Escalon Medical Corporation

05/15/2026 | Press release | Distributed by Public on 05/15/2026 14:01

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements contained in, or incorporated by reference in, this Quarterly Report on Form 10-Q 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," and similar words or expressions. The Company's forward-looking statements include certain information relating to general business strategy, growth strategies, financial results, liquidity, the Company's ability to continue as a going concern, discontinued operations, research and development, product development, the introduction of new products, the potential markets and uses for the Company's products, the Company's ability to increase its sales campaign effectively, the Company's regulatory filings with the FDA, acquisitions, dispositions, the development of joint venture opportunities, intellectual property and patent protection and infringement, the loss of revenue due to the expiration or 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, information security, cybersecurity and data privacy risks, 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, including risks related to inflation and tariffs, the ability to continue as a going concern including the ability to raise capital, manage operations and pursue business partnerships and cost-cutting measures, and the other risks described in the Company's Form 10-K for the fiscal year ended June 30, 2025. 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 list of such factors contained in its periodic report on Form 10-K for the year ended June 30, 2025 and this Form 10-Q quarterly report to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.
Executive Overview-nine-month periods ended March 31, 2026 and 2025
The following highlights are discussed in further detail within this Form 10-Q. The reader is encouraged to read this Form 10-Q in its entirety to gain a more complete understanding of factors impacting Company performance and financial condition.
•Consolidated net revenue decreased approximately $601,000 or 6.3%, to $8,875,000 during the nine months ended March 31, 2026 as compared to the same period of last fiscal year. The decrease in net revenue is mainly attributed to a decrease of $310,000 in sales of Sonomed products, a decrease of $305,000 in sales of Trek products and a decrease of $51,000 of Digital service revenue, partially offset by an increase of $92,000 in ultrasound service revenue during the nine months ended March 31, 2026. The decrease in Sonomed sales was mainly driven by backorders caused by a significant vendor's fulfillment constraints related to shifting demand. Trek product sales declined compared to the prior year, which had higher-than-average order volume and fulfillment.
•Consolidated cost of revenue totaled approximately $5,252,000, or 59.2%, of total revenue during the nine months ended March 31, 2026, as compared to $5,089,000, or 53.7%, of total revenue of the same period of last fiscal year. The increase of 5.5% in cost of revenue as a percentage of total revenue is mainly due to change in product mix and a $98,000 retention and severance accrual associated with the sales of AXIS software, which significantly increased Digital cost of revenue.
•Consolidated marketing, general and administrative expenses increased $349,000, or 10.2%, to $3,770,000 during the nine months ended March 31, 2026, as compared to the same period of last fiscal year. The increase is mainly due to a $223,000 increase in payroll and fringe benefits expenses, a $81,000 increase in bonus, a $41,000 increase in advertising expenses, and a $35,000 increase in legal expenses, a $27,000 increase in travel expenses, partially offset by a $61,000 accounts receivable credit loss adjustment, a $41,000 decrease in commission expenses and a $27,000 decrease in network expenses during the nine months ended March 31, 2026.
•Consolidated research and development expenses decreased $85,000 or 18.4%, to $377,000 during the nine months ended as compared to the same period of the prior fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The decrease in research and development expense is mainly due to a $144,000 decrease of nonrecurring AXIS consulting expenses during the nine months ended March 31, 2026, offset by an increase of $33,000 ultrasound consulting expenses and an increase of $28,000 outside services .
Company Overview
The following discussion should be read in conjunction with the interim unaudited condensed consolidated financial statements and the notes thereto, which are set forth in Item 1 of this report.
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 FDA. The FDA 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. The Company's Internet address is www.escalonmed.com. Under the trade name of Sonomed-Escalon the Company develops, manufactures and markets ultrasound systems used for diagnosis or biometric applications in ophthalmology, develops, manufactures and distributes ophthalmic surgical products under the Trek Medical Products name, and manufactures and markets digital camera systems for ophthalmic fundus photography and image management systems.
Critical Accounting Estimates
The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact amounts reported therein. On a regular basis, we evaluate these estimates. These estimates are based on management's historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.
Our significant accounting policies are more fully described in Note 3-Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this report.
