ESCALON MEDICAL CORP - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal year ended June 30, 2019

Commission File Number 0-20127

Escalon Medical Corp.

(Exact name of registrant as specified in its charter)



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

435 Devon Park Drive, Building 100, Wayne, PA 19087

(Address of principal executive offices, including zip code)

(610) 688-6830

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act: NONE

Securities Registered Pursuant to Section 12(g) of the Act: NONE

Common Stock, par value $0.001

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this

chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company. or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on December 31, 2018 was approximately $356,910, computed by reference to the price at which the common equity was last sold on the OTCQB Market on such date.

As of September 2, 2019, the registrant had 7,415,329 shares of common stock outstanding.



		Page
	PART I

Item 1.	Business	2
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	12
Item 4.	Mine Safety Disclosures	12

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
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	12
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	19
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	41
Item 9A.	Controls and Procedures	41
Item 9B.	Other Information	42

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	43
Item 11.	Executive Compensation	43
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	43
Item 13.	Certain Relationships and Related Transactions, and Director Independence	43
Item 14.	Principal Accounting Fees and Services	43

	PART IV
Item 15.	Exhibits, Financial Statement Schedules	43

PART 1

Cautionary Factors That May Affect Future Results

Certain statements contained in, or incorporated by reference in, this report are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will,” “would,” “seek,” and similar words or expressions. The Company’s forward-looking statements include certain information relating to general business strategy, growth strategies, financial results, liquidity, product development, the introduction of new products, the enhancement of existing products, the potential markets and uses for the Company’s products, the Company’s regulatory filings with the FDA, acquisitions, the development of joint venture opportunities, intellectual property and patent protection and infringement, the loss of revenue due to the expiration on termination of certain agreements, the effect of competition on the structure of the markets in which the Company competes, increased legal, accounting and Sarbanes-Oxley compliance costs, the Company's ability to continue as a going concern, defending the Company in litigation matters and the Company’s cost-saving initiatives. The reader must carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by assumptions that fail to materialize as anticipated. Consequently, no forward-looking statement can be guaranteed, and actual results may vary materially. It is not possible to foresee or identify all factors affecting the Company’s forward-looking statements, and the reader therefore should not consider the following list of risk factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.The Company cautions the reader to consider carefully these factors as well as the specific factors discussed with each specific forward-looking statement in this Form 10-K annual report and in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). In some cases, these factors have impacted, and in the future (together with other unknown factors) could impact, the Company’s ability to implement the Company’s business strategy and may cause actual results to differ materially from those contemplated by such forward-looking statements. Any expectation, estimate or projection contained in a forward-looking statement may not be achieved.The Company also cautions the reader that forward-looking statements speak only as of the date made. The Company undertakes no obligation to update any forward-looking statement, but investors are advised to consult any further disclosures by the Company on this subject in the Company’s filings with the SEC.

ITEM 1. BUSINESS

Company Overview

Escalon Medical Corp. ("Escalon" or "Company") is a Pennsylvania corporation initially incorporated in California in 1987, and reincorporated in Pennsylvania in November 2001. Within this document, the “Company” collectively shall mean Escalon, which includes its division called "Trek" and its wholly owned subsidiaries: Sonomed, Inc. (“Sonomed”), Escalon Digital Solutions, Inc. (“EMI”), Escalon Holdings, Inc. (“EHI”), Escalon IP Holdings, Inc., and Sonomed IP Holdings, Inc.. All intercompany accounts and transactions have been eliminated.

The Company operates in the healthcare market, specializing in the development, manufacture, marketing and distribution of medical devices and pharmaceuticals in the area of ophthalmology. The Company and its products are subject to regulation and inspection by the United States Food and Drug Administration (the “FDA”). The FDA and other government authorities requires extensive testing of new products prior to sale and has jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing.

A-Scans

The A-Scan provides information about the internal structure of the eye by sending a beam of ultrasound along a fixed axis through the eye and displaying the various echoes reflected from the surfaces intersected by the beam. The principal echoes occur at the cornea, both surfaces of the lens and the retina. The system displays the position and magnitudes of the echoes on an electronic display. The A-Scan also includes software for measuring distances within the eye. This information is primarily used to calculate lens power for implants.

B-Scans

The B-Scan is primarily a diagnostic tool that supplies information to physicians where the media within the eye are cloudy or opaque. Whereas physicians normally use light, which cannot pass through such media, the ultrasound beam is capable of passing through the opacity and displaying an image of the internal structures of the eye. Unlike the A-Scan, the B-Scan transducer is not in a fixed position; it swings through a 60 degree sector to provide a two-dimensional image of the eye.

UBM

The UBM is a high frequency/high resolution ultrasound device, designed to provide highly detailed information about the anterior segment of the eye. The UBM is used for glaucoma evaluation, tumor evaluation and differentiation, pre- and post-intraocular lens implantation and corneal refractive surgery. The device allows the surgeons to perform precise measurements within the anterior chamber of the eye.

Pachymeters

The pachymeter uses the same principles as the A-Scan, but the system is tailored to measure the thickness of the cornea. Central corneal thickness is used in the calculation of intraocular pressure. Pachymetry is also used by refractive surgeons to screen candidates and help plan surgery.

Color/Fluorescein Angiography (“CFA”) Digital Imaging Systems

The CFA (Color/Fluorescein Angiography) digital imaging system is designed specifically for ophthalmology. This diagnostic tool, ideal for use in detecting retinal problems in diabetic and elderly patients, provides a high-resolution image, far superior to conventional film in image quality, processing and capture. The instant image display provides users with the necessary clinical information that allows treatment to be performed while the patient is still in the physician’s office.

Ispan Intraocular Gases

The Company distributes two intraocular gas products C3F8 and SF6, which are used by vitreoretinal surgeons as a temporary tamponade in detached retina surgery. Under a non-exclusive distribution agreement with AirGas, Inc. (AirGas"), the Company distributes packages of AirGas gases in canisters containing up to 25 grams of gas. Along with the intraocular gases, the Company manufactures and distributes a patented disposable universal gas kit, which delivers the gas from the canister to the patient.

Surgical Packs

The Company markets disposable surgical packs used in vitreoretinal surgery, including packs which aid surgeons in the process of injecting and extracting silicone oil.

Viscous Fluid Transfer Systems

The Company markets viscous fluid transfer systems and related disposable syringe products, which aid surgeons in the process of injecting and extracting silicone oil. Adjustable pressures and vacuums provided by the equipment allow surgeons to manipulate the flow of silicone oil during surgery.

AXIS Image Management

The AXIS Image Management system easily manages ophthalmic diagnostic images via a web browser from any device regardless of modality, manufacturer or location.

Research and Development

The development of ultrasound ophthalmic equipment and AXIS Image Management system are performed at the Company’s Lake Success, New York and Stoneham, Massachusetts facility, respectively. Company-sponsored research and development expenditures from operations for the fiscal years ended June 30, 2019 and 2018 were approximately $740,000 and $500,000, respectively.

Manufacturing and Distribution

The Company leases 7,440 square feet of space in Wisconsin, for its surgical products under the Trek division. The facility is currently used for product assembly related to Trek. The Company also leases 3,452 square feet in Stoneham, Massachusetts used primarily for product design and development in the EMI business unit. The Company subcontracts component manufacture, assembly and sterilization to various vendors. The Company’s ophthalmic surgical products are distributed from the Company’s Wisconsin facility.

The Company designs, develops and services its ultrasound ophthalmic products at its 6,728 square foot facility in Lake Success, New York. The Company has achieved ISO 13485 certification at its manufacturing facilities for all medical devices the Company produces. ISO 13485 requires an implemented quality system that applies to product design, manufacture, installation and servicing. These certifications can be obtained only after a complete audit of a company’s quality

system by an independent outside auditor. These certifications require that facilities undergo periodic reexamination. The Company has obtained European Community certification (“CE”) for many of its ophthalmic ultrasound systems.

The manufacture, testing and marketing of each of the Company’s products entails risk of product liability. The Company carries product liability insurance to cover primary risk.

Governmental Regulations

The Company’s products are subject to stringent ongoing regulation by the FDA and similar health authorities, and if these governmental approvals or clearances of the Company’s products are restricted or revoked, the Company could face delays that would impair the Company’s ability to generate funds from operations.

The Company has received the necessary FDA and other necessary regulations clearances and approvals for all products that the Company currently markets. The 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 regulations. Compliance with these regulations requires time-consuming detailed validation of manufacturing and quality control practices, FDA periodic inspections and other procedures. If the FDA finds any deficiencies in the validation processes, for example, the FDA may impose restrictions on marketing the specific products until such deficiencies are corrected.

The FDA and similar health authorities in foreign countries extensively regulate the Company’s activities. The Company must obtain either 510(K) clearances or pre-market approvals and new drug application approvals prior to marketing a product in the United States. Foreign regulation also requires that the Company obtain other approvals from foreign government agencies prior to the sale of products in those countries. Also, the Company may be required to obtain FDA clearance or approval before exporting a product or device that has not received FDA marketing clearance or approval.

Marketing and Sales

The Sonomed product line is sold through independent sales representatives, a network of distributors, and internal sales employees directly to medical institutions, throughout the world. The Trek and EMI product lines are sold through internal sales employees directly to medical institutions, primarily within the United States.

Service and Support

The Company maintains a full-service program for all products sold. The Company provides limited warranties on all products against defects and performance. Product repairs are made at the Wisconsin facility for surgical devices, New York facility for Sonomed products and EMI devices in Stoneham facility.

Patents, Trademarks and Licenses

The pharmaceutical and medical device communities place considerable importance on obtaining patent and trade secret protection for new technologies, products and processes for the purpose of strengthening the Company’s position in the market place and protecting the Company’s economic interests. The Company’s policy is to protect its technology by aggressively obtaining patent protection for substantially all of its developments and products, both in the United States and in selected countries outside the United States. It is the Company’s policy to file for patent protection in those foreign countries in which the Company believes such protection is necessary to protect its economic interests. The duration of the Company’s patents, trademarks and licenses vary through 2028. The Company has 2 United States patents that cover the Company’s technology. The Company believes that the impact of the patents is minimal in that our current products and revenue are driven less by our patents and more by our knowledge and trade secrets.

The Company intends to vigorously defend its patents if the need arises.

Competition

There are numerous direct and indirect competitors of the Company in the United States and abroad. These competitors include ophthalmic-oriented companies that market a broad portfolio of products, including companies that market prescription devices and pharmaceuticals exclusively for ophthalmic indications and integrated companies that market products for ophthalmic and other indications.

Several large companies dominate the ophthalmic market, with the balance of the industry being highly fragmented and comprised of smaller companies ranging from start-up entities to established market players. The ophthalmic market in general is intensely competitive, with each company eager to expand its market share. The Company’s strategy is to compete primarily on the basis of technological innovation to which it has proprietary rights. The Company believes, therefore, that its business will depend in large part on protecting its intellectual property through maintaining trade secrets, patents, and other governmental regulations.

Sonomed’s principal competitors are Quantel, Inc., Accutome, Inc, and Ellex Medical Lasers Ltd. Sonomed has had a leading presence in the ophthalmic ultrasound industry for over 30 years. Management believes that this has helped Sonomed build a reputation as a long-standing operation that provides a quality product, which has enabled the Company to establish effective distribution coverage throughout the world. Various competitors offering similar products at a lower price could threaten Sonomed’s market position. The development of optical technologies for ophthalmic biometrics and imaging may also diminish the Company’s market position. This equipment can be used instead of ultrasound equipment in certain applications with some advantage. Such equipment, however, is more expensive.

Trek’s competitor for the ISPAN® gases is Alcon Laboratories. Trek’s competitors for its surgical packs include Alcon Laboratories and Bausch & Lomb. To remain competitive, the Company needs to maintain a low-cost operation. There are numerous other companies that can provide this manufacturing service.

EMI’s principal competitors are Carl Zeiss Meditec Inc. and Topcon Healthcare Solutions. The Company believes it establishes competitive advantage by offering technical innovation, product features, low total cost of ownership, and capable and responsive technical support.

