-----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, DLnmnmlZEsdmJligxKR77xAl2lIN26dx6tCI+xkv//pYG5WEnwB9lqiQRTFAtEjK 39qpoOL28CCieFg6G174fA== 0000950150-96-000909.txt : 19960828 0000950150-96-000909.hdr.sgml : 19960828 ACCESSION NUMBER: 0000950150-96-000909 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960827 SROS: NASD 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: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 333-04382 FILM NUMBER: 96621293 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 POS AM 1 POST EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996 REGISTRATION NO. 333-4382 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ESCALON MEDICAL CORP. (Exact name of registrant as specified in its charter) CALIFORNIA 182 Tamarack Circle 33-0272839 (State or other Skillman, NJ 08558 (I.R.S. Employer jurisdiction of (609) 497-9141 Identification incorporation or (Address, including zip code, Number) organization) and telephone number, including area code, of registrant's principal executive offices) Sterling C. Johnson, President Escalon Medical Corp. 182 Tamarack Circle Skillman, NJ 08558 (609) 497-9141 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy to: John F. Hartigan, Esq. Morgan, Lewis & Bockius LLP 801 S. Grand Avenue, 22nd Floor Los Angeles, California 90017 (213) 612-2500 2 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.[ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.[x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ] If this Form is post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ] ______________ If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box.[ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. -2- 3 Subject to Completion on ________________, 1996 PROSPECTUS ESCALON MEDICAL CORP. 400,000 SHARES OF COMMON STOCK This Prospectus relates to an aggregate of 400,000 shares of Common Stock, without par value (the "Common Stock"), of ESCALON MEDICAL CORP., a California corporation ("Escalon" or the "Company"), formerly known as Intelligent Surgical Lasers, Inc., 240,000 of which were acquired by Genentech, Inc., a Delaware corporation ("Genentech"), in a private transaction, and 160,000 of which were acquired by EOI Corp., a Pennsylvania corporation (together with Genentech, the "Selling Stockholders"), pursuant to a registered offering on a Form S-4 Registration Statement filed with the Securities and Exchange Commission on December 20, 1995 (File No. 33-80037). See "Selling Stockholders." Some or all of the shares of Common Stock to which this Prospectus relates may be sold from time to time by the Selling Stockholders or by pledgees, donees, transferees or other successors in interest to the Selling Stockholders, at public or private sale at prevailing market prices, prices related to prevailing market prices, negotiated prices or fixed prices (and, in the case of sales through brokers, upon payment of normal brokerage commissions). As of June 30, 1996, EOI is the record holder of 4,480,772 shares (42.6%) of Common Stock of the Company. Assuming the sale of all of the shares by EOI being offered hereunder, EOI will be the record owner of 4,320,772 (41.1%) shares of Common Stock of the Company. The Common Stock of the Company is quoted in the Nasdaq National Market under the symbol "ESMC." The last reported sale price of the Common Stock on the Nasdaq National Market on August 26, 1996, was $1.34375 per share. INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 3 HEREOF. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus does not constitute an offer to sell securities in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. No person has been authorized by the Company to give any information or to make any representations, other than as contained in this Prospectus, and, if given or made, such information or representations must not be relied upon. Neither delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. THE DATE OF THIS PROSPECTUS IS AUGUST ___, 1996. 4 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Information, as of particular dates, concerning directors and officers, their remuneration, options granted to them, the principal holders of securities of the Company and any material interest of such persons in transactions with the Company is disclosed in proxy statements distributed to stockholders of the Company and filed with the Commission. Such reports, proxy statements and other information and the Registration Statement of which this Prospectus is a part can be inspected and copied at the public reference facilities maintained by the Commission at room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained form the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is quoted on the Nasdaq National Market. Reports, proxy statements and other information concerning the Company can be inspected at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 10006. The Company has filed with the Commission in Washington, D.C. a registration statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933 (the "Securities Act") with respect to the securities covered by this Prospectus. As permitted by the rules an regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement, including the exhibits filed or incorporated as a part thereof. Statements contained herein concerning the provisions of documents filed with, or incorporated by reference in, the Registration Statement as exhibits are necessarily summaries of such documents and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the Commission. The Company will provide without charge to each person to whom a Prospectus is delivered, upon the written or oral request of any such person, a copy of any or all of the documents incorporated by reference herein, other than exhibits to such documents unless such exhibits are specifically incorporated by reference herein. Such requests should be addressed to: Sterling C. Johnson, President, Escalon Medical Corp., 182 Tamarack Circle, Skillman, New Jersey 08558 (telephone: (609) 497-9141). INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed with the Commission