Results of Operations
Three and Nine Months Ended March 31, 2026 and 2025
The following table shows consolidated net revenue, as well as identifying trends in revenues for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
For the Three Months Ended March 31, For the Nine Months Ended March 31,
2026 2025 % Change 2026 2025 % Change
Net Revenue:
Products $ 2,472 $ 3,315 (25.4) % $ 8,424 $ 9,069 (7.1) %
Service plans 137 159 (13.8) % 451 407 10.8 %
Total $ 2,609 $ 3,474 (24.9) % $ 8,875 $ 9,476 (6.3) %
Consolidated net revenue decreased approximately $865,000 or 24.9%, to $2,609,000 during the three months ended March 31, 2026 as compared to the same period of last fiscal year. The decrease in net revenue is mainly attributed to a decrease of $701,000 in sales of Sonomed products, a decrease of $98,000 in sales of Trek products and a decrease of $52,000 of Digital revenue during the three months ended March 31, 2026. The decrease in Sonomed sales was mainly driven by backorders caused by a significant vendor's fulfillment constraints related to shifting demand. Trek product sales declined compared to the prior year, which had higher-than-average order volume and fulfillment.
Consolidated net revenue decreased approximately $601,000 or 6.3%, to $8,875,000 during the nine months ended March 31, 2026 as compared to the same period of last fiscal year. The decrease in net revenue is mainly attributed to a decrease of $310,000 in sales of Sonomed products, a decrease of $305,000 in sales of Trek products and a decrease of $51,000 of Digital service revenue offset by an increase of $92,000 in ultrasound service revenue during the nine months ended March 31, 2026. The decrease in Sonomed sales was mainly driven by backorders caused by a significant vendor's fulfillment constraints related to shifting demand. Trek product sales declined compared to the prior year, which had higher-than-average order volume and fulfillment.
The following table presents domestic and international sales from continuing operations for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
For the Three Months Ended March 31, For the Nine Months Ended March 31,
2026 2025 2026 2025
Domestic $ 1,587 60.8 % $ 1,789 51.5 % $ 4,946 55.7 % $ 5,218 55.1 %
Foreign 1,022 39.2 % 1,685 48.5 % 3,929 44.3 % 4,258 44.9 %
Total $ 2,609 100.0 % $ 3,474 100.0 % $ 8,875 100.0 % $ 9,476 100.0 %
The following table presents consolidated cost of revenue and as a percentage of revenues for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
For the Three Months Ended March 31, For the Nine Months Ended March 31,
2026 % 2025 % 2026 % 2025 %
Cost of Revenue:
$ 1,662 63.7 % $ 1,874 53.9 % $ 5,252 59.2 % $ 5,089 53.7 %
Total $ 1,662 63.7 % $ 1,874 53.9 % $ 5,252 59.2 % $ 5,089 53.7 %
Consolidated cost of revenue totaled approximately $1,662,000, or 63.7%, of total revenue during the three months ended March 31, 2026, as compared to $1,874,000, or 53.9%, of total revenue same period of last fiscal year. The increase of 9.8% in cost of revenue as a percentage of total revenue is mainly due to change in product mix and a $98,000 retention and severance accrual associated with the sales of AXIS software.
Consolidated cost of revenue totaled approximately $5,252,000, or 59.2%, of total revenue during the nine months ended March 31, 2026, as compared to $5,089,000, or 53.7%, of total revenue same period of last fiscal year. The increase of 5.5% in cost of revenue as a percentage of total revenue is mainly due to change in product mix and a $98,000 retention and severance accrual associated with the sales of AXIS software.
The following table presents consolidated marketing, general and administrative expenses for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
For the Three Months Ended March 31, For the Nine Months Ended March 31,
2026 2025 % Change 2026 2025 % Change
Marketing, General and Administrative:
$ 1,336 $ 1,159 15.3 % $ 3,770 $ 3,421 10.2 %
Total $ 1,336 $ 1,159 15.3 % $ 3,770 $ 3,421 10.2 %
Consolidated marketing, general and administrative expenses increased $177,000, or 15.3%, to $1,336,000 during the three months ended March 31, 2026 as compared to the same period of last fiscal year. The increase is mainly due to a $80,000 increase in bonus, a $84,000 increase in payroll and fringe benefits expenses, a $12,000 increase in consulting and a $10,000 increase in exhibits expenses, respectively, offset by a $18,000 decrease in commission expenses during the three months ended March 31, 2026.
