Escalon Medical Corp 10-K for FY2021

Escalon Medical Corp (ESMC)

10-K 2021-09-27 For: 2021-06-30

Added on April 06, 2026

About this 10-K

Escalon Medical Corp filed this 10-K on September 27, 2021, covering the fiscal year ended June 30, 2021 (FY2021).

Headline figures

Fiscal year ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $10.47M; up 11.4% from $9.4M a year earlier
Net loss: $52.02K; compared with a net loss of $650.28K a year earlier
Diluted EPS: -$0.01; compared with -$0.09 a year earlier

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Pennsylvania						33-0272839
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


		Page
	PART I

Item 1.	Business	2
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	14
Item 3.	Legal Proceedings	14
Item 4.	Mine Safety Disclosures	14

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data—omitted pursuant to item 301(c) of Regulation S-K
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk—omitted pursuant to item 305(e) of Regulation S-K
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	46
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	47

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	47
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	47
Item 13.	Certain Relationships and Related Transactions, and Director Independence	47
Item 14.	Principal Accounting Fees and Services	47

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	47


	For the Years Ended June 30,
		2021		2020		% Change
Net Revenue:
Products		$	9,548	$	8,438	13.2	%
Service plans		924		962		(4.0)	%
Total		$	10,472	$	9,400	11.4	%


	For the Years Ended June 30,
		2021	2020
Domestic			$	6,255	59.7	%	$	5,781	61.5	%
Foreign			4,217		40.3	%	3,619		38.5	%
Total			$	10,472	100.0	%	$	9,400	100.0	%


	For the Years Ended June 30,
		2021		% Change		2020		%
Cost of Goods Sold:
		$	6,044	57.7	%	$	5,198	55.3	%
Total		$	6,044	57.7	%	$	5,198	55.3	%


	June 30,	June 30,
	2021	2020
Current Ratio:
Current assets	$4,593	$4,333
Less: Current liabilities	3,397	2,865
Working capital	$1,196	$1,468
Current ratio	1.35 to 1	1.51 to 1
Debt to Total Capital Ratio:
Line of credit, note payable, lease liabilities, PPP loan and EIDL loan	$1,772	$2,042
Total debt	1,772	2,042
Total equity	1,460	1,512
Total capital	$3,232	$3,554
Total debt to total capital	54.8%	57.5%



			Page
Report of Independent Registered Public Accounting Firm			25
Consolidated Balance Sheets at June 30, 202 1 and 20 20			27
Consolidated Statements of Operations for the Years Ended June 30, 202 1 and 20 20			28
Consolidated Statements of Shareholders’ Equity for the Years Ended June 30, 202 1 and 20 20			29
Consolidated Statements of Cash Flows for the Years Ended June 30, 202 1 and 20 20			30
Notes to Consolidated Financial Statements			32


/s/ Friedman LLP

We have served as the Company’s auditor since 2018.

Marlton, New Jersey

September 27, 2021


	June 30, 2021		June 30, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,650,970	$	825,958
Restricted cash	255,920		255,281
Accounts receivable, net	1,081,702		1,312,935
Inventories, net	1,416,727		1,785,030
Other current assets	187,357		154,193
Total current assets	4,592,676		4,333,397
Property and equipment, net	81,442		97,214
Right-of-use assets	843,559		1,107,127
License, net	102,400		122,050
Other long term assets	62,789		62,789
Total assets	$	5,682,866	$	5,722,577
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	201,575	$	201,575
Current portion of note payable	3,401		3,401
Current portion of PPP loan	500,000		221,297
Current portion of EIDL loan	2,862		—
Accounts payable	1,102,125		760,621
Accrued expenses	695,553		681,047
Related party accrued interest	112,389		112,389
Current portion of operating lease liabilities	279,051		278,634
Deferred revenue	363,700		516,053
Other short term liabilities	136,107		89,990
Total current liabilities	3,396,763		2,865,007
Note payable, net of current portion	7,839		11,503
PPP loan, net of current portion	—		278,703
Operating lease liabilities, net of current portion	630,330		896,533
EIDL loan	147,138		150,000
Other long-term liabilities	40,860		8,872
Total long-term liabilities	826,167		1,345,611
Total liabilities	4,222,930		4,210,618
Shareholders' equity:
Series A convertible preferred stock, $0.001 par value; 2,000,000 shares authorized; 2,000,000 shares issued and outstanding (liquidation value of $819,131 and $767,709)	645,000		645,000
Common stock, $0.001 par value; 35,000,000 shares authorized; 7,415,329 shares issued and outstanding	7,415		7,415
Additional paid-in capital	69,702,043		69,702,043
Accumulated deficit	(68,894,522)		(68,842,499)
Total shareholders’ equity	1,459,936		1,511,959
Total liabilities and shareholders’ equity	$	5,682,866	$	5,722,577


