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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996
REGISTRATION NO. 333-4382
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ESCALON MEDICAL CORP.
(Exact name of registrant as specified in its charter)
CALIFORNIA 182 Tamarack Circle 33-0272839
(State or other Skillman, NJ 08558 (I.R.S. Employer
jurisdiction of (609) 497-9141 Identification
incorporation or (Address, including zip code, Number)
organization) and telephone number, including area code,
of registrant's principal executive offices)
Sterling C. Johnson, President
Escalon Medical Corp.
182 Tamarack Circle
Skillman, NJ 08558
(609) 497-9141
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
John F. Hartigan, Esq.
Morgan, Lewis & Bockius LLP
801 S. Grand Avenue, 22nd Floor
Los Angeles, California 90017
(213) 612-2500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM
TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box.[ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box.[x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this Form is post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box.[ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Subject to Completion on ________________, 1996
PROSPECTUS
ESCALON MEDICAL CORP.
400,000 SHARES OF COMMON STOCK
This Prospectus relates to an aggregate of 400,000 shares of Common
Stock, without par value (the "Common Stock"), of ESCALON MEDICAL CORP., a
California corporation ("Escalon" or the "Company"), formerly known as
Intelligent Surgical Lasers, Inc., 240,000 of which were acquired by Genentech,
Inc., a Delaware corporation ("Genentech"), in a private transaction, and
160,000 of which were acquired by EOI Corp., a Pennsylvania corporation
(together with Genentech, the "Selling Stockholders"), pursuant to a registered
offering on a Form S-4 Registration Statement filed with the Securities and
Exchange Commission on December 20, 1995 (File No. 33-80037). See "Selling
Stockholders." Some or all of the shares of Common Stock to which this
Prospectus relates may be sold from time to time by the Selling Stockholders or
by pledgees, donees, transferees or other successors in interest to the Selling
Stockholders, at public or private sale at prevailing market prices, prices
related to prevailing market prices, negotiated prices or fixed prices (and, in
the case of sales through brokers, upon payment of normal brokerage
commissions). As of June 30, 1996, EOI is the record holder of 4,480,772 shares
(42.6%) of Common Stock of the Company. Assuming the sale of all of the shares
by EOI being offered hereunder, EOI will be the record owner of 4,320,772
(41.1%) shares of Common Stock of the Company.
The Common Stock of the Company is quoted in the Nasdaq National Market
under the symbol "ESMC." The last reported sale price of the Common Stock on
the Nasdaq National Market on August 26, 1996, was $1.34375 per share.
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" ON PAGE 3 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus does not constitute an offer to sell securities in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. No person has been authorized by the Company to give any
information or to make any representations, other than as contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon. Neither delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
THE DATE OF THIS PROSPECTUS IS AUGUST ___, 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Information, as of
particular dates, concerning directors and officers, their remuneration,
options granted to them, the principal holders of securities of the Company and
any material interest of such persons in transactions with the Company is
disclosed in proxy statements distributed to stockholders of the Company and
filed with the Commission. Such reports, proxy statements and other
information and the Registration Statement of which this Prospectus is a part
can be inspected and copied at the public reference facilities maintained by
the Commission at room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained form
the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common
Stock is quoted on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company can be inspected at the offices of the
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 10006.
The Company has filed with the Commission in Washington, D.C. a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to the securities
covered by this Prospectus. As permitted by the rules an regulations of the
Commission, this Prospectus does not contain all of the information set forth
in the Registration Statement. For further information with respect to the
Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits filed or incorporated as a part
thereof. Statements contained herein concerning the provisions of documents
filed with, or incorporated by reference in, the Registration Statement as
exhibits are necessarily summaries of such documents and each such statement is
qualified in its entirety by reference to the copy of the applicable documents
filed with the Commission.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference herein, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference herein. Such requests should be addressed to:
Sterling C. Johnson, President, Escalon Medical Corp., 182 Tamarack Circle,
Skillman, New Jersey 08558 (telephone: (609) 497-9141).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission are
incorporated by reference herein:
(a) Annual Report on Form 10-K for the year ended June 30, 1995,
filed by the Company pursuant to Section 13(a) of the Exchange Act.