Human Resources

As of June 30, 2019, the Company employed 38 employees. Of these employees, 18 of the Company’s employees are employed in manufacturing, 14 are employed in general and administrative positions, 3 are employed in sales and marketing and 3 are employed in research and development. The Company’s employees are not covered by a collective bargaining agreement, and the Company considers its relationship with its employees to be good.

ITEM 1A. RISK FACTORS

In addition to other information contained in this report on Form 10-K, the following Risk Factors should be considered carefully in evaluating our business. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected.

Due to the Company’s history of operating losses, we received a going concern opinion from our registered public accounting firm.

Our operations are subject to a number of factors that can affect our operating results and financial condition. Such factors include, but are not limited to: the continuous enhancement of the current products, development of new products; changes in domestic and foreign regulations; ability of manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, our products and our ability to raise capital to support our operations.

To date, our operations have not generated sufficient revenues to enable profitability. As of June 30, 2019, we had an accumulated deficit of $68.2 million, and incurred recurring losses from operations and negative cash flows from operating activities. These factors raise substantial doubt regarding our ability to continue as a going concern.

As a result of above matters, our independent auditors have indicated in their reports on our June 30, 2019 financial statements that there is substantial doubt about our ability to continue as a going concern. A "going concern" opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of our creditors, and potentially be available for distribution to our stockholders, in the event of liquidation.

Our continued operations will ultimately depend on the ability to be profitable from our operations and the on-going support of our shareholders and creditors.

Any acquisitions, strategic alliances, joint ventures and divestitures that the Company effects, if any, could result in financial results that differ from market expectations.

In the normal course of business, the Company engages in discussions with third parties regarding possible acquisitions, strategic alliances, joint ventures and divestitures. As a result of any such transactions, of which the Company cannot assure that any will occur, the Company’s financial results may differ from the investment community’s expectations in a given quarter. In addition, acquisitions and alliances may require the Company to integrate a different company culture, management team, business infrastructure, accounting systems and financial reporting systems. The Company may not be able to effect any such acquisitions or alliances. The Company may have difficulty developing, manufacturing and marketing the products of a newly acquired business in a way that enhances the performance of the Company’s combined businesses or product lines to realize the value from any expected synergies. Depending on the size and complexity of an acquisition, the Company’s successful integration of the entity depends on a variety of factors, including the retention of key employees and the management of facilities and employees in separate geographical areas. These efforts require varying levels of management resources, which may divert the Company’s attention from other business operations. Also, the Company’s results may be adversely impacted because of acquisition-related costs, amortization costs for certain intangible assets and impairment losses related to goodwill in connection with such transactions. Finally, acquisitions or alliances by the Company may not occur, which could impair the Company’s growth.

The Company’s results fluctuate from quarter to quarter.

The Company has experienced quarterly fluctuations in operating results and anticipates continued fluctuations in the future. A number of factors contribute to these fluctuations:


•	The timing and expense of new product introductions by the Company or its competitors, although the Company might not successfully develop new products and any such new products may not gain market acceptance;


•	The cancellation or delays in the purchase of the Company’s products;


•	Fluctuations in customer demand for the Company’s products;


•	Changes in domestic and foreign regulations;


•	The gain or loss of significant customers;


•	Changes in the mix of products sold by the Company;


•	Competitive pressures on prices at which the Company can sell its products;


•	Announcements of new strategic relationships by the Company or its competitors;


•	Litigation costs and settlements; and


•	General economic conditions and other external factors such as energy costs.

The Company sets its spending levels in advance of each quarter based, in part, on the Company’s expectations of product orders and shipments during that quarter. A shortfall in revenue, therefore, in any particular quarter as compared to the Company’s plan could have a material adverse impact on the Company’s results of operations and cash flows. Also, the Company’s quarterly results could fluctuate due to general market conditions in the healthcare industry or global economy generally, or market volatility unrelated to the Company’s business and operating results.

Failure of the market to accept the Company’s products could adversely impact the Company’s business and financial condition.

The Company’s business and financial condition will depend in part upon the market acceptance of the Company’s products. The Company’s products may not achieve or maintain market acceptance. Market acceptance depends on a number of factors including:


•	The price of the products;


•	The continued receipt of regulatory approvals for multiple indications;


•	The establishment and demonstration of the clinical safety and efficacy of the Company’s products; and


•	The advantages of the Company’s products over those marketed by the Company’s competitors.

Any failure to achieve or maintain significant market acceptance of the Company’s products will have a material adverse impact on the Company’s business.

The Company’s products are subject to stringent ongoing regulation by the FDA and similar domestic and foreign health care regulatory authorities, and if the regulatory approvals or clearances of the Company’s products are restricted or revoked, the Company could face delays that would impair the Company’s ability to generate funds from operations.

The FDA and similar health care regulatory authorities in foreign countries extensively regulate the Company’s activities. The Company must obtain either 510(K) clearances or pre-market approvals and new drug application approvals prior to marketing any products in the United States. Foreign regulation also requires that the Company obtain other approvals from foreign government agencies prior to the sale of products in those countries. Also, the Company may be required to obtain FDA approval before exporting a product or device that has not received FDA marketing clearance or approval.

The Company has received the necessary FDA approvals for all products that the Company currently markets in the United States. Any restrictions on or revocation of the FDA approvals and clearances that the Company has obtained, however, would prevent the continued marketing of the impacted products and other devices. The restrictions or revocations could result from the discovery of previously unknown problems with the product. Consequently, FDA revocation would impair the Company’s ability to generate funds from operations.

The 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 regulations. Compliance with these regulations requires time-consuming detailed validation of manufacturing and quality control processes, FDA periodic inspections and other procedures. If the FDA finds any deficiencies in the validation processes, for example, the FDA may impose restrictions on marketing the specific products until such deficiencies are corrected.

The Company has received CE approval on several of the Company’s products that allows the Company to sell the products in the countries comprising the European Community. In addition to the CE mark, however, some foreign countries may require separate individual foreign regulatory clearances. The Company may not be able to obtain regulatory clearances for other products in the United States or foreign markets.

The process for obtaining regulatory clearances and approvals underlying clinical studies for any new products or devices and for multiple indications for existing products is lengthy and will require substantial commitments of Company’s financial resources and Company’s management’s time and effort. Any delay in obtaining clearances or approvals or any changes in existing regulatory requirements would materially adversely impact the Company’s business.

The Company’s failure to comply with the applicable regulations would subject the Company to fines, delays or suspensions of approvals or clearances, seizures or recalls of products, operating restrictions, injunctions or civil or criminal penalties, which would adversely impact the Company’s business, financial condition and results of operations.

The success of products with which the Company’s products compete could have an adverse impact on the Company’s business.

The Company faces intense competition in the medical device and pharmaceutical markets, which are characterized by rapidly changing technology, short product life cycles, cyclical oversupply and rapid price erosion. Many of the Company’s competitors have substantially greater financial, technical, marketing, distribution and other resources. The Company’s strategy is to compete primarily on the basis of technological innovation, reliability, quality and price of the Company’s products. Without timely introductions of new products and enhancements, the Company’s products will become technologically obsolete over time, in which case the Company’s revenues and operating results would suffer. The success of the Company’s new product offerings will depend on several factors, including the Company’s ability to:


•	Properly identify customer needs;


•	Innovate and develop new technologies, services and applications;


•	Establish adequate product distribution coverage;


•	Obtain and maintain required regulatory approvals from the FDA and other regulatory agencies;


•	Protect the Company’s intellectual property;


•	Successfully commercialize new technologies in a timely manner;


•	Manufacture and deliver the Company’s products in sufficient volumes on time;


•	Differentiate the Company’s offerings from the offerings of the Company’s competitors;


•	Price the Company’s products competitively;


•	Anticipate competitors’ announcements of new products, services or technological innovations; and


•	Anticipate general market and economic conditions.

The Company may not be able to compete effectively in the competitive environments in which the Company operates.

The Company’s products employ proprietary technology, and this technology may infringe on the intellectual property rights of third parties.

The Company holds several United States and foreign patents for the Company’s products. Other parties, however, hold patents relating to similar products and technologies. If patents held by others were adjudged valid and interpreted broadly in an adversarial proceeding, the court or agency could deem them to cover one or more aspects of the Company’s products or procedures. Any claims for patent infringements or claims by the Company for patent enforcement would consume time, result in costly litigation, divert technical and management personnel or require the Company to develop non-infringing technology or enter into royalty or licensing agreements. The Company may become subject to one or more claims for patent infringement. The Company may not prevail in any such action, and the Company’s patents may not afford protection against competitors with similar technology.

If a court determines that any of the Company’s products infringes, directly or indirectly, on a patent in a particular market, the court may enjoin the Company from making, using or selling the product. Furthermore, the Company may be required to pay damages or obtain a royalty-bearing license, if available, on acceptable terms.

Lack of availability of key system components could result in delays, increased costs or costly redesign of the Company’s products.

Although some of the parts and components used to manufacture the Company’s products are available from multiple sources, the Company currently purchases most of the Company’s components and outsourced finished goods from single sources in an effort to obtain volume discounts. Lack of availability of any of these parts, components and finished goods could result in production delays, increased costs or costly redesign of the Company’s products. Any loss of availability of an essential component or finished good could result in a material adverse change to the Company’s business, financial condition and results of operations. Some of the Company’s suppliers are subject to the FDA’s Good Manufacturing Practice regulations. Failure of these suppliers to comply with those regulations could result in the delay or limitation of the supply of parts or components to the Company, which would adversely impact the Company’s financial condition and results of operations.

The Company’s ability to market or sell the Company’s products may be adversely impacted by limitations on reimbursements by government programs, private insurance plans and other third party payers.

The Company’s customers bill various third party payers, including government programs and private insurance plans, for the health care services provided to their patients. Third party payers may reimburse the customer, usually at a fixed rate based on the procedure performed, or 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. Third party payers may deny reimbursement notwithstanding FDA approval or clearance of a product and may challenge the prices charged for the medical products and services. The Company’s ability to sell the Company’s products on a profitable basis may be adversely impacted by denials of reimbursement or limitations on reimbursement, compared with reimbursement available for competitive products and procedures. New legislation that further reduces reimbursements under the capital cost pass-through system utilized in connection with the Medicare program could also adversely impact the marketing of the Company’s products.

The Company may become involved in product liability litigation, which may subject the Company to liability and divert management attention.

The testing and marketing of the Company’s products entails an inherent risk of product liability, resulting in claims based upon injuries or alleged injuries or a failure to diagnose associated with a product defect. Some of these injuries may not become evident for a number of years. Although the Company is not currently involved in any product liability litigation, the Company may be party to litigation in the future as a result of an alleged claim. Litigation, regardless of the merits of the claim or outcome, could consume a great deal of the Company’s time and attention away from the Company’s core businesses. The Company maintains limited product liability insurance coverage of $1,000,000 per occurrence and $2,000,000 in the aggregate, with umbrella policy coverage of $5,000,000 in excess of such amounts. A successful product liability claim in excess of any

insurance coverage may adversely impact the Company’s financial condition and results of operations. The Company’s product liability insurance coverage may not continue to be available to the Company in the future on reasonable terms or at all.

The Company’s international operations could be adversely impacted by changes in laws or policies of foreign governmental agencies and social and economic conditions in the countries in which the Company operates.

The Company derives a portion of its revenue from sales outside the United States. Changes in the laws or policies of governmental agencies, as well as social and economic conditions, in the countries in which the Company operates could impact the Company’s business in these countries and the Company’s results of operations. Also, economic factors, including inflation and fluctuations in interest rates and foreign currency exchange rates, and competitive factors such as price competition, business combinations of competitors or a decline in industry sales from continued economic weakness, both in the United States and other countries in which the Company conducts business, could adversely impact the Company’s results of operations.

The Company is dependent on its management and key personnel to succeed.