are incorporated by reference herein: (a) Annual Report on Form 10-K for the year ended June 30, 1995, filed by the Company pursuant to Section 13(a) of the Exchange Act. (b) Quarterly Reports on Form 10-Q filed by the Company pursuant to Section 13(a) of the Exchange Act for the quarters ended September 30, 1995, December 31, 1995, and March 31, 1996. (c) Current Reports on Form 8-K dated October 24, 1995, February 13, 1996, and April 10, 1996, in each case filed by the Company pursuant to Section 13(a) of the Exchange Act. (d) The description of the Common Stock set forth in its Form 8-A Registration Statement filed on September 30, 1993, pursuant to Section 12(g) of the Exchange Act. All reports and definitive proxy or information statements and all other documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not, except as so modified or superseded, be deemed to constitute a part of this Prospectus. -2- 5 THE COMPANY The Company designs, develops, manufactures and markets innovative, technologically advanced laser systems and other ophthalmic surgical products for the treatment of a broad range of ophthalmic disorders and is developing novel pharmaceuticals and drug delivery technology. The Company is a California corporation formed in December 1987. Its principal executive offices are located at 182 Tamarack Circle, Skillman, New Jersey 08558, and its telephone number is (609) 497-9141. RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing the securities offered hereby. An investment in the securities offered hereby is speculative in nature and involves a high degree of risk. No investment in the securities offered hereby should be made by any person who is not in a position to lose the entire amount of such investment. Early Stage of Product Development; Technological Uncertainty and Competition Certain of the Company's products are at an early stage of development and only modest revenues have been generated from product sales. Although the Company has commenced limited sales of its laser systems, primarily in connection with its clinical trials, laser products of certain of the Company's competitors are either already commercially marketed or nearing anticipated approval for marketing by the United States Food and Drug Administration ("FDA"). Recent product additions by the Company and many future products under development, which are targeted more towards general ophthalmic markets, will be competing against industry leaders with greater resources. The Company will be engaged in fields increasingly characterized by extensive research and development efforts. New developments in drug research as well as new drug delivery systems are expected to continue at a rapid pace and the science and technology of laser products is also rapidly evolving. The Company's laser systems and certain of its surgical products, drug delivery systems and novel pharmaceuticals will each require significant further research, development, testing and, for certain products, regulatory clearances, and are subject to the risks of failure inherent in the development of products based on innovative technologies. These risks include the possibility that any or all of the proposed products will be found to be ineffective, unsafe or otherwise fail to receive necessary regulatory clearances or that any or all of the completed products will be uneconomical to market. In addition, third parties may (i) hold proprietary rights that preclude the Company from marketing its products or (ii) be able to market products superior or equivalent to the Company's products. Accordingly, the Company is unable to predict whether its research and development activities will result in any commercially viable products. See "No Assurance of Market Acceptance." History of Operating Losses; Accumulated Deficit Prior to the acquisition of EOI, the Company was deemed a development stage company for financial reporting purposes and has experienced significant operating losses since its inception in 1987. From inception through March 31, 1996, the Company had an accumulated deficit of approximately $33.7 million. With respect to the Company, such losses have resulted principally from costs incurred in connection with research and development and clinical trials. The Company anticipates that operating losses will continue for the foreseeable future. To achieve profitable operations, the Company, alone or in collaboration with others, must successfully develop, manufacture and market its products and obtain required regulatory approvals. It may seek acquisition of profitable companies to generate resources to fund the development of new products. The Company expects that its quarterly results will fluctuate as a result of differences in the timing of expenses incurred and the revenues received from product sales and other sources. There can be no assurance that the Company will successfully develop, commercialize, manufacture or market additional products or ever achieve or sustain product revenues or profitability. See "Government Regulation; Uncertainty of FDA Approval"; and "Limited Manufacturing Capacity and Marketing Experience." Future Capital Needs and Uncertainty of Additional Funding The development of the Company's products will require substantial funds in order to conduct research and development and preclinical and clinical testing of such products and to manufacture and market the products that are approved for commercial sale. Additionally, the Company will need to support the ongoing costs of the existing shareholder lawsuits, which are more fully described under the heading "Pending Shareholder Litigation." The Company has curtailed the scope of its laser operations in the near term in order to conserve available -3- 6 financial resources while it seeks to identify and develop corporate partnering and other strategic collaborations to fund the significant capital requirements necessary for advancing laser development. In the longer term, however, the Company anticipates the need to seek additional capital through public or private sales of its securities, including equity securities. Adequate funds, whether