(b) Quarterly Reports on Form 10-Q filed by the Company pursuant to
Section 13(a) of the Exchange Act for the quarters ended September 30, 1995,
December 31, 1995, and March 31, 1996.
(c) Current Reports on Form 8-K dated October 24, 1995, February 13,
1996, and April 10, 1996, in each case filed by the Company pursuant to Section
13(a) of the Exchange Act.
(d) The description of the Common Stock set forth in its Form 8-A
Registration Statement filed on September 30, 1993, pursuant to Section 12(g)
of the Exchange Act.
All reports and definitive proxy or information statements and all
other documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not, except as
so modified or superseded, be deemed to constitute a part of this Prospectus.
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THE COMPANY
The Company designs, develops, manufactures and markets innovative,
technologically advanced laser systems and other ophthalmic surgical products
for the treatment of a broad range of ophthalmic disorders and is developing
novel pharmaceuticals and drug delivery technology.
The Company is a California corporation formed in December 1987. Its
principal executive offices are located at 182 Tamarack Circle, Skillman, New
Jersey 08558, and its telephone number is (609) 497-9141.
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the securities offered hereby. An investment in the
securities offered hereby is speculative in nature and involves a high degree
of risk. No investment in the securities offered hereby should be made by any
person who is not in a position to lose the entire amount of such investment.
Early Stage of Product Development; Technological Uncertainty and Competition
Certain of the Company's products are at an early stage of development
and only modest revenues have been generated from product sales. Although the
Company has commenced limited sales of its laser systems, primarily in
connection with its clinical trials, laser products of certain of the Company's
competitors are either already commercially marketed or nearing anticipated
approval for marketing by the United States Food and Drug Administration
("FDA"). Recent product additions by the Company and many future products
under development, which are targeted more towards general ophthalmic markets,
will be competing against industry leaders with greater resources. The Company
will be engaged in fields increasingly characterized by extensive research and
development efforts. New developments in drug research as well as new drug
delivery systems are expected to continue at a rapid pace and the science and
technology of laser products is also rapidly evolving. The Company's laser
systems and certain of its surgical products, drug delivery systems and novel
pharmaceuticals will each require significant further research, development,
testing and, for certain products, regulatory clearances, and are subject to
the risks of failure inherent in the development of products based on
innovative technologies. These risks include the possibility that any or all
of the proposed products will be found to be ineffective, unsafe or otherwise
fail to receive necessary regulatory clearances or that any or all of the
completed products will be uneconomical to market. In addition, third parties
may (i) hold proprietary rights that preclude the Company from marketing its
products or (ii) be able to market products superior or equivalent to the
Company's products. Accordingly, the Company is unable to predict whether its
research and development activities will result in any commercially viable
products. See "No Assurance of Market Acceptance."
History of Operating Losses; Accumulated Deficit
Prior to the acquisition of EOI, the Company was deemed a development
stage company for financial reporting purposes and has experienced significant
operating losses since its inception in 1987. From inception through March 31,
1996, the Company had an accumulated deficit of approximately $33.7 million.
With respect to the Company, such losses have resulted principally from costs
incurred in connection with research and development and clinical trials. The
Company anticipates that operating losses will continue for the foreseeable
future. To achieve profitable operations, the Company, alone or in
collaboration with others, must successfully develop, manufacture and market
its products and obtain required regulatory approvals. It may seek acquisition
of profitable companies to generate resources to fund the development of new
products. The Company expects that its quarterly results will fluctuate as a
result of differences in the timing of expenses incurred and the revenues
received from product sales and other sources. There can be no assurance that
the Company will successfully develop, commercialize, manufacture or market
additional products or ever achieve or sustain product revenues or
profitability. See "Government Regulation; Uncertainty of FDA Approval"; and
"Limited Manufacturing Capacity and Marketing Experience."