The Company’s principal executive officers and technical personnel have extensive experience with the Company’s products, the Company’s research and development efforts, the development of marketing and sales programs and the necessary support services to be provided to the Company’s customers. Also, the Company competes with other companies, universities, research entities and other organizations to attract and retain qualified personnel. The loss of the services of any of the Company’s executive officers or other technical personnel, or the Company’s failure to attract and retain other skilled and experienced personnel, could have a material adverse impact on the Company’s ability to maintain or expand businesses.

The Company’s Chairman, Richard J. DePiano, Sr. (“Mr. DePiano”), is the Company’s controlling shareholder and has sufficient voting power to determine the outcome of all matters submitted to the Company’s shareholders for approval.

In February 2018, the Company entered into a Debt Exchange Agreement (the "Exchange Agreement") with Mr. DePiano Sr. and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano is the sole owner and sole trustee (the "Holders"). Pursuant to the terms of the Exchange Agreement, the Holders exchanged a total of $645,000 principal amount of debt the Company owed the Holders under factoring agreements and notes (the "Notes") the Company entered into with the Holders in February and March of 2016 for 2,000,000 shares of Series A Convertible Preferred Stock (the "Preferred Stock"). Each share the Preferred Stock entitles the Holder thereof to 13 votes per share and will vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the Company’s stockholders. As a result of this voting power, the Holders currently beneficially own approximately 77.81% of the voting power on all actions to be taken by the Company’s shareholders. If the Holders were to convert their shares of Preferred Stock into common stock at the current conversion ratio, the Holders would receive a total of 4,300,000 shares of Common Stock, or approximately 36.70% of the currently outstanding shares of Common Stock assuming such conversion.

The Holders, therefore, control the election of all of the members of the Company’s board of directors and control the outcome of any corporate transaction or other matter submitted to a vote of the Company’s shareholders for approval, including mergers or other acquisition proposals and the sale of all or substantially all of the Company’s assets, in each case regardless of how all of the Company’s shareholders other than the Holders vote their shares. The interests of the Holders in maintaining this voting control of the Company may have an adverse effect on the price of the Company’s common stock because of the absence of any potential “takeover” premium and may, therefore, be inconsistent with the interest of the Company’s shareholders other than the Holders. The voting control by the Holders could also discourage a third party from attempting to acquire control of the Company and may make it more difficult for a third party to acquire control of the Company.

The market price of the Company’s stock has historically been volatile, and the Company has not paid cash dividends.

The volatility of the Company’s common stock imposes a greater risk of capital losses on shareholders as compared to less volatile stocks. In addition, such volatility makes it difficult to ascribe a stable valuation to a shareholder’s holdings of the Company’s common stock. The following factors have and may continue to have a significant impact on the market price of the Company’s common stock:


•	Acquisitions, strategic alliances, joint ventures and divestitures that the Company effects, if any;


•	Announcements of technological innovations;


•	Changes in marketing, product pricing and sales strategies or new products by the Company’s competitors;


•	Changes in domestic or foreign governmental regulations or regulatory requirements; and


•	Developments or disputes relating to patent or proprietary rights and public concern as to the safety and efficacy of the procedures for which the Company’s products are used.

Moreover, the possibility exists that the stock market, and in particular the securities of technology companies such as the Company, could experience extreme price and volume fluctuations unrelated to operating performance.

The Company has not paid cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future.

If the Company raises funds in the future, the Company may be required to raise those funds through public or private financings, strategic relationships or other arrangements at prices and other terms that may not be favorable. The sale of additional equity and debt securities may result in additional dilution to the Company’s shareholders. Additional financing may not be available in amounts or on terms acceptable to the Company or at all.

The impact of terrorism or acts of war could have a material adverse impact on the Company’s business.

Terrorist acts or acts of war, whether in the United States or abroad, could cause damage or disruption to the Company’s operations, its suppliers, channels to market or customers, or could cause costs to increase, or create political or economic instability, any of which could have a material adverse impact on the Company’s business.

The Company’s charter documents and Pennsylvania law may inhibit a takeover.

Certain provisions of Pennsylvania law and the Company’s Bylaws could delay or impede the removal of incumbent directors and could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the Company. These provisions could limit the share price that certain investors might be willing to pay in the future for shares of the Company’s common stock. The Company’s Board of Directors is divided into three classes, with directors in each class elected for three-year terms. The Bylaws impose various procedural and other requirements that could make it more difficult for shareholders to effect certain corporate actions. The Company’s Board of Directors may issue shares of preferred stock without shareholder approval on such terms and conditions, and having such rights, privileges and preferences, as the Board may determine. The rights of the holders of common stock will be subject to, and may be adversely impacted by, the rights of the holders of any preferred stock that may be issued in the future.

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with United States GAAP. Any changes in estimates, judgments and assumptions used could have a material adverse effect on the Company’s business, financial position and operating results.

The consolidated financial statements included in the periodic reports the Company files with the SEC are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and inventories, revenues, expenses and income. This includes estimates, judgments and assumptions for assessing the recoverability of the Company’s other intangible assets, pursuant to Financial Accounting Standards Board (“FASB”) issued authoritative guidance. If any estimates, judgments or assumptions change in the future, the Company may be required to record additional expenses or impairment charges. Any resulting expense or impairment loss would be recorded as a charge against the Company's earnings and could have a material adverse impact on the Company's financial condition and operating results. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on the Company’s financial position and operating results.

On an on-going basis, the Company evaluates its estimates, including, among others, those relating to:


•	sales returns;


•	allowances for doubtful accounts;


•	inventories


•	intangible assets;


•	income and other tax accruals;


•	deferred tax asset valuation allowances;


•	sales discounts;


•	warranty obligations; and


•	accrued lease termination costs


•	contingencies and litigation.

The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s assumptions and estimates may, however, prove to have been incorrect and the Company’s actual results may differ from these estimates under different assumptions or conditions. While the Company believes the assumptions and estimates it makes are reasonable, any changes to the Company’s assumptions or estimates, or any actual results which differ from the Company’s assumptions or estimates, could have a material adverse effect on the Company’s financial position and operating results.

Healthcare policy changes, including pending proposals to reform the U.S. healthcare system and implementation of the Affordable Healthcare Act, may have a material adverse effect on the Company.

Healthcare costs have risen significantly over the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to keep these costs down. Certain proposals, if passed, would impose limitations on the prices the Company will be able to charge for the Company’s products, or the amounts of reimbursement available for its products from governmental agencies or third-party payers. These limitations could have a material adverse effect on the Company’s financial position and results of operations.

Changes in the healthcare industry in the U.S. and elsewhere could adversely affect the demand for the Company’s products as well as the way in which the Company conducts the Company’s business. The 2010 Affordable Care Act provides that most individuals must have health insurance, establishes new regulations on health plans, and creates insurance pooling mechanisms and other expanded public health care measures.

The Company anticipates that the healthcare reform legislation will further reduce Medicare spending on services provided by hospitals and other providers and further forms sales or excise tax on the medical device manufacturing sector. Various healthcare reform proposals have also emerged at the federal and state level. The Company cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on the Company. However, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for the Company’s products, reduce medical procedure volumes and adversely affect the Company’s business, possibly materially.

Future legislation or changes in government programs may adversely impact the market for the Company’s products.

From time to time, the federal government and Congress have made proposals to change aspects of the delivery and financing of health care services. The Company cannot predict what form any future legislation or regulation may take or its impact on the Company’s business. Legislation that sets price limits and utilization controls adversely impact the rate of growth of the markets in which the Company participates. If any future health care legislation or regulations were to adversely impact those markets, the Company’s product marketing could also suffer, which would adversely impact the Company’s business.

Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact the Company's reputation and results of operations.

The Company is subject to cyber security risks and may incur increasing costs in efforts to minimize those risks and to comply with regulatory standards. The Company employs information technology systems and Internet systems, including websites, which allow for the secure storage and transmission of proprietary or confidential information regarding the Company’s customers, employees and others, including credit card information and personal identification information. The Company has made significant efforts to secure its computer network to mitigate the risk of possible cyber-attacks and is continuously working to upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent possible, against cyber risks and security breaches. Despite these efforts security of the Company’s computer networks could be compromised which could impact operations and confidential information could be misappropriated, which could lead to negative publicity, loss of sales and profits or cause the Company to incur significant costs to reimburse third-parties for damages which could adversely impact profits.

ITEM 1B. UNSOLVED SEC STAFF COMMENTS

The Company does not believe there are any unresolved SEC staff comments.

ITEM 2. PROPERTIES

As of June 30, 2019 the Company leased an aggregate of 21,574 square feet of space for its (i) corporate offices in Wayne, Pennsylvania, (ii) Sonomed's manufacturing facility in Lake Success, New York, (iii) Trek’s distribution facility in New Berlin, Wisconsin, and (iv) EMI’s product design and development facility in Stoneham, Massachusetts. The Company's current corporate office lease of 3,954 square feet located in 435 Devon Park Drive, Wayne, Pennsylvania will expire in December 31, 2019. The Company will lease 2,186 square feet located at 800 Devon Park Drive, Wayne, Pennsylvania under a five-year lease agreement after the current lease term ends. The New York facility lease of 6,728 square feet will expire on December 31, 2024. The Wisconsin lease, of 7,440 square feet of space will expire in April 2022. The Massachusetts lease covers 3,452 square feet and will expire in August 2020. Rent expense during the years ended June 30, 2019 and 2018 was approximately $455,000 and $425,000, respectively.

ITEM 3. LEGAL PROCEEDINGS

The Company, from time to time is involved in various legal proceedings and disputes that arise in the normal course of business. These matters have previously and could pertain to intellectual property disputes, commercial contract disputes, employment disputes, and other matters. The Company does not believe that the resolution of any of these matters has had or is likely to have a material adverse impact on the Company’s business, financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock trades on the OTCQB Market under the symbol “ESMC.” Any over the counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not present actual transactions.

As of September 26, 2019 there were 1,270 holders of record of the Company’s common stock. On September 26, 2019 the closing price of the Company’s Common Stock as reported by the OTCQB Market was $0.12 per share.

The Company has never declared or paid a cash dividend on its common stock and presently intends to retain any future earnings to finance future growth and working capital needs.

other arrangements at prices and other terms that may not be as favorable as they would without such qualification. The sale of additional equity and debt securities may result in additional dilution to the Company’s shareholders. Additional financing may not be available in amounts or on terms acceptable to the Company or at all.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with the consolidated financial statements and notes thereto and other financial information contained elsewhere in this Form 10-K and the discussion under “Risk Factors” included in Item 1A of this Form 10-K.

Executive Overview—years ended ended June 30, 2019 and 2018

The following highlights are discussed in further detail within this Form 10-K. The reader is encouraged to read this Form 10-K in its entirety to gain a more complete understanding of factors impacting Company performance and financial condition.

•

Consolidated net revenue decreased approximately $1,775,000 or 15.6%, to $9,627,000 during the year ended June 30, 2019 as compared to the last fiscal year. The decrease in net revenue is attributed to a decrease in EMI's total product sales of $316,000, related to a decrease in ophthalmic fundus photography system product sales of $384,000 as the Company discontinued the manufacturing of ophthalmic fundus photography systems offset by an increase in revenue from service plans of $68,000, a decrease in sales of Trek products of $243,000 due to back order related to sterilization and a decrease in sales in Sonomed's ultrasound products of $1,216,000, primarily attributable to decreases within North America, Latin America, Asia Pacific markets and Middle East.


•	Consolidated cost of goods sold totaled approximately $4,997,000, or 51.9%, of total revenue for the year ended June 30, 2019, as compared to $6,300,000, or 55.3%, of total revenue for the of the prior fiscal year. The decrease of 3.4% in cost of goods sold as a percentage of total revenue is mainly due to changes in product sales mix and improved pricing.


•	Consolidated marketing, general and administrative expenses decreased $255,000, or 5.8%, to $4,142,000 for the fiscal year ended June 30, 2019, as compared to the prior fiscal year. The decrease is mainly due to decreased legal expense, decreased salary, commission and fringe benefits expense offset by increased consulting expense.

