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, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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:
 Common Stock, par value $0.001
    
    NASDAQ Capital Market(Title of class)
    
    (Name of each exchangeon which registered)
 Securities Registered Pursuant to Section 12(g) of the Act: NONE
 
 o þ
 o þ
 þ o
 o o
 þ o
  Large accelerated filer o
    
    Accelerated filero
    
    Non-accelerated filer   o(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 o þ
   Documents Incorporated by Reference:




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Escalon Medical Corp.
Annual Report on Form 10-K
For the Fiscal Year Ended June 30, 2009
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    7Item 1B. Unresolved Staff Comments
    
    
    15Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    16Item 6. Selected Financial Data
    
    
    17Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    39Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    72Item 9A. Controls and ProceduresItem 9A(T). Controls and Procedures
    
    
    72Item 9B. Other Information
    
    
    73PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    73Item 11. Executive Compensation
    
    
    74Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    74Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    74Item 14. Principal Accounting Fees and Services
    
    
    74PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    74
 ii




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PART 1
 
 ITEM 1. BUSINESS
 Company Overview
  www.escalonmed.com
 Drew Business
  Diabetes Testing
 in vitro
 Hematology
  Sonomed Business
  1




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A-Scans
  B-Scans
  UBM
  Pachymeters
  Vascular Business
  PD Access and SmartNeedle Monitors, Needles and Catheter Products
  VascuView Visual Ultrasound System
  2




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EMI Business
  Medical/Trek Business
  Ispan Intraocular Gases
  Viscous Fluid Transfer Systems
  Fiber Optic Light Sources
  Research and Development
  Manufacturing and Distribution
  3




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Governmental Regulations
     4




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Marketing and Sales
     Service and Support
  Patents, Trademarks and Licenses
    5




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##### 




    
    The Escalon trademark is due for renewal on January 19, 2013, and the Company intends
to renew the trademark. The Sonomed trademark was renewed in November 2006.
    
    In the Vascular business unit, the Company has two patents that are of material
importance. The first patent is an apparatus for the cannulation of blood vessels. This
patent will expire on February 23, 2011. The second patent is also an apparatus for the
cannulation of blood vessels. This patent expired on January 11, 2009. The Vascular
segment has also one patent application pending for the cannulation of blood vessels with
a hypodermic needle.
 Competition
    ®
  6




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Human Resources
  
 ITEM 1A. RISK FACTORS
 Cautionary Factors That May Affect Future Results
   7




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Due to our history of operating losses, our auditors are uncertain that we will be able to
continue as a going concern.
   Because our auditors have expressed a going concern opinion, our ability to obtain additional
financing could be adversely affected.
  Any acquisitions, strategic alliances, joint ventures and divestitures that the Company
effects could result in financial results that differ from market expectations.
  8




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The Companys results fluctuate from quarter to quarter.
  
    
    Acquisitions, such as Drew, JAS and Biocode Hycel and subsequent integration of the
acquired company, although such acquisitions may not occur;
    
    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;
    
    Fluctuations in royalty income;
    
    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s ost saving initiatives may not be effective.
 .
 Failure of the market to accept the Companys products could adversely impact the
Companys business and financial condition.
  9




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
    
    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.
  The Companys products are subject to stringent ongoing regulation by the FDA and similar
health care regulatory authorities, and if the FDAs 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.
       10




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The success of competitive products could have an adverse impact on the Companys business.
  
    
    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s products employ proprietary technology, and this technology may infringe on the
intellectual property rights of third parties.
   Lack of availability of key system components could result in delays, increased costs or
costly redesign of the Companys products.
  11




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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
payors.
  Future legislation or changes in government programs may adversely impact the market for 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 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.
  12




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The Company is dependent on its management and key personnel to succeed.
  The market price of the Companys stock has historically been volatile, and the Company has
not paid cash dividends.
  
    
    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.
   The impact of terrorism or acts of war could have a material adverse impact on the Companys
business.
  The Companys charter documents and Pennsylvania law may inhibit a takeover.
  13




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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.
 Goodwill and Other Intangible Assets Accounting for
the Impairment or Disposal of Long-Lived Assets
  
    
    product returns;
    
    allowances for doubtful accounts;
    
    inventories and related reserves;
    
    intangible assets and goodwill;
    
    income and other tax accruals;
    
    deferred tax asset valuation allowances;
    
    discounts and allowances;
    
    warranty obligations; and
    
    contingencies and litigation.
  The Company will be exposed to risks relating to evaluations of internal control over
financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.
  14




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Substantially all of our cash and cash equivalents and marketable securities are held at a single
financial institution.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS:
  
 ITEM 2. PROPERTIES
  15




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Nominees for Director
    
    For
    
    Against
    
    WithheldRichard J. DePiano
    
    
    6,499,167
    
    
    
    0
    
    
    
    75,568Jay L. Federman, MD
    
    
    6,506,233
    
    
    
    0
    
    
    
    69,502
  
 PART II.
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  High
    
    LowFiscal year ended June 30, 2009Quarter ended September 30, 2008
    
    $
    3.12
    
    
    $
    2.00Quarter ended December 31, 2008
    
    $
    2.00
    
    
    $
    0.88Quarter ended March 31, 2009
    
    $
    2.30
    
    
    $
    1.40Quarter ended June 30, 2009
    
    $
    2.35
    
    
    $
    1.60Fiscal year ended June 30, 2008Quarter ended September 30, 2007
    
    $
    8.60
    
    
    $
    3.95Quarter ended December 31, 2007
    
    $
    5.72
    
    
    $
    2.99Quarter ended March 31, 2008
    
    $
    4.39
    
    
    $
    2.78Quarter ended June 30, 2008
    
    $
    3.40
    
    
    $
    2.86
 16




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##### 



ITEM 6. SELECTED FINANCIAL DATA
  For the Years Ended June 30,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(Amounts in thousands, except per share amounts)Statement of Operations Data:Net revenues:Product revenue
    
    $
    34,468
    
    
    $
    29,988
    
    
    $
    27,893
    
    
    $
    27,544
    
    
    $
    23,864Other revenue
    
    
    133
    
    
    
    222
    
    
    
    10,945
    
    
    
    2,247
    
    
    
    3,060Revenues, net
    
    
    34,601
    
    
    
    30,210
    
    
    
    38,838
    
    
    
    29,791
    
    
    
    26,924Costs and expenses:Cost of goods sold
    
    
    19,548
    
    
    
    17,310
    
    
    
    15,771
    
    
    
    16,004
    
    
    
    13,158Marketing, general and
administrative
    
    
    14,847
    
    
    
    14,392
    
    
    
    13,806
    
    
    
    13,995
    
    
    
    12,556Research and development
    
    
    3,474
    
    
    
    4,058
    
    
    
    3,461
    
    
    
    2,828
    
    
    
    1,893Goodwill impairment
    
    
    9,526
    
    
    
    9,575
    
    
    
    0
    
    
    
    0
    
    
    
    0Total costs and expenses
    
    
    47,395
    
    
    
    45,335
    
    
    
    33,038
    
    
    
    32,827
    
    
    
    27,607(Loss) income from operations
    
    
    (12,794
    )
    
    
    (15,125
    )
    
    
    5,800
    
    
    
    (3,036
    )
    
    
    (683
    )Other (expense) and income:Gain on sale of assets
    
    
    92
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Gain on sale of available for
sale securities
    
    
    0
    
    
    
    0
    
    
    
    75
    
    
    
    1,157
    
    
    
    3,412Equity in Ocular Telehealth
Management, LLC
    
    
    (65
    )
    
    
    (88
    )
    
    
    (88
    )
    
    
    (174
    )
    
    
    (64
    )Interest income
    
    
    19
    
    
    
    300
    
    
    
    208
    
    
    
    162
    
    
    
    69Interest expense
    
    
    (216
    )
    
    
    (12
    )
    
    
    (29
    )
    
    
    (64
    )
    
    
    (55
    )Total other (expense) and income
    
    
    (172
    )
    
    
    200
    
    
    
    166
    
    
    
    1,081
    
    
    
    3,362Net (loss) income before taxes
    
    
    (12,966
    )
    
    
    (14,925
    )
    
    
    5,966
    
    
    
    (1,955
    )
    
    
    2,679Provision for income taxes
    
    
    0
    
    
    
    135
    
    
    
    51
    
    
    
    31
    
    
    
    232Net (loss) income
    
    $
    (12,966
    )
    
    $
    (15,060
    )
    
    $
    5,915
    
    
    $
    (1,986
    )
    
