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EX-32.2 - EXHIBIT 32.2 - ESCALON MEDICAL CORPw80277exv32w2.htm
EX-32.1 - EXHIBIT 32.1 - ESCALON MEDICAL CORPw80277exv32w1.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2010
Commission File Number 0-20127
Escalon Medical Corp.
(Exact name of registrant as specified in its charter)
     
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
  33-0272839
(I.R.S. Employer
Identification No.)
435 Devon Park Drive, Building 100, Wayne, PA 19087
(Address of principal executive offices, including zip code)
(610) 688-6830
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
     
Common Stock, par value $0.001   NASDAQ Capital Market
(Title of class)   (Name of each exchange
on which registered)
Securities Registered Pursuant to Section 12(g) of the Act: NONE
     Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o No þ
     Indicate by check mark if the registrant is a not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No þ
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company þ
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on December 31, 2009 was approximately $11,816,495, computed by reference to the price at which the common equity was last sold on the NASDAQ Capital Market on such date.
          As of September 27, 2010, the registrant had 7,526,430 shares of common stock outstanding.
 
 

 


 

Part III.
Item 10.   Directors and Executive Officers and Corporate Governance
Directors and Executive Officers
     The following table sets forth information with respect to our directors and our executive officers as of October 26, 2010.
         
Name   Age   Position
Richard J. DePiano
  69   Chairman and Chief Executive Officer
Richard J. DePiano, Jr.
  44   President and General Counsel
Robert M. O’Connor
  49   Chief Financial Officer
Mark G. Wallace
  41   Chief Operating Officer
Anthony J. Coppola
  73   Director
Jay L. Federman
  72   Director
William L.G. Kwan
  69   Director
Lisa A. Napolitano
  47   Director
Fred G. Choate
  64   Director
          Set forth below are the names, positions held and business experience, including during the past five years, of our directors and executive officers as of October 26, 2010. Officers serve at the discretion of the board of directors. The President and General Counsel, Richard J. DePiano, Jr., is the son of the Chairman and Chief Executive Officer, Richard J. DePiano. There are no other family relationships between any of the directors or executive officers and there is no arrangement or understanding between any director or executive officer and any other person pursuant to which the director or executive officer was selected.
     Mr. DePiano has been a Class III director, whose term ends in 2011, since February 1996 and has served as our Chairman and Chief Executive Officer since March 1997. Mr. DePiano has been the chief executive officer of the Sandhurst Company, L.P. and managing director of the Sandhurst Venture Fund, a venture capital fund since 1986. Mr. DePiano also serves as chairman of the board of directors of PhotoMedex, Inc.
     Mr. DePiano, Jr. was appointed our President and General Counsel of the Company on January 1, 2008. Previously, he was Chief Operating Officer and General Counsel. Mr. DePiano, Jr. joined us in November of 2000 as Vice President Corporate and Legal Affairs. He currently serves as a member of the board of directors and was President from 2008 to 2009 of the Delaware Valley Corporate Counsel Association (“DELVACCA”). Mr. DePiano, Jr. also serves as a member of the nominations committee, Chairman of the law school initiative committee and member of the pro-bono committee of DELVACCA. He also is vice chairman of the board of directors of the Montgomery County Industrial Development Authority.
     Mr. O’Connor was appointed our Chief Financial Officer on June 30, 2006. Mr. O’Connor joined us from BDO Seidman, LLP, where he served as a senior manager from 2004 to 2006. His prior experience includes both public and private accounting roles as a manager at PricewaterhouseCoopers, L.L.P., where he served in the middle market advisory services group from 1998 until 2000. He held positions of controller and chief financial officer of Science Dynamics, a manufacturer of high tech telecom equipment, from 2000 until 2002, and Ianieri & Giampapa, LLC, a certified public accounting firm, from 2002 until 2004. Mr. O’Connor holds an MBA from Rutgers University — Graduate School of Management and a B.S. from Kean University. He is a certified public accountant and a member of the American Institute of Certified Public Accountants (AICPA).
     Mr. Wallace was appointed our Chief Operating Officer on January 1, 2008. Mr. Wallace has worked with us since 1997. Previous to being appointed Chief Operating Officer he was Executive Vice President of our Escalon Digital Solutions and Trek Medical subsidiaries. He has jointly held the position of Vice President-Quality, with quality and regulatory responsibilities for all of the our companies, and has also previously served as Operations Manager at Sonomed, Inc. and our Quality Manager. He had previously worked with Lunar Corp (now GE Healthcare) and Trek Medical. He holds a B.S. in Industrial Engineering