Future Capital Needs and Uncertainty of Additional Funding
The development of the Company's products will require substantial
funds in order to conduct research and development and preclinical and clinical
testing of such products and to manufacture and market the products that are
approved for commercial sale. Additionally, the Company will need to support
the ongoing costs of the existing shareholder lawsuits, which are more fully
described under the heading "Pending Shareholder Litigation." The Company has
curtailed the scope of its laser operations in the near term in order to
conserve available
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financial resources while it seeks to identify and develop corporate partnering
and other strategic collaborations to fund the significant capital requirements
necessary for advancing laser development. In the longer term, however, the
Company anticipates the need to seek additional capital through public or
private sales of its securities, including equity securities. Adequate funds,
whether through financial markets, collaborative or other arrangements with
strategic partners or from other sources, may not be available when needed or
on terms acceptable to the Company. Insufficient funds may require the Company
to delay, scale back or eliminate certain or all of its research and
development programs or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop itself, which may
adversely affect the Company's long-term profitability and the market price of
the Common Stock.
Dependence on Principal Products; Distribution and License Rights;
Collaborative Relationships
The Company's first products, the Model 2001 Laser System and the
Model 4000 System (a refractive upgrade to the Model 2001 Laser System), have
been sold principally to physicians and university hospitals in connection with
their participation in the Company's clinical trials and the preclinical
investigation of additional applications. Given the status of the Company's
various clinical trials, it is not likely that sales volumes of the Model 2001
Laser System and the Model 4000 System will generate significant revenues in
the near term. The Company also derives revenues from products which it (i)
owns, manufactures and produces through its manufacturing facility in Wisconsin
or (ii) has rights to under distribution and licensing agreements. Each of the
Company's distribution and licensing agreements has a limited initial term, and
there can be no assurance that any of such agreements would be renewed at the
end of the initial term. If one or more of the Company's distribution and
license agreements, joint marketing programs or research and development
collaborations were to cease to be in effect, the Company could be adversely
affected. Further, there can be no assurance that the Company will be
successful in expanding its product lines. If the Company is not successful in
the expanding of its product lines, revenues will be highly dependent on market
acceptance of its existing products. See "No Assurance of Market Acceptance."
Dependence on Patents; Uncertain Protection of Important Proprietary Technology
The Company will depend on its ability to (i) obtain patents, (ii) execute
confidentiality agreements with its employees and consultants to maintain the
proprietary nature of its technology and (iii) operate without infringing on
the proprietary rights of third parties. Eleven United States patents have been
issued to the Company and five additional United States patent applications
have been filed by the Company, each covering the method, use and major systems
components of the Company's laser systems. In addition, five foreign patents
have been issued, and six additional foreign patent applications have been
filed in Japan, Europe and Australia. The Company's other key products and
technology are covered by thirteen issued United States patents and one pending
United States patent. In addition, one issued Taiwan patent covers a key
product, and six of the issued United States patents are also the subject of
multiple foreign patent applications that have been filed in Europe and
Southeast Asia.
There can be no assurance, however, that any of the pending applications will
be approved, the Company will develop additional patentable proprietary
products or any patents presently issued will provide the Company with any
significant protection or will not be successfully challenged by third parties.
Furthermore, there can also be no assurance that third parties will not design
around the patented products owned by the Company. There can also be no
assurance that the Company's products will not infringe upon the patents of
others. If the Company's products are found to infringe upon the patents of
third parties or to otherwise impermissibly utilize the intellectual property
of third parties, the development, manufacture and sale of such products could
be severely restricted or prohibited. Further, the Company may be required to
obtain licenses to utilize patents or proprietary rights of third parties. No
assurance can be given that any licenses could be obtained on terms acceptable
to the Company, or at all. If the Company does not obtain such licenses, the
development, manufacture or sale of products requiring such licenses could be
materially adversely affected. In addition, the Company could incur substantial
costs in enforcing its patents.
Government Regulation; Uncertainty of FDA Approval
The Company is subject to substantial regulation by the FDA and other
federal and state regulatory agencies. FDA regulations require that the
Company obtain either 510(k) clearances or pre-marketing approvals ("PMAs") and
new drug applications ("NDAs") prior to marketing a product in the United
States for any application. The Company is also subject to foreign regulation
and is dependent on the receipt of various types of approvals from certain
foreign government agencies prior to the sale of products in those countries.
