-----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, GoepLXuLZlgCHmFPBwqsKZJi1T40458YtIhMzxsrSPl1n7E42n7VHbWtbO3CdMWV J7gfITs1atTCihsYCXnO8A== 0000893220-97-000932.txt : 19970514 0000893220-97-000932.hdr.sgml : 19970514 ACCESSION NUMBER: 0000893220-97-000932 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97601848 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 March 31, 1997 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: May 6, 1997 10,517,519 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 March 31, 1997 3 Condensed Statements of Operations for the Three Months Ended and Nine Months Ended March 31, 1996 and 1997 4 Condensed Statements of Cash Flows for the Nine Months Ended March 31, 1996 and 1997 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, March 31, 1996 1997 ------------ ------------ ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 2,584,503 $ 1,973,252 Investments 795,970 285,863 Accounts receivable, net 735,910 610,936 Inventories, net 669,996 857,356 Other current assets 80,891 38,249 ------------ ------------ Total current assets 4,867,270 3,765,656 Furniture and equipment, at cost, net 172,092 136,686 License and distribution rights, net 2,074,990 1,879,354 Patents, net 446,995 465,064 Goodwill, net 3,959,055 3,649,758 Other assets 79,494 14,353 ------------ ------------ $ 11,599,896 $ 9,910,871 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of capital lease obligations $ 7,510 $ 3,935 Accounts payable 653,871 449,663 Accrued and other liabilities 451,858 330,768 ------------ ------------ Total current liabilities 1,113,239 784,366 ------------ ------------ Long term capital lease obligations 3,235 -- ------------ ------------ 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 March 31, 1997 44,645,440 44,645,440 Accumulated deficit (34,162,018) (35,518,935) ------------ ------------ Total shareholders' equity 10,483,422 9,126,505 ------------ ------------ $ 11,599,896 $ 9,910,871 ============ ============
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 Nine Months Ended March 31, March 31, -------------------------------- -------------------------------- 1996 1997 1996 1997 ------------ ------------ ------------ ------------ Product revenues $ 964,424 $ 1,368,192 $ 964,424 $ 4,089,282 Costs and Expenses: Cost of goods sold 482,901 672,830 482,901 2,048,427 Research and development 537,402 296,307 1,526,869 935,934 Marketing, general and administrative 970,500 858,112 1,773,206 2,573,954 Acquired research and development 1,000,000 -- 1,000,000 -- ------------ ------------ ------------ ------------ Total costs and expenses 2,990,803 1,827,249 4,782,976 5,558,315 ------------ ------------ ------------ ------------ Loss from operations (2,026,379) (459,057) (3,818,552) (1,469,033) ------------ ------------ ------------ ------------ Other Income and Expenses: Interest income 58,371 29,744 211,217 113,282 Interest expense (4,323) (319) (4,323) (1,166) ------------ ------------ ------------ ------------ Total other income and expense 54,048 29,425 206,894 112,116 ------------ ------------ ------------ ------------ Net loss $ (1,972,331) $ (429,632) $ (3,611,658) $ (1,356,917) ============ ============ ============ ============ Net loss per share $ (0.24) $ (0.04) $ (0.55) $ (0.13) ============ ============ ============ ============ Shares used in computation of net loss per share 8,273,000 10,518,814 6,596,000 10,518,814 ============ ============ ============ ============
See notes to condensed financial statements. 4 5 ESCALON MEDICAL CORP. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, ------------------------------ 1996 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,611,658) $(1,356,917) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 567,299 570,530 Amortization of deferred compensation 16,344 -- Write off of patents 78,462 -- Acquired research and development 1,000,000 -- Net (gain) loss on sale of furniture and equipment 58,770 (2,541) Change in current assets and liabilities (Increase) decrease in accounts receivable 93,026 124,974 (Increase) decrease in inventories 185,447 (187,360) (Increase) decrease in other current assets (43,646) 49,251 Increase (decrease) in accounts payable, accrued and other liabilities (1,007,777) (325,298) ----------- ----------- Net cash used in operating activities (2,663,733) (1,127,361) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of short-term investments 3,113,396 510,107 Purchase of furniture and equipment (21,778) (22,038) Proceeds from sale of furniture and equipment -- 5,900 Other assets 70,285 58,532 Patent costs (27,142) (29,581) Cash acquired from acquisition of Escalon 1,756 -- ----------- ----------- Net cash provided from investing activities 3,136,517 522,920 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock 82,463 -- Principal payments under capital lease obligations (1,115) (6,810) ----------- ----------- Net cash provided from (used in) financing activities 81,348 (6,810) ----------- ----------- Net increase (decrease) in cash and cash equivalents 554,132 (611,251) Cash and cash equivalents, beginning of period 3,518,410 2,584,503 ----------- ----------- Cash and cash equivalents, end of period $ 4,072,542 $ 1,973,252 =========== ===========