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and a M.S. in Manufacturing Systems Engineering, both from the University of Wisconsin-Madison, is a senior member of the American Society of Quality, and has over 18 years experience in the medical device industry.
     Mr. Coppola has served on our board of directors since 2000. He is a Class I director, and his term ends in 2012. Mr. Coppola is the principal and operator of The Historic Town of Smithville, Inc., a real estate and commercial property company from 1988 to present; Retired Division President of SKF Industries, a manufacturing company, from 1963 to 1986. Mr. Coppola’s experience as an owner and operator of various companies enables him to provide our board of directors and management with an appropriate perspective on operations. Further, Mr. Coppola’s executive and leadership experience in managing a division of a global manufacturing company provides him with a valuable perspective from which to contribute to our board and management. We believe that Mr. Coppola’s executive, operational and financial experience qualifies him to serve as a member of our board and our chairman of our audit committee.
     Dr. Federman has served on our board of directors since 1996. He is a Class III director, and his term ends in 2011. Jay Federman, M.D. is an ophthalmologist subspecializing in the management of vitreo-retinal diseases with Associated Retinal Consultants. He is currently an Attending Surgeon at Wills Eye Institute and a Professor of Ophthalmology at Jefferson Medical College. His Directorships include the Research Department of Wills Eye Hospital from 1987 to 1995, Chief of the Department Ophthalmology of the Medical College of PA from 1994 to 2004, Co-Director of the Retina Service of Wills Eye Hospital from 1991 to 1999 and a Director of the Vitreo-Retinal Research Foundation of Philadelphia. He is a member of the American Academy of Ophthalmology, American College of Surgeons, American Ophthalmological Society, Association of Research in Vision and Ophthalmology, Club Jules Gonin, Macula Society, and the Retina and Vitreous Societies. Dr. Federman’s extensive and leadership experience in the practice of ophthalmology provides him with a unique and valuable perspective from which to contribute to the Board and management, as it oversees its ophthalmology operations. We believe that Dr. Federman’s lengthy experience with us, his practical, operational and medical experience qualifies him to serve as a member of our board of directors.
     Mr. Kwan has served on our board of directors since 1999. He is a Class I director, and his term ends in 2012. Mr. Kwan is the retired Vice President of Business Development of Alcon Laboratories, Inc. a medical products company, from October 1996 to 1999, and Vice President of International Surgical Instruments from November 1989 to October 1999. Mr. Kwan’s executive and leadership experience in the ophthalmology business provides him with a valuable perspective from which to contribute to our board of directors, as it oversees its Ophthalmology operations. We believe that Mr. Kwan’s executive, operational and financial experience qualifies him to serve as a member of our board of directors and our audit committee.
     Ms. Napolitano has served on our board of directors since 2003. She is a Class II director, and her term ends at the next annual meeting. Ms. Napolitano has served as a Tax Manager at Global Tax Management, Inc., a provider of compliance support services for both federal and state taxes, since 1998. Ms. Napolitano is a Certified Public Accountant in Pennsylvania. Ms. Napolitano qualifies for our board of directors and audit committee based on her extensive experience in public accounting and through her understanding of internal controls, accounting principals, business operations and regulatory compliance. We believe that Ms. Napolotano’s financial, operational and regulatory experience qualifies her to serve as a member of our board of directors and our audit committee.
     Mr. Choate has served on our board of directors since 2005. He is a Class II director, and his term ends at the next annual meeting. Mr. Choate has served as the Managing Member of Atlantic Capital Funding LLC, a venture capital fund, from 2003 to present, Managing Member of Atlantic Capital Management LLC, a venture capital fund, from 2004 to present; Baltic-American Enterprise Fund, a venture capital fund, Chief Investment Officer from 2003 to present; Managing Member of Greater Philadelphia Venture Capital Corp., a venture capital fund, from 1992 to present. Mr. Choate has been a director of Parke Bank since 2003. Mr. Choate was formerly one of our directors from 1998 to 2003. Mr. Choate has extensive banking, business and industry experience, both in leadership positions, as Managing Member of several