Consolidated marketing, general and administrative expenses increased $349,000, or 10.2%, to $3,770,000 during the nine months ended March 31, 2026 as compared to the same period of last fiscal year. The increase is mainly due to a $223,000 increase in payroll and fringe benefits expenses, a $81,000 increase in bonus, a $41,000 increase in advertising expenses, and a $35,000 increase in legal expenses, a $27,000 increase in travel expenses, partially offset by a $61,000 accounts receivable credit loss adjustment, a $41,000 decrease in commission expenses and a $27,000 decrease in network expenses during the nine months ended March 31, 2026.
The following table presents consolidated research and development expenses for the three and nine months ended March 31, 2026 and 2025.
Table amounts are in thousands:
For the Three Months Ended March 31, For the Nine Months Ended March 31,
2026 2025 % Change 2026 2025 % Change
Research and Development:
$ 30 $ 165 (81.8) % $ 377 $ 462 (18.4) %
Total $ 30 $ 165 (81.8) % $ 377 $ 462 (18.4) %
Consolidated research and development expenses decreased 135,000, or 81.8%, to $30,000 during the three months ended March 31, 2026 as compared to same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The decrease in research and development expense is mainly due to the decreased nonrecurring AXIS consulting expenses of $130,000 during the three months ended March 31, 2026. The AXIS consulting expenses discontinued and $40,000 consulting expense accrual was reversed during the third quarter of this current fiscal year.
Consolidated research and development expenses decreased $85,000, or 18.4%, to $377,000 during the nine months ended March 31, 2026 as compared to same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The decrease in research and development expense is mainly due to a $144,000 decrease of nonrecurring AXIS consulting expenses during the nine months ended March 31, 2026, offset by an increase of $33,000 ultrasound consulting expenses and an increase of $28,000 outside services.
Recently Announced Tariffs and Trade Measures
Beginning in the third quarter of fiscal year 2025, the U.S. government announced new tariffs on a broad range of imports, including a 10% tariff on most imports and additional individualized higher tariffs on certain specific goods and countries. In response, certain affected countries have imposed or may impose retaliatory tariffs on U.S. exports and may implement additional trade restrictions and/or other retaliatory measures in the future.
These recent and potential future tariffs and trade measures could adversely affect the Company's business in several ways. Increased costs of imported raw materials, components, and finished goods may negatively impact profitability and gross
margins. The Company may face challenges in passing these increased costs on to its customers due to competitive pressures or market conditions. Additionally, the uncertainty surrounding the duration and extent of these tariffs, as well as potential trade policy changes, could disrupt the Company's supply chain, require alternative and potentially more expensive sourcing options, and impact long-term strategic planning and investment decisions. The imposition of retaliatory tariffs by other countries could also reduce the demand for the Company's exported products, negatively impacting revenue and international sales.
Management is actively monitoring these developments, assessing the potential impacts on the Company's business, and evaluating possible mitigation strategies, including exploring alternative sourcing, adjusting pricing strategies where feasible, and analyzing potential shifts in global supply chains. However, the ultimate financial impact of these tariffs and the associated uncertainty cannot be reasonably estimated at this time. This situation could have a material adverse effect on the Company's future financial condition, results of operations, and cash flows. The Company will continue to evaluate these developments and provide updates in future filings as the situation evolves and more information becomes available.
Liquidity and Capital Resources
Our total cash as of March 31, 2026 was approximately $3,343,000 of cash on hand compared to approximately $546,000 of cash on hand and restricted cash of $257,000 as of June 30, 2025.
On October 17, 2025, the Company fully repaid its outstanding TD Bank loan of $113,960 using its restricted cash. Following the repayment, the remaining balance of $142,622 in the restricted cash account was released.
Because the Company's operations have not historically generated sufficient revenues to achieve profitability the Company will continue to closely monitor costs and expenses and may need to raise additional capital to fund operations.