The clearance and approval processes for both the FDA and foreign regulatory
authorities are costly, time consuming and uncertain. In addition, the Company
may be required to obtain FDA approval before exporting a device
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which has not received FDA marketing clearance or approval. Escalon is
dependent on its ability to obtain these clearances, NDAs and PMAs and there
can be no assurance when the Company will receive such clearances, NDAs or
PMAs, in a timely manner, or at all, or that the Company will have sufficient
resources to complete the PMA or NDA process. See "Future Capital Needs and
Uncertainty of Additional Funding." Delays in obtaining such clearances, NDAs
or PMAs or changes in existing requirements could materially adversely affect
the Company.
The Company has received a 510(k) clearance from the FDA for the use
of the Model 2001 Laser System for posterior capsulotomies and discission of
pupillary membranes and has commenced limited sales of its Model 2001 Laser
System under Investigational Device Exemptions ("IDEs") for iridotomy, cataract
fragmentation or liquefaction and laser vitreolysis. Because the Model 2001
Laser System has received marketing clearance only for posterior capsulotomies
and discission of pupillary membranes, it may not be marketed in the United
States for any other indication. Sales of the Model 2001 Laser System in the
United States are likely to be limited unless and until additional clearances
or PMAs are received for other indications. Most applications of the Company's
laser systems are undergoing preclinical studies and clinical trials and will
require further studies and trials. The Company anticipates that all of the
pending and contemplated applications of the Company's currently existing and
planned products will be subject to the lengthier PMA regulatory approval
process, which includes preclinical studies, clinical trials and extensive
regulatory review. This PMA regulatory approval generally takes many years and
requires the expenditure of substantial resources.
Certain of the Company's products are, and certain of the Company's
anticipated new products will be, regulated by the FDA as pharmaceutical
products. The steps required by the FDA before new pharmaceutical products may
be marketed in the United States include preclinical studies, human clinical
trials to establish the safety and efficacy of the pharmaceutical product for
its intended uses, submission to the FDA of an NDA with respect to the product
and review and approval of the NDA by the FDA before the product may be shipped
or sold commercially.
The process of completing clinical testing and obtaining FDA approval
for a new pharmaceutical product is likely to take a number of years and
require the expenditure of substantial resources. If an NDA is submitted,
there can be no assurance that the FDA will review and approve the NDA in a
timely manner. Even after initial FDA approval has been obtained, further
studies, including post-market studies, may be required to provide additional
data on safety and will be required to gain approval for the use of a product
as a treatment for clinical indications other than those for which the product
was initially tested. Also, the FDA will require post-market reporting and may
require surveillance programs to monitor the side effects of the product.
Results of post-marketing programs may limit or expand the further marketing of
such products. Further, if there are any modifications to a product, including
changes in indication, manufacturing process, labeling, or a change in
manufacturing facility, an NDA supplement may be required to be submitted to
the FDA.
The Company has received the necessary FDA approvals for all of its
products currently being marketed. Subsequent to FDA approval however, if
discovery of previously unknown problems arise with a product, the FDA may
impose restrictions on the product, including withdrawal of the product from
the market. Further, FDA and comparable agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
manufacturing and marketing of pharmaceutical and medical device equipment and
related disposables, including the obligation to adhere to the FDA's Good
Manufacturing Practice ("GMP") regulations. Detailed validation of
manufacturing and quality control processes and other time-consuming procedures
are required. Periodic inspections by the FDA an other comparable agencies are
also made. If deficiencies in the validation processes are found, restrictions
on marketing the affected products may be imposed until such deficiencies are
corrected.
No assurance can be given that the FDA will not uncover deficiencies
under the GMP regulations in the future. The failure to comply with applicable
regulations could result in fines, delays or suspensions of clearances,
seizures or recalls of products, operating restrictions, injunctions or civil
or criminal penalties. The imposition of any such penalty, if substantial,
would have a material adverse effect on the financial condition and business of
the Company.
No Assurance of Market Acceptance
There can be no assurance that Escalon's products will be accepted in
the marketplace. Such acceptance will depend upon a number of factors,
including the receipt of regulatory approvals for multiple indications and the
establishment and demonstration in the ophthalmic community of the clinical
safety and efficacy of the Company's products and their advantages over
competitor's products. Accordingly, there can be no assurance
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that the Company will be able to successfully manufacture and market its
products even if they perform successfully in clinical applications.