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venture capital funds and his lengthy experience serving on boards of various companies. Mr. Choate’s substantial financial, banking, corporate, executive and operational experience, in addition to his prior board experience, qualify him to serve on our board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance
     Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and 10% shareholders to file initial reports of ownership and reports of changes in ownership of our common stock and other equity securities with the SEC and the NASDAQ Capital Market. The directors, executive officers and 10% shareholders are required to furnish us with copies of all Section 16(a) reports they file. Based on a review of the copies of such reports furnished to us and written representations from our directors and executive officers that no other reports were required, we believe that our directors, executive officers and 10% shareholders complied with all Section 16(a) filing requirements applicable to them for the year ended June 30, 2010.
Code of Conduct and Ethics
     Our board of directors has adopted a Code of Conduct and Ethics, which applies to all of our directors, the principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions, officers and employees. Our Code of Conduct and Ethics is posted in the “Corporate Governance” section of our Internet web site at www.escalonmed.com. Any amendments to, or grant of waiver with respect to, any provision of our Code of Conduct and Ethics, will be disclosed noting the nature of such amendment or waiver in the “Corporate Governance” section of our Internet web site at www.escalonmed.com or by other appropriate means as required or permitted under the applicable regulations of the Securities and Exchange Commission and rules of the NASDAQ Stock Market.
Audit Committee Members and Financial Expert
     The members of the audit committee of our board of directors are Mr. Coppola, Ms. Napolitano, and Mr. Kwan. Our board of directors has determined that each of Messrs. Coppola and Kwan and Ms. Napolitano has the attributes, education and experience of, and therefore is, an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K, and that each member of our audit committee is “independent,” as such term is defined in the applicable regulations of the Securities and Exchange Commission and rules of the NASDAQ Capital Market relating to directors serving on audit committees.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Introduction
     Our compensation committee is responsible for reviewing and approving the annual compensation of our executive officers and our non-employee directors.
     Our compensation committee is composed solely of directors who are not our current or former employees, and each is independent under the current listing standards of The NASDAQ Capital Market. The board of directors has delegated to our compensation committee the responsibility to review and approve our compensation and benefits plans, programs and policies, including the compensation of the chief executive officer and our other executive officers as well as middle-level management and other key employees. The compensation committee administers all of our executive compensation programs, incentive compensation plans and equity-based plans and provides oversight for all of our other compensation and benefit programs.
     The key components of the compensation program for executive officers are base salary, bonus and long-term incentives in the form of stock options. These components are administered with the goal of providing total compensation that is competitive in the marketplace, recognizes meaningful differences in

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individual performance and offers the opportunity to earn superior rewards when merited by individual and corporate performance.
Objectives of Compensation Program
     Our compensation committee intends to govern and administer compensation plans to support the achievement of our long-term strategic objectives, to enhance shareholder value, to attract, motivate and retain highly qualified employees by paying them competitively and rewarding them for their own and our success.
     We have no retirement plans or deferred compensation programs in effect for our non-employee directors except for our 401(k) plan in which the executive officers are eligible to participate and our executive officers and our Supplemental Executive Retirement and Benefit Agreement with Richard J. DePiano, our Chairman and Chief Executive Officer. Compensation is generally paid as earned. We do not have an exact formula for allocating between cash and non-cash compensation, which has been in the form of stock options. We do not have a non-equity incentive plan, as that term is used in the FASB issued authoritative guidance related to share based payments.
     To the extent consistent with the foregoing objectives, our compensation committee also intends to maximize the deductibility of compensation for tax purposes. The committee may, however, decide to exceed the tax deductible limits established under Section 162(m) of the Internal Revenue Code, of 1986, as amended, or the Code, when such a decision appears to be warranted based upon competitive and other factors.
What Our Compensation Program Is Designed to Reward
     The key components of the compensation program for executive officers are base salary, bonus and long-term incentives in the form of stock options. These components are administered with the goal of providing total compensation that is competitive in the marketplace, recognizes meaningful differences in individual performance and offers the opportunity to earn superior rewards when merited by individual and corporate performance.
     Stock price performance has not been a factor in determining annual compensation insofar as the price of our common stock is subject to a number of factors outside our control. We have endeavored through the grants of stock options to the executive officers to incentivize individual and team performance, providing a meaningful stake in us and linking them to a stake in our overall success.
Elements of Our Compensation Plan and How Each Element Relates to Objectives
     There are three primary elements in the compensation package of our executive officers: base salary, bonus and long-term incentives.
Base Salaries
     Base salaries for our executive officers are designed to provide a base pay opportunity that is appropriately competitive within the marketplace. Adjustments to each individual’s base salary are made in connection with annual performance reviews in addition to the assessment of market competitiveness.
Bonus
     Our compensation committee establishes a bonus program for executive officers and other managers and key employees eligible to participate in the program. The program is based on a financial plan for the fiscal year and other business factors. The amount of bonus, if any, hinges on corporate profitability and our overall cash position, and on the performance of the participant in the program. Provision for bonus expense is typically made over the course of a fiscal year. The provision becomes fixed, based on the final review of the compensation committee, which is usually made after the financial results of the fiscal year