through financial markets, collaborative or other arrangements with strategic partners or from other sources, may not be available when needed or on terms acceptable to the Company. Insufficient funds may require the Company to delay, scale back or eliminate certain or all of its research and development programs or to license third parties to commercialize products or technologies that the Company would otherwise seek to develop itself, which may adversely affect the Company's long-term profitability and the market price of the Common Stock. Dependence on Principal Products; Distribution and License Rights; Collaborative Relationships The Company's first products, the Model 2001 Laser System and the Model 4000 System (a refractive upgrade to the Model 2001 Laser System), have been sold principally to physicians and university hospitals in connection with their participation in the Company's clinical trials and the preclinical investigation of additional applications. Given the status of the Company's various clinical trials, it is not likely that sales volumes of the Model 2001 Laser System and the Model 4000 System will generate significant revenues in the near term. The Company also derives revenues from products which it (i) owns, manufactures and produces through its manufacturing facility in Wisconsin or (ii) has rights to under distribution and licensing agreements. Each of the Company's distribution and licensing agreements has a limited initial term, and there can be no assurance that any of such agreements would be renewed at the end of the initial term. If one or more of the Company's distribution and license agreements, joint marketing programs or research and development collaborations were to cease to be in effect, the Company could be adversely affected. Further, there can be no assurance that the Company will be successful in expanding its product lines. If the Company is not successful in the expanding of its product lines, revenues will be highly dependent on market acceptance of its existing products. See "No Assurance of Market Acceptance." Dependence on Patents; Uncertain Protection of Important Proprietary Technology The Company will depend on its ability to (i) obtain patents, (ii) execute confidentiality agreements with its employees and consultants to maintain the proprietary nature of its technology and (iii) operate without infringing on the proprietary rights of third parties. Eleven United States patents have been issued to the Company and five additional United States patent applications have been filed by the Company, each covering the method, use and major systems components of the Company's laser systems. In addition, five foreign patents have been issued, and six additional foreign patent applications have been filed in Japan, Europe and Australia. The Company's other key products and technology are covered by thirteen issued United States patents and one pending United States patent. In addition, one issued Taiwan patent covers a key product, and six of the issued United States patents are also the subject of multiple foreign patent applications that have been filed in Europe and Southeast Asia. There can be no assurance, however, that any of the pending applications will be approved, the Company will develop additional patentable proprietary products or any patents presently issued will provide the Company with any significant protection or will not be successfully challenged by third parties. Furthermore, there can also be no assurance that third parties will not design around the patented products owned by the Company. There can also be no assurance that the Company's products will not infringe upon the patents of others. If the Company's products are found to infringe upon the patents of third parties or to otherwise impermissibly utilize the intellectual property of third parties, the development, manufacture and sale of such products could be severely restricted or prohibited. Further, the Company may be required to obtain licenses to utilize patents or proprietary rights of third parties. No assurance can be given that any licenses could be obtained on terms acceptable to the Company, or at all. If the Company does not obtain such licenses, the development, manufacture or sale of products requiring such licenses could be materially adversely affected. In addition, the Company could incur substantial costs in enforcing its patents. Government Regulation; Uncertainty of FDA Approval The Company is subject to substantial regulation by the FDA and other federal and state regulatory agencies. FDA regulations require that the Company obtain either 510(k) clearances or pre-marketing approvals ("PMAs") and new drug applications ("NDAs") prior to marketing a product in the United States for any application. The Company is also subject to foreign regulation and is dependent on the receipt of various types of approvals from certain foreign government agencies prior to the sale of products in those countries. The clearance and approval processes for both the FDA and foreign regulatory authorities are costly, time consuming and uncertain. In addition, the Company may be required to obtain FDA approval before exporting a device -4- 7 which has not received FDA marketing clearance or approval. Escalon is dependent on its ability to obtain these clearances, NDAs and PMAs and there can be no assurance when the Company will receive such clearances, NDAs or PMAs, in a timely manner, or at all, or that the Company will have sufficient resources to complete the PMA or NDA process. See "Future Capital Needs and Uncertainty of Additional Funding." Delays in obtaining such clearances, NDAs or PMAs or changes in existing requirements could materially adversely affect the Company. The Company has received a 510(k) clearance from the FDA for the use of the Model 2001 Laser System for posterior capsulotomies and discission of pupillary membranes and has commenced limited sales of its Model 2001 Laser System under Investigational Device Exemptions ("IDEs") for iridotomy, cataract fragmentation or liquefaction and laser vitreolysis. Because the Model 2001 