    $
    2,447Basic net (loss) income per share
    
    $
    (1.82
    )
    
    $
    (2.36
    )
    
    $
    0.93
    
    
    $
    (0.32
    )
    
    $
    0.42Diluted net (loss) income per share
    
    $
    (1.82
    )
    
    $
    (2.36
    )
    
    $
    0.92
    
    
    $
    (0.32
    )
    
    $
    0.39Weighted average shares  basic
used in per share calculation
    
    
    7,138
    
    
    
    6,389
    
    
    
    6,375
    
    
    
    6,152
    
    
    
    5,832Weighted average shares  diluted
used in per share calculation
    
    
    7,138
    
    
    
    6,389
    
    
    
    6,434
    
    
    
    6,152
    
    
    
    6,231
 17




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(Amounts in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    1,810
    
    
    $
    3,708
    
    
    $
    8,879
    
    
    $
    3,380
    
    
    $
    5,116Working capital
    
    
    10,713
    
    
    
    10,547
    
    
    
    17,238
    
    
    
    10,616
    
    
    
    13,613Total assets
    
    
    25,055
    
    
    
    31,896
    
    
    
    45,017
    
    
    
    38,645
    
    
    
    40,049Short term debt
    
    
    1,375
    
    
    
    502
    
    
    
    150
    
    
    
    233
    
    
    
    230Long-term debt, net of current portion
    
    
    4,741
    
    
    
    251
    
    
    
    0
    
    
    
    163
    
    
    
    392Total liabilities
    
    
    12,617
    
    
    
    7,364
    
    
    
    5,612
    
    
    
    5,545
    
    
    
    5,530Accumulated deficit
    
    
    (56,233
    )
    
    
    (43,267
    )
    
    
    (28,208
    )
    
    
    (34,122
    )
    
    
    (32,136
    )Shareholders equity
    
    
    12,439
    
    
    
    24,532
    
    
    
    39,406
    
    
    
    33,100
    
    
    
    34,519
  
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        Executive Overview  Fiscal Years Ended June 30, 2009 and 2008
  
    
    Product revenue increased approximately 14.9% during fiscal year ended June 30, 2009 as
compared to the prior fiscal year. The increase is primarily related to strong sales in
the Companys Drew and EMI business units which increased approximately 35.7% and 17.9%,
respectively, offset by sales decreases in the Sonomed, Vascular and Trek business units
of 2.1%, 6.1% and 10.5%, respectively.
 18




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##### 




    
    Other revenue decreased approximately $89,000 or 40.1% during the fiscal year ended
June 30, 2009 as compared to the prior fiscal year. The decrease is due decreased
royalties earned from the Bio-Rad royalty agreement.
    
    Cost of goods sold as a percentage of product revenue decreased to approximately 56.7%
of revenues during the fiscal year ended June 30, 2009, as compared to approximately 57.7%
of product revenue for the prior fiscal year. Gross margins in the Drew business segment
have historically been lower than those in the Companys other business units. Cost of
goods sold in the Drew business segment was approximately 62.0% of product revenue during
the fiscal year ended June 30, 2009 as compared to approximately 67.0% in the prior fiscal
year. The aggregate cost of goods sold as a percentage of product revenue of the
Sonomed, Vascular, EMI and Medical/Trek business units during fiscal year ended June 30,
2009 decreased to approximately 50.9% of product revenue from approximately 52.0% in the
prior fiscal year.
    
    Operating expenses decreased approximately .7% during the fiscal year ended June 30,
2009 as compared to the prior fiscal year. This was due to increased marketing, general
and administrative expenses of 3.2% offset by a 14.4% decrease in research and development
expenses related to the decision to drastically reduce Drews research and development
department in June 2008 in favor to a move to an outsourced research and development
model.
    
    The Company concluded that all $9,526,000 of the goodwill recorded at Sonomed was
impaired as of June 30, 2009 and $9,575,000 of the goodwill recorded at Drew was impaired
as of June 30, 2008. As a result, the Company recorded a non-cash goodwill impairment
charge to operations totaling $9,526,000 and $9,575,000 for the year ended June 30, 2009
and 2008, respectively (see footnote 4 of notes to consolidated financial statements for
additional information).
 Results of Operations
 Fiscal Years Ended June 30, 2009 and 2008
  Fiscal Years Ended June 30,2009
    
    
    2008
    
    
    % ChangeProduct Revenue:Drew
    
    $
    18,085
    
    
    $
    13,332
    
    
    
    35.7
    %Sonomed
    
    
    9,175
    
    
    
    9,367
    
    
    
    -2.1
    %Vascular
    
    
    3,868
    
    
    
    4,119
    
    
    
    -6.1
    %EMI
    
    
    2,078
    
    
    
    1,762
    
    
    
    17.9
    %Medical/Trek
    
    
    1,262
    
    
    
    1,410
    
    
    
    -10.5
    %Total
    
    $
    34,468
    
    
    $
    29,990
    
    
    
    14.9
    %
   19




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Fiscal Years Ended June 30,2009
    
    
    2008
    
    
    % ChangeOther Revenue:Drew
    
    $
    133
    
    
    $
    222
    
    
    
    -40.1
    %Sonomed
    
    
    0
    
    
    
    0
    
    
    
    0.0
    %Vascular
    
    
    0
    
    
    
    0
    
    
    
    0.0
    %EMI
    
    
    0
    
    
    
    0
    
    
    
    0.0
    %Medical/Trek
    
    
    0
    
    
    
    0
    
    
    
    0.0
    %Total
    
    $
    133
    
    
    $
    222
    
    
    
    -40.1
    %
   20




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Fiscal Years Ended June 30,2009
    
    
    %
    
    
    2008
    
    
    %Cost of Goods Sold:Drew
    
    $
    11,207
    
    
    
    62.0
    %
    
    $
    8,928
    
    
    
    67.0
    %Sonomed
    
    
    4,974
    
    
    
    54.2
    %
    
    
    5,029
    
    
    
    53.7
    %Vascular
    
    
    1,450
    
    
    
    37.5
    %
    
    
    1,538
    
    
    
    37.3
    %EMI
    
    
    1,069
    
    
    
    51.4
    %
    
    
    820
    
    
    
    46.5
    %Medical/Trek
    
    
    848
    
    
    
    67.2
    %
    
    
    995
    
    
    
    70.6
    %Total
    
    $
    19,548
    
    
    
    56.7
    %
    
    $
    17,310
    
    
    
    57.7
    %
        21




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Fiscal Years Ended June 30,2009
    
    
    2008
    
    
    % ChangeMarketing, General and Administrative:Drew
    
    $
    7,090
    
    
    $
    5,287
    
    
    
    34.1
    %Sonomed
    
    
    2,485
    
    
    
    2,219
    
    
    
    12.0
    %Vascular
    
    
    1,458
    
    
    
    1,576
    
    
    
    7.5
    %EMI
    
    
    601
    
    
    
    605
    
    
    
    -0.7
    %Medical/Trek
    
    
    3,213
    
    
    
    4,705
    
    
    
    31.7
    %Total
    
    $
    14,846
    
    
    $
    14,392
    
    
    
    3.2
    %
        22




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##### 



Fiscal Years Ended June 30,2009
    
    
    2008
    
    
    % ChangeResearch and Development:Drew
    
    $
    1,800
    
    
    $
    2,745
    
    
    
    -34.4
    %Sonomed
    
    
    1,085
    
    
    
    779
    
    
    
    39.3
    %Vascular
    
    
    219
    
    
    
    260
    
    
    
    -15.8
    %EMI
    
    
    362
    
    
    
    268
    
    
    
    35.1
    %Medical/Trek
    
    
    9
    
    
    
    6
    
    
    
    50.0
    %Total
    
    $
    3,475
    
    
    $
    4,058
    
    
    
    -14.4
    %
          23




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##### 



Goodwill Impairment-Sonomed
      Goodwill Impairment-Drew
  24




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##### 



Results of Operations
 Fiscal Years Ended June 30, 2008 and 2007
  25




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##### 



Fiscal Years Ended June 30,2008
    
    
    2007
    
    
    % ChangeProduct Revenue:Drew
    
    $
    13,332
    
    
    $
    11,627
    
    
    
    14.7
    %Sonomed
    
    
    9,367
    
    
    
    9,823
    
    
    
    -4.6
    %Vascular
    
    
    4,119
    
    
    
    3,467
    
    
    
    18.8
    %EMI
    
    
    1,762
    
    
    