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have been reviewed by our independent accountants. For fiscal 2010, there were two factors that determined executive bonuses, our profitability and a discretionary component. Profitability is the dominant factor under the bonus plan. For the year ended June 30, 2010, Mr. DePiano, Mr. DePiano, Jr. Mr. Wallace and Mr. O’Connor did not receive a bonus due to net loss incurred during this period.
Long-Term Incentives
     Grants of stock options under our stock option plans are designed to provide executive officers and other managers and key employees with an opportunity to share, along with shareholders, in our long-term performance. Stock option grants are generally made annually to all executive officers, with additional grants being made following a significant change in job responsibility, scope or title or a significant achievement. The size of the option grant to each executive officer is set by the compensation committee at a level that is intended to create a meaningful opportunity for stock ownership based upon the individual’s current position with us, the individual’s personal performance in recent periods and his or her potential for future responsibility and promotion over the option term. The compensation committee also takes into account the number of unvested options held by the executive officer in order to maintain an appropriate level of equity incentive for that individual. The relevant weight given to each of these factors varies from individual to individual.
     Stock options granted under the various stock option plans generally have had a five-year vesting schedule and generally have been set to expire ten years from the date of grant. The exercise price of options granted under the stock option plans is at no less than 100% of the fair market value of the underlying stock on the date of grant. The number of stock options granted to each executive officer is determined by the compensation committee based upon several factors, including the executive officer’s salary, performance and the estimated value of the stock at the time of grant, but the compensation committee has the flexibility to make adjustments to those factors in its discretion.
How Amounts Were Selected for Each Element of an Executive’s Compensation
     Each executive’s current and prior compensation is considered in setting future compensation. Base salary and the long-term incentives are not set with reference to a formula.
     A target bonus, or portion thereof, is earned, based on fulfillment of conditions, paramount of which is our profitability.
     As a general rule option awards are made in the first or second quarter of a year and after the financial results for the prior year have been audited and reported to the board of directors. Grants and awards are valued, and exercise prices are set, as of the date the grant or award is made. Exceptions to the general rule may arise for grants made to recognize a promotion or to address the effect of expiring options.
     The compensation committee has considered whether our overall compensation program for employees in fiscal 2010 creates incentives for employees to take excessive or unreasonable risks that could materially harm the company. We believe that several features of our compensation policies for management employees appropriately mitigate such risks, including a mix of long- and short-term compensation incentives that we believe is properly weighted, the uniformity of compensation practices across our company, as a baseline for bonus plan targets for our management.
Accounting and Tax Considerations
     On July 1, 2007, we adopted in the FASB issued authoritative guidance related to share based payments. Under this accounting standard, we are required to value stock options granted in fiscal year 2007 and in subsequent fiscal years under the fair value method and expense those amounts in the income statement over the vesting period of the stock option. We were also required to value unvested stock options granted prior to our adoption of the FASB issued authoritative guidance related to share based payments under the fair value method and amortize such expense in the income statement over the stock option’s remaining

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vesting period. A material portion of such amortizing expense relates to option grants made to our executive officers.
     Under Section 162(m) of the Code, a limitation was placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. The compensation committee has been advised that based upon prior shareholder approval of the material terms of our stock option plans, compensation under these plans is excluded from this limitation, provided that the other requirements of Section 162(m) are met. However, when warranted based upon competitive and other factors, the compensation committee may decide to exceed the tax deductible limits established under Section 162(m) Code. The base salary provided to each executive in 2008, 2009 and 2010 did not exceed the limits under Section 162(m) for tax deductibility; no executive exercised any options in 2008, 2009 or 2010.
Overview of Executive Employment Agreements and 2008 Equity-Based Awards
     On May 12, 1998, we entered into an employment agreement with Richard J. DePiano, our Chairman and Chief Executive Officer. The initial term of the employment agreement commenced on May 12, 1998 and continued through June 30, 2001. The employment agreement renews on July 1 of each year for successive terms of three years unless either party notifies the other party at least 30 days prior to such date of the notifying party’s determination not to renew the agreement. The current base salary provided under the agreement, as adjusted for yearly cost of living adjustments, is $313,303 per year, and the agreement provides for additional incentive compensation in the form of a cash bonus to be paid to Mr. DePiano at the discretion of our board of directors. The agreement also provides for health and long-term disability insurance and other fringe benefits as well as an automobile allowance.
     On June 23, 2005, we entered into a Supplemental Executive Retirement Benefit Agreement with Mr. DePiano. The agreement provides for the payment of supplemental retirement benefits to Mr. DePiano in the event of his termination of service Mr. DePiano with us under the following circumstances:
    If Mr. DePiano retires, we are obligated to pay Mr. DePiano $8,000 per month for life, with payments commencing the month after retirement. If Mr. DePiano were to die within a period of three years after such retirement, we 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 Mr. DePiano dies before his retirement, while employed by us, we would be obligated to make 36 monthly payments to his beneficiaries of $8,000 per month commencing in the month after his death.
 
    If Mr. DePiano were to become permanently disabled while employed by us, we would be obligated to pay him $8,000 per month for life, with payments commencing the month after he suffers such disability. If Mr. DePiano were to die within three years after suffering such disability, we would be obligated to continue making such payments until a minimum of 36 monthly payments have been made to Mr. DePiano and his beneficiaries in the aggregate.
 
