-----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, PGHEShnflWwRr/TBH6+k3zcAaBQsZStFp6j01IuD0NEC8ms9g88Ff3+edf8Wtalp mu3tftN3V2Fm6XOU3pfgyA== 0000893220-97-001768.txt : 19971110 0000893220-97-001768.hdr.sgml : 19971110 ACCESSION NUMBER: 0000893220-97-001768 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971107 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: SEC FILE NUMBER: 000-20127 FILM NUMBER: 97710296 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 ESCALON MEDICAL CORP. 10-Q 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, 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: October 31, 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, 1997 and September 30, 1997 3 Condensed Statements of Operations for the Three Months Ended September 30, 1996 and 1997 4 Condensed Statements of Cash Flows for the Three Months Ended September 30, 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, September 30, 1997 1997 ------------- -------------- ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 1,752,648 $ 1,708,151 Investments 235,000 235,000 Accounts receivable, net 587,265 622,375 Inventories, net 577,782 464,243 Other current assets 52,850 57,268 ------------ --------------- Total current assets 3,205,545 3,087,037 Furniture and equipment, at cost, net 97,977 88,308 Long-term note receivable 62,500 75,000 License and distribution rights, net 892,528 956,303 Patents, net 465,046 467,421 Goodwill, net 1,095,982 1,064,060 Other assets 14,156 13,416 ------------ --------------- $ 5,833,734 $ 5,751,545 ============ =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of capital lease obligations $ 2,910 $ 1,909 Accounts payable 553,197 604,321 Accrued and other liabilities 479,175 315,921 ------------ --------------- Total current liabilities 1,035,282 922,151 ------------ --------------- Commitments Shareholders' Equity: Common stock, no par value; 35,000,000 shares authorized; 10,518,814 and 10,517,519 shares issued and outstanding at June 30, 1997 and September 30, 1997, respectively 44,645,440 44,645,440 Accumulated deficit (39,846,988) (39,816,046) ------------ --------------- Total shareholders' equity 4,798,452 4,829,394 ------------ --------------- $ 5,833,734 $ 5,751,545 ============ ===============
Note: The balance sheet at June 30, 1997 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, -------------------------------------------------- 1996 1997 --------------------- --------------------- Product revenues $ 1,435,223 $ 1,371,164 Costs and Expenses: Cost of goods sold 720,989 606,015 Research and development 333,790 96,389 Marketing, general and administrative 773,612 664,319 ----------------- ------------------ Total costs and expenses 1,828,391 1,366,723 ----------------- ------------------ Income (loss) from operations (393,168) 4,441 ----------------- ------------------ Other Income and Expenses: Interest income 45,430 26,603 Interest expense (448) (102) ----------------- ------------------ Total other income and expense 44,982 26,501 ----------------- ------------------ Net income (loss) $ (348,186) $ 30,942 ================= ================== Net income (loss) per share $ (0.033) $ 0.003 ================= ================== Shares used in computation of net income (loss) per share 10,518,814 10,517,519 ================= ==================
See notes to condensed financial statements. 4 5 ESCALON MEDICAL CORP. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended September 30, ----------------------------- 1996 1997 -------------- ------------- Cash Flows From Operating Activities: Net income (loss) $ (348,186) $ 30,942 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 184,796 81,754 Net gain on sale of furniture and equipment (2,680) - - Change in operating assets and liabilities: Accounts receivable (82,684) (35,110) Inventories (2,996) 113,539 Other current assets 8,179 (4,418) Accounts payable, accrued and other liabilities (120,702) (112,130) ----------- ----------- Net cash provided from (used in) operating activities (364,273) 74,577 ----------- ----------- Cash Flows From Investing Activities: Long term note receivable - - (12,500) Purchase of furniture and equipment (15,456) (1,200) Proceeds from sale of furniture and equipment 5,400 - - License and distribution rights cost - - (97,668) Other assets (9,773) 740 Patent costs (9,118) (7,445) ----------- ----------- Net cash used in investing activities (28,947) (118,073) ----------- ----------- Cash Flows From Financing Activities: Principal payments under capital lease obligations (1,878) (1,001) ----------- ----------- Net cash used in financing activities (1,878) (1,001) ----------- ----------- Net decrease in cash and cash equivalents (395,098) (44,497) Cash and cash equivalents, beginning of period 2,584,503 1,752,648 ----------- ----------- Cash and cash equivalents, end of period $ 2,189,405 $ 1,708,151 =========== ===========
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, 1997 are not indicative of the results that may be expected for the fiscal year ended June 30, 1998. 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, 1997 included in the Company's annual report on Form 10-K filed in October 1997 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 antidilutive. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. The impact of Statement No. 128 on the calculation of primary and fully diluted earnings per share is not expected to be material. 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, 1997 SEPTEMBER 30, 1997 ------------- ----------------- Raw materials/ work in process $ 628,687 $ 504,407 Finished goods 610,093 620,834 ----------- ----------- 1,238,780 1,125,241 Valuation allowance (660,998) (660,998) ----------- ----------- $ 577,782 $ 464,243 =========== ===========