    1,484
    
    
    
    18.7
    %Medical/Trek
    
    
    1,410
    
    
    
    1,492
    
    
    
    -5.5
    %Total
    
    $
    29,990
    
    
    $
    27,893
    
    
    
    7.5
    %
        26




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##### 



Fiscal Years Ended June 30,2008
    
    
    2007
    
    
    % ChangeOther Revenue:Drew
    
    $
    222
    
    
    $
    243
    
    
    
    -8.6
    %Sonomed
    
    
    0
    
    
    
    0
    
    
    
    0.0
    %Vascular
    
    
    0
    
    
    
    0
    
    
    
    0.0
    %EMI
    
    
    0
    
    
    
    0
    
    
    
    0.0
    %Medical/Trek
    
    
    0
    
    
    
    10,702
    
    
    
    -100.0
    %Total
    
    $
    222
    
    
    $
    10,945
    
    
    
    -98.0
    %
   Fiscal Years Ended June 30,2008
    
    
    %
    
    
    2007
    
    
    %Cost of Goods Sold:Drew
    
    $
    8,928
    
    
    
    67.0
    %
    
    $
    7,681
    
    
    
    66.1
    %Sonomed
    
    
    5,029
    
    
    
    53.7
    %
    
    
    4,976
    
    
    
    50.7
    %Vascular
    
    
    1,538
    
    
    
    37.3
    %
    
    
    1,393
    
    
    
    40.2
    %EMI
    
    
    820
    
    
    
    46.5
    %
    
    
    711
    
    
    
    47.9
    %Medical/Trek
    
    
    995
    
    
    
    70.6
    %
    
    
    1,011
    
    
    
    67.8
    %Total
    
    $
    17,310
    
    
    
    57.7
    %
    
    $
    15,772
    
    
    
    56.5
    %
    27




---



##### 



Fiscal Years Ended June 30,2008
    
    
    2007
    
    
    % ChangeMarketing, General and Administrative:Drew
    
    $
    5,287
    
    
    $
    5,475
    
    
    
    -3.4
    %Sonomed
    
    
    2,219
    
    
    
    1,931
    
    
    
    14.9
    %Vascular
    
    
    1,576
    
    
    
    1,598
    
    
    
    -1.4
    %EMI
    
    
    605
    
    
    
    480
    
    
    
    26.0
    %Medical/Trek
    
    
    4,705
    
    
    
    4,323
    
    
    
    8.8
    %Total
    
    $
    14,392
    
    
    $
    13,807
    
    
    
    4.2
    %
     28




---



##### 



Fiscal Years Ended June 30,2008
    
    
    2007
    
    
    % ChangeResearch and Development:Drew
    
    $
    2,745
    
    
    $
    2,355
    
    
    
    16.6
    %Sonomed
    
    
    779
    
    
    
    495
    
    
    
    57.4
    %Vascular
    
    
    260
    
    
    
    172
    
    
    
    51.2
    %EMI
    
    
    268
    
    
    
    350
    
    
    
    -23.4
    %Medical/Trek
    
    
    6
    
    
    
    89
    
    
    
    -93.3
    %Total
    
    $
    4,058
    
    
    $
    3,461
    
    
    
    17.3
    %
       29




---



##### 



Liquidity and Capital Resources
  June 30,2009
    
    
    2008Current Ratio:Current assets
    
    $
    17,561
    
    
    $
    16,573Less: Current liabilities
    
    
    6,848
    
    
    
    6,026Working capital
    
    $
    10,713
    
    
    $
    10,547Current ratio
    
    2.6 to 1
        
    2.8 to 1Debt to Total Capital Ratio:Notes payable and current maturities
    
    $
    1,375
    
    
    $
    502Long-term debt
    
    
    4,741
    
    
    
    251Total debt
    
    
    6,116
    
    
    
    753Total equity
    
    
    12,439
    
    
    
    24,532Total capital
    
    $
    18,555
    
    
    $
    25,285Total debt to total capital
    
    
    33.0
    %
    
    
    3.0
    %
 Working Capital Position
  30




---



##### 



Cash Used In or Provided By Operating Activities
   Cash Flows Used In Investing and Financing Activities
        Debt History
  31




---



##### 




    
    the first interest-only payment is due in December of 2009 at an annual interest rate
of 7%;
    
    thereafter, every nine months, an interest payment is due at an annual interest rate of
7%;
    
    18 months after the closing date a principal payment of Euro 800,000 is due;
    
    30 months after the closing date a principal payment of Euro 1,000,000 is due;
    
    36 months after the closing date a principal payment of Euro 1,000,000 is due; and
    
    48 months after the closing date a principal payment of Euro 1,375,000 is due.
   Off-Balance Sheet Arrangements and Contractual Obligations
  Less than
    
    
    
    
    
    
    3-5
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    Years
    
    
    5 YearsLong-term debt
    
    $
    6,115,918
    
    
    $
    1,374,711
    
    
    $
    2,809,600
    
    
    $
    1,931,607
    
    
    $
    0Operating lease agreements
    
    
    4,916,069
    
    
    
    946,602
    
    
    
    1,945,993
    
    
    
    1,524,773
    
    
    
    498,701Total
    
    $
    11,031,987
    
    
    $
    2,321,313
    
    
    $
    4,755,593
    
    
    $
    3,456,380
    
    
    $
    498,701
 Forward-Looking Statement About Significant Items Likely To Impact Liquidity
   32




---



##### 



Common Stock
  
    
    Shareholders equity of $2,500,000 or market value of listed securities of $35,000,000
or net income from continuing operations (in the latest fiscal year or two of the last
three fiscal years) of $500,000;
    
    500,000 publicly held shares;
    
    $1,000,000 market value of publicly held shares;
    
    A minimum bid price of $1;
    
    300 round lot shareholders;
    
    Two market makers; and
    
    Compliance with corporate governance standards.
  Critical Accounting Policies
  33




---



##### 



Revenue Recognition
   
    
    Persuasive evidence that an arrangement (purchase order and sales invoice) exists
between a willing buyer (distributor) and the Company that outlines the terms of the sale
(company information, quantity of goods, purchase price and payment terms). The buyer
(distributor) does not have a right of return.
    
    Shipping terms are ex-factory shipping point. At this point the buyer (distributor)
takes title to the goods and is responsible for all risks and rewards of ownership,
including insuring the goods as necessary.
    
    The Companys price to the buyer (distributor) is fixed and determinable as
specifically outlined on the sales invoice. The sales arrangement does not have customer
cancellation or termination clauses.
    
    The buyer (distributor) places a purchase order with the Company; the terms of the sale
are cash, COD or credit. Customer credit is determined based on the Companys policies
and procedures related to the buyers (distributors) creditworthiness. Based on this
determination, the Company believes that collectibility is reasonably assured.
  Valuation of Intangible Assets
  Income/(Loss) Per Share
   34




---



##### 



Taxes
     Accounting for Uncertainty in Income Taxes
 Stock-Based Compensation
  35




---



##### 



.
 Recently Issued Accounting Standards
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
 Fair Value of Financial Instruments
 36




---



##### 



Determination of the Useful Life of Intangible
Assets
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly Fair Value Measurements,
 Interim Disclosures about Fair Value of Financial
Instruments Disclosures about Fair Value of Financial Instruments Interim Financial Reporting
 Subsequent Events
 Amendments to FASB Interpretation No. 46(R)
 The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No.
162
 37




---



##### 



ITEM 7A. QUANTITATIVE AND QUALIITATIVE DISCLOSURE ABOUT MARKET RISK
  Interest Rate Risk
  InterestRate
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    TotalNotes Payable  Former JAS Shareholders
    
    Prime
    
    $
    250,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    250,871Notes Payable  Biocode Hycel
    
    
    7
    %
    
    $
    1,123,840
    
    
    $
    1,404,800
    
    
    $
    1,404,800
    
    
    $
    1,931,607
    
    
    $
    5,865,047
 Currency Fluctuations
    June 30,
    
    June 30,2009
    
    2008Total Foreign Sales
    
    $
    15,536,654
    
    
    $
    12,661,554Total Net Revenues
    
    $
    34,467,930
    
    
    $
    29,988,386International Percentage
    
    
    45.1
    %
    
    
    42.2
    %
 38




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Escalon Medical Corp.
Index to Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    40Consolidated Balance Sheets at June 30, 2009 and 2008
    
    
    41Consolidated Statements of Operations for the Years Ended June 30, 2009, 2008 and 2007
    