Laser System has received marketing clearance only for posterior capsulotomies and discission of pupillary membranes, it may not be marketed in the United States for any other indication. Sales of the Model 2001 Laser System in the United States are likely to be limited unless and until additional clearances or PMAs are received for other indications. Most applications of the Company's laser systems are undergoing preclinical studies and clinical trials and will require further studies and trials. The Company anticipates that all of the pending and contemplated applications of the Company's currently existing and planned products will be subject to the lengthier PMA regulatory approval process, which includes preclinical studies, clinical trials and extensive regulatory review. This PMA regulatory approval generally takes many years and requires the expenditure of substantial resources. Certain of the Company's products are, and certain of the Company's anticipated new products will be, regulated by the FDA as pharmaceutical products. The steps required by the FDA before new pharmaceutical products may be marketed in the United States include preclinical studies, human clinical trials to establish the safety and efficacy of the pharmaceutical product for its intended uses, submission to the FDA of an NDA with respect to the product and review and approval of the NDA by the FDA before the product may be shipped or sold commercially. The process of completing clinical testing and obtaining FDA approval for a new pharmaceutical product is likely to take a number of years and require the expenditure of substantial resources. If an NDA is submitted, there can be no assurance that the FDA will review and approve the NDA in a timely manner. Even after initial FDA approval has been obtained, further studies, including post-market studies, may be required to provide additional data on safety and will be required to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested. Also, the FDA will require post-market reporting and may require surveillance programs to monitor the side effects of the product. Results of post-marketing programs may limit or expand the further marketing of such products. Further, if there are any modifications to a product, including changes in indication, manufacturing process, labeling, or a change in manufacturing facility, an NDA supplement may be required to be submitted to the FDA. The Company has received the necessary FDA approvals for all of its products currently being marketed. Subsequent to FDA approval however, if discovery of previously unknown problems arise with a product, the FDA may impose restrictions on the product, including withdrawal of the product from the market. Further, FDA and comparable agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the manufacturing and marketing of pharmaceutical and medical device equipment and related disposables, including the obligation to adhere to the FDA's Good Manufacturing Practice ("GMP") regulations. Detailed validation of manufacturing and quality control processes and other time-consuming procedures are required. Periodic inspections by the FDA an other comparable agencies are also made. If deficiencies in the validation processes are found, restrictions on marketing the affected products may be imposed until such deficiencies are corrected. No assurance can be given that the FDA will not uncover deficiencies under the GMP regulations in the future. The failure to comply with applicable regulations could result in fines, delays or suspensions of clearances, seizures or recalls of products, operating restrictions, injunctions or civil or criminal penalties. The imposition of any such penalty, if substantial, would have a material adverse effect on the financial condition and business of the Company. No Assurance of Market Acceptance There can be no assurance that Escalon's products will be accepted in the marketplace. Such acceptance will depend upon a number of factors, including the receipt of regulatory approvals for multiple indications and the establishment and demonstration in the ophthalmic community of the clinical safety and efficacy of the Company's products and their advantages over competitor's products. Accordingly, there can be no assurance -5- 8 that the Company will be able to successfully manufacture and market its products even if they perform successfully in clinical applications. Pending Shareholder Litigation 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. 7696 (RWS), which was filed on or about March 28, 1995, in the United States District Court for the Southern District of New York (the "Blech Complaint"). The Blech Complaint, which is brought on behalf of a purported class of purchasers between July 1, 1991, and September 21, 1994, inclusive, of the securities of 24 different issuers (of which the Company is one) seeks to allege causes of action based on Sections 10(b) and 20(a) of the Exchange Act, the Racketeer Influenced and Corrupt Organizations Act and common law. Named as defendants are David Blech, D. Blech & Company, Incorporated, Mark Germain, the trustees of certain trusts established by David Blech, Bear Stearns & Co., Inc., Baird Patrick & Co., Chancellor Capital Corp. and eleven different issuer defendants, including the Company. The Company is named only in the Section 10(b) and common law counts of the Blech Complaint. The Blech Complaint alleges that the defendants artificially manipulated and inflated the prices of various securities issued by certain of the defendants. The case is in the preliminary stages. Plaintiffs seek damages in an unspecified amount, together with costs and attorneys' fees. Defendants have moved to dismiss the Blech Complaint and discovery has occurred only with respect to a limited category of documents. On or about June 8, 1995, the Company and certain of its officers, and directors were named as defendants in a purported class action complaint captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et al, 95 Civ. 4299, filed in the United States District Court of the Southern District of New York (the "Kozloski