ESCALON MEDICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
	For the Years Ended June 30,
		2021		2020
Net revenues:
Products		$	9,547,606	$	8,437,672
Service plans		924,011		962,359
Revenues, net		10,471,617		9,400,031
Costs and expenses:
Cost of goods sold		6,044,399		5,197,866
Marketing, general and administrative		3,570,433		3,874,498
Research and development		890,482		1,122,324
Intangible assets impairment		—		605,006
Total costs and expenses		10,505,314		10,799,694
Loss from operations		(33,697)		(1,399,663)
Other income (expense)
Other income		2,530		759,371
Interest income		985		3,592
Interest expense		(21,841)		(13,580)
Total other income, net		(18,326)		749,383
Net loss		(52,023)		(650,280)
Undeclared dividends on preferred stocks		51,422		51,741
Net loss applicable to common shareholders		$	(103,445)	$	(702,021)
Net loss per share
Basic loss per share		$	(0.01)	$	(0.09)
Diluted loss per share		$	(0.01)	$	(0.09)
Weighted average shares—basic		7,415,329		7,415,329
Weighted average shares—diluted		7,415,329		7,415,329


	Series A Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2020	2,000,000	$	645,000	7,415,329	$	7,415	$	69,702,043	$	(68,842,499)	$	1,511,959




Net loss	—	—		—	—		—		(52,023)		(52,023)
Balance at June 30, 2021	2,000,000	$	645,000	7,415,329	$	7,415	$	69,702,043	$	(68,894,522)	$	1,459,936


ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended June 30,
	2021		2020
Cash Flows from Operating Activities:
Net loss	$	(52,023)	$	(650,280)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Increase in accounts receivable allowance	10,000		12,008


Depreciation and amortization	44,812		50,084
Non cash lease expense	274,615		342,058
Intangible assets impairment	—		605,006
Non cash post-retirement benefits adjustment	—		(758,021)
Change in operating assets and liabilities:
Accounts receivable	221,233		171,162
Inventories	368,303		93,830
Other current assets	(33,164)		68,885
Other long-term assets	—		(10,874)
Accounts payable	341,504		94,111
Accrued expenses	14,506		94,929
Accrued post-retirement benefits (related party)	—		(33,964)
Change in operating lease liability	(276,833)		(344,608)
Deferred revenue	(152,353)		89,250
Other short-term and long-term liabilities	78,105		7,929
Net cash provided by (used in) operating activities	838,705		(168,495)
Cash Flows from Investing Activities:
Purchase of equipment	(9,390)		(59,751)
Purchase of licenses	—		—
Net cash used in investing activities	(9,390)		(59,751)
Cash Flows from Financing Activities:
Proceeds from PPP loan	—		500,000
Proceeds from EIDL loan	—		150,000
Repayment of note payable	(3,664)		(3,393)
Proceeds from line of credit	—		—
Net cash (used in) provided by financing activities	(3,664)		646,607
Net increase in cash, cash equivalents and restricted cash	825,651		418,361
Cash, cash equivalents and restricted cash, beginning of year	1,081,239		662,878
Cash, cash equivalents and restricted cash, end of year	$	1,906,890	$	1,081,239

Cash, cash equivalents and restricted cash consist of the following:
End of year
Cash and cash equivalents	$	1,650,970	$	825,958
Restricted cash	255,920		255,281
	$	1,906,890	$	1,081,239
Beginning of year
Cash and cash equivalents	$	825,958	$	409,743


Restricted cash	255,281		253,135
	$	1,081,239	$	662,878

Supplemental Schedule of Cash Flow Information:
Income Taxes paid
Interest paid	$	11,223	$	15,387
Non Cash Investing Activities
Non Cash Finance Activities
Record right-of-use assets per ASC 842, net of deferred rent reclassification	$	20,200	$	1,448,184
Record lease liability per ASC 842	$	20,200	$	1,519,744
Dispose right-of-use assets	$	9,154	$	—
Dispose lease liability	$	9,154	$	—