    
    42Consolidated Statements of Shareholders Equity and Comprehensive Loss
for the Years Ended June 30, 2009, 2008 and 2007
    
    
    43Consolidated Statements of Cash Flows for the Years Ended June 30, 2009, 2008 and 2007
    
    
    44Notes to Consolidated Financial Statements
    
    
    46
 39




---



##### 



40




---



##### 



ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    June 30,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,810,045
    
    
    $
    3,708,456Accounts receivable, net
    
    
    4,853,856
    
    
    
    3,896,297Inventory, net
    
    
    9,830,922
    
    
    
    8,670,160Other current assets
    
    
    1,065,823
    
    
    
    297,807Total current assets
    
    
    17,560,646
    
    
    
    16,572,720Furniture and equipment, net
    
    
    892,966
    
    
    
    1,078,839Goodwill
    
    
    2,065,236
    
    
    
    11,590,786Trademarks and trade names
    
    
    694,006
    
    
    
    694,006Patents, net
    
    
    1,824,172
    
    
    
    157,883Covenant not to compete and customer list, net
    
    
    1,880,639
    
    
    
    1,691,610Other assets
    
    
    137,737
    
    
    
    110,176Total assets
    
    $
    25,055,402
    
    
    $
    31,896,020LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    1,374,711
    
    
    $
    501,752Accounts payable
    
    
    2,553,481
    
    
    
    2,628,004Accrued expenses
    
    
    2,919,540
    
    
    
    2,895,920Total current liabilities
    
    
    6,847,732
    
    
    
    6,025,676Long-term debt, net of current portion
    
    
    4,741,207
    
    
    
    250,871Accrued post-retirement benefits
    
    
    1,027,821
    
    
    
    1,087,000Total long-term liabilities
    
    
    5,769,028
    
    
    
    1,337,871Total liabilities
    
    
    12,616,760
    
    
    
    7,363,547Shareholders equity:Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issuedCommon stock, $0.001 par value; 35,000,000 shares authorized; 7,413,930 and
6,413,930 issued and outstanding at June 30, 2009 and
June 30, 2008, respectively
    
    
    7,526
    
    
    
    6,526Common stock warrants
    
    
    1,733,460
    
    
    
    1,601,346Additional paid-in capital
    
    
    67,458,745
    
    
    
    66,299,130Accumulated deficit
    
    
    (56,232,503
    )
    
    
    (43,267,466
    )Accumulated other comprehensive (loss)
    
    
    (528,586
    )
    
    
    (107,063
    )Total shareholders equity
    
    
    12,438,642
    
    
    
    24,532,473Total liabilities and shareholders equity
    
    $
    25,055,402
    
    
    $
    31,896,020
  41




---



##### 



ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended June 30,
    
    2009
    
    
    2008
    
    
    2007Net revenues:Product revenue
    
    $
    34,467,930
    
    
    $
    29,988,386
    
    
    $
    27,892,738Other revenue
    
    
    132,807
    
    
    
    222,075
    
    
    
    10,945,042Revenues, net
    
    
    34,600,737
    
    
    
    30,210,461
    
    
    
    38,837,780Costs and expenses:Cost of goods sold
    
    
    19,548,209
    
    
    
    17,309,671
    
    
    
    15,771,254Marketing, general and administrative
    
    
    14,846,502
    
    
    
    14,392,004
    
    
    
    13,806,399Research and development
    
    
    3,474,284
    
    
    
    4,058,289
    
    
    
    3,461,322Goodwill impairment
    
    
    9,525,550
    
    
    
    9,574,655
    
    
    
    0Total costs and expenses
    
    
    47,394,545
    
    
    
    45,334,619
    
    
    
    33,038,975Income (loss) from operations
    
    
    (12,793,808
    )
    
    
    (15,124,158
    )
    
    
    5,798,805Other (expense) and income:Gain on sale of assets
    
    
    91,871
    
    
    
    0
    
    
    
    75,000Equity in Ocular Telehealth Management, LLC
    
    
    (65,387
    )
    
    
    (88,206
    )
    
    
    (87,852
    )Interest income
    
    
    18,562
    
    
    
    299,538
    
    
    
    208,457Interest expense
    
    
    (216,274
    )
    
    
    (11,827
    )
    
    
    (28,753
    )Total other income
    
    
    (171,228
    )
    
    
    199,505
    
    
    
    166,852Net income (loss) before taxes
    
    
    (12,965,036
    )
    
    
    (14,924,653
    )
    
    
    5,965,657Provision for income taxes
    
    
    0
    
    
    
    134,990
    
    
    
    51,054Net income (loss)
    
    $
    (12,965,036
    )
    
    $
    (15,059,643
    )
    
    $
    5,914,603Basic net income (loss) per share
    
    $
    (1.82
    )
    
    $
    (2.36
    )
    
    $
    0.93Diluted net income (loss) per share
    
    $
    (1.82
    )
    
    $
    (2.36
    )
    
    $
    0.92Weighted average shares  basic
    
    
    7,137,541
    
    
    
    6,389,008
    
    
    
    6,374,929Weighted average shares  diluted
    
    
    7,137,541
    
    
    
    6,389,008
    
    
    
    6,434,275
  42




---



##### 



ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED JUNE 30, 2009, 2008 and 2007
 AccumulatedCommon
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Warrants
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBALANCE AT JUNE 30, 2006
    
    
    6,457,157
    
    
    $
    6,457
    
    
    $
    1,601,346
    
    
    $
    65,699,258
    
    
    $
    (34,122,427
    )
    
    $
    (84,527
    )
    
    $
    33,100,107Comprehensive Income (Loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,914,603
    
    
    
    
    
    
    
    5,914,603Change in unrealized gains on
available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,220
    )
    
    
    (50,220
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,394
    
    
    
    95,394Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,914,603
    
    
    
    45,174
    
    
    
    5,959,777Exercise of stock options
    
    
    42,200
    
    
    
    42
    
    
    
    
    
    
    
    84,692
    
    
    
    
    
    
    
    
    
    
    
    84,734Compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,576
    
    
    
    
    
    
    
    
    
    
    
    162,576Income tax benefit from exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,412
    
    
    
    
    
    
    
    
    
    
    
    98,412BALANCE AT JUNE 30, 2007
    
    
    6,499,357
    
    
    $
    6,499
    
    
    $
    1,601,346
    
    
    $
    66,044,938
    
    
    $
    (28,207,824
    )
    
    $
    (39,353
    )
    
    $
    39,405,606Comprehensive Income (Loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,059,643
    )
    
    
    
    
    
    
    (15,059,643
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,710
    )
    
    
    (67,710
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,059,643
    )
    
    
    (67,710
    )
    
    
    (15,127,353
    )Exercise of stock options
    
    
    27,073
    
    
    
    27
    
    
    
    
    
    
    
    7,435
    
    
    
    
    
    
    
    
    
    
    
    7,462Compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246,757
    
    
    
    
    
    
    
    
    
    
    
    246,757BALANCE AT JUNE 30, 2008
    
    
    6,526,430
    
    
    
    6,526
    
    
    
    1,601,346
    
    
    
    66,299,130
    
    
    
    (43,267,466
    )
    
    
    (107,063
    )
    
    $
    24,532,472Issuance of common stock
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    
    
    
    
    895,886
    
    
    
    
    
    
    
    
    
    
    
    896,886Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    132,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,114Comprehensive Income (Loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,965,036
    )
    
    
    
    
    
    
    (12,965,036
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (421,523
    )
    
    
    (421,523
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,965,036
    )
    
    
    (421,523
    )
    
    
    (13,386,559
    )Compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    263,729
    
    
    
    
    
    
    
    
    
    
    
    263,729BALANCE AT JUNE 30, 2009
    
    
    7,526,430
    
    
    $
    7,526
    
    
    $
    1,733,460
    
    
    $
    67,458,745
    
    
    $
    (56,232,503
    )
    
    $
    (528,586
    )
    
    $
    12,438,642
  43




---



##### 



ESCALON MEDICAL CORP. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended June 30,
    
    2009
    
    2008
    
    2007Cash Flows from Operating Activities:Net income (loss)
    
    $
    (12,965,036
    )
    
    $
    (15,059,643
    )
    
    $
    5,914,603Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    784,347
    
    
    
    582,511
    
    
    
    590,846Goodwill Impairment
    
    
    9,525,550
    
    
    
    9,574,655
    
    
    
    0Compensation expense related to stock options
    
    
    263,729
    
    
    
    246,757
    
    
    