See notes to condensed financial statements. 5 6 NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited 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 and nine-month periods ended March 31, 1997 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 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 MARCH 31, 1997 ------------- -------------- Raw materials/work in process $ 623,460 $ 664,767 Finished goods 643,915 789,968 ----------- ----------- 1,267,375 1,454,735 Valuation allowance (597,379) (597,379) ----------- ----------- $ 669,996 $ 857,356 ============ ===========
4. CONTINGENCIES Litigation As previously reported in reports previously 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 and which was most recently reported in the Company's Form 10-Q for the quarter ended September 30, 1996). The plaintiff purports to represent a class of all purchasers of the Company's stock from November 17, 1993, to and 6 7 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 take an immediate appeal. On January 16, 1997, the motion was denied. On March 31, 1997, the Court issued Pretrial Order No. 2, which sets January 31, 1998 as the cutoff date for discovery and directs that the case be ready for trial by March 31, 1998. The Pretrial Order No. 2 also provides for certain coordination of discovery in the Kozloski case, related cases making similar allegations arising from other issuers' offerings and In Re Blech Securities Litigation. Discovery has commenced in some of those related actions but is in its preliminary stages. 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 drug delivery system and continues to seek a collaborative partner to aid in the development of its ophthalmic laser program. 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) anticipated order and shipment patterns of the Company's products; and (ii) general competitive and economic conditions of the health care market. RESULTS OF OPERATIONS Three and Nine-Month Periods Ended March 31, 1996 and 1997 Product revenues increased $403,768, or 42%, to $1,368,192 for the three-month period ended March 31, 1997 as compared to $964,424 for the same interim period ended March 31, 1996. For the nine-month period ended March 31, 1997, product revenues increased $3,124,858, or 324%, to 4,089,282 as compared to $964,424 for the same interim period in 1996. Product revenues for both the three and the nine-month periods ended March 31, 1997 relate primarily to the product lines acquired from EOI since the February 12, 1996 acquisition date. Thus, the three and nine-month periods ended March 31, 1996 includes EOI product revenues from February 12, 1996 as compared to the inclusion of product revenues for the full three and nine-month periods ended March 31, 1997. Cost of goods sold totaled $672,830, or 49% of product revenues, for the three-month period ended March 31, 1997. For the nine-month period ended March 31, 1997, cost of goods sold totaled $2,048,427, or 50% of product revenues. For the three and nine-month periods ended March 31, 1996, cost of goods sold totaled $482,901, or 50% of product revenues. The overall dollar increase in cost of goods sold for the respective periods relates to the increase in sales noted above. Cost of goods sold as a percentage of sales has remained relatively consistent between periods with the slight decrease in the percentage during the three-month period ended March 31, 1997. This decrease has resulted from the strengthening of the U.S. dollar against the German mark which has lowered the cost associated with one of the Company's major products, AdatoSil 5000 Silicone Oil. 8 9 Research and development expenses decreased $241,095 or 45% for the three-month period ended March 31, 1997 compared to the same three-month period ended March 31, 1996, and decreased $590,935 or 39% for the nine-month period ended March 31, 1997 as compared to the same interim period ended March 31, 1996. For both the three and nine-month periods ended March 31, 1997, the decrease in research and development expenses relates to a decrease in the Company's overall laser operations offset partially by expenditures 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. Reflected in both the three and nine-month periods ended March 31, 1996 is a $1,000,000 charge to operations for in-process technology acquired from EOI. Marketing and general and administrative expenses decreased $112,388 or 12% for the three-month period ended March 31, 1997 compared to the same three-month period ended March 31, 1996, and increased $800,748 or 45% for the nine-month period ended March 31, 1997 as compared to the same interim period ended March 31, 1996. Excluding severance costs of approximately $248,000 recorded by the Company in March 1996, marketing, general and administrative expenses would have increased $135,612 and $1,048,748 for the three and nine-month periods ended March 31, 1997, respectively. This increase relates primarily to (i) the 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 cost reduction programs. Interest income decreased to $29,744 and $113,282 for the three and nine-month periods ended March 31, 1997 from $58,371 and $211,217 for the same three and nine-month periods ended March 31,1996. The decrease is due to a reduction in the levels of cash and cash equivalents available for investment. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had cash and cash equivalents of $1,973,252 as compared to $2,584,503 at June 30, 1996. The Company's short-term investments at March 31, 1997 and June 30, 1996 were $285,863 and $795,970, respectively. The net decrease in cash and cash equivalents of $611,251 relates primarily to the loss from operations, offset by the decrease in short-term investments due to normally occurring maturities. 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 September 30, 1997. In the longer term, however, the Company anticipates seeking corporate partnering, licensing and other fund raising opportunities to satisfy the significant expenditures anticipated with the development of its surgical products, pharmaceutical/drug delivery and laser operations. Pursuant to various collaborative research and development, technology license, and consulting agreements associated with the Company's drug delivery technology, the Company has financial commitments of $245,000 to be paid during the fourth quarter of fiscal 1997 and $125,000, $75,000 and $25,000 to be paid during fiscal years 1998, 1999 and 2000, respectively. 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 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report and any documents incorporated by reference herein contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, among others, statements concerning the Company's litigation matters, the Company's expected results of operations, the Company's liquidity and capital resources and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements in this reports 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 factor that could cause the assumptions underlying the forward-looking statements to differ from actual results include, but are not limited to, the following: (i) the Company's ability to increase product sales and realize benefits from its research and development program; (ii) risks relating to its litigation matters, including the risk that the costs of such litigation could be higher than expected and the ultimate results different than expected; and (iii) changes in capital requirements and/or a more rapid decrease in the Company's cash and other liquid assets than expected. 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 A report on Form 8-K was filed on March 7, 1997 and is incorporated herein by reference. The content of the report is summarized below: The Company reported several senior management changes. Richard J. DePiano, a Director of the Company, was named Chairman of the Board and Chief Executive Officer. Jay L. Federman, M.D. resigned his position as Chairman of the Board and will remain as a Director. Sterling C. Johnson was appointed Chief Operating Officer and will retain the position of President. Another report on Form 8-K was filed on May 1, 1997 and is incorporated herein by reference. The content of the report is summarized below: The Company reported that effective April 30, 1997, Mr. Sterling C. Johnson, President and Chief Operating Officer of the Company stepped down to pursue other opportunities. 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: May 9, 1997 By: /s/ Richard J. DePiano ------------------------------------------------ Richard J. DePiano Chairman and Chief Executive Officer DATE: May 9, 1997 By: /s/ John T. Rich ----------------------------------------------- John T. Rich Vice President Finance and Administration (Principal Financial and Accounting Officer) and Secretary
11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 US DOLLARS 9-MOS JUN-30-1997 JAN-01-1997 MAR-31-1997 1 1,973,252 285,863 617,613 6,677 857,356 38,249 1,761,074 1,624,388 9,910,871 784,366 0 0 0 44,645,440 (35,518,935) 9,910,871 1,368,192 1,368,192 672,830 672,830 1,154,419 0 319 (429,632) 0 (429,632) 0 0 0 (429,632) (0.04) 0
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