	Years ended June 30,
		2021		2020
Beginning of Year		$	516,000	$	427,000
Additions		772,000		1,052,000
Revenue Recognized		924,000		$	963,000
End of Year		$	364,000	$	516,000


	Gross Carrying Amount		Impairment		Adjusted Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Amortized Intangible Assets Licenses
	$	199,000	$	—	$	199,000	$	(96,600)	$	102,400
Total	$	199,000	$	—	$	199,000	$	(96,600)	$	102,400



	For the years ended June 30,
	2021		2020
Raw materials	$	833,105	$	837,135
Work in process	171,097		342,929
Finished goods	773,451		965,892
Total inventories	$	1,777,653	$	2,145,956

Allowance for obsolete inventory	(360,926)		(360,926)
Inventories, net	$	1,416,727	$	1,785,030


	June 30,
	2021		2020
Equipment	$	748,725	$	739,335
Furniture and fixtures	150,871		150,871
Leasehold improvements	39,048		39,048
	938,644		929,254
Less: Accumulated depreciation and amortization	(857,202)		(832,040)
	$	81,442	$	97,214


	June 30,
	2021		2020
Accrued compensation	$	464,213	$	417,829
Line of credit and notes payable interest accrual	11,506		1,224
Customer deposits	64,494		14,320
Warranty reserve	32,078		32,078
Tax payable	100,834		100,176
Other accruals	22,428		115,420
Total accrued expenses	$	695,553	$	681,047



Year ending June 30,	EIDL Loan Payment
2022	$	2,862
2023	2,971
2024	3,084
2025	3,202
2026	3,324
Thereafter	134,557
Total	$	150,000


	2021			2020
	Common Stock Options	Weighted Average Exercise Price		Common Stock Options	Weighted Average Exercise Price
Outstanding at the beginning of the year	157,000	$	1.47	213,000	$	1.48
Granted	—	—		—	—
Exercised	—	—		—	—
Forfeited	—	—		(56,000)	$	1.51
Outstanding at the end of the year	157,000	$	1.47	157,000	$	1.47
Exercisable at the end of the year	157,000	$	1.47	157,000	1.47
Weighted average fair value of options granted during the year		$	—		$	—


	Number Outstanding at June 30, 2021	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable at June 30, 2021	Weighted Average Exercise Price
Range of Exercise Prices
$0.79	21,000	4.83	$	0.79	21,000	$	0.79
$1.45 to $2.12	136,000	2.83	$	1.57	136,000	$	1.57
Total	157,000				157,000


	2021		2020
Current income tax provision
Federal	$	—	$	—
State	—		—
	—		—
Deferred income tax provision
Federal	(51,366)		(8,061)
State	(14,676)		(2,303)
Change in valuation allowance	66,042		10,364
	—		—
Income tax expense (benefit)	$	—	$	—


	2021		2020
Statutory federal income tax rate	21.00	%	21.00	%
Permanent differences	0.00	%	0.00	%

Valuation allowance	(21.00)	%	(21.00)	%
Effective income tax rate	0.00	%	0.00	%


	2021		2020
Deferred income tax assets:
Net operating loss carryforward	$	7,352,719	$	7,212,393
Executive post retirement costs	—		—
General business credit	—		207,698
Allowance for doubtful accounts	21,100		25,728
Accrued vacation	49,336		43,741
Inventory reserve	69,432		69,432



Accelerated depreciation	65,432		69,196
Warranty reserve	6,736		6,736
Total deferred income tax assets	7,564,755		7,634,924
Valuation allowance	(7,543,251)		(7,609,293)
	21,504		25,631
Deferred income tax liabilities:
Accelerated depreciation	(21,504)		(25,631)
Total deferred income tax liabilities	(21,504)		(25,631)
	$	—	$	—


	2021		2020
Balance July 1,	$	—	$	791,985
Actuarial adjustment	—		(758,021)
Payment of benefits	—		(33,964)
Balance June 30,	$	—	$	—


(in thousands)	For the Years Ended June 30,
		2021	2020
Domestic			$	6,255	59.7	%	$	5,781	61.5	%
Foreign			4,217		40.3	%	3,619		38.5	%
Total			$	10,472	100.0	%	$	9,400	100.0	%