Complaint"). The Kozloski Complaint alleges that the Company, together with certain of its officers and directors, David Blech and D. Blech & Company, Incorporated, issued a false and misleading prospectus in November 1993 in violation of Sections 11, 12 and 15 of the Securities Act. The Kozloski Complaint also asserts claims under Section 10(b) of the Exchange Act 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. The Company has moved to dismiss the Kozloski Complaint as against the Company and the named officers and directors, and no discovery has occurred. Regardless of the outcome, the Company could be required to incur substantial expense in defending these lawsuits. Adverse outcomes of any of these matters could have a material adverse effect upon the Company's financial position and results of operations. Dependence on Key Personnel The Company is highly dependent upon its technical personnel and its ability to attract and retain highly qualified scientific, management, manufacturing and marketing personnel. The Company has entered into non-compete agreements only with its executive officers and therefore could suffer a material adverse effect if key employees without non-compete agreements were to become employed by competitors. The Company currently does not have any life insurance on any of its key personnel. The Company must compete with other companies, universities, research entities and other organizations to attract and retain qualified personnel, and competition for such personnel is intense. There can be no assurance that Escalon will be able to attract and retain the personnel necessary for the development and success of its business. Because much of the know-how and many of the processes developed by the Company reside in its key technical and other personnel, the loss of the services of such personnel could have a material adverse effect on Escalon. Limitations on Third-Party Reimbursement The Company's products generally are purchased by ophthalmologists and hospitals which will then bill various third-party payors, such as government programs and private insurance plans, for the health care services provided to their patients. Third-party payors generally reimburse at a fixed rate based on the procedure performed. In addition, third-party payors may deny reimbursement if they determine that the use of the Company's products was elective, unnecessary, inappropriate, not cost-effective, experimental or used for a non-approved indication. Even if the Company received FDA clearances or PMA's for its products, third-party payors may nevertheless deny reimbursement. Furthermore, third-party payors are increasingly challenging the prices charged for medical products and services. There can be no assurance that reimbursement from third-party payors will be available or, if available, that reimbursement will not be limited when compared with reimbursement available in connection with competitive procedures, thereby materially adversely affecting Escalon's ability to sell its products on a profitable basis. The market for the Company's products could also be -6- 9 adversely affected by recent and proposed federal legislation that reduces reimbursements under the capital cost pass-through system utilized in connection with the Medicare program. Failure by hospitals and other users of Escalon's products to obtain reimbursement from third-party payors or changes in government and private third-party payors' policies toward reimbursement for procedures employing the Company's products could have a material adverse effect on the Company. See "Possible Adverse Impact of Health Care Reform on Delivery Payment of Health Care Services." Possible Adverse Impact of Health Care Reform on Delivery Payment of Health Care Services The federal government and Congress have previously made proposals to change aspects of the delivery and financing of health care services. The Company cannot predict what form future legislation may take or the effect of such legislation on its business. Such legislation may contain provisions resulting in price limits and utilization controls which may reduce the rate of increase in the growth of ophthalmic product markets or otherwise adversely affect the Company's business. It is also possible that future legislation could result in modifications to the nation's public and private health care insurance systems which will affect reimbursement policies in a manner adverse to the Company. The Company also cannot predict what other legislation relating to its business or the health care industry may be enacted, including legislation relating to third party reimbursement, or what effect any such legislation may have on the results of its operations. Reliance on Current Suppliers of Components Escalon currently purchases certain key components, including laser rods, slit-lamp operating microscopes, pockels cells, optical components and electronic printed circuit boards, from single suppliers. Key components are then assembled by the Company for inclusion in the final product. Although Escalon believes it could obtain these components from other suppliers, it could experience increased costs and significant delays in switching to new suppliers of these components. Pursuant to various distribution and license agreements, the Company currently markets three key products, Adatosil(TM) 5000 Silicone Oil, Betadine(TM) 5% Sterile Ophthalmic Prep Solution ("Betadine 5%") and ISPAN(TM) intraocular gases, which are manufactured for the Company by the licensor or by contract manufacturers for the licensor under separate contract. Such licensors and contract manufacturers must adhere to the GMP regulations prescribed and enforced by the FDA. Should any of the licensors or contract manufacturers not meet the GMP requirements, supply of related products could be severely delayed or limited, which would adversely affect the Company. See "Government Regulation; Uncertainty of FDA Approval." Limited Manufacturing Capacity and Marketing Experience The Company currently assembles and manufactures most of its surgical equipment and instruments at its Wisconsin facility. The