Pending Shareholder Litigation
On April 3, 1995, the Company was served with a pleading entitled
Amended Consolidated Class Action Complaint in an action captioned In Re Blech
Securities Litigation, 94 Civ. 7696 (RWS), which was filed on or about March
28, 1995, in the United States District Court for the Southern District of New
York (the "Blech Complaint"). The Blech Complaint, which is brought on behalf
of a purported class of purchasers between July 1, 1991, and September 21,
1994, inclusive, of the securities of 24 different issuers (of which the
Company is one) seeks to allege causes of action based on Sections 10(b) and
20(a) of the Exchange Act, the Racketeer Influenced and Corrupt Organizations
Act and common law. Named as defendants are David Blech, D. Blech & Company,
Incorporated, Mark Germain, the trustees of certain trusts established by David
Blech, Bear Stearns & Co., Inc., Baird Patrick & Co., Chancellor Capital Corp.
and eleven different issuer defendants, including the Company. The Company is
named only in the Section 10(b) and common law counts of the Blech Complaint.
The Blech Complaint alleges that the defendants artificially manipulated and
inflated the prices of various securities issued by certain of the defendants.
The case is in the preliminary stages. Plaintiffs seek damages in an
unspecified amount, together with costs and attorneys' fees. Defendants have
moved to dismiss the Blech Complaint and discovery has occurred only with
respect to a limited category of documents.
On or about June 8, 1995, the Company and certain of its officers, and
directors were named as defendants in a purported class action complaint
captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et al, 95 Civ.
4299, filed in the United States District Court of the Southern District of New
York (the "Kozloski Complaint"). The Kozloski Complaint alleges that the
Company, together with certain of its officers and directors, David Blech and
D. Blech & Company, Incorporated, issued a false and misleading prospectus in
November 1993 in violation of Sections 11, 12 and 15 of the Securities Act.
The Kozloski Complaint also asserts claims under Section 10(b) of the Exchange
Act and common law. Actual and punitive damages in an unspecified amount are
sought, as well as a constructive trust over the proceeds from the sale of
stock pursuant to the offering. The Company has moved to dismiss the Kozloski
Complaint as against the Company and the named officers and directors, and no
discovery has occurred.
Regardless of the outcome, the Company could be required to incur
substantial expense in defending these lawsuits. Adverse outcomes of any of
these matters could have a material adverse effect upon the Company's financial
position and results of operations.
Dependence on Key Personnel
The Company is highly dependent upon its technical personnel and its
ability to attract and retain highly qualified scientific, management,
manufacturing and marketing personnel. The Company has entered into
non-compete agreements only with its executive officers and therefore could
suffer a material adverse effect if key employees without non-compete
agreements were to become employed by competitors. The Company currently does
not have any life insurance on any of its key personnel. The Company must
compete with other companies, universities, research entities and other
organizations to attract and retain qualified personnel, and competition for
such personnel is intense. There can be no assurance that Escalon will be able
to attract and retain the personnel necessary for the development and success
of its business. Because much of the know-how and many of the processes
developed by the Company reside in its key technical and other personnel, the
loss of the services of such personnel could have a material adverse effect on
Escalon.
Limitations on Third-Party Reimbursement
The Company's products generally are purchased by ophthalmologists and
hospitals which will then bill various third-party payors, such as government
programs and private insurance plans, for the health care services provided to
their patients. Third-party payors generally reimburse at a fixed rate based
on the procedure performed. In addition, third-party payors may deny
reimbursement if they determine that the use of the Company's products was
elective, unnecessary, inappropriate, not cost-effective, experimental or used
for a non-approved indication. Even if the Company received FDA clearances or
PMA's for its products, third-party payors may nevertheless deny reimbursement.
Furthermore, third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that
reimbursement from third-party payors will be available or, if available, that
reimbursement will not be limited when compared with reimbursement available in
connection with competitive procedures, thereby materially adversely affecting
Escalon's ability to sell its products on a profitable basis. The market for
the Company's products could also be
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adversely affected by recent and proposed federal legislation that reduces
reimbursements under the capital cost pass-through system utilized in
connection with the Medicare program. Failure by hospitals and other users of
Escalon's products to obtain reimbursement from third-party payors or changes
in government and private third-party payors' policies toward reimbursement for
procedures employing the Company's products could have a material adverse
effect on the Company. See "Possible Adverse Impact of Health Care Reform on
Delivery Payment of Health Care Services."