    If Mr. DePiano’s employment with is terminated by us, or if he terminates his employment with us for good reason, as defined in the agreement, we would be obligated to pay him $8,000 per month for life. If Mr. DePiano were to die within a period of three years after such termination, we would be obligated to continue making such payments until a minimum of 36 monthly payments have been made to him and his beneficiaries in the aggregate.
          During the fourth quarter of fiscal 2005, we recorded as an expense in our consolidated statement of income, $1,027,821, which represents the present value of the supplemental retirement benefits awarded.

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Compensation of Named Executive Officers
     Summary Compensation Table
     The following table sets forth certain summary information concerning compensation that we paid or accrued to or on behalf of each of our executive officers during each of the fiscal years ended June 30, 2010, 2009 and 2008 (the “Named Executive Officers”).
                                                                     
                                                Nonqualified              
Name and                                       Non-Equity     Deferred              
Principal                       Stock     Option     Incentive Plan     Compensation     All Other        
Position   Year   Salary     Bonus     Awards     Awards(1)     Compensation     Earnings     Compensation (2)     Total  
Richard J. DePiano
  2010   $ 313,303     $     $     $ 38,580     $     $     $ 22,233     $ 374,116  
Chairman and
  2009   $ 349,319     $     $     $ 51,856     $     $     $ 20,040     $ 421,215  
Chief Executive Officer
  2008   $ 336,343     $     $     $ 57,653     $     $     $ 9,600     $ 403,596  
 
                                                                   
Richard J. DePiano, Jr.
  2010   $ 167,670     $     $     $ 27,301     $     $     $ 9,600     $ 204,571  
President and
  2009   $ 191,407     $     $     $ 16,592     $     $     $ 9,600     $ 217,599  
General Counsel
  2008   $ 180,000     $     $     $ 18,448     $     $     $ 9,600     $ 208,048  
 
                                                                   
Robert M. O’Connor
  2010   $ 191,330     $     $     $ 19,247     $     $     $ 9,600     $ 220,177  
Chief Financial Officer
  2009   $ 217,062     $     $     $ 16,592     $     $     $ 9,600     $ 243,254  
 
  2008   $ 205,400     $     $     $ 8,547     $     $     $ 9,600     $ 223,547  
 
                                                                   
Mark Wallace
  2010   $ 147,150     $     $     $ 11,267     $     $     $     $ 158,417  
Chief Operating Officer
  2009   $ 161,004     $     $     $ 4,428     $     $     $     $ 165,432  
 
  2008   $ 93,246     $ 60,000     $     $ 2,849     $     $     $     $ 156,095  
 
(1)   Represents the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2010, in accordance with in the FASB issued authoritative guidance related to share based payments. Assumptions used in the calculation of these amounts are included in Note 2 to the Consolidated Financial Statements. There were no forfeitures during fiscal 2010. The options granted to Mr. DePiano, Sr. vest over a two-year period; options granted to Mr. DePiano, Jr., Mr. O’Connor and Mr. Wallace vest over a five-year period (see “Long-Term Incentives” under Compensation Discussion and Analysis). No options were exercised by the named executives during the year ended June 30, 2010.
 
(2)   Includes payment of, (a) an automobile allowance and (b) insurance premiums paid for life insurance.

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Grants of Plan Based Awards
     Grants of Plan Based Awards
     The following table sets forth certain information regarding plan-based awards granted during the fiscal year ended June 30, 2010.
                                                         
                                All Other   All Other            
          Estimated Future       Estimated Future     Stock Awards   Option Awards           Grant Date
          Payouts Under       Payouts Under     Number of   Number of   Exercise or   Fair Value
          Non-Equity Incentive       Equity Incentive     Shares of   Securities   Base Price   of Stock
    Grant   Plan Awards   Plan Awards   Stock or   Underlying   of Option   and Option
Name   Date   Threshold   Target   Maximum   Threshold   Target   Maximum   Units   Options   Awards   Award (1)
Richard J. DePiano
  11/16/2009                   20,000     $ 1.51     $ 23,971  
 
                                                       
Richard J. DePiano, Jr.
  11/16/2009                   12,000     $ 1.51     $ 14,382  
 
                                                       
Robert M. O’Connor
  11/16/2009                   14,000     $ 1.51     $ 16,780  
 
                                                       
Mark Wallace
  11/16/2009                   10,000     $ 1.51     $ 11,985  
 
(1)   Represents the fair value on date of grant in accordance with FAS 123(r). Assumptions used in the calculation of these amounts are included in Note 2 to the Consolidated Financial Statements. There were no forfeitures during fiscal 2010. The options granted to Mr. DePiano, Sr. vest over a two-year period; options granted to Mr. DePiano, Jr., Mr. O’Connor and Mr. Wallace vest over a five-year period years (see “Long-Term Incentives” under Compensation Discussion and Analysis). No options were exercised by the named executives during the year ended June 30, 2010.