Company will seek to expand its product lines, but no assurance can be given that the required manufacturing expertise or the physical capacity will be available at its current location to produce commercially new product lines. As such, the Company may have to rely on contract manufacturers to meet production needs. Contract manufacturers must adhere to GMP regulations enforced by the FDA. There is no assurance that the FDA will approve any of the contract manufacture facilities in which any of the Company's products may be produced. The Company's dependence on third parties to manufacture products may adversely affect its ability to develop and deliver products on a timely and competitive basis. The Company currently markets its products directly with a sales force made up of eight independent representatives located throughout the United States. In addition, the Company has entered into co-marketing and co-promotional arrangements with third parties in marketing and selling most of its current products. For Betadine 5%, the Company sells both direct and through drug wholesale distribution channels. The Company's revenues are therefore dependent on third parties who are marketing and selling its products. No assurance can be given that these third party arrangements will continue, or, if they continue, that they will provide successful distribution channels for the Company's products. If they do not continue, the Company could seek to hire its own sales force to market and sell its products. Product Liability and Possible Insufficiency of Insurance The nature of the Company's business exposes it to risk from product liability claims, and there can be no assurance that the Company can avoid significant product liability exposure. The Company maintains product liability insurance in the amount of $1.0 million per claim with an annual aggregate limit of $2.0 million plus general umbrella coverage of $2.0 million. However, product liability insurance is becoming increasingly -7- 10 expensive, and there can be no assurance that the Company's insurance will be adequate to cover future product liability claims, or that the Company will be successful in maintaining adequate product liability insurance at acceptable rates, or at all. Should the Company be unable to maintain adequate product liability insurance, the Company's ability to market its products may be significantly impaired. Any losses that the Company may suffer from future liability claims, a voluntary or involuntary recall of Escalon's products, and the damage that any product liability litigation or voluntary or involuntary recall may do to the reputation and marketability of the Company's products may have a material adverse effect on the Company. Market Volatility; Absence of Dividends The market prices for securities of emerging growth companies have been highly volatile. The market price for the Common Stock has fluctuated from a high of $4.375 per share to a low of $1.50 per share over a period of approximately one year. In addition, future announcements concerning Escalon or its competitors, including quarterly results, the results of product testing and clinical trials, technological innovations, the introduction of competitive products, regulatory matters, developments concerning proprietary rights, litigation or public concern as to the safety of the Company's products may have a material impact on the market price for the Common Stock. Sales of a substantial number of shares of Common Stock by existing shareholders or the exercise of outstanding warrants or options to purchase Common Stock may also have a material adverse effect on the market price for the Common Stock. See "Shares of the Company Eligible for Future Issuance; Possible Adverse Effect on Stock Price." The Company has not paid any cash dividends on the Common Stock and does not anticipate paying any such dividends in the foreseeable future. Limited Market-Making Activities; NASD Listing Criteria; Adverse Effect on Trading Market On September 22, 1994, the Company's principal market maker, D. Blech & Company, Incorporated suspended its securities activities, including but not limited to making a market in the Company's securities and those of certain other biomedical companies, due to internal matters affecting that market maker. There is currently a limited number of market makers for the Company's securities, and no assurance can be given that any market maker will support the market for the Company's securities in the future. If in the future the Company (i) is unable to maintain the minimum number of market makers required by the NASD or (ii) fails to meet any other NASD listing criteria, there is no assurance that the Common Stock will continue to be listed on the Nasdaq National Market or The Nasdaq Small Cap Market, and the trading market for the Common Stock could be adversely affected. Shares of the Company Eligible for Future Issuance; Possible Adverse Effect on Stock Price As of March 31, 1996, the Company had authorized a total of 9,083,013 options and warrants to acquire shares of the Common Stock. The exercise of any of the Company's outstanding options or warrants may have a depressive effect on the market price of the Common Stock. The Company is unable to estimate the number of shares which may actually be sold pursuant to these options and warrants since such number will depend upon the market price for the Common Stock, the individual circumstances of the option and/or warrant holder and other factors. Notice of Rescission of Distribution and Clinical Agreement; Possible Effect on Liquidity On October 24, 1995 Kowa Company Ltd. ("Kowa"), a distributor of the Company's surgical laser systems, notified the Company of its intent to rescind its Distribution and Clinical Agreements with the Company. Kowa has offered to restore to the Company three Model 2001 Laser Systems purchased by Kowa under the Distribution Agreement and demanded restitution of all consideration paid by Kowa under said agreement, together with accrued interest thereon from the date of Kowa's purchase of those units and reimbursement of expenses incurred by