•

Consolidated research and development expenses increased $240,000, or 48.0%, to $740,000 for the fiscal year ended June 30, 2019, as compared to the prior fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is mainly due to expense for AXIS software development work and ultrasound certification costs incurred during the fiscal year ended June 30, 2019.

Results of Operations

Years ended Ended June 30, 2019 and 2018

The following table shows consolidated net revenue, as well as identifying trends in revenues for the years ended ended June 30, 2019 and 2018. Table amounts are in thousands:



	For the years ended June 30,
	2019		2018		% Change
Net Revenue:
Products	$	8,707	$	10,550	(17.5	)%
Service plans	$	920	$	852	8.0	%
Total	$	9,627	$	11,402	(15.6	)%

Consolidated net revenue decreased approximately $1,775,000 or 15.6%, to $9,627,000 during the year ended June 30, 2019 as compared to the last fiscal year.The decrease in net revenue is attributed to a decrease in EMI's total product sales of $316,000, related to a decrease in ophthalmic fundus photography system product sales of $384,000 offset by an increase in revenue from service plans of $68,000, a decrease in sales of Trek products of $243,000 due to back order related to sterilization and a decrease in sales in Sonomed's ultrasound products of $1,216,000, primarily attributable to decreases within North America, Latin America, Asia Pacific markets and Middle East.

The table amounts are in thousands:



	For the years ended June 30,
	2019				2018
Domestic	$	5,587	58.0	%	$	6,802	59.7	%
Foreign	4,040		42.0	%	4,600		40.3	%
Total	$	9,627	100.0	%	$	11,402	100.0	%

The following table presents consolidated cost of goods sold and as a percentage of revenues for the years ended ended June 30, 2019 and 2018. Table amounts are in thousands:



	For the years ended June 30,
	2019		%		2018		%
Cost of Goods Sold:
	$	4,997	51.9	%	$	6,300	55.3	%
Total	$	4,997	51.9	%	$	6,300	55.3	%

Consolidated cost of goods sold totaled approximately $4,997,000, or 51.9%, of total revenue for the year ended June 30, 2019, as compared to $6,300,000, or 55.3%, of total revenue of the prior fiscal year. The decrease of 3.4% in cost of goods sold as a percentage of total revenue is mainly due to changes in product sales mix and improved pricing.

The following table presents consolidated marketing, general and administrative expenses for the years ended June 30, 2019 and 2018. Table amounts are in thousands:



	For the years ended June 30,
	2019		2018		% Change
Marketing, General and Administrative:
	$	4,142	$	4,397	(5.8	)%
Total	$	4,142	$	4,397	(5.8	)%

Consolidated marketing, general and administrative expenses decreased $255,000, or 5.8%, to $4,142,000 for the year ended June 30, 2019, as compared to the prior fiscal year. The decrease is mainly due to decreased legal expense, decreased salary, commission and fringe benefits expense offset by increased consulting expense.

The following table presents consolidated research and development expenses for the years ended ended June 30, 2019 and 2018.

Table amounts are in thousands:



	For the years ended June 30,
	2019		2018		% Change
Research and Development:
	$	740	$	500	48.0	%
Total	$	740	$	500	48.0	%

Consolidated research and development expenses increased $240,000, or 48.0%, to $740,000 for the year ended June 30, 2019, as compared to the prior fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is due to expense for AXIS software development work and certification costs incurred in the fiscal year ended June 30, 2019.

Other income (expense)

The Company did not have significant other income during the year ended June 30, 2019. On October 2, 2017 Escalon and Modernizing Medicine Inc. (“MMI”) entered into a Source Code Software Licensing Agreement . The

Agreement provided MMI a non-exclusive perpetual License to the source code of Escalon’s proprietary image management software (“AXIS source code”) for a one-time payment of $500,000. MMI continues to be an authorized reseller of the AXIS product. During the year ended June 30, 2019, interest expense decreased mostly because there was no more interest expense for related party debt after the conversion of related party debt to equity on February 14, 2018, as compared to the year ended June 30, 2018.

Liquidity and Capital Resources

Our total cash on hand as of June 30, 2019 was approximately $410,000 excluding restricted cash of approximately $253,000 compared to approximately $874,000 of cash on hand and restricted cash of $250,000 as of June 30, 2018. Approximately $48,000 was available under our line of credit as of June 30, 2019.

Because our operations have not historically generated sufficient revenues to enable profitability we will continue to monitor costs and expenses closely and may need to raise additional capital in order to fund operations.

We expect to continue to fund operations from cash on hand and through capital raising sources if possible and available, which may be dilutive to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. Additionally, we may seek to sell additional equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness in connection with a debt financing would result in increased fixed obligations and could contain covenants that would restrict our operations.

As of June 30, 2019 we had an accumulated deficit of approximately $68.2 million, incurred recurring losses from operations and negative cash flows from operating activities. These factors raise substantial doubt regarding our ability to continue as a going concern, and our ability to generate cash to meet our cash requirements for the following twelve months as of the date of this form 10-K.

The following table presents overall liquidity and capital resources as of June 30, 2019 and June 30, 2018. Table amounts are in thousands:



	June 30,	June 30,
	2019	2018
Current Ratio:
Current assets	$4,313	$4,584
Less: Current liabilities	2,260	2,247
Working capital	$2,053	$2,337
Current ratio	1.91 to 1	2.04 to 1
Debt to Total Capital Ratio:
Line of credit and note payable	$220	$186
Total debt	220	186
Total equity	2,162	2,412
Total capital	$2,382	$2,598
Total debt to total capital	9.2%	7.0%

Working Capital Position

Working capital decreased approximately $284,000 as of June 30, 2019, and the current ratio decreased to 1.91 to 1 from 2.04 to 1 when compared to June 30, 2018.

Overall total current assets decreased approximately $271,000 to approximately $4,313,000 as of June 30, 2019 from $4,584,000 as of June 30, 2018. Total current liabilities, which consists of line of credit, current portion of post-retirement pension benefits, accounts payable, accrued expenses, deferred revenue and liabilities of discontinued operations, increased approximately $13,000 to $2,260,000 in 2019 from $2,247,000 as compared to June 30, 2018. The decrease in current assets and increased in current liabilities is mainly as result of the decreased sales.

Debt to total capital ratio was 9.2% and 7.0% as of June 30, 2019 and June 30, 2018, respectively. The decrease in the working capital ratio and increase in the debt to total capital ratio is due to the increase in the line of credit and increased

accumulated deficit as a result of the net loss for the year ended June 30, 2019. On June 29, 2018 the Company entered a business loan agreement with TD bank receiving a promissory note of $250,000. Upon signing the agreement the Company also authorizes TD bank to payoff the line of credit of $165,000 with Newtek with a total payment of $201,575.

Cash Used In or Provided By Operating Activities

During the year ended June 30, 2019 the Company used approximately $473,000 of cash from operating activities as compared to providing cash of approximately $107,000 for operating activities during the last fiscal year.

For the year ended June 30, 2019, the Company had a net loss of approximately $250,000. Cash outflows were mainly due to the cash outflow due to an increase in accounts receivable of $104,000, an increase in other current assets of $25,000, an increase in inventory of 55,000, a decrease in accrued expenses of $105,000, a decrease in accrued post retirement benefits of $59,000, a decrease in deferred revenue of $54,000. The cash inflow is offset by an increase in accounts payable of $138,000, and an increase in non-cash expenditure on depreciation and amortization of approximately $48,000. The cash outflow is mainly due to decreased sales and continued investment in research and development for AXIS software development.

For the year ended June 30, 2018, the Company had a net income of $584,000. Cash inflows were mainly due to the cash inflow from a decrease in accounts receivable of $150,000 as the Company improved the collection, a decrease in inventory of $41,000, non cash items of depreciation and amortization of $49,000, an increase in related party accrued interest of $59,000, an increase in accrued expenses of $238,000 and an increase in liabilities of discontinued operations of $1,000, partially offset by an increase in other current assets of $40,000, a decrease in allowance of doubtful accounts of $53,000, decrease in accounts payable of $519,000 and a decrease in accrued post retirement benefits of $50,000.

Cash Flows Used In Investing Activities

Cash flows used in investing activities for the year ended June 30, 2019 were due to purchase of equipment of approximately $22,000.

Cash flows provided by investing activities for 2018 were due to the proceeds from the source code licensing agreement of $500,000 offset by the purchase of equipment of $29,000 and purchase of licenses of $13,000.

Any necessary capital expenditures have generally been funded out of cash from operations, and the Company is not aware of any factors that would cause historical capital expenditure levels to not be indicative of capital expenditures in the future and, accordingly, does not believe that the Company will have to commit material resources to capital investment for the foreseeable future.

Cash Flows Provided by Financing Activities

For the year ended June 30, 2019 the cash inflow from financing activities of $34,000 was due to the increase in the line of credit in amount of $37,000 as a result of the Company refinancing the line of credit with TD Bank in July 2019 offset by auto loan payment of $3,000.

During 2018 the cash inflow from financing activities were due to proceeds from related party note payable of $100,000 reduced by the repayment of the line of credit of $85,000.

Debt Financing

On June 29, 2018 the Company entered a business loan agreement with TD bank receiving a line of credit evidenced by a promissory note of $250,000. The interest is subject to change based on changes in an independent index which the Wall Street Journal Prime. The index rate at the date of the agreement is 5.000% per annum. Interest on the unpaid principal balance of the note will be calculated using a rate of 0.740 percentage points over the index, adjusted if necessary for any minimum and maximum rate limitations, resulting in an initial rate of 5.740% per annum based on a year of 360 days. The interest rate was 6.24% as of June 30, 2019. The Company was required to put $250,000 in the TD bank savings account as collateral. Upon signing the agreement the Company also authorized TD bank to payoff the line of credit with Newtek Business Credit ("Newtek"). The total payment was $201,575, which includes $165,000 of outstanding line of credit, $2,579 accrued interest, administrative/legal fee of $1,000, prime plus fee through July 12, 2018 of $1,895 and underminimum fees of $28,797. The underminimum fees of $28,797 was included in accrued expense as of June 30, 2018. The line of credit from Newtek was paid off on July 3, 2018.

As of June 30, 2019 and June 30, 2018, the line of credit balance was $201,575 with TD bank and $165,000 from Newtek, respectively. The line of credit interest expense was $17,000 and $37,000 for the years ended ended June 30, 2019 and 2018, respectively.

Richard J. DePiano, Sr., (“Mr. DePiano”), the Chairman, participated in an accounts receivable factoring program that was implemented by the Company. Under the program, Mr. DePiano advanced the Company $545,000 as of June 30, 2017 and advanced an additional $100,000 during fiscal year 2018 prior to the Debt Exchange Agreement noted below. Interest on the transaction was 1.25% per month. The transactions excluded fees typically charged by the factoring agent and provided much needed liquidity to the Company. Related party interest expense for the years ended ended June 30, 2019 and 2018 was $0 and $59,162, respectively. As of both June 30, 2019 and June 30, 2018, accrued interest of $112,389 was recorded in accrued expenses.

Preferred stock

On February 14, 2018, the Company entered into a Debt Exchange Agreement (the “Exchange Agreement”) with Mr. DePiano, the Company's Chairman and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano is the sole owner and sole trustee (the “Holders”). Pursuant to the terms of the Exchange Agreement, effective February 15, 2018, the Holders exchanged a total of $645,000 principal amount of debt related to the accounts receivable factoring program the Company owes the Holders for 2,000,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”). As of June 30, 2019 and June 30, 2018 the cumulative dividends payable was $70,968 ($0.0355 per share) and $19,368 ($0.0097 per share).

Common Stock

The Company’s common stock has been quoted on the OTCQB Market since November 18, 2016. The OTCQB Venture Market requires companies be current in their reporting and must undergo an annual verification and management certification process. Companies must also meet a minimum ($0.01) bid test and may not be in bankruptcy.