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     Outstanding Equity Plan Based Awards at Fiscal Year-End 2010
     The following table sets forth certain information regarding grants of equity awards held by the named executive officers as of June 30, 2010.
                                         
Option Awards  
                    Equity              
                    Incentive              
                    Plan Awards:              
                    Number of              
    Number of     Number of     Securities              
    Securities     Securities     Underlying              
    Underlying     Underlying     Unexercised     Option     Option  
    Unexercised     Unexercised     Unearned     Exercise     Expiration  
Name   Options     Options     Options     Price     Date  
    Exercisable     Unexercisable                          
Richard J. DePiano
    41,480                 $ 2.13       8/12/2008  
 
    45,000                 $ 2.38       11/1/2010  
 
    50,000                 $ 2.77       11/1/2011  
 
    10,417                 $ 1.45       8/13/2112  
 
    25,000                 $ 6.94       11/10/2013  
 
    25,000                 $ 6.19       8/17/2014  
 
    40,000                 $ 8.06       8/16/2015  
 
    15,200                 $ 2.65       11/9/2016  
 
    25,000                 $ 3.05       11/13/2017  
 
    22,917       2,083       2,083     $ 2.22       9/26/2018  
 
    6,667       13,333       13,333     $ 1.51       11/16/2019  
 
                                       
Richard J. DePiano, Jr.
    700                 $ 2.38       11/1/2010  
 
    1,100                 $ 2.77       11/1/2011  
 
    3,567                 $ 1.45       8/13/2112  
 
    10,000                 $ 6.94       11/10/2013  
 
    25,000                 $ 6.19       8/17/2014  
 
    20,000                 $ 8.06       8/16/2015  
 
    14,666       5,334       5,334     $ 2.65       11/9/2016  
 
    10,666       9,334       9,334     $ 3.05       11/13/2017  
 
    7,000       13,000       13,000     $ 2.22       9/26/2018  
 
    1,600       10,400       10,400     $ 1.51       11/16/2019  
 
                                       
Robert M. O’Connor
    60,000                     $ 5.05       6/29/2016  
 
    10,666       9,334       9,334     $ 3.05       11/13/2017  
 
    7,000       13,000       13,000     $ 2.22       9/26/2018  
 
    1,867       12,133       12,133     $ 1.51       11/16/2019  
 
                                       
Mark Wallace
    2,666       2,334       2,334     $ 3.05       11/13/2017  
 
    7,000       13,000       13,000       2.22       9/26/2018  
 
    1,333       8,667       8,667       1.51       11/16/2019  

10


 

 
(1)   These options were granted under our 1999 Equity Incentive Plan and have a term of ten years, subject to earlier termination in certain events. The options granted to Mr. DePiano, Sr. vest over a two-year period. Options granted to Mr. DePiano, Jr., Mr. O’Connor and Mr. Wallace vest over a five-year period. No options were exercised by the named executives during the year ended June 30, 2010.
Potential Payments upon Termination or Change-in-Control
               Mr. O’Connor, pursuant to his offer letter, will be entitled to a severance payment equal to 100% of his annual base salary and an increase of his annual base salary to $250,000 in connection with a change of control.
Compensation Committee Report on Executive Compensation
          We have reviewed and discussed with management the Compensation Discussion and Analysis to be included in the our Form 10-K for the year ended June 30, 2010. Based on the reviews and discussions referred to above, we recommend to our board of directors that the Compensation Discussion and Analysis referred to above be included in our Form 10-K for the year ended June 30, 2010.
Compensation Committee:
Anthony J. Coppola
Fred G. Choate
Lisa A. Napolitano
October 26, 2010
Compensation of Directors
     The compensation committee of our board recommends director compensation to our board of directors based on factors it considers appropriate, market conditions and trends and the recommendations of management. In fiscal 2010, none of our non-employee directors received any compensation.
Director Compensation Fiscal 2010
     There was no compensation paid to our directors for their service during the fiscal year ended June 30, 2010.
Compensation Committee Interlocks and Insider Participation
          No members of our compensation committee are former or current officers, or have other interlocking relationships, as defined by the SEC.