The Company expected 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, the Company 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 March 31, 2026 the Company had an accumulated deficit of approximately $66.2 million. It had net loss from operations for the nine months ended March 31, 2026 and has historically incurred recurring losses from operations and negative cash flows from operating activities. The Company generated net income from operations in fiscal year 2025 and fiscal 2023, and reported positive cash flows from operating activities in fiscal years 2025, 2023 and 2021. While the overall trend has been toward profitability, the Company had net profit for just two years of the last five years. Additionally, there is uncertainty in the market related to the tariffs and the related impacts to the international business and supply chain cost impacts. It remains uncertain whether the Company will keep the profitability trend and sales growth. These factors raise substantial doubt regarding our ability to continue as a going concern, and the Company's ability to generate cash to meet our cash requirements for the following twelve months as of the filing date of this form 10-Q.
During the quarter ended March 31, 2026, the Company was a party to a certain asset purchase agreement by and between the Company and Optos Public Limited Company, a company incorporated in Scotland ("Optos"). Pursuant to the asset purchase agreement, the Company agreed to sell to Optos certain software-related assets associated with the Company's AXIS platform (the "Disposition") in exchange for the aggregate purchase price of $3,000,000. The purchase price was payable in three milestone installments, each in the amount and subject to the conditions as set forth in the asset purchase agreement, in addition to $25,000 which was paid upon the execution by the Company and Optos of a term sheet with respect to the Disposition. The Company received the full purchase price, less the deposit, and recognized a net gain of $2,813,525 before tax on the sale during the quarter ended March 31, 2026. The sale significantly increased the Company's cash on hand and overall liquidity.
The following table presents overall liquidity and capital resources as of March 31, 2026 and June 30, 2025. Table amounts are in thousands:
March 31 June 30,
2026 2025
Current Ratio:
Current assets $6,567 $4,612
Less: Current liabilities $2,533 2,685
Working capital $4,034 $1,927
Current ratio 2.59 to 1 1.72 to 1
Debt to Total Capital Ratio:
Note payable, lease liabilities, EIDL loan and related party loan $1,011 $523
Total equity 4,146 1,915
Total capital $5,156 $2,439
Total debt to total capital 19.6% 21.5%
Working Capital Position
Working capital increased approximately $2,107,000 to $4,034,000 as of March 31, 2026, and the current ratio increased to 2.59 to 1 from 1.72 to 1 when compared to June 30, 2025.
The increase in working capital is mainly driven by the net proceeds from sales of AXIS software of $2,825,000, offset by a net operating loss of $523,000.
Debt to total capital ratio was 19.6% and 21.5% as of March 31 2026 and June 30, 2025, respectively.
Cash Flow (Used in) Provided by Operating Activities
During the nine months ended March 31, 2026 the Company used approximately $151,000 of cash in operating activities as compared to approximately $365,000 of cash provided by operating activities during the nine months ended March 31, 2025.
For the nine months ended March 31, 2026, its cash used in operations is mainly due to net operating loss of $523,000, a decrease in accounts payable of $490,000, offset by a decrease in inventories of 485,000, a decrease in accounts receivable of $223,000, an increase in deferred revenue of $162,000, and an increase in accrued expenses of $150,000. The remaining offsetting items for cash used in operations is comprised of less significant items.
For the nine months ended March 31, 2025, its cash provided by operations is due to a net income of $485,000, an increase in accrued expenses of 175,000, and an increase in deferred revenue of $96,000, offset by a decrease in accounts payable of $294,000, and an increase in inventory of 131,000. The remaining offsetting items for cash provided by operations is comprised of less significant items.
Cash Flows Provided by Investing Activities
Cash flows provided by investing activities for the nine months ended March 31, 2026 was due to net proceeds from sales of AXIS software of $2,825,000, offset by purchase of the fixed assets of $4,000. There were no cash flows used in investing activities for the quarter ended March 31, 2025.
Any necessary capital expenditures have generally been funded out of cash from operations, 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. Accordingly, the Company does not believe that it will have to commit material resources to capital investment for the foreseeable future.
Cash Flows Used in Financing Activities
For the nine months ended March 31, 2026 the cash used in financing activities was due to repayment of TD bank loan balance of $126,000, and repayment of EIDL loan of $3,000.
For the nine months ended March 31, 2025 the cash used in financing activities was due to loan payments of $30,000 and repayment of EIDL loan of $3,000.
Off-balance Sheet Arrangements and Contractual Obligations
The Company was not a party to any off-balance sheet arrangements as of March 31, 2026 and June 30, 2025.
Escalon Medical Corporation published this content on May 15, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 15, 2026 at 20:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]