Other

The Company’s forecast of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in “Risk Factors” included in this Form 10-K . If the Company raises funds in the future, the Company may be required to raise those funds through public or private financings, strategic relationships or other arrangements at prices and other terms that may not be as favorable as they would without such qualification. The sale of additional equity and debt securities may result in additional dilution to the Company’s shareholders. Additional financing may not be available in amounts or on terms acceptable to the Company or at all.

Critical Accounting Policies

The preparation of financial statements requires management to make estimates and assumptions that impact amounts reported therein. The most significant of those involve the application of FASB issued authoritative guidance concerning Revenue Recognition, Goodwill and Other Intangible Assets, discussed further in the notes to consolidated financial statements included in this Form 10-K. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and, as such, include amounts based on informed estimates and judgments of management. For example, estimates are used in determining valuation allowances for deferred income taxes, uncollectible receivables, obsolete inventory, sales returns, post retirement benefits, and rebates warranty liabilities and valuation of intangible assets. Actual results achieved in the future could differ from current estimates. The Company used what it believes are reasonable assumptions and, where applicable, established valuation techniques in making its estimates.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), to clarify the principles of recognizing revenue and create common revenue recognition guidance under US GAAP and International Financial Reporting Standards. This ASU can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of the adoption. The standard supersedes existing revenue recognition guidance and replaces it with a five-step revenue model with a core principle that an entity recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

The Company adopted the new guidance on July 1, 2018. The timing of revenue recognition and treatment of contract costs remains unchanged under Topic 606. As such, the adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements. The information presented for the periods prior to July 1, 2018 has not been restated and is reported under the accounting standard in effect for those periods. See Note 15 in the consolidated financial statements for further information regarding the Company’s implementation and disclosures in accordance with ASC 606.

606, Revenue from Contracts with Customers, and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period.

Intangible Assets and Long-Lived assets

Intangible assets deemed to have indefinite lives (including trademark and trade names) are not amortized but, instead, are subject to an annual impairment assessment. Additionally, if events or conditions were to indicate the carrying value or a reporting unit may not be recoverable, the Company would evaluate the other intangible assets for impairment at that time.

Long-lived assets including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the projected undiscounted cash flows from the asset are less than the carrying value of the asset the asset is considered to be impaired. The impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. During the years ended June 30, 2019 and 2018, no impairments were recorded.

Earnings (Loss) Per Share

Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. All outstanding stock options are considered potential common stock. All outstanding convertible preferred stock are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. The dilutive effect, if any, of stock options is calculated using the treasury stock method. As of June 30, 2019 and 2018, the average market prices for the years then ended are less than the exercise price of all the outstanding stock options and, therefore, the inclusion of the the stock options would be anti-dilutive. In addition, since the effect of common stock equivalents is anti-dilutive with respect to losses, the convertible preferred stock has also been excluded from the Company’s computation of loss per common for the fiscal year ended June 30, 2019. Therefore, basic and diluted loss per common share for the year ended June 30, 2019 are the same. For the fiscal year ended June 30, 2018, the if-converted method was used for the convertible preferred stock to calculate the dilutive earnings per share.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. As of June 30, 2019 and June 30, 2018, the Company has a fully recorded valuation allowance against its deferred tax assets.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations. As of June 30, 2019 and June 30, 2018, no accrued interest or penalties were required to be included on the related tax liability line in the consolidated balance sheets.

On December 22, 2017, the Tax Act was enacted. the Tax Act is one of the most comprehensive changes in the U.S. corporate tax law and policy since 1986 and certain provisions are extremely complex in their application. The Tax Act revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate from 35% to 21%, adopting a quasi-territorial income tax system and setting limitations on deductibility of certain costs (e.g., interest expense).

Recently Issued Accounting Standards

The Company considers the applicability and impact of all accounting standards updates ("ASUs"). Management periodically reviews new accounting standards that are issued.

New Accounting Pronouncements Recently Adopted

In August 2016 FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update provide guidance on the eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption was permitted, including adoption in an interim period. The Company adopted ASU No. 2016-15 on July 1, 2018 using a retrospective transition method. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In November 2016 the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230). The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied retrospectively to each period presented. Early adoption was permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU No. 2016-18 on July 1, 2018. As a result, restricted cash has been included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In May 2017 FASB issued the amendments in ASU 2017-09- Compensation-Stock Compensation (“ASC Topic 718”): Scope of Modification Accounting: These amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company applied the amendments in this update prospectively to an award modified on or after July 1, 2018 and the application of this guidance didn't have an impact on the Company’s consolidated financial position or results of operations.

New Accounting Pronouncements Not yet Adopted

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, "Codification Improvements to Topic 842, Leases." The amendments in ASU 2018-10 clarify, correct or remove inconsistencies in the guidance provided under ASU 2016-02 related to nineteen specific issues identified. Also in July 2018, the FASB issued ASU No. 2018-11 "Leases (Topic 842): Targeted Improvement" which now allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. The effective date and transition requirements for these two ASUs are the same as the effective date and transition requirements as ASU 2016-02. The Company determined that this standard will

have a material effect on the Company's balance sheet. While the Company continues to asses all of the effects of the adoption, the Company currently believes the most significant impact relates to recording the right-to-use assets and related lease liabilities on the consolidated balance sheets. On adoption as of July 1, 2019 the Company will recognize total lease liabilities of approximately $1,200,000 with corresponding ROU assets of almost the same amount based on the present value of the remaining lease minimum rental payments under the current leasing standards for existing operating lease.

In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact to the Company’s consolidated financial statements.

In June 2018 the FASB issued ASU 2018-07 Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) that expands the scope to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2018-07 will have a material impact on the Company's consolidated financial statements.

Item 8. FINANCIAL STATEMENTS AND SUPPLIMENTARY DATA

Escalon Medical Corp.

Index to Consolidated Financial Statements




	Page
Reports of Independent Registered Public Accounting Firms	20
Consolidated Balance Sheets at June 30, 2019 and 2018	21
Consolidated Statements of Operations for the Years Ended June 30, 2019 and 2018	22
Consolidated Statements of Shareholders’ Equity for the Years Ended June 30, 2019 and 2018	23
Consolidated Statements of Cash Flows for the Years Ended June 30, 2019 and 2018	24
Notes to Consolidated Financial Statements	26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Escalon Medical Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Escalon Medical Corp. and its subsidiaries (the “Company”) as of June 30, 2019 and 2018, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended and the related notes (collectively referred to as the "financial statements". In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The Company's Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant accumulated deficit and recurring losses from operations and negative cash flows from operating activities raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.



/s/ Friedman LLP

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

Marlton, New Jersey

September 27, 2019

ESCALON MEDICAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

	June 30, 2019			June 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	409,743		$	874,002
Restricted cash	253,135			250,000
Accounts receivable, net	1,496,105			1,387,133
Inventories	1,878,860			1,823,414
Other current assets	274,993			249,620
Total current assets	4,312,836			4,584,169
Property and equipment, net	67,896			76,268
Trademarks and trade names	605,006			605,006
License, net	141,700			161,350
Total assets	$	5,127,438		$	5,426,793
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	201,575		$	165,000
Current portion of note payable	3,401			3,153
Accounts payable	666,510			528,844
Accrued expenses	656,707			762,032
Related party accrued interest	112,389			112,389
Current portion of post-retirement benefits (related party)	101,891			101,891
Deferred revenue	426,803			481,180
Liabilities of discontinued operations	90,933			92,532
Total current liabilities	2,260,209			2,247,021
Note payable, net of current portion	14,896			18,037
Accrued post-retirement benefits, net of current portion (related party)	690,094			749,480
Total long-term liabilities	704,990			767,517
Total liabilities	2,965,199			3,014,538
Commitments and contingencies (Note 8)
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 $715,968 and $664,368)	645,000			645,000
Common stock, $0.001 par value; 35,000,000 shares authorized; 7,415,329 shares issued and outstanding as of June 30, 2019 and June 30, 2018	7,415			7,415
Additional paid-in capital	69,702,043			69,702,043
Accumulated deficit	(68,192,219		)	(67,942,203		)
Total shareholders’ equity	2,162,239			2,412,255
Total liabilities and shareholders’ equity	$	5,127,438		$	5,426,793

See notes to consolidated financial statements



ESCALON MEDICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
	For the Years Ended June 30,
	2019			2018
Net revenues:
Products	$	8,707,154		$	10,550,272
Service plans	919,509			852,000
Revenues, net	9,626,663			11,402,272
Costs and expenses:
Cost of goods sold	4,997,461			6,299,720
Marketing, general and administrative	4,142,392			4,397,498
Research and development	739,765			500,334
Total costs and expenses	9,879,618			11,197,552
(Loss) income from operations	(252,955		)	204,720
Other income (expense)
Other income	11,122			500,000
Interest income	9,170			4,642
Interest expense	(17,353		)	(125,687		)
Total other income, net	2,939			378,955
Net (loss) income	(250,016		)	583,675
Undeclared dividends on preferred stocks	51,600			19,368
Net (loss) income applicable to common shareholders	$	(301,616	)	$	564,307
Net (loss) income per share
Basic (loss) income per share	$	(0.04	)	$	0.07
Diluted (loss) income per share	$	(0.04	)	$	0.06
Weighted average shares—basic	7,415,329			7,551,057
Weighted average shares—diluted	7,415,329			9,141,468

See notes to consolidated financial statements

ESCALON MEDICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED JUNE 30, 2019 AND 2018

	Common Stock				Series A Convertible Preferred Stock					Additional Paid-in Capital			Accumulated Deficit				Total Shareholders’ Equity
	Shares	Amount			Shares		Amount
Balance at June 30, 2018	7,415,329	$	7,415		2,000,000		$	645,000		$	69,702,043		$	(67,942,203	)		$	2,412,255
Net loss	—	—		—	—		—			—			(250,016		)		(250,016		)
Balance at June 30, 2019	7,415,329	$	7,415	—	2,000,000	—	$	645,000	—	$	69,702,043	—	$	(68,192,219	)	—	$	2,162,239



	Common Stock						Series A Convertible Preferred Stock					Additional Paid-in Capital			Accumulated Deficit				Total Shareholders’ Equity
	Shares		Amount				Shares		Amount
Balance at June 30, 2017	7,551,430		$	7,551			—		$	—		$	69,701,907		$	(68,525,878	)		$	1,183,580
Issuance of stock for debt	—		—				2,000,000		645,000			—			—				645,000
Net income	—		—				—		—			—			583,675				583,675
Cancellation of common stock	(136,101	)	(136		)		—		—			136			—				—
Balance at June 30, 2018	7,415,329		$	7,415		—	2,000,000	—	$	645,000	—	$	69,702,043	—	$	(67,942,203	)	—	$	2,412,255

See notes to consolidated financial statements



ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
	For the years ended June 30,
	2019			2018
Cash Flows from Operating Activities:
Net (loss) income	$	(250,016	)	$	583,675
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Recovery of allowance of doubtful accounts	(5,450		)	(53,190		)
Other income	—			(500,000		)
Depreciation and amortization	50,139			49,218
Change in operating assets and liabilities:
Accounts receivable	(103,522		)	149,827
Inventories	(55,446		)	94,524
Other current assets	(25,373		)	(40,076		)
Accounts payable	137,666			(518,619		)
Accrued expenses	(105,325		)	237,930
Related party accrued interest	—			59,162
Accrued post-retirement benefits (related party)	(59,386		)	(49,867		)
Deferred revenue	(54,377		)	92,745
Liabilities of discontinued operations	(1,599		)	1,407
Net cash (used in) provided by operating activities	(472,689		)	106,736
Cash Flows from Investing Activities:
Proceeds from sales of source code licensing agreement	—			500,000
Purchase of equipment	(22,117		)	(29,352		)
Purchase of licenses	—			(12,500		)
Net cash (used in) provided by investing activities	(22,117		)	458,148
Cash Flows from Financing Activities:
Proceeds from related party note payable	—			100,000
Repayment of note payable	(2,893		)	—
Proceeds from (repayment of ) line of credit	36,575			(85,000		)
Net cash provided by financing activities	33,682			15,000
Net (decrease) increase in cash, cash equivalents and restricted cash	(461,124		)	579,884
Cash, cash equivalents and restricted cash, beginning of year	1,124,002			544,118
Cash, cash equivalents and restricted cash, end of year	$	662,878		$	1,124,002

Cash, cash equivalents and restricted cash consist of the following:
End of year
Cash and cash equivalents	$	409,743		$	874,002
Restricted cash	253,135			250,000
	$	662,878		$	1,124,002
Beginning of year
Cash and cash equivalents	$	874,002		$	544,118
Restricted cash	250,000			—



	$	1,124,002	$	544,118

Supplemental Schedule of Cash Flow Information:
Interest paid	$	44,315	$	37,811
Non Cash Finance and Investing Activities
Note payable for acquisition of vehicle	$	—	$	22,372
Related party note payable converted to preferred stock	$	—	$	645,000

See notes to consolidated financial statements

Escalon Medical Corp. and Subsidiaries

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

The Company’s common stock trades on the OTCQB Market under the symbol “ESMC.”