11


 

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
     The following table indicates, as of October 25, 2010, information about the beneficial ownership of our common stock by (1) each director as of October 25, 2010, (2) each Named Executive Officer, (3) all directors and executive officers as of October 25, 2010 as a group and (4) each person who we know beneficially owns more than 5% of our common stock. All such shares were owned directly with sole voting and investment power unless otherwise indicated.
Beneficial Ownership Table
                                         
    Amount of             Amount of              
    Beneficial             Beneficial              
    Ownership             Ownership of     Amount of        
    of             Shares     Aggregate     Aggregate  
    Outstanding     Percent     Underlying     Beneficial     Percent of  
Name   Shares (1)     of Class     Options     Ownership     Class  
 
Richard J. DePiano
    144,278       1.9 %     306,897       451,175       5.9 %
Richard J. DePiano, Jr.
    206       0.0 %     112,367       112,573       1.4 %
Robert O’Connor
          0.0 %     114,000       114,000       1.5 %
Mark Wallace
          0.0 %     57,467       57,467       *  
William L.G. Kwan
          0.0 %     80,000       80,000       1.0 %
Jay L. Federman
    12,072       0.0 %     75,000       87,072       1.1 %
Anthony J. Coppola
          0.0 %     55,000       55,000       *  
Lisa Napolitano
          0.0 %     52,000       52,000       *  
Fred Choate
          0.0 %     40,000       40,000       *  
All Directors and Executive Officers as a group
(9 persons)
    156,556       2.0 %     892,731       1,049,287       13.9 %
 
(*)   Less than on percent
 
(1)   Information furnished by each individual named. This table includes shares that are owned jointly, in whole or in part with the person’s spouse, or individually by his or her spouse. No shares held by board members or named executive officers are pledged as collateral.

12


 

Equity Compensation Plan Information
     The following table sets forth information, as of June 30, 2010, with respect to compensation plans under which shares of our common stock are authorized for issuance.
                         
                    Number of securities remaining  
                    available for future issuance  
    Number of Shares to be     Weighted-average exercise     under equity compensation plans  
    issued upon exercise of     price of outstanding stock     (excluding securities reflected in  
    outstanding stock options     options     column a))  
Plan Category   (a)     (b)     (c)  
 
Equity Compensation plans approved by shareholders
    849,438     $ 2.21       129,575  
 
                       
Equity Compensation plans not approved by shareholders
                 
     
 
                       
 
    849,438     $ 2.21       129,575  
     
Item 13.   Certain Relationships and Related Transactions, and Director Independence.
Related Person Transactions
     We recognize that related person transactions present a heightened risk of conflicts of interest and can create the appearance of a conflict of interest. Therefore, all proposed related person transactions are disclosed to our board of directors before we enter into the transaction, and, if the transaction continues for more than one year, the continuation is reviewed annually by our board of directors.
     We and a member of the our board of directors, Jay L. Federman, are founding and equal members of Ocular Telehealth Management, LLC (“OTM”). OTM is a diagnostic telemedicine company providing remote examination, diagnosis and management of disorders affecting the human eye. OTM’s initial solution focuses on the diagnosis of diabetic retinopathy by creating access and providing annual dilated retinal examinations for the diabetic population. OTM was founded to harness the latest advances in telecommunications, software and digital imaging in order to create greater access and a more successful disease management for populations that are susceptible to ocular disease. Through June 30, 2010, we had invested $399,000 in OTM and owned 45% of OTM. We will provide administrative support functions to OTM. For the year ended June 30, 2010, OTM recorded losses of $74,911.
     Richard J. DePiano, Sr., our Chief Executive Officer., participated in an accounts receivable factoring program that we implemented. Under the program, Mr. DePiano advanced to us $157,332 which represented 80% of an amount due from a Drew customer in Algeria, as of June 30, 2010 the entire amount of the receivable has been collected. The receivable from Algeria, was not eligible to be sold to our usual factoring agent. Interest on the transaction is 1.75% per month, which is equal to the best price offered by our usual factoring agent. The transaction excluded fees typically charged by the factoring agent and provided much needed liquidity to us. Mr. DePiano was paid back in full and was paid $6,351 in interest on the transaction during the year ended June 30, 2010.
Director Independence
     Our board of directors has determined that, Anthony Coppola, Jay L. Federman, William L.G. Kwan, Lisa Napolitano, and Fred Choate are “independent,” as such term is defined in the applicable rules of the NASDAQ Stock Market relating to the independence of directors. In determining that Jay L. Federman is independent, our board of directors considered our joint investment with Dr. Federman in OTM.

13


 

ITEM 14.   Principal Accounting Fees and Services
          The following table sets forth the aggregate fees billed to us by Mayer Hoffman McCann, LLP, our principal accountant for the fiscal years ended June 30, 2010 and 2009.
                 