Possible Adverse Impact of Health Care Reform on Delivery Payment of Health
Care Services
The federal government and Congress have previously made proposals to
change aspects of the delivery and financing of health care services. The
Company cannot predict what form future legislation may take or the effect of
such legislation on its business. Such legislation may contain provisions
resulting in price limits and utilization controls which may reduce the rate of
increase in the growth of ophthalmic product markets or otherwise adversely
affect the Company's business. It is also possible that future legislation
could result in modifications to the nation's public and private health care
insurance systems which will affect reimbursement policies in a manner adverse
to the Company. The Company also cannot predict what other legislation
relating to its business or the health care industry may be enacted, including
legislation relating to third party reimbursement, or what effect any such
legislation may have on the results of its operations.
Reliance on Current Suppliers of Components
Escalon currently purchases certain key components, including laser
rods, slit-lamp operating microscopes, pockels cells, optical components and
electronic printed circuit boards, from single suppliers. Key components are
then assembled by the Company for inclusion in the final product. Although
Escalon believes it could obtain these components from other suppliers, it
could experience increased costs and significant delays in switching to new
suppliers of these components.
Pursuant to various distribution and license agreements, the Company
currently markets three key products, Adatosil(TM) 5000 Silicone Oil,
Betadine(TM) 5% Sterile Ophthalmic Prep Solution ("Betadine 5%") and ISPAN(TM)
intraocular gases, which are manufactured for the Company by the licensor or by
contract manufacturers for the licensor under separate contract. Such
licensors and contract manufacturers must adhere to the GMP regulations
prescribed and enforced by the FDA. Should any of the licensors or contract
manufacturers not meet the GMP requirements, supply of related products could
be severely delayed or limited, which would adversely affect the Company. See
"Government Regulation; Uncertainty of FDA Approval."
Limited Manufacturing Capacity and Marketing Experience
The Company currently assembles and manufactures most of its surgical
equipment and instruments at its Wisconsin facility. The Company will seek to
expand its product lines, but no assurance can be given that the required
manufacturing expertise or the physical capacity will be available at its
current location to produce commercially new product lines. As such, the
Company may have to rely on contract manufacturers to meet production needs.
Contract manufacturers must adhere to GMP regulations enforced by the FDA.
There is no assurance that the FDA will approve any of the contract manufacture
facilities in which any of the Company's products may be produced. The
Company's dependence on third parties to manufacture products may adversely
affect its ability to develop and deliver products on a timely and competitive
basis.
The Company currently markets its products directly with a sales force
made up of eight independent representatives located throughout the United
States. In addition, the Company has entered into co-marketing and
co-promotional arrangements with third parties in marketing and selling most of
its current products. For Betadine 5%, the Company sells both direct and
through drug wholesale distribution channels. The Company's revenues are
therefore dependent on third parties who are marketing and selling its
products. No assurance can be given that these third party arrangements will
continue, or, if they continue, that they will provide successful distribution
channels for the Company's products. If they do not continue, the Company
could seek to hire its own sales force to market and sell its products.
Product Liability and Possible Insufficiency of Insurance
The nature of the Company's business exposes it to risk from product
liability claims, and there can be no assurance that the Company can avoid
significant product liability exposure. The Company maintains product
liability insurance in the amount of $1.0 million per claim with an annual
aggregate limit of $2.0 million plus general umbrella coverage of $2.0 million.
However, product liability insurance is becoming increasingly
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expensive, and there can be no assurance that the Company's insurance will be
adequate to cover future product liability claims, or that the Company will be
successful in maintaining adequate product liability insurance at acceptable
rates, or at all. Should the Company be unable to maintain adequate product
liability insurance, the Company's ability to market its products may be
significantly impaired. Any losses that the Company may suffer from future
liability claims, a voluntary or involuntary recall of Escalon's products, and
the damage that any product liability litigation or voluntary or involuntary
recall may do to the reputation and marketability of the Company's products may
have a material adverse effect on the Company.