Kowa, for a total sum of $633,000. If the Company and Kowa are unable to settle these alleged claims and if Kowa elects to proceed to arbitration under the terms of the agreements, such an action could have a materially adverse effect on the liquidity and capital resources of the Company. USE OF PROCEEDS The Company will not receive any of the proceeds from the sale of the Shares offered hereunder by the Selling Stockholders. The offering is made to fulfill the Company's obligations to the Selling Stockholders to register certain shares held by the Selling Stockholders. -8- 11 SELLING STOCKHOLDERS The shares of the Common Stock covered by this Prospectus (the "Shares") are, or may be, offered by the Selling Stockholders. The Selling Stockholders are Genentech, Inc., a Delaware corporation ("Genentech"), and EOI Corp., a Pennsylvania corporation ("EOI"). As of November 10, 1993, Genentech and EOI entered into a license agreement (the "License Agreement"), pursuant to which Genentech granted an exclusive license to EOI for certain technology, and EOI agreed to undertake certain activities with respect to the development and marketing of products incorporating the licensed technology. In partial consideration for the rights granted to EOI by Genentech under the License Agreement, EOI issued to Genentech 10% Convertible Subordinated Notes due October 31, 2000 (the "Convertible Notes") in the principal amount of $1,452,300. Additional Convertible Notes of EOI in the principal amount of $284,960 and Common Stock Purchase Warrants exercisable for the purchase of 227,500 shares of EOI Common Stock at $2.21 per share, which expire in January 2002 (the "Warrants"), were issued to Genentech in payment of accrued interest on such Convertible Notes. The Company and EOI entered into an Assets Sale and Purchase Agreement dated as of October 9, 1995 and amended on December 19, 1995 (as amended, the "Acquisition Agreement"), pursuant to which EOI agreed to sell substantially all of its assets subject to certain of its liabilities (the "Asset Acquisition") to the Company in exchange for shares of the Common Stock (the "EOI Shares") representing 45% of the issued and outstanding shares of the Common Stock. At the closing of the Asset Acquisition on February 12, 1996, the EOI Shares consisted of 4,720,772 shares of the Common Stock. Genentech and EOI agreed not to pursue the relationships and activities contemplated by the License Agreement and entered into a Termination and Settlement Agreement (the "Settlement Agreement") dated as of February 12, 1996. Under the Settlement Agreement, the parties agreed that: (i) the License Agreement would be terminated; (ii) Genentech would return the Convertible Notes and Warrants to EOI for cancellation, and all rights and obligations represented thereby shall be fully discharged; and (iii) EOI would transfer and deliver to Genentech 240,000 of the EOI Shares. The 240,000 EOI Shares that are intended to be sold by Genentech represent all of the shares of Common Stock currently held by Genentech. Except for the 240,000 EOI Shares issued to Genentech, the EOI Shares, including the 160,000 EOI Shares that are a part of this offering, are subject to a Lockup Agreement between the Company and EOI that was executed in connection with the closing of the Asset Acquisition. The Company has agreed to waive provisions of the Lockup Agreement with respect to $150,000 of the EOI Shares that are part of this offering. The remaining EOI Shares that are part of this offering will remain subject to the Lockup Agreement. Four of EOI's directors are directors of the Company. Sterling C. Johnson is the principal executive officer of each of EOI and the Company. Additional information as to the Selling Stockholders and their beneficial ownership of the Common Stock is set forth below.
Common Stock To Be Common Stock Beneficially Owned If Beneficially Owned All Shares Offered On February 12, 1996 Hereunder Are Sold -------------------- --------------------- Shares That May be Name Shares Percent Offered Hereunder Shares Percent ---- ------ ------- ----------------- ------ ------- Genentech, Inc. 240,000 2.3 240,000 0 0 EOI Corp. 4,480,772 42.6 160,000 4,320,772 41.1
-9- 12 PLAN OF DISTRIBUTION The Company has been advised that the distribution of the Shares by the Selling Stockholders, or by pledgees, donees or transferees of or other successors in interest to the Selling Stockholders, may be effected from time to time in one or more transactions (which may involve block transactions) on the Nasdaq National Market or such other exchange or market in which the Common Stock may from time to time be trading, in negotiated transactions or in a combination of any such transactions. Such transactions may be effected by the Selling Stockholders at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices or at fixed prices. The Selling Stockholders may affect such transactions by selling Shares to or through broker-dealers, including purchases by a broker-dealer as principal and resale by such broker-dealer for its account pursuant to this Prospectus. Such broker-dealers will receive compensation in the form of discounts or commissions from the Selling Stockholders and may receive commissions from the purchasers of Shares for whom such broker-dealers may act as agents (which discounts or commissions from the Selling Stockholders or such purchasers, if in excess of those customary for the types of transactions involved, will be disclosed in a supplemental prospectus). The Company has been advised by EOI that EOI may distribute certain of its 160,000 Shares registered hereby to third parties in negotiated transactions in consideration for the settlement of litigation or other claims not against the Company. In order to comply with certain states' securities laws, if applicable, the Shares will be sold in such jurisdictions only through registered or licensed brokers or dealers. In certain states the Shares may not be sold unless the Shares have been registered or qualify for sale in such state or an exemption from registration or qualification is available and is complied with. Any