	Year Ended June 30,
	2021		2020
Operating lease costs:
Fixed	346,302		407,757
Total:	$	346,302	$	407,757


	Operating

2022	$	321,612
2023	263,162
2024	268,372
2025	141,865
2026	2,728

Total lease payments	997,739
Less interest	88,358
Present value of lease liabilities	$	909,381


3.1	(a)	Restated Articles of Incorporation of the Company. (8)

	(b)	Agreement and Plan of Merger dated as of September 28, 2001 between Escalon Pennsylvania, Inc. and Escalon Medical Corp. (8)
	(c)	Statement with respect to shares dated February 15, 2018. (18)
3.2		Bylaws of Registrant. (8)
4.6		Description of Securities

10.6		Employment Agreement between the Company and Richard J. DePiano dated May 12, 1998. (6)**



10.29		Company’s amended and restated 1999 Equity Incentive Plan. (13) **



10.33			Manufacturing Supply and Distribution Agreement between Sonomed, Inc. and Ophthalmic Technologies, Inc. dated as of March 11, 2004. (15)

10.34			Supplemental Executive Retirement Benefit Agreement for Richard DePiano dated June 23, 2005. (16)**


10.37			2013 Equity Incentive Plan dated December 27, 2013 incorporate by reference.
10.39			Business Loan Agreement with TD Bank, N.A. dated June 29, 2018. (19)
10.40			Promissory Note dated June 29, 2018 between the Company and TD Bank N.A. (19)
10.41			Agreement of Deposit Account dated June 29, 2018 between the Company and TD Bank N.A. (19)
21			Subsidiaries. (11)

23.1			Consent of Independent Registered Public Accounting Firm (*).
31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (*).

31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (*).

32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (*).

32.2			Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (*).


*			Filed herewith
**			Management contract of compensatory plan

(1)			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).
(2)			Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 1994.
(3)			Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 1995.
(4)			Filed as an exhibit to the Company’s Form 8-K dated February 27, 2008.
(5)			Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 1999.
(6)			Filed as an exhibit to the Company’s Form 8-K/A, dated March 31, 2000
(7)			Filed as an exhibit to the Company’s Registration Statement on Form s-* dated February 25, 2000 (Registration No. 333-31138).
(8)			Filed as an exhibit to the Company’s Proxy Statement on Schedule 14A, as filed by the Company with the SEC on September 21, 2001.
(9)			Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 2001.
(10)			Filed as an exhibit to the Company’s Form 10-Q for the quarter ended March 31, 2001.
(11)			Filed as an exhibit to the Company’s Form 10-KSB/A for the year ended June 30, 2002.
(12)			Filed as an exhibit to the Company’s Form 10-Q for the quarter ended December 31, 2002.
(13)			Filed as an exhibit to the Company’s Form 10-Q for the quarter ended December 31, 2003.
(14)			Filed as an exhibit to the Company’s Registration Statement on Form S-3 dated April 8, 2004 (Registration No. 333-114332).
(15)			Filed as an exhibit to the Company’s Form 10-Q for the quarter ended March 31, 2004.
(16)			Filed as an exhibit to the Company’s Form 8-K, dated June 23, 2005.
(17)			Filed as an exhibit to the Company’s Form 8-K, dated May 6, 2010.
(18)			Filed as an exhibit to the Company's Form 8-K, dated February 15, 2018
(19)			Filed as exhibit to the Company's Form 8-K dated July 6, 2018


Escalon Medical Corp.
(Registrant)

	By:	/s/ Richard J. DePiano, Jr.
		Richard J. DePiano, Jr. Chief Executive Officer




By:	/s/ Richard J. DePiano, Jr.	Chairman and Chief Executive Officer (Principal Executive Officer)	September 27, 2021
	Richard J. DePiano, Jr.

By:	/s/ Mark Wallace	Chief Operating Officer and Principal Financial & Accounting Officer	September 27, 2021
	Mark Wallace

By:	/s/ John P. Dogum	Director	September 27, 2021
	John P. Dogum

By:	/s/ Lisa Napolitano	Director	September 27, 2021
	Lisa Napolitano

By:	/s/ C. Todd Trusk	Director	September 27, 2021
	C. Todd Trusk

By:	/s/ David J Jacovini	Director	September 27, 2021
	David J Jacovini