    For the years ended  
    June 30,  
    2010     2009  
     
Audit Fees
  $ 158,026     $ 224,975  
Audit-Related Fees
  $     $  
Tax Fees
  $     $  
All Other Fees
  $     $  
     
 
               
Total Fees
  $ 158,026     $ 224,975  
     
          In the table above, pursuant to definitions under the applicable regulations of the SEC, “audit fees” are fees for professional services rendered for the audit of our annual financial statements and review of our financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements; “audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit and review of our financial statements, and primarily include accounting consultations and audits in connection with potential acquisitions; “tax fees” are fees for tax compliance, tax advice and tax planning; and “all other fees” are fees for any services not included in the first three categories.
          Our audit committee is responsible for pre-approving all audit services and permitted non-audit services to be performed by our principal accountant, except in those instances which do not require such pre-approval pursuant to the applicable regulations of the SEC. The audit committee has established policies and procedures for its pre-approval of audit services and permitted non-audit services and, from time to time, the audit committee reviews and revises its policies and procedures for pre-approval.

14


 

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Introductory Note: We are amending Item 15 solely to update the list of exhibits under Item (a)(3).
(a) Documents Filed as Part of This Annual Report on Form 10-K:
     (1) Financial Statements
The following consolidated financial statements of the Company and its subsidiaries were included in Part II, Item 8 of the Annual Report on Form 10-K filed on October 12, 2010:
Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of June 30, 2010 and 2009
Consolidated Statements of Operations for the years ended June 30, 2010, 2009 and 2008 Consolidated Statements of Shareholders’ Equity and Comprehensive Loss for the years ended June 30, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended June 20, 2010, 2009 and 2008 Notes to Consolidated Financial Statements
     (2) Financial Statement Schedules
     All other schedules have been omitted because the required information is not applicable or the information is included in our Consolidated Financial Statements or the related Notes to Consolidated Financial Statements.
     (3) EXHIBITS
The following is a list of exhibits filed as part of this Annual Report on Form 10-K, where so indicated by footnote, exhibits, which were previously filed, are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically, followed by the footnote reference to the previous filing.
         
3.1
  (a)   Restated Articles of Incorporation of 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)
 
       
10.12
      Supplemental Executive Retirement Benefit Agreement for Richard DePiano dated June 23, 2005. (16)**
 
       
10.13
      Vascular Access Sales Agreement dated April 30, 2010. (17)
 
       
10.14
      Registrant’s 2004 Equity Incentive Plan (19)**
 
       
21
      Subsidiaries. (11)
 
       
23.1
      Consent of Independent Registered Public Accounting Firm (18).
 
       
32.1
      Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (*).
 
       
32.2
      Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (*).
 
       
32.1
      Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (18).
 
       
32.2
      Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (18).
 
*   Filed herewith.
 
**   Management contract of compensatory plan.

 


 

(1)   Filed as an exhibit to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-1 dated November 9, 1993 (Registration No. 33-69360).
 
(2)   Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 1994.
 
(3)   Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 1995.
 
(4)   Filed as an exhibit to the Company’s Registration Statement on Form S-3 dated January 20, 1998 (Registration No. 333-44513).
 
(5)   Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 1999.
 
(6)   Filed as an exhibit to the Company’s Form 8-K/A, dated March 31, 2000.
 
(7)   Filed as an exhibit to the Company’s Registration Statement on Form s-* dated February 25, 2000 (Registration No. 333-31138).
 
(8)   Filed as an exhibit to the Company’s Proxy Statement on Schedule 14A, as filed by the Company with the SEC on September 21, 2001.
 
(9)   Filed as an exhibit to the Company’s Form 10-KSB for the year ended June 30, 2001.
 
(10)   Filed as an exhibit to the Company’s Form 10-Q for the quarter ended March 31, 2001.
 
(11)   Filed as an exhibit to the Company’s Form 10-K/A for the year ended June 30, 2009.
 
(12)   Filed as an exhibit to the Company’s Form 10-Q for the quarter ended December 31, 2002.
 
(13)   Filed as an exhibit to the Company’s Form 10-Q for the quarter ended December 31, 2003.
 
(14)   Filed as an exhibit to the Company’s Registration Statement on Form S-3 dated April 8, 2004 (Registration No. 333-114332).
 
(15)   Filed as an exhibit to the Company’s Form 10-Q for the quarter ended March 31, 2004.
 
(16)   Filed as an exhibit to the Company’s Form 8-K, dated June 23, 2005.
 
(17)   Filed as an exhibit to the Company’s Form 8-K, dated May 6, 2010.
 
(18)   Filed as an exhibit to the Company’s Form 10-K, for the year ended 2010.
 
(19)   Filed as an Annex to the Company’s Proxy Statement on Schedule 14A, as filed by the Company with the SEC on October 26, 2004.
Signatures
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  Escalon Medical Corp.
(Registrant)
 
 
  By:   /s/ Richard J. DePiano    
    Richard J. DePiano   
    Chairman and Chief Executive Officer   
 
Dated: October 28, 2010

 


 

INDEX TO EXHIBITS
     
No.   EXHIBIT DESCRIPTION
 
   
32.1
  Certification of the Chief Executive Officer
 
   
32.2
  Certification of the Chief Financial Officer