    162,576Gain on sale of available for sale securities
    
    
    0
    
    
    
    0
    
    
    
    (75,000
    )Change in accrued post-retirement benefits
    
    
    (59,179
    )
    
    
    0
    
    
    
    0(Gain)/Loss on sale of assets
    
    
    (91,871
    )
    
    
    28,421
    
    
    
    0Loss on Ocular Telehealth Management, LLC
    
    
    65,387
    
    
    
    88,206
    
    
    
    87,852Change in operating assets and liabilities:Accounts receivable, net
    
    
    142,620
    
    
    
    939,655
    
    
    
    (656,830
    )Inventory, net
    
    
    1,282,669
    
    
    
    (694,250
    )
    
    
    (638,454
    )Other current and long-term assets
    
    
    (727,306
    )
    
    
    207,680
    
    
    
    84,917Accounts payable and accrued expenses
    
    
    90,755
    
    
    
    1,149,517
    
    
    
    312,135Net cash provided by (used in) operating activities
    
    
    (1,688,335
    )
    
    
    (2,936,491
    )
    
    
    5,782,645Cash Flows from Investing Activities:Proceeds from the sale of available for sale securities
    
    
    0
    
    
    
    0
    
    
    
    75,000Collection on note receivable
    
    
    100,000
    
    
    
    0
    
    
    
    0Investment in Ocular Telehealth Management, LLC
    
    
    (42,000
    )
    
    
    (69,000
    )
    
    
    (31,000
    )Purchase of fixed assets
    
    
    (223,186
    )
    
    
    (613,158
    )
    
    
    (259,705
    )Purchase of certain assets of Biocode Hycel France, S.A.
    
    
    (323,975
    )
    
    
    0
    
    
    
    0Purchase of JAS Diagnostics, net of cash acquired
    
    
    0
    
    
    
    (1,324,706
    )
    
    
    0Net cash (used in) investing activities
    
    
    (489,161
    )
    
    
    (2,006,864
    )
    
    
    (215,705
    )Cash Flows from Financing Activities:Principal payments on term loans
    
    
    (501,745
    )
    
    
    (150,200
    )
    
    
    (245,188
    )Issuance of common stock  private placement
    
    
    1,029,000
    
    
    
    0
    
    
    
    0Issuance of common stock  stock options
    
    
    0
    
    
    
    7,462
    
    
    
    183,146Net cash (used in) provided by financing activities
    
    
    527,255
    
    
    
    (142,738
    )
    
    
    (62,042
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (248,170
    )
    
    
    (84,913
    )
    
    
    (5,146
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,898,411
    )
    
    
    (5,171,006
    )
    
    
    5,499,752Cash and cash equivalents, beginning of period
    
    
    3,708,456
    
    
    
    8,879,462
    
    
    
    3,379,710Cash and cash equivalents, end of period
    
    $
    1,810,045
    
    
    $
    3,708,456
    
    
    $
    8,879,462
  44




---



##### 



ESCALON MEDICAL CORP. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended June 30,
    
    2009
    
    
    2008
    
    
    2007Supplemental Schedule of Cash Flow Information:Interest paid
    
    $
    25,325
    
    
    $
    11,827
    
    
    $
    25,217Income taxes refund (paid)
    
    $
    0
    
    
    $
    (114,174
    )
    
    $
    98,412Issuance of long-term debt for JAS acquisition
    
    $
    0
    
    
    $
    752,623
    
    
    $
    0(Decrease)/increase in unrealized appreciation on available for sale securities
    
    $
    0
    
    
    $
    0
    
    
    $
    (50,220
    )Sale of EquipmentNote receivable for equipment
    
    $
    100,000Net book value of equipment sold
    
    
    (8,129
    )Gain of sale of equipment
    
    
    (91,871
    )Cash received for equipment
    
    $
    Acquistion of Biocode Hycel France, S.A.Working capital other than cash
    
    $
    3,944,102Fixed assets
    
    
    50,442Intangibles and other assets
    
    
    2,194,471Long term debt
    
    
    (5,865,040
    )Cash paid to acquire certain assets Biocode Hycel France, S.A
    
    $
    323,975
  45




---



##### 



Escalon Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements
 1. Going Concern
    2. Organization and Description of Business and Business Conditions
  www.escalonmed.com
 46




---



##### 



3.
    
    Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Cash and Cash Equivalents
  Fair Value of Financial Instruments
 Fair Value
Measurement
 Revenue Recognition
   
    
    Persuasive evidence that an arrangement (purchase order and sales invoice) exists
between a willing buyer (distributor) and the Company that outlines the terms of the sale
(company information, quantity of goods, purchase price and payment terms). The buyer
(distributor) does not have a right of return.
    
    Shipping terms are ex-factory shipping point. At this point the buyer (distributor)
takes title to the goods and is responsible for all risks and rewards of ownership,
including insuring the goods as necessary.
    
    The Companys price to the buyer (distributor) is fixed and determinable as
specifically outlined on the sales invoice. The sales arrangement does not have customer
cancellation or termination clauses.
    
    The buyer (distributor) places a purchase order with the Company; the terms of the sale
are cash, COD or credit. Customer credit is determined based on the Companys policy and
procedures
 47




---



##### 



related to the buyers (distributors) creditworthiness. Based on this determination, the
Company believes that collectibility is reasonably assured.
   Shipping and Handling Revenues and Costs
  Inventories
  June 30,2009
    
    
    2008Raw materials
    
    $
    7,222,070
    
    
    $
    6,024,784Work in process
    
    
    822,446
    
    
    
    759,619Finished goods
    
    
    2,512,202
    
    
    
    2,353,58110,556,718
    
    
    
    9,137,984Valuation allowance
    
    
    (725,796
    )
    
    
    (467,824
    )Total inventory
    
    $
    9,830,922
    
    
    $
    8,670,160
  June 30,2009
    
    
    2008Balance, July 1
    
    $
    467,824
    
    
    $
    301,555Provision for valuation allowance
    
    
    267,832
    
    
    
    172,670Write-offs
    
    
    (9,860
    )
    
    
    (6,401
    )Balance, June 30
    
    $
    725,796
    
    
    $
    467,824
 Accounts Receivable
  48




---



##### 



June 30,2009
    
    
    2008Balance, July 1
    
    $
    473,187
    
    
    $
    566,878Provision for bad debts
    
    
    178,255
    
    
    
    153,168Write-offs
    
    
    (10,133
    )
    
    
    (246,859
    )Balance, June 30
    
    $
    641,309
    
    
    $
    473,187
 Property and Equipment
   June 30,2009
    
    
    2008Equipment
    
    $
    2,946,677
    
    
    $
    2,751,972Furniture and Fixtures
    
    
    62,846
    
    
    
    62,846Leasehold Improvements
    
    
    33,922
    
    
    
    121,7023,043,445
    
    
    
    2,936,520Less: Accumulated depreciation and amortization
    
    
    (2,150,479
    )
    
    
    (1,857,681
    )$
    892,966
    
    
    $
    1,078,839
 Long-lived Assets
  Intangible Assets
  Accrued Warranties
  49




---



##### 



Business Combinations
  Stock-Based Compensation
    Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with elling, Goods or Services
 Research and Development
  50




---



##### 



Advertising Costs
  Net Income (loss) Per Share
   2009
    
    
    2008
    
    
    2007Basic weighted average shares outstanding
    
    
    7,137,541
    
    
    
    6,389,008
    
    
    
    6,374,929Effect of dilutive securities  Stock options and warrants
    
    
    0
    
    
    
    0
    
    
    
    59,346Diluted weighted average shares outstanding
    
    
    7,137,541
    
    
    
    6,389,008
    
    
    
    6,434,275
  Income Taxes
  Accounting for Uncertainty in Income
Taxes
 51




---



##### 



Comprehensive Income
  Foreign Currency Translation
  Subsequent Events
  New Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
 52




---



##### 



Fair Value Measurements
 Determination of the Useful Life of Intangible
Assets
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly Fair Value Measurements,
 Interim Disclosures about Fair Value of Financial
Instruments Disclosures about Fair Value of Financial Instruments Interim Financial Reporting
 Subsequent Events
 Amendments to FASB Interpretation No. 46(R)
 53




---



##### 



The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No.
162
 4. Intangible Assets
 Goodwill, Trademarks and Trade Names
    Disclosures About Segments
of an Enterprise and Related Information
  Goodwill Impairment-Sonomed
  54