2. Going Concern

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the continuous enhancement of the current products, development of new products; changes in domestic and foreign regulations; ability of manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products and its ability to raise capital to support its operations.

To date, the Company’s operations have not generated sufficient revenues to enable profitability. As of June 30, 2019, the Company had an accumulated deficient of $68 million, and incurred recurring losses from operations and incurred recurring negative cash flows from operating activities. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company's continuance as a going concern is dependent on its future profitability and on the on-going support of its shareholders, affiliates and creditors. In order to mitigate the going concern issues, the Company is actively pursuing business partnerships, managing its continuing operations, implementing cost-cutting measures and seeking to sell certain assets. The Company may not be successful in any of these efforts.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally affected in the United States of America ("US GAAP") requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For the purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and highly liquid investments with original maturities of 90 days or less to be cash and cash equivalents. From time to time cash balances exceed federal insurance limits.

Restricted Cash

As of June 30, 2019 and June 30, 2018 restricted cash included approximately $253,000 and $250,000 respectively, which was pursuant to the requirements in the TD Bank Loan entered into June 2018 (see Note 12).

Foreign Currency Translation

The Company's functional currency is the US dollar. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Foreign currency transaction gains or losses included in net loss were immaterial for the fiscal years ended June 30, 2019 and 2018.

Accounts Receivable

Accounts receivable are recorded at net realizable value. The Company performs ongoing credit evaluations of customers’ financial condition and does not require collateral for accounts receivable arising in the normal course of business. The Company maintains allowances for potential credit losses based on the Company’s historical trends, specific customer issues and current economic trends. Accounts are written off against the allowance when they are determined to be uncollectible based on management’s assessment of individual accounts. 2018. Allowance for doubtful accounts activity for the years ended June 30, 2019 and 2018 was as follows:




	June 30,
	2019			2018
Balance, July 1	$	118,930		$	172,120
Recovery in bad debts	(5,450		)	(45,593		)
Write-offs	(2,973		)	(7,597		)
Balance, June 30	$	110,507		$	118,930

Inventories

Inventories include freight-in materials, labor and overhead costs, and are stated at the lower of cost (first-in, first-out) or net realizable value.The Company writes down its inventories as it becomes aware of any situation where the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions.



	For the years ended June 30,
	2019		2018
Raw materials	$	874,985	$	652,613
Work in process	225,254		192,287
Finished goods	778,621		978,514
Total inventories	$	1,878,860	$	1,823,414

Property and Equipment

Property and equipment are recorded at cost. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or lease term. Depreciation on property and equipment is recorded using the straight-line method over the estimated economic useful life of the related assets. Estimated useful lives are generally three years to five years for computer equipment and software, five years to seven years for furniture and fixtures and five years to ten years for production and test equipment. Depreciation and amortization expense for the years ended June 30, 2019 and 2018 was approximately $30,000 and $29,000, respectively.

Property and equipment consist of the following:

Property Plant and Equipment

	June 30,
	2019			2018
Equipment	$	717,460		$	701,848
Furniture and fixtures	149,835			143,330
Leasehold improvements	28,549			28,549
	895,844			873,727
Less: Accumulated depreciation and amortization	(827,948		)	(797,459		)
	$	67,896		$	76,268

Intangible Assets and Long-Lived Assets

Accrued Warranties

The Company provides a limited one-year warranty against manufacturer’s defects on its products sold to customers. The Company’s standard warranties require the Company to repair or replace, at the Company’s discretion, defective parts during such warranty period. The Company accrues for its product warranty liabilities based on estimates of costs to be incurred during the warranty period, based on historical repair information for warranty costs.

Fair Value of Financial Instruments

The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of their short-term maturity. The carrying amount of the accrued post retirement benefits approximates fair value since the Company utilizes approximate current market interest rates to calculate the liability. The Company determined that the carrying amount of the note payable approximates fair value since such debt borrowing bears interest at the approximate current market rate. While the Company believes the carrying value of the assets and liabilities are reasonable, considerable judgment is used to develop estimates of fair value; thus the estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.

Revenue Recognition

The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period.

Shipping and Handling Revenues and Costs

Shipping and handling revenues are included in product revenue and the related costs are included in cost of goods sold.

Research and Development

All research and development costs are charged to operations as incurred.

Advertising Costs

Advertising costs are charged to operations as incurred. Advertising expense for the years ended June 30, 2019 and 2018 was $33,000 and $27,000, respectively.

Earnings (Loss) Per Share

Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. All outstanding stock options are considered potential common stock. All outstanding convertible preferred stock are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. The dilutive effect, if any, of stock options is calculated using the treasury stock method. As of June 30, 2019 and 2018, the average market prices for the years then ended are less than the exercise price of all the outstanding stock options and, therefore, the inclusion of the the stock options would be anti-dilutive. In addition, since the effect of common stock equivalents is anti-dilutive with respect to losses, the convertible preferred stock has also been excluded from the Company’s computation of loss per common for the year ended June 30, 2019. Therefore, basic and diluted loss per common share for the year ended June 30, 2019 are the same. For the year ended June 30, 2018, the if-converted method was used for the convertible preferred stock to calculate the dilutive earnings per share.



	For the years ended June 30,
	2019				2018
Numerator:
Numerator for basic earnings (loss) per share:
Net (loss) income	$	(250,016	)		$	583,675
Undeclared dividends on preferred stock	51,600				19,368
Net (loss) income applicable to common shareholders	$	(301,616	)		$	564,307
Numerator for diluted earnings per share:
Net (loss) income applicable to common shareholders	$	(301,616	)		$	564,307
Undeclared dividends on preferred stock	51,600				19,368
Net (loss) income	$	(250,016	)		$	583,675
Denominator:
Denominator for basic earnings (loss) per share - weighted average shares outstanding	7,415,329				7,551,057
Weighted average preferred stock converted to common stock	—				1,590,411
Denominator for diluted earnings (loss) per share - weighted average and assumed conversion	7,415,329			—	9,141,468
Net (loss) income per share:
Basic net (loss) income per share	$	(0.04	)		$	0.07
Diluted net (loss) income per share	$	(0.04	)		$	0.06

The following table summarizes convertible preferred stock and securities that, if exercised would have an anti-dilutive effect

on earnings per share.



	For the years ended June 30,
	2019	2018
Stock options	213,000	367,500
Convertible preferred stock	4,773,120	—
Total potential dilutive securities not included in income per share	4,986,120	367,500

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying statements of operations. As of June 30, 2019 and June 30, 2018, no accrued interest or penalties were required to be included on the related tax liability line in the consolidated balance sheets.

Reclassifications

Related party accrued interest in the June 30, 2018 consolidated balance sheet has been reclassed from accrued expense to be conformity with the current year presentation.

New Accounting Pronouncements

Recently Issued Accounting Standards

The Company considers the applicability and impact of all accounting standards updates ("ASUs"). Management periodically reviews new accounting standards that are issued.

New Accounting Pronouncements Recently Adopted

The Company adopted the new guidance on July 1, 2018. The timing of revenue recognition and treatment of contract costs remains unchanged under Topic 606. As such, the adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements. The information presented for the periods prior to July 1, 2018 has not been restated and is reported under the accounting standard in effect for those periods. See Note 15 for further information regarding the Company’s implementation and disclosures in accordance with ASC 606.

flows under Topic 230. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption was permitted, including adoption in an interim period. The Company adopted ASU No. 2016-15 on July 1, 2018 using a retrospective transition method. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not yet Adopted

In February 2016 FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, "Codification Improvements to Topic 842, Leases." The amendments in ASU 2018-10 clarify, correct or remove inconsistencies in the guidance provided under ASU 2016-02 related to nineteen specific issues identified. Also in July 2018, the FASB issued ASU No. 2018-11 "Leases (Topic 842): Targeted Improvement" which now allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. The effective date and transition requirements for these two ASUs are the same as the effective date and transition requirements as ASU 2016-02. The Company determined that this standard will have a material effect on the Company's balance sheet. While the Company continues to asses all of the effects of the adoption, the Company currently believes the most significant impact relates to recording the right-to-use assets and related lease liabilities on the consolidated balance sheets. On adoption as of July 1st 2019 the Company will recognize total lease liabilities of approximately $1,200,000 with corresponding ROU assets of almost the same amount based on the present value of the remaining lease minimum rental payments under the current leasing standards for existing operating lease.

In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.The adoption of this standard is not expected to have a material impact to the Company’s consolidated financial statements.

4. Intangible Assets

The Company's intangible assets consist of the following:



	2019		2018
Trademarks and trade names
Net carrying amount	$	605,006	$	605,006
Total	$	605,006	$	605,006

Patents

It is the Company’s practice to seek patent protection on processes and products in various countries. Patent application costs are capitalized and amortized over their estimated useful lives, not exceeding 17 years, on a straight-line basis from the date the related patents are issued. Costs associated with patents no longer being pursued are expensed. The gross carrying amount on patents was approximately $91,000 at June 30, 2019 and 2018. The parents have been fully amortized on June 30, 2018. Amortization expense for the years ended June 30, 2019 and 2018 was approximately $0 and $400, respectively.

Licenses

The Company purchased new licenses of $0 and $12,500 for year end June 30, 2019 and 2018, respectively and the cost is capitalized and amortized over 10 years. Amortization expense is approximately $20,000 for each of the years ended June 30, 2019 and 2018. Annual amortization related entirely to licenses is estimated to be approximately $20,000 for the years ending June 30, 2020 through 2024 and $42,000 thereafter.

The following table presents amortized licenses as of June 30, 2019:



	Gross Carrying Amount		Impairment		Adjusted Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Amortized Intangible Assets Licenses
	$	199,000	$	—	$	199,000	$	(57,300	)	$	141,700
Total	$	199,000	$	—	$	199,000	$	(57,300	)	$	141,700

The following table presents amortized licenses as of June 30, 2018:



	Gross Carrying Amount		Impairment		Adjusted Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Amortized Intangible Assets Licenses
	$	199,000	$	—	$	199,000	$	(37,650	)	$	161,350
Total	$	199,000	$	—	$	199,000	$	(37,650	)	$	161,350

5. Accrued Expenses

The following table presents accrued expenses:



	June 30, 2019		June 30, 2018
Accrued compensation	$	396,609	$	424,871
Line of credit interest accrual	1,013		29,797
Customer deposits	16,006		61,494
Warranty reserve	32,078		32,078
Sales tax payable	100,582		104,539
Rent payable	70,587		49,458
Other accruals	39,832		59,795
Total accrued expenses	$	656,707	$	762,032

Accrued compensation as of June 30, 2019 and 2018 primarily relates to payroll, vacation accruals, and payroll tax liabilities.