6 7 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 and which was 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 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. 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 all related actions but is in its preliminary stages. While continuing to deny any wrongdoing and in an effort to curtail its legal expenses related to this litigation, the Company has reached an agreement in principle to settle this action for $500,000 on its behalf and on behalf of its former and present officers and directors. This settlement is subject to agreement upon final documentation and court approval. The Company's insurance carrier has agreed to fund a significant portion of the settlement amount. 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements relating to fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131 will have no impact on the Company's result of operations, financial position or cash flows. 7 8 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 joint venture opportunities, expenses associated with defending itself in litigation matters, liquidity, the continuation of 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, the following: (i) 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); (ii) The outcome of, and costs associated with, litigation matters; (iii) The success of negotiations and implementation of a joint venture agreement to license the Company's intellectual laser properties. 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 to complement its other businesses. In order to further develop and commercialize its laser technology, the Company is negotiating a joint venture arrangement in which it, along with an academic institution partner, will license their intellectual laser properties to a newly formed company in return for an equity interest in the new company and future royalties on product sales. This new company will have the responsibility of funding and developing the laser technology through to commercialization. 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 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. 8 9 RESULTS OF OPERATIONS Three Month Periods Ended September 30, 1996 and 1997 Product revenues decreased to $1,371,164 for the three-month period ended September 30, 1997 from $1,435,223 for the same three-month period ended September 30, 1996. This decrease of $64,059, or 4% is due to a decrease in contract manufacturing revenues offset partially by an increase in revenues from the sale of the Company's other product lines. Contract manufacturing revenues vary from quarter to quarter depending upon when orders are received and the lead times to produce such products. Cost of goods sold totaled $606,015, or 44% of revenues, for the three-month period ended September 30, 1997 as compared to $720,989, or 50% of revenues, for the same period ended September 30, 1996. The 6% decrease in cost of goods sold as a percentage of revenues is due primarily to (i) the strengthening of the U.S. dollar against the German mark which has lowered the cost associated with the purchases of AdatoSil(R)5000 Silicone Oil, the Company's primary product; and (ii) a change in the product sales mix during the respective periods from contract manufactured products which generally have a higher cost of goods as a percent of revenues to the Company's other product lines which have a lower cost of goods as a percentage of revenues. Research and development expenses decreased $237,401, or 71%, for the three-month period ended September 30, 1997 compared to the same three-month period ended September 30, 1996. This decrease is due primarily to a decrease in expenditures associated with the Company's laser development program as a result of the change in the Company's market focus. Marketing and general and administrative expenses decreased $109,293, or 14%, for the three-month period ended September 30, 1997 compared to the same period ended September 30, 1996. This decrease is due principally to the reduction in the amortization expense of goodwill and license and distribution rights resulting from the write down of such assets during the fourth quarter of fiscal 1997 as described more fully in the Company's annual report on Form 10-K for the fiscal year ended June 30, 1997. Interest income decreased to $26,603 for the three-month period ended September 30, 1997 from $45,430 for the same three-month period ended September 30, 1996. The decrease is due to a reduction in the levels of cash and cash equivalents available for investment. There is no provision for income taxes for the three-month period ended September 30, 1997 due to the utilization of net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1997, the Company had cash and cash equivalents of $1,708,151 as compared to $1,752,648 at June 30, 1997. The Company's short-term investments at September 30, 1997 and June 30, 1997 were $235,000. The net decrease in cash and cash equivalents of $44,497 relates primarily to the acquisition of certain license and distribution rights offset by cash provided 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, 1998. In the longer term, however, 9 10 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 and drug delivery programs. The Company anticipates additional expenditures may be incurred in connection with the legal proceedings as discussed in Part II. See "Part II. Item 1. Legal Proceedings." 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 6, 1997 By: /s/ Richard J. DePiano ------------------------------ Richard J. DePiano Chairman and Chief Executive Officer DATE: November 6, 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 3-MOS JUN-30-1997 JUL-01-1997 SEP-30-1997 1,708,151 235,000 626,893 4,518 464,243 3,087,037 1,775,263 1,686,955 5,751,545 922,151 0 0 0 44,645,440 (39,816,046) 5,751,545 1,371,164 1,371,164 606,015 606,015 760,708 0 102 30,942 0 30,942 0 0 0 30,942 0.003 0
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