---



##### 



Goodwill Impairment-Drew
     55




---



##### 



2009
    
    
    2008Net
    
    
    NetCarrying
    
    
    CarryingAmount
    
    
    AmountGoodwillSonomed
    
    $
    0
    
    
    $
    9,525,550JAS
    
    
    93,181
    
    
    
    93,181Vascular
    
    
    941,218
    
    
    
    941,218Medical/Trek/EMI
    
    
    1,030,837
    
    
    
    1,030,837Total
    
    $
    2,065,236
    
    
    $
    11,590,786
 2009
    
    
    2008Net
    
    
    NetCarrying
    
    
    CarryingAmount
    
    
    AmountTrademarks and
tradenamesSonomed
    
    $
    601,806
    
    
    $
    601,806JAS
    
    $
    89,000
    
    
    $
    89,000Medical/Trek/EMI
    
    
    3,200
    
    
    
    3,200Total
    
    $
    694,006
    
    
    $
    694,006
 56




---



##### 



Patents
   Covenant Not to Compete and Customer List
    Gross
    
    
    
    
    
    Adjusted 
GrossCarrying
    
    
    
    
    
    Carrying
    
    Accumulated
    
    Net CarryingAmount
    
    Impairment
    
    Amount
    
    Amortization
    
    ValueAmortized Intangible Assets
PatentsMedical/Trek/EMI
    
    $
    254,851
    
    
    $
    
    
    
    $
    254,851
    
    
    $
    (133,333
    )
    
    $
    121,518Biocode
    
    $
    1,772,928
    
    
    
    
    
    
    $
    1,772,928
    
    
    $
    (70,274
    )
    
    $
    1,702,654Total
    
    $
    2,027,779
    
    
    $
    0
    
    
    $
    2,027,779
    
    
    $
    (203,607
    )
    
    $
    1,824,172Covenant Not To Compete/
Customer ListJAS
    
    $
    1,461,397
    
    
    $
    
    
    
    $
    1,461,397
    
    
    $
    (97,426
    )
    
    $
    1,363,971Biocode
    
    
    425,668
    
    
    
    
    
    
    
    425,668
    
    
    
    (42,566
    )
    
    
    383,102EMI
    
    
    442,969
    
    
    
    
    
    
    
    442,969
    
    
    
    (309,403
    )
    
    
    133,566Total
    
    $
    2,330,034
    
    
    $
    0
    
    
    $
    2,330,034
    
    
    $
    (449,395
    )
    
    $
    1,880,639
 57




---



##### 



AdjustedGross
    
    
    
    
    
    GrossCarrying
    
    
    
    
    
    Carrying
    
    Accumulated
    
    Net CarryingAmount
    
    Impairment
    
    Amount
    
    Amortization
    
    ValueAmortized Intangible Assets
PatentsMedical/Trek/EMI
    
    $
    215,050
    
    
    $
    
    
    
    $
    215,050
    
    
    $
    (57,167
    )
    
    $
    157,883Total
    
    $
    215,050
    
    
    $
    
    
    
    $
    215,050
    
    
    $
    (57,167
    )
    
    $
    157,883Covenant Not To Compete/
Customer ListJAS
    
    $
    1,461,397
    
    
    $
    
    
    
    $
    1,461,397
    
    
    $
    0
    
    
    $
    1,461,397EMI
    
    $
    442,969
    
    
    $
    
    
    
    $
    442,969
    
    
    $
    (212,756
    )
    
    $
    230,213Total
    
    $
    1,904,366
    
    
    $
    
    
    
    $
    1,904,366
    
    
    $
    (212,756
    )
    
    $
    1,691,610
 5. Accrued Expenses
  June 30, 2009
    
    
    June 30, 2008Accrued compensation
    
    $
    953,390
    
    
    $
    1,531,886Warranty accruals
    
    
    164,820
    
    
    
    255,740Legal accruals
    
    
    0
    
    
    
    464,338Other accruals, principally inventory purchases
    
    
    1,801,330
    
    
    
    643,956Total accrued expenses
    
    $
    2,919,540
    
    
    $
    2,895,920
  6. Long-Term Debt
  
    
    the first interest-only payment is due in December of 2009 at an annual interest rate
of 7%;
    
    thereafter, every nine months, an interest payment is due at an annual interest rate of
7%;
    
    18 months after the closing date a principal payment of Euro 800,000 is due;
    
    30 months after the closing date a principal payment of Euro 1,000,000 is due;
    
    36 months after the closing date a principal payment of Euro 1,000,000 is due; and
    
    48 months after the closing date a principal payment of Euro 1,375,000 is due.
 58




---



##### 



Year EndingJune 30,
    
    Total2010
    
    $
    1,374,7112011
    
    
    1,404,8002012
    
    
    1,404,8002013
    
    
    1,931,600Total
    
    
    6,115,911Current portion of long-term debt
    
    
    1,374,711Long-term portion
    
    $
    4,741,200
 7. Capital Stock Transactions
 Stock Option Plans
 .
 59




---



##### 



2009
    
    2008
    
    2007Common
    
    Weighted
    
    Common
    
    Weighted
    
    Common
    
    WeightedStock
    
    Average
    
    Stock
    
    Average
    
    Stock
    
    AverageOptions
    
    Exercise Price
    
    Options
    
    Exercise Price
    
    Options
    
    Exercise PriceOutstanding at the beginning of the year
    
    
    884,577
    
    
    $
    5.13
    
    
    
    752,535
    
    
    $
    5.53
    
    
    
    808,185
    
    
    $
    5.73Granted
    
    
    154,500
    
    
    $
    2.21
    
    
    
    135,500
    
    
    $
    3.05
    
    
    
    117,000
    
    
    $
    2.65Exercised
    
    
    
    
    
    $
    
    
    
    
    (2,458
    )
    
    $
    3.02
    
    
    
    (42,000
    )
    
    $
    2.00Forfeited
    
    
    
    
    
    $
    
    
    
    
    (1,000
    )
    
    $
    3.05
    
    
    
    (130,650
    )
    
    $
    5.52Outstanding at the end of the year
    
    
    1,039,077
    
    
    $
    4.70
    
    
    
    884,577
    
    
    $
    5.27
    
    
    
    752,535
    
    
    $
    5.53Exercisable at the end of the year
    
    
    886,944
    
    
    
    
    
    
    
    779,519
    
    
    
    
    
    
    
    697,727Weighted average fair value of options
granted during the year
    
    
    
    
    
    $
    2.21
    
    
    
    
    
    
    $
    3.05
    
    
    
    
    
    
    $
    2.65
  WeightedNumber
    
    AverageOutstanding
    
    Remaining
    
    Weighted
    
    Number
    
    Weightedat
    
    Contractual
    
    Average
    
    Exercisable
    
    AverageJune, 30
    
    Life
    
    Exercise
    
    at June 30,
    
    Exercise2009
    
    (Years)
    
    Price
    
    2009
    
    PriceRange of Exercise Prices$1.45 to $2.12
    
    
    119,756
    
    
    
    1.25
    
    
    $
    1.88
    
    
    
    119,756
    
    
    $
    1.88$2.37 to $2.77
    
    
    419,942
    
    
    
    8.27
    
    
    $
    2.62
    
    
    
    267,809
    
    
    $
    2.65$4.97 to $5.59
    
    
    73,000
    
    
    
    6.28
    
    
    $
    5.05
    
    
    
    73,000
    
    
    $
    5.05$6.19 to $6.19
    
    
    168,250
    
    
    
    5.08
    
    
    $
    6.19
    
    
    
    168,250
    
    
    $
    6.19$6.94 to $8.06
    
    
    258,129
    
    
    
    5.47
    
    
    $
    7.41
    
    
    
    258,129
    
    
    $
    7.41Total
    
    
    1,039,077
    
    
    
    
    
    
    
    
    
    
    
    886,944
  60




---



##### 



Sale of Common Stock and Warrants
     8. Income Taxes
  2009
    
    2008
    
    2007Current income tax provisionFederal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    $
    134,990
    
    
    
    51,054
    
    
    
    134,990
    
    
    
    51,054Deferred income tax provisionFederal
    
    
    (2,328,919
    )
    
    
    130,565
    
    
    
    1,704,463State
    
    
    (546,290
    )
    
    
    30,626
    
    
    
    399,812Change in valuation allowance
    
    
    2,875,209
    
    
    
    (161,191
    )
    
    
    (2,104,275
    )
    
    
    
    
    
    
    
    Income tax expense
    
    $
    
    
    