broker-dealer that participates with the Selling Stockholders in the distribution of Common Stock may be deemed to be an "underwriter" within the meaning of the Securities Act, and any commissions or discounts received by such broker-dealer and any profit on the resale of Shares by such broker-dealer may be deemed to be underwriting discounts and commissions under the Securities Act. The costs and expenses of the registration of the Shares will be paid by EOI. These costs and expenses borne by EOI will include, without limitation, all registration and filing fees, printing expenses and costs of special audits incident to or required by the registration of the Shares. Notwithstanding the foregoing, in the event that EOI does not pay any of such fees or expenses relating to Genentech, the Company (and not Genentech) will be liable for their payment. LEGAL MATTERS The valid issuance of the shares of Common Stock offered hereby has been passed upon for the Company by Morgan, Lewis & Bockius LLP, Los Angeles, California. EXPERTS The financial statements of the Company at June 30, 1995 and 1994, and, for each of the three years in the period ended June 30, 1995, and for the period from inception to June 30, 1995, incorporated by reference from the Company's Current Report on Form 8-K, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of EOI at December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, incorporated by reference from the Company's Current Report on Form 8-K, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. -10- 13 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses in connection with the issuance and distribution of the securities being registered. SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 353 Legal fees and expenses (including Blue Sky) . . . . . . . . . . . . . . . . . . . 15,000 Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,400 =======
EOI is responsible for all of the foregoing fees and expenses. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The California Corporations Code provides that California corporations may include provisions in their articles of incorporation relieving directors of monetary liability for breach of their fiduciary duty as directors, except for the liability of a director resulting from (i) any transaction from which the director derives an improper personal benefit, (ii) acts or omissions involving intentional misconduct or the absence of good faith, (iii) acts or omissions constituting an unexcused pattern of inattention to the director's duty, (iv) acts or omissions showing a reckless disregard for the director's duty or (v) the making of an illegal distribution to shareholders or an illegal loan or guaranty. The Company's Restated Articles of Incorporation, as amended, provide that the liability of the Company's directors is eliminated to the fullest extent permissible under California Law. The Company's Bylaws provide that the Company shall indemnify its directors and officers to the fullest extent permitted by California law, including circumstances in which indemnification is otherwise discretionary under California law. In addition, agreements entered into by the Company with its directors and officers require the Company to indemnify such persons against expenses, judgments, fines, settlements and other amounts reasonably incurred in connection with any proceeding to which any such person may be made a party by reason of the fact that such person was an agent of the Company. The indemnification agreements set forth certain procedures that will apply in the event of a claim for indemnification thereunder. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registration in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 16. EXHIBITS. 2.1 Assets Sale and Purchase agreement between Registrant and Escalon Ophthalmics, Inc., Dated October 9, 1995* 4.1 Specimen Common Stock Certificate** II-1 14 5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the securities being offered*** 23.1 Consent of Ernst & Young LLP*** 23.2 Consent of Ernst & Young LLP*** 23.3 Consent of Morgan, Lewis & Bockius LLP (included as part of its opinion filed as Exhibit 5.1 hereto) 24.1 Powers of Attorney *** 99.1 Termination and Settlement Agreement dated as of February 12, 1996, between EOI Corp. and Genentech, Inc.* __________ * Filed as an appendix to the Registration Statement on Form S-4 dated December 20, 1995. ** Filed as an exhibit to Pre-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1 dated November 9, 1993 (Registration No. 33-69360). *** Filed as an exhibit to Registration Statement on Form S-3 filed May 1, 1996 (Registration No. 333-4382). ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement: (b) that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby further undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for II-2 15 indemnification against such liabilities (other than the payment by the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Skillman, State of New Jersey, on August 27, 1996. ESCALON MEDICAL CORP. (Registrant) By: /s/ Sterling C. Johnson ------------------------------------- Sterling C. Johnson, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- President (Principal Executive Officer) and August 27, 1996 Director /s/ Sterling C. Johnson - ---------------------------------- Sterling C. Johnson Vice President of Finance (Principal August 27, 1996 /*/ Financial Officer and Principal Accounting - ---------------------------------- Officer) and Assistant Secretary John T. Rich /*/ Director August 27, 1996 - ---------------------------------- Anthony B. Evnin /*/ Director August 27, 1996 - ---------------------------------- Robert J. Kunze /*/ Director August 27, 1996 - ---------------------------------- Jay L. Federman, M.D. /*/ Director August 27, 1996 - ---------------------------------- Richard J. De Piano /*/ Director August 27, 1996 - ---------------------------------- Jack M. Dodick, M.D. /*/ By: /s/ Sterling C. Johnson August 27, 1996 - ---------------------------------- Sterling C. Johnson, Attorney in Fact
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