6. Capital Stock Transactions

Stock Option Plans

As of June 30, 2019, the Company had in effect two employee stock option plans that provide for incentive and non-qualified stock options. After accounting for shares issued upon exercise of options, a total of 213,000 shares of the Company’s common stock remain available for issuance as of June 30, 2019. Under the terms of the plans, options may not be granted for less than the fair market value of the Common Stock at the date of grant. Vesting generally occurs ratably between one and five years and for non-employee directors, immediately, and the options are exercisable over a period no longer than 10 years after the grant date. As of June 30, 2019, options to purchase 213,000 shares of the Company’s common stock were outstanding, of which 213,000 were exercisable, and 0 shares were unvested.

The following is a summary of Escalon’s stock option activity and related information for the fiscal years ended June 30, 2019 and 2018:



	2019				2018
	Common Stock Options		Weighted Average Exercise Price		Common Stock Options		Weighted Average Exercise Price
Outstanding at the beginning of the year	367,500		$	1.78	502,000		$	2.12
Granted	—		—		—		—
Exercised	—		—		—		—
Forfeited	(154,500	)	2.21		(134,500	)	$	3.05
Outstanding at the end of the year	213,000		$	1.48	367,500		$	1.78
Exercisable at the end of the year	213,000		$	1.48	367,500		1.78
Weighted average fair value of options granted during the year			$	—			$	—

The following table summarizes information about stock options outstanding as of June 30, 2019:



	Number Outstanding at June 30, 2019	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable at June 30, 2019	Weighted Average Exercise Price
Range of Exercise Prices
$0.79	21,000	6.83	$	0.79	21,000	$	0.79
$1.45 to $2.12	192,000	3.52	$	1.55	192,000	$	1.55
Total	213,000				213,000

There was no compensation expense related to stock options for the years ended June 30, 2019 and 2018.

7. Income Taxes

The provision for income taxes for the years ended June 30, 2019 and 2018 consists of the following:



	2019			2018
Current income tax (benefit) provision
Federal	$	—		$	—
State	—			—
	—			—
Deferred income tax provision
Federal	44,287			(3,498,532		)
State	12,653			(999,581		)
Change in valuation allowance	(56,941		)	4,498,113
	—			—
Income tax (benefit)	$	—		$	—

Income taxes (benefit) as a percentage of income (loss) for the years ended June 30, 2019 and 2018 differ from statutory federal income tax rate due to the following:



	2019		2018
Statutory federal income tax rate	21.00	%	34.00	%
Permanent differences	0.00	%	(0.51	)%
Tax Act-revaluation of net deferred tax assets	0.00	%	(33.49	)%
Valuation allowance	(21.00	)%	0.00	%
Effective income tax rate	0.00	%	0.00	%

On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") was enacted. The Tax Act revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate from 35% to 21%, adopting a quasi-territorial income tax system and setting limitations on deductibility of certain costs (e.g., interest expense).

Due to the complexities involved in the accounting for the Tax Act, on December 22, 2017, the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB")118 was issued to provide guidance to companies that have not yet completed their accounting for the tax Act in the period of enactment. SAB 118 provides that the Company include in its consolidated financial statements a reasonable estimate of the impacts on the Tax Act on earnings to the extent such estimate has been determined. Accordingly, the U.S. provision for income tax for 2018 is based on the reasonable estimate guidance provided by SAB 118.

Pursuant to the SAB 118, the Company is allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As of December 22, 2018, the Company has completed the accounting for the effects of the Tax Act and there were no additional measurement adjustments.

The components of the net deferred income tax assets and liabilities as of June 30, 2019 and 2018 are as follows:



	2019			2018
Deferred income tax assets:
Net operating loss carryforward	$	7,102,298		$	7,042,134
Executive post retirement costs	166,317			178,788
General business credit	207,698			207,698
Allowance for doubtful accounts	23,207			24,975
Accrued vacation	40,565			46,527
Inventory reserve	102,002			96,813
Accelerated depreciation	127,642			119,980
Warranty reserve	6,736			6,736
Total deferred income tax assets	7,776,465			7,723,651
Valuation allowance	(7,619,657		)	(7,562,716		)
	156,808			160,935
Deferred income tax liabilities:
Accelerated depreciation	(156,808		)	(160,935		)
Total deferred income tax liabilities	(156,808		)	(160,935		)
	$	—		$	—

As of June 30, 2019, the Company has a valuation allowance of $7,619,657, which primarily relates to the federal net operating loss carryforwards. During the year ended June 30, 2019, the valuation allowance increased by $56,941 and during the year ended June 30, 2018, the valuation decreased by $4,498,113. The valuation allowance is a result of management evaluating its estimates of the net operating losses available to the Company as they relate to the results of operations of acquired businesses subsequent to their being acquired by the Company. The Company evaluates a variety of factors in determining the amount of the valuation allowance, including the Company’s earnings history, the number of years the Company’s operating loss and tax credits can be carried forward, the existence of taxable temporary differences, and near-term earnings expectations. Future reversal of the valuation allowance will be recognized either when the benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future earnings. Any tax benefits related to stock options that may be recognized in the future through reduction of the associated valuation allowance will be recorded as additional paid-in capital. The Company has available federal and state net operating loss carry forwards of approximately $32,329,000 and $3,273,000, respectively, of which $14,528,000 and $2,811,000, respectively, will expire over the next ten years, $17,353,000 and $461,000, respectively, will expire in years eleven through twenty, and $448,000 and $0, respectively, which will not expire.

The Company continues to monitor the realization of its deferred tax assets based on changes in circumstances, for example, recurring periods of income for tax purposes following historical periods of cumulative losses or changes in tax laws or regulations. The Company’s income tax provision and management’s assessment of the realizability of the Company’s deferred tax assets involve significant judgments and estimates. If taxable income expectations change, in the near term the Company may be required to reduce the valuation allowance which would result in a material benefit to the Company’s results of operations in the period in which the benefit is determined by the Company.

With few exceptions, the Company is no longer subject to audits by tax authorities for tax years prior to the year ended June 30, 2016. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss amount. At June 30, 2019, the Company did not have any significant unrecognized tax positions. The Company has provided what it believes to be an appropriate amount of tax for items that involve interpretation to the tax law. However, events may occur in the future that will cause the Company to reevaluate the current provision and may result in an adjustment to the liability for taxes.

8. Commitments and Contingencies

Commitments

The Company leases its manufacturing, research and corporate office facilities and certain equipment under non-cancelable operating lease arrangements. The future annual amounts to be paid under these arrangements as of June 30, 2019 are as follows:



Year Ending June 30,	Lease Obligations
2020	356,414
2021	272,881
2022	256,311
2023	188,755
2024	189,790
Thereafter	96,830
Total	$	1,360,981

The Company's current corporate office lease of 3,954 square feet located in 435 Devon Park Drive, Wayne, Pennsylvania will expire in December 31, 2019. In July 23, 2019 the Company entered into a lease agreement to lease 2,186 square feet located at 800 Devon Park Drive, Wayne, Pennsylvania under a five-year lease agreement after the current lease term ends. This lease agreement is effective January 1, 2020 with annual lease payments ranging between $62,301 and $68,769.

Legal Proceedings

The Company, from time to time is involved in various legal proceedings and disputes that arise in the normal course of business. These matters have included intellectual property disputes, contract disputes, employment disputes and other matters. The Company does not believe that the resolution of any of these matters has had or is likely to have a material adverse impact on the Company’s business, financial condition or results of operations.

9. Retirement and Post-Retirement Plans

The Company adopted a 401(k) retirement plan effective January 1, 1994. The Company’s employees become eligible for the plan commencing on the date of employment. Company contributions are discretionary, and no Company contributions have been made since the plan’s inception.

On January 14, 2000, the Company acquired Sonomed. Sonomed adopted a 401(k) retirement plan effective on January 1, 1993. This plan has continued subsequent to the acquisition and is available only to Sonomed employees. There were no discretionary contributions for the fiscal years ended June 30, 2019 and 2018.

On June 23, 2005 the Company entered into a Supplemental Executive Retirement Benefit Agreement with its Chairman, Mr. DePiano. The agreement provides for the payment of supplemental retirement benefits to the covered executive in the event of the covered executive’s termination of services. In January 2013 the covered executive retired and the Company is obligated to pay the executive $8,491 per month per life per life, with payments commencing the month after retirement.

As of June 30, 2019 and 2018 approximately $792,000 and $851,000 was accrued for Mr. DePiano's retirement benefits, respectively. These amounts represent the approximate present value of the supplemental retirement benefits awarded using a discount rate of 4.5% as of June 30, 2019 and 2018, respectively. The changes related to post-retirement plans for the years ended June 30, 2019 and 2018 were as follows:



	2019	2018
Balance July 1,	$851,371	$901,238
Actuarial adjustment	42,505	52,024
Payment of benefits	(101,891)	(101,891)
Balance June 30,	$791,985	$851,371

10. Discontinued Operations

BH Holdings, S.A.S ("BHH")

Drew Scientific, Inc. ("Drew"), an inactive subsidiary of the Company which was sold in 2012 has a controlling interest in BHH Holidngs, S.A.S ("BHH). On January 12, 2012 BHH, initiated the filing of an insolvency declaration with the Tribunal de Commerce de Rennes, France ("Commercial Court"). The Commercial Court on January 18, 2012 opened the liquidation proceedings with continuation of BHH's activity for three months and named an administrator to manage BHH. Since Drew no longer had a controlling financial interest in BHH it was deconsolidated in the December 31, 2011 quarterly consolidated financial statements and prior period amounts are presented as discontinued operations.

Assets and liabilities of discontinued operations of BHH included in the consolidated balance sheets are summarized as follows at June 30, 2019 and June 30, 2018 (in thousands):



	June 30,			June 30,
	2019			2018
Assets
Total assets	$	—		$	—
Liabilities
Accrued lease termination costs	91			93
Total liabilities	91			93
Net liabilities of discontinued operations	$	(91	)	$	(93	)

During fiscal year 2015 the Company was informed by French Counsel that the total amount claimed by the BHH landlord in the liquidation of BHH was approximately $86,000. The Company did not have insight into the French liquidation process due to the Liquidator's reticence to communicate with the Company. As such, the Company had accrued the present value of the maximum amount potentially due under the lease guaranteed by the Company on behalf of BHH. The landlord's claim under liquidation of approximately $86,000 cannot be revisited by the landlord and can only be potentially increased by interest or sundry expenses. Beginning in 2016 any changes to this liability are included in continuing operations. As of June 30, 2019 and June 30, 2018 the liability was approximately $91,000 and $93,000, respectively.

11. Related Party Transactions and Preferred Stock

Richard J. DePiano, Sr., (“Mr. DePiano”), the Company’s Chairman, participated in an accounts receivable factoring program that was implemented by the Company. Under the program, Mr. DePiano advanced the Company $545,000 as of June 30, 2017 and advanced an additional $100,000 during fiscal year 2018 prior to the Debt Exchange Agreement noted below. Interest on the transaction was 1.25% per month. The transactions excluded fees typically charged by the factoring agent and provided much needed liquidity to the Company. Related party interest expense for the years ended ended June 30, 2019 and 2018 was $0 and $59,162, respectively. As of both June 30, 2019 and June 30, 2018, accrued interest of $112,389 was recorded.

Each share of Preferred Stock entitles the Holder thereof to 13 votes per share and will vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the Company’s stockholders. As a result of this voting power, the Holders as of June 30, 2019 beneficially own approximately 77.81% of the voting power on all actions to be taken by the Company’s shareholders.

Subject to the terms and conditions of Preferred Stock, the holder of any share or shares of the Preferred Stock has the right, at its option at any time, to convert each such share of Preferred Stock (except that, upon any liquidation of the Company, the right of conversion will terminate at the close of business on the business day fixed for payment of the amounts distributable on the Preferred Stock) into 2.15 shares of Common Stock (the “Conversion Ratio”). The Conversion Ratio is subject to standard provisions for adjustment in the event of a subdivision or combination of the Company’s Common Stock and upon any reorganization or reclassification of the capital stock of the Company. If the Holders were to convert their shares of Preferred Stock into Common Stock at the Conversion Ratio the Holders would receive a total of 4,300,000 shares of Common Stock, or approximately 36.70% of the then outstanding shares of Common Stock assuming such conversion.