    $
    134,990
    
    
    $
    51,054
 61




---



##### 



2009
    
    2008
    
    2007Statutory federal income tax rate
    
    
    -34.0
    %
    
    
    34.0
    %
    
    
    -34.0
    %Change in valuation allowance
    
    
    34.0
    %
    
    
    -34.0
    %
    
    
    34.0
    %State income taxes, net of federal tax impact
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Effective income tax rate
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
  62




---



##### 



2008
    
    2008Deferred income tax assets:Net operating loss carryforward
    
    $
    10,872,291
    
    
    $
    10,964,351Accrued bonus
    
    
    
    
    
    
    188,411Executive post retirement costs
    
    
    349,459
    
    
    
    369,580General business credit
    
    
    450,199
    
    
    
    450,199Allowance for doubtful accounts
    
    
    218,045
    
    
    
    160,884Accrued vacation
    
    
    167,154
    
    
    
    174,003Inventory reserve
    
    
    236,219
    
    
    
    159,060Accelerated depreciation
    
    
    808
    
    
    
    3,782Warranty reserve
    
    
    56,039
    
    
    
    26,432Accelerated amortization on goodwill and other
intangible assets
    
    
    971,335
    
    
    
    Total deferred income tax assets
    
    
    13,321,549
    
    
    
    12,496,702Valuation allowance
    
    
    (13,321,549
    )
    
    
    (10,446,340
    )
    
    
    
    2,050,362Deferred income tax liabilities:Accelerated amortization on goodwill and other intangible assets
    
    
    
    
    
    
    (2,050,362
    )Total deferred income tax liabilities
    
    
    
    
    
    
    (2,050,362
    )$
    
    
    
    $
    
   63




---



##### 



9. Commitments and Contingencies
 Commitments
  LeaseYear Ending June 30,
    
    Obligations2010
    
    $
    946,6022011
    
    
    967,8142012
    
    
    978,1792013
    
    
    989,5222014
    
    
    535,251Thereafter
    
    
    498,701Total
    
    $
    4,916,069
  Contingencies
 Royalty Agreement: Clinical Diagnostics Solutions
  64




---



##### 



Other Legal Proceedings
  10. Retirement and Post-Retirement Plans
     
    
    If the covered executive retires at age 65 or older, the Company would be obligated to
pay the executive $8,000 per month for life, with payments commencing the month after
retirement. If the covered executive were to die within a period of three years after such
retirement, the Company would be obligated to continue making such payments until a
minimum of 36 monthly payments have been made to the covered executive and his
beneficiaries in the aggregate.
    
    If the covered executive dies before his retirement while employed by the Company, the
Company would be obligated to make 36 monthly payments to his beneficiaries of $8,000 per
month commencing in the month after his death.
    
    If the covered executive were to become disabled while employed by the Company, the
Company would be obligated to pay the executive $8,000 per month for life, with payments
commencing the month after he suffers such disability. If the covered executive were to
die within three years after
suffering such disability, the Company would be obligated to continue making such payments
until a minimum of 36 monthly payments have been made to the covered executive and his
beneficiaries in the aggregate.
    
    If the covered executives employment with the Company is terminated by the Company, or
if the executive terminates his employment with the Company for good reason, as defined in
the agreement, the Company would be obligated to pay the executive $8,000 per month for
life. If the covered executive were to die within a period of three years after such
termination, the Company would be obligated to continue making such payments until a
minimum of 36 monthly payments have been made to the covered executive and his
beneficiaries in the aggregate.
 65




---



##### 



11.

    Other RevenueBio-Rad Laboratories, Inc. Royalty
   
    
    Drew receives an agreed royalty per test;
    
    Royalty payments will be made depending on the volume of tests provided by Bio-Rad. If
less than 3,750 tests per month are provided by Bio-Rad, Bio-Rad will calculate the number
of tests used on a quarterly basis in arrears and pay Drew within 45 days of the end of
the quarter. If more than 3,750 tests per month are provided by Bio-Rad, Bio-Rad will pay
an estimated monthly royalty and within 45 days of the end of the quarter will make final
settlement upon the actual number of tests.
  Intralase: Licensing of Laser Technology
    2009
    
    
    2008
    
    
    2007Royalty Income:Bio-Rad royalty
    
    $
    132,807
    
    
    $
    222,075
    
    
    $
    242,826IntraLase royalty
    
    
    0
    
    
    
    0
    
    
    
    1,102,216Intralase settlement royalty
    
    
    0
    
    
    
    0
    
    
    
    9,600,000Total
    
    $
    132,807
    
    
    $
    222,075
    
    
    $
    10,945,042
 66




---



##### 



12.

    Acquisition of Biocode Hycel and JAS Diagnostics, Inc.Biocode Hycel Acquisition
  
    
    the first interest-only payment is due in December of 2009 at an annual interest rate
of 7%;
    
    thereafter, every nine months, an interest payment is due at an annual interest rate of
7%;
    
    18 months after the closing date a principal payment of Euro 800,000 is due;
    
    30 months after the closing date a principal payment of Euro 1,000,000 is due;
    
    36 months after the closing date a principal payment of Euro 1,000,000 is due; and
    
    48 months after the closing date a principal payment of Euro 1,375,000 is due.
       67




---



##### 



Current Assets
    
    $
    3,961,564Fixed Assets
    
    
    50,619Patents and other intangible assets
    
    
    2,198,596Total
    
    $
    6,210,779
 JAS Diagnostics, Inc. Acquisition
    Current assets
    
    $
    420,981Furniture and equipment
    
    
    35,441Trade Name
    
    
    89,000Customer list
    
    
    1,461,397Goodwill
    
    
    93,181Total assets acquired
    
    
    2,100,000Current liabilities
    
    
    127,975Net assets acquired
    
    $
    1,972,025
 68




---



##### 



13.
    
    Segment Reporting
   Segment
Statements of Operations (in thousands ) - Twelve months ended June 30,
 Drew
    
    
    
    
    
    
    
    
    
    
    Sonomed
    
    
    
    
    
    
    
    
    
    
    Vascular2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007Revenues, net:Product revenue
    
    $
    18,085
    
    
    $
    13,332
    
    
    $
    11,627
    
    
    $
    9,175
    
    
    $
    9,367
    
    
    $
    9,823
    
    
    $
    3,868
    
    
    $
    4,119
    
    
    $
    3,467Other revenue
    
    
    133
    
    
    
    222
    
    
    
    243
    
    
    $
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue, net
    
    
    18,218
    
    
    
    13,554
    
    
    
    11,870
    
    
    
    9,175
    
    
    
    9,367
    
    
    
    9,823
    
    
    
    3,868
    
    
    
    4,119
    
    
    
    3,467Costs and expenses:Cost of goods sold
    
    
    11,207
    
    
    
    8,928
    
    
    
    7,681
    
    
    $
    4,974
    
    
    
    5,029
    
    
    
    4,976
    
    
    
    1,450
    
    
    
    1,538
    
    
    
    1,393Goodwill Impairment
    
    
    
    
    
    
    9,575
    
    
    
    
    
    
    $
    9,526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses
    
    
    8,890
    
    
    $
    8,032
    
    
    
    7,830
    
    
    
    4,332
    
    
    
    4,603
    
    
    
    3,779
    
    
    
    1,998
    
    
    
    2,237
    
    
    
    2,108Total costs and expenses
    
    
    20,097
    
    
    
    26,535
    
    
    
    15,511
    
    
    
    18,831
    
    
    
    9,632
    
    
    
    8,755
    
    
    
    3,448
    
    
    
    3,775
    
    
    
    3,501(Loss) income from
operations
    
    
    (1,879
    )
    
    
    (12,981
    )
    
    
    (3,641
    )
    
    
    (9,656
    )
    
    
    (265
    )
    
    
    1,068
    
    
    
    420
    
    
    
    344
    
    
    
    (34
    )Other (expense) and
income:Gain on sale of assets
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in OTM
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    (216
    )
    
    
    (12
    )
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
other (expense) and
income
    
    
    (124
    )
    
    
    (12
    )
    
    
    (28
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0(Loss) income before taxes
    
    
    (2,003
    )
    
    
    (12,993
    )
    
    
    (3,669
    )
    
    
    (9,656
    )
    
    
    (265
    )
    
    
    1,068
    
    
    
    420
    
    
    
    344
    
    
    
    (34
    )Income taxes
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    26
    
    
    
    37
    
    
    
    0
    
    
    
    0
    
    
    
    1Net (loss) income
    
    $
    (2,003
    )
    
