES January 1, 2000 has passed without incident and management does not expect any new issues to emerge. Therefore, the Company will no longer comment on this matter. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information contained in Note 4 of the Notes to Condensed Consolidated Financial Statements in Part I is incorporated herein by reference thereto. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders was held on November 9, 1999. The following matters were acted upon: 1. The following persons were elected as directors of the Company for the next year until their successors are elected and qualified. Nominees for Director For Against Withheld --------------------- --- ------- -------- Richard J. DePiano 2,549,163 85,541 0 Dr. Jay L. Federman 2,549,163 85,541 0 Fred G. Choate 2,549,263 85,441 0 William Kwan 2,542,429 92,275 0 Jeffrey F. O'Donnell 2,549,263 85,441 0 11 12 There were no broker held non-voted shares represented at the meeting with respect to this matter. 2. The shareholders approved the Company's 1999 Equity Incentive Plan. For Against Abstain --- ------- ------- 1,275,517 76,853 11,378 There were 1,270,956 broker held non-voted shares represented at the meeting with respect to this matter. 3. The shareholders approved the reincorporation of the Company from California to Delaware. For Against Abstain --- ------- ------- 1,341,168 17,739 4,841 There were 1,270,956 broker held non-voted shares represented at the meeting with respect to this matter. 4. The shareholders ratified the appointment of Parente Randolph Orlando Carey & Associates, LLC as the Company's independent auditors for fiscal year 2000. For Against Abstain --- ------- ------- 2,560,544 68,319 5,841 There were no broker held non-voted shares represented at the meeting with respect to this matter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Financial Data Schedule (b) Reports on Form 8-K: A report on Form 8-K was filed on November 17, 1999, reporting, pursuant to Item 5, the reincorporation of Escalon Medical Corp. from California to Delaware. A report on Form 8-K was filed on January 14, 2000, a reporting, pursuant to Item 2, the purchase of all the outstanding capital stock of Sonomed, Inc. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ESCALON MEDICAL CORP. (Registrant) DATE: February 10, 2000 By: /s/ Douglas R. McGonegal ------------------------- Douglas R. McGonegal Vice President Finance and Chief Financial Officer (Principal Financial and Accounting Officer) and Secretary 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS 6-MOS JUN-30-2000 OCT-01-1999 DEC-31-1999 1 3,039,913 0 1,525,380 (45,790) 1,017,481 6,732,127 679,083 (209,582) 9,129,937 2,051,227 0 0 0 46,024,811 (39,579,431) 9,129,937 886,534 886,534 421,358 421,358 1,271,418 3,000 14,791 (1,231,242) 0 (1,231,242) 0 0 0 (1,231,242) (0.38) (0.38)
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