Each outstanding share of the Preferred Stock accrues dividends calculated cumulatively at the annual rate of $.0258 per share (such amount subject to equitable adjustment in the event of any stock dividend, stock split, combination, reclassification other similar event), payable upon the earlier of (i) a liquidation, dissolution or winding up of the Company or

(ii) conversion of the Preferred Stock into Common Stock. Upon either of such events, all such accrued and unpaid dividends, whether or not earned or declared, to and until the date of such event, will become immediately due and payable and will be paid in full. The dividends payable to the holders of the Preferred Stock is payable in cash or, at the election of any such holder, in a number of additional shares of Common Stock equal to the amount of the dividend expressed in dollars divided by the then applicable Conversion Ratio, described above. As of June 30, 2019 and June 30, 2018 the cumulative dividends payable is $70,968 ($0.0355 per share) and $19,368 ($0.0097 per share), respectively.

12. Line of Credit

On December 29, 2016, the Company entered into a credit agreement providing the Company up to an aggregate of $250,000 in cash, secured by the Company’s inventory. The Company, and its wholly owned subsidiary Sonomed, Inc., entered into an Inventory Advance Agreement as of December 29, 2016 (the "Agreement"), with CDS Business Services, Inc., doing business as Newtek Business Credit ("Newtek"). Newtek made in its discretion loans against the Company’s Eligible Inventory in an aggregate amount outstanding at any time up to the lesser of (i) fifty percent (50%) of the Inventory Value or (ii) the Inventory Advance Limit, as those terms were defined in the Agreement, which was $250,000. The credit agreement renewed annually and could be terminated upon 90 days written notice from the Company or 30 days written notice from Newtek.

Interest accrued on the daily balance at the per annum rate of 5.00% above the Prime Rate, but not less than 5.0%. All interest payable under the financing documents was computed on the basis of a 360 day year for the actual number of days elapsed on the daily balance. The Company was also obligated to pay to Newtek a closing fee equal to 1.00% of the Advance Limit.

Upon any renewal of the Agreement, an annual fee was due from Company equal to 1.00% of the Advance Limit. In consideration of monitoring, ledgering and other administrative functions undertaken by Newtek in connection with the Company’s inventory, and the merchant processor, Company was obligated pay Newtek a monthly collateral monitoring fee calculated by multiplying (i) seventy basis points (0.70%) (approximately an annual rate of 8.5%) (except during the existence of an Event of Default at which time it shall be 1%) by (ii) the amount of the average daily balances during the calendar month preceding the month for which the calculation is made.

On June 29, 2018 the Company entered a business loan agreement with TD bank receiving a line of credit evidenced by a promissory note of $250,000. The interest is subject to change based on changes in an independent index which the Wall Street Journal Prime. The index rate at the date of the agreement is 5.000% per annum. Interest on the unpaid principal balance of the note is calculated using a rate of 0.740 percentage points over the index, adjusted if necessary for any minimum and maximum rate limitations, resulting in an initial rate of 5.740% per annum based on a year of 360 days. The interest rate was 6.24% as of June 30, 2019. The Company was required to put $250,000 in the TD bank savings account as collateral. Mr. Richard J. DePiano chairman of the Company executed a guarantee of the loan in favor of TD Bank. Upon signing the agreement the Company also authorizes TD bank to payoff the line of credit with Netwtek. The total payment was $201,575 which includes $165,000 of outstanding line of credit, $2,579 accrued interest, administrative/legal fee of $1,000, prime plus fee through July 12, 2018 of $1,895 and underminimum fees of $28,797. The underminimum fees of $28,797 was included in accrued expense as of June 30, 2018.

13. Other Income

On October 2, 2017 Escalon and Modernizing Medicine Inc. (“MMI”) entered into a Source Code Software Licensing Agreement . The Agreement provided MMI a non-exclusive perpetual license to the source code of Escalon’s proprietary image management software (“AXIS source code”) for a one-time payment of $500,000. MMI continues to be an authorized reseller of the AXIS product.

14. Concentration of Credit Risk

Credit Risk

Financial Instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, restricted cash and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across

geographic areas principally within the United States and international. The Company routinely address the financial strength of its customer and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral.

Major Customer

No customer accounted for more than 10% of net sales during the years ended June 30, 2019 and 2018.

As of June 30, 2019 the Company had no customer that represents more than 10% of the total accounts receivable balance. As of June 30, 2018 the Company had one customer that represents approximately 11% of the total accounts receivable balance.

Major Supplier

The Company's two largest suppliers accounted for 30% and 11% of the total purchase for the year ended June 30, 2019. The Company's two largest suppliers accounted for of total purchases for more than 41% and 36% of total purchase in

in the year ended June 30, 2018.

Foreign Sales

Domestic and international sales from continuing operations are as follows:

Table amounts are in thousands:



	For the years ended June 30,
	2019				2018
Domestic	$	5,587	58.0	%	$	6,802	59.7	%
Foreign	4,040		42.0	%	4,600		40.3	%
Total	$	9,627	100.0	%	$	11,402	100.0	%

15. Revenue from Contracts with Customers

The Company adopted the new guidance on July 1, 2018, using the modified retrospective transition method and applying this approach to those contracts that were not completed as of that date. Under ASC 606, the Company recognizes revenue when its performance obligations with its customers have been satisfied.

The Company generates product revenue from the sale of medical device products and the sale and installation of the Company's AXIS image management system software. Revenue for service plans relate to the customer care plans for the Company’s equipment and AXIS image management system software.

Revenue Recognition

Revenue is recognized upon transfer of control of the promised goods or services to the customer for an amount that reflects the consideration that the Company expects to be entitled in exchange for those goods or services. The Company’s performance obligations are for product sales, installation of AXIS image management system software and customer care plans. The performance obligations are determined at contract inception based upon promises within the contract that are distinct.

The product sales and installation of AXIS image management system software performance obligations are satisfied at a point in time, which is upon shipment for product sales and upon successful installation for the AXIS image management system. The performance obligation for customer care plans is satisfied over time as the customer receives and consumes the Company’s services.

The Company invoices its customers upon shipment for product sales. For the installation of AXIS image management system software and customer care plans, the Company invoices its customers upon successful installation. Invoice payments are generally due within 30 days of invoice date. The transaction price is determined based on fixed consideration in the Company’s customer contracts and is recorded net of variable consideration. In determining the transaction price, a significant financing component does not exist since the timing from when the Company invoices its customers to when payment is received as it is less than one year.

Revenue for product sales and installation of AXIS image management system software is recognized when delivered or installed. The customer care plan revenues are recognized proportionately over the service period, which is a 12-month period.

The Company has elected the following practical expedients in applying ASC 606:

•

Unsatisfied Performance Obligations - all performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC 606 and therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.


•	Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.


•	Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.


•	Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.


•	Shipping and Handling Activities - the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation.


•	Modified Retrospective Method - the Company adopted ASC 606 on July 1, 2018 utilizing the modified retrospective method allowing the Company to not retrospectively adjust prior periods. The Company applied the modified retrospective method only to contracts that were not completed at July 1, 2018 and accounted for the aggregate effect of any contract modifications upon adoption.


•	Portfolio Approach - the Company applied the Portfolio Approach to contract reviews within its identified revenue streams that have similar characteristics and the Company believes this approach would not differ materially than if applying Topic 606 to each individual contract.

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to payments received for the customer care plans for a 12-month period. The consideration received is recognized monthly over the service period.



	Years ended June 30,
	2019		2018
Beginning of Year	$	481,000	$	388,000
Additions	888,000		969,000
Revenue Recognized	942,000		876,000
End of Year	$	427,000	$	481,000

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, the Company’s management

evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s principal executive officer and principal financial officer

concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:


•	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;


•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and


•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.

As of the end of the period covered by this Annual Report on Form 10-K, the Company’s management evaluated, with the participation of its principal executive officer and principal financial officer, the effectiveness of the Company’s internal control over financial reporting. This evaluation was conducted using the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013. Based upon that evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of June 30, 2019.

Pursuant to the rules of the SEC, the Company’s management’s report on internal control over financial reporting is furnished with this Annual Report on Form 10-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding the Company's internal control over financial reporting. The Company’s management’s report on internal control over financial reporting was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits the Company to provide only the Company’s management’s report on internal control over financial reporting in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our fourth fiscal quarter of 2019 that would have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 10 will be provided by incorporating the information required under such item by reference to the Company’s Proxy Statement to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K annual report, or, alternatively, by amendment to this Form 10-K annual report under cover of Form 10-K/A no later than the end of such 120-day period.



ITEM 11.	EXECUTIVE COMPENSATION

Item 11 will be provided by incorporating the information required under such item by reference to the Company’s Proxy Statement to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K annual report, or, alternatively, by amendment to this Form 10-K annual report under cover of Form 10-K/A no later than the end of such 120-day period.



ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Item 12 will be provided by incorporating the information required under such item by reference to the Company’s Proxy Statement to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K annual report, or, alternatively, by amendment to this Form 10-K annual report under cover of Form 10-K/A no later than the end of such 120-day period.



ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Item 13 will be provided by incorporating the information required under such item by reference to the Company’s Proxy Statement to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K annual report, or, alternatively, by amendment to this Form 10-K annual report under cover of Form 10-K/A no later than the end of such 120-day period.



ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

Item 14 will be provided by incorporating the information required under such item by reference to the Company’s Proxy Statement to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Form 10-K annual report, or, alternatively, by amendment to this Form 10-K annual report under cover of Form 10-K/A no later than the end of such 120-day period.

ITEM 15. EXHIBITS FINANCIAL STATEMENT SCHEDULES


1.	Documents Filed as Part of This Annual Report on Form 10-K:


a.	Financial Statements

The following consolidated financial statements of the Company and its subsidiaries are included in Part II, Item 8 of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of June 30, 2019 and 2018

Consolidated Statements of Operations for the years ended June 30, 2019 and 2018

Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended June 30, 2019 and 2018

Notes to Consolidated Financial Statements


2.	Financial Statement Schedules

All other schedules have been omitted because the required information is not applicable or the information is included in the Company’s Consolidated Financial Statements or the related Notes to Consolidated Financial Statements.


3.	EXHIBITS

The following is a list of exhibits filed as part of this Annual Report on Form 10-K, where so indicated by footnote, exhibits that were previously filed, are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically, followed by the footnote reference to the previous filing.



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)


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

10.7		Non-Exclusive Distributorship Agreement between Company and Scott Medical Products dated October 12, 2000. (9)

10.13		Supply Agreement between the Company and Bausch & Lomb Surgical, Inc. dated August 13, 1999. (5)

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)**

10.35		Settlement Agreement with Intralase Corp, dated February 27, 2008 (4).

10.36		Vascular Access Sales Agreement with Vascular Solutions, Inc. dated April 28, 2010 (17)
10.37		2013 Equity Incentive Plan dated December 27, 2013 incorporate by reference.
10.38		Debt Exchange Agreement as of February 14, 2018 (18)
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

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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)

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

Dated: September 27, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.




By:	/s/ Richard J. DePiano	Chairman	September 27, 2019
	Richard J. DePiano	Chairman	September 27, 2019

By:	/s/ Richard J. DePiano, Jr.	Chief Executive Officer (Principal Executive Officer)	September 27, 2019
	Richard J. DePiano, Jr.	Chief Executive Officer (Principal Executive Officer)	September 27, 2019

By:	/s/ Mark Wallace	Chief Operating Officer and Principal Financial & Accounting Officer	September 27, 2019
	Mark Wallace

By:	/s/ John P. Dogum	Director	September 27, 2019
	John P. Dogum	Director	September 27, 2019

By:	/s/ Lisa Napolitano	Director	September 27, 2019
	Lisa Napolitano	Director	September 27, 2019

By:	/s/ C. Todd Trusk	Director	September 27, 2019
	C. Todd Trusk	Director	September 27, 2019

By:	/s/ David J Jacovini	Director	September 27, 2019
	David J Jacovini