    $
    (12,993
    )
    
    $
    (3,669
    )
    
    $
    (9,656
    )
    
    $
    (291
    )
    
    $
    1,031
    
    
    $
    420
    
    
    $
    344
    
    
    $
    (35
    )
 69




---



##### 



Segment
Statements of Operations (in thousands ) - Twelve months ended June 30,
 EMI
    
    
    
    
    
    
    
    
    
    Medical/Trek
    
    
    
    
    
    
    
    
    
    Total2009
    
    2008
    
    2007
    
    2009
    
    2008
    
    2007
    
    2009
    
    2008
    
    2007Revenues, net:Product revenue
    
    $
    2,078
    
    
    $
    1,762
    
    
    $
    1,484
    
    
    $
    1,262
    
    
    $
    1,410
    
    
    $
    1,492
    
    
    $
    34,468
    
    
    $
    29,990
    
    
    $
    27,893Other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0
    
    
    
    0
    
    
    
    10,702
    
    
    
    133
    
    
    
    222
    
    
    
    10,945Total revenue, net
    
    
    2,078
    
    
    
    1,762
    
    
    
    1,484
    
    
    
    1,262
    
    
    
    1,410
    
    
    
    12,194
    
    
    
    34,601
    
    
    
    30,212
    
    
    
    38,838Costs and expenses:Cost of goods sold
    
    
    1,069
    
    
    
    820
    
    
    
    711
    
    
    
    848
    
    
    
    995
    
    
    
    1,011
    
    
    
    19,548
    
    
    
    17,310
    
    
    
    15,772Goodwill Impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,526
    
    
    
    9,575
    
    
    
    Operating expenses
    
    
    1,136
    
    
    
    873
    
    
    
    830
    
    
    
    1,966
    
    
    
    2,705
    
    
    
    2,722
    
    
    
    18,321
    
    
    
    18,450
    
    
    
    17,269Total costs and expenses
    
    
    2,205
    
    
    
    1,693
    
    
    
    1,541
    
    
    
    2,814
    
    
    
    3,700
    
    
    
    3,733
    
    
    
    47,395
    
    
    
    45,335
    
    
    
    33,041(Loss) income from
operations
    
    
    (127
    )
    
    
    69
    
    
    
    (57
    )
    
    
    (1,552
    )
    
    
    (2,290
    )
    
    
    8,461
    
    
    
    (12,794
    )
    
    
    (15,123
    )
    
    
    5,797Other (expense) and
income:Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    75
    
    
    
    92
    
    
    
    
    
    
    
    75Equity in OTM
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    (88
    )
    
    
    (88
    )
    
    
    (65
    )
    
    
    (88
    )
    
    
    (88
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    299
    
    
    
    208
    
    
    
    19
    
    
    
    299
    
    
    
    208Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216
    )
    
    
    (12
    )
    
    
    (28
    )Total other (expense) and
income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (46
    )
    
    
    211
    
    
    
    195
    
    
    
    (170
    )
    
    
    199
    
    
    
    167(Loss) and income before taxes
    
    
    (127
    )
    
    
    69
    
    
    
    (57
    )
    
    
    (1,598
    )
    
    
    (2,079
    )
    
    
    8,656
    
    
    
    (12,964
    )
    
    
    (14,924
    )
    
    
    5,964Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    14
    
    
    
    
    
    
    
    135
    
    
    
    52Net (loss) income
    
    $
    (127
    )
    
    $
    69
    
    
    $
    (57
    )
    
    $
    (1,598
    )
    
    $
    (2,188
    )
    
    $
    8,642
    
    
    $
    (12,964
    )
    
    $
    (15,059
    )
    
    $
    5,912
    70




---



##### 



2009
    
    
    2008
    
    
    2007Drew
    
    $
    9,417,050
    
    
    $
    6,587,050
    
    
    $
    5,177,708Sonomed
    
    
    5,931,351
    
    
    
    5,858,763
    
    
    
    5,901,532Vascular
    
    
    121,999
    
    
    
    130,177
    
    
    
    126,854EMI
    
    
    42,300
    
    
    
    53,700
    
    
    
    8,900Medical/Trek
    
    
    23,954
    
    
    
    31,864
    
    
    
    40,400$
    15,536,654
    
    
    $
    12,661,554
    
    
    $
    11,255,394
 14. Related-Party Transactions
  15. Fair Value Measurements
 Fair Value
Measurement
      71




---



##### 



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM
9A(T). CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
  
    
    Pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of our
assets;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP,
and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors;
and
    
    Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material affect on our financial statements.
   72




---



##### 



Changes in Internal Control over Financial Reporting
  Requirements of Section 404
   
 ITEM 9B.
    
    OTHER INFORMATION
 NONE
 
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  73




---



##### 



ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Documents Filed as Part of This Annual Report onForm 10-K:
 (1)
    
    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 FirmConsolidated Balance Sheets as of June 30, 2009 and 2008Consolidated Statements of Operations for the years ended June 30, 2009, 2008 and
2007
 74




---



##### 



Consolidated Statements of Shareholders Equity and Comprehensive Loss for the
years ended June 30, 2009, 2008 and 2007Consolidated Statements of Cash Flows for the years ended
June 30, 2009, 2008 and
2007Notes to Consolidated Financial Statements
 (2)
    
    Financial Statement Schedules
  (3)
    
    EXHIBITS
  3.1
    
    (a)
    
    Restated Articles of Incorporation of Registrant. (8)(b)
    
    Agreement and Plan of Merger dated as of September 28, 2001 between
Escalon Pennsylvania, Inc. and Escalon Medical 
Corp. (8)3.2
    
    
    
    Bylaws of Registrant. (8)4.1
    
    (a)
    
    Warrant Agreement between Registrant and U.S. Stock Transfer
Corporation. (1)(b)
    
    Amendment to Warrant Agreement between the Registrant and U.S. Stock
Transfer Corporation. (2)(c)
    
    Amendment to Warrant Agreement between the Registrant and American
Stock Transfer Corporation. (3)10.1
    
    
    
    Employment Agreement between the Registrant and Richard J. DePiano
dated May 12, 1998. (6)**10.2
    
    
    
    Non-Exclusive Distributorship Agreement between Registrant and Scott
Medical Products dated October 12, 2000. (9)10.4
    
    
    
    Supply Agreement between the Registrant and Bausch & Lomb Surgical,
Inc. dated August 13, 1999. (5)




---



##### 



10.7
    
    
    
    Registrants amended and restated 1999 Equity Incentive Plan. (13) **10.8
    
    
    
    Securities Purchase Agreement dated as of March 16, 2004 (the
Securities Purchase Agreement) between the Company and the
Purchasers signatory thereto. (14)10.9
    
    
    
    Registration Rights Agreement dated as of March 16, 2004 between the
Company and the Purchasers signatory thereto. (14)10.10
    
    
    
    Form of Warrant to Purchase Common Stock issued to each Purchaser
under the Securities Purchase Agreement. (14)10.11
    
    
    
    Manufacturing Supply and Distribution Agreement between Sonomed, Inc.
and Ophthalmic Technologies, Inc. dated as of March 11, 2004. (15)10.12
    
    
    
    Supplemental Executive Retirement Benefit Agreement for Richard
DePiano dated June 23, 2005. (16)**10.13
    
    
    
    Settlement Agreement with Intralase Corp, dated February 27, 2008.21
    
    
    
    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
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.(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-8 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.(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. 76




---



##### 



Signatures
  Escalon Medical Corp.
(Registrant)By:
    /s/  Richard J. DePianoRichard J. DePianoChairman and Chief Executive Officer   By:
    
    /s/ Richard J. DePiano

Richard J. DePiano
    
    Chairman and Chief Executive Officer 

(Principal Executive
Officer) and Director
    
    October 13, 2009By:
    
    /s/ Robert M. OConnor

Robert M. OConnor
    
    Chief Financial Officer 
(Principal
Financial Officer)
    
    October 13, 2009By:
    
    /s/ Anthony Coppola

Anthony Coppola
    
    Director
    
    October 13, 2009By:
    
    /s/ Jay L. Federman

Jay L. Federman
    
    Director
    
    October 13, 2009By:
    
    /s/ William L.G. Kwan

William L.G. Kwan
    
    Director
    
    October 13, 2009By:
    
    /s/ Lisa Napolitano

Lisa Napolitano
    
    Director
    
    October 13, 2009By:
    
    /s/ Fred Choate

Fred Choate
    
    Director
    
    October 13, 2009
 77