Market Volatility; Absence of Dividends
The market prices for securities of emerging growth companies have
been highly volatile. The market price for the Common Stock has fluctuated
from a high of $4.375 per share to a low of $1.50 per share over a period of
approximately one year. In addition, future announcements concerning Escalon
or its competitors, including quarterly results, the results of product testing
and clinical trials, technological innovations, the introduction of competitive
products, regulatory matters, developments concerning proprietary rights,
litigation or public concern as to the safety of the Company's products may
have a material impact on the market price for the Common Stock. Sales of a
substantial number of shares of Common Stock by existing shareholders or the
exercise of outstanding warrants or options to purchase Common Stock may also
have a material adverse effect on the market price for the Common Stock. See
"Shares of the Company Eligible for Future Issuance; Possible Adverse Effect on
Stock Price." The Company has not paid any cash dividends on the Common Stock
and does not anticipate paying any such dividends in the foreseeable future.
Limited Market-Making Activities; NASD Listing Criteria; Adverse Effect on
Trading Market
On September 22, 1994, the Company's principal market maker, D. Blech
& Company, Incorporated suspended its securities activities, including but not
limited to making a market in the Company's securities and those of certain
other biomedical companies, due to internal matters affecting that market
maker. There is currently a limited number of market makers for the Company's
securities, and no assurance can be given that any market maker will support
the market for the Company's securities in the future. If in the future the
Company (i) is unable to maintain the minimum number of market makers required
by the NASD or (ii) fails to meet any other NASD listing criteria, there is no
assurance that the Common Stock will continue to be listed on the Nasdaq
National Market or The Nasdaq Small Cap Market, and the trading market for the
Common Stock could be adversely affected.
Shares of the Company Eligible for Future Issuance; Possible Adverse Effect on
Stock Price
As of March 31, 1996, the Company had authorized a total of 9,083,013
options and warrants to acquire shares of the Common Stock. The exercise of
any of the Company's outstanding options or warrants may have a depressive
effect on the market price of the Common Stock. The Company is unable to
estimate the number of shares which may actually be sold pursuant to these
options and warrants since such number will depend upon the market price for
the Common Stock, the individual circumstances of the option and/or warrant
holder and other factors.
Notice of Rescission of Distribution and Clinical Agreement; Possible Effect on
Liquidity
On October 24, 1995 Kowa Company Ltd. ("Kowa"), a distributor of the
Company's surgical laser systems, notified the Company of its intent to rescind
its Distribution and Clinical Agreements with the Company. Kowa has offered to
restore to the Company three Model 2001 Laser Systems purchased by Kowa under
the Distribution Agreement and demanded restitution of all consideration paid
by Kowa under said agreement, together with accrued interest thereon from the
date of Kowa's purchase of those units and reimbursement of expenses incurred
by Kowa, for a total sum of $633,000. If the Company and Kowa are unable to
settle these alleged claims and if Kowa elects to proceed to arbitration under
the terms of the agreements, such an action could have a materially adverse
effect on the liquidity and capital resources of the Company.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale
of the Shares offered hereunder by the Selling Stockholders. The offering is
made to fulfill the Company's obligations to the Selling Stockholders to
register certain shares held by the Selling Stockholders.
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SELLING STOCKHOLDERS
The shares of the Common Stock covered by this Prospectus (the
"Shares") are, or may be, offered by the Selling Stockholders. The Selling
Stockholders are Genentech, Inc., a Delaware corporation ("Genentech"), and EOI
Corp., a Pennsylvania corporation ("EOI").
As of November 10, 1993, Genentech and EOI entered into a
license agreement (the "License Agreement"), pursuant to which Genentech
granted an exclusive license to EOI for certain technology, and EOI agreed to
undertake certain activities with respect to the development and marketing of
products incorporating the licensed technology. In partial consideration for
the rights granted to EOI by Genentech under the License Agreement, EOI issued
to Genentech 10% Convertible Subordinated Notes due October 31, 2000 (the
"Convertible Notes") in the principal amount of $1,452,300. Additional
Convertible Notes of EOI in the principal amount of $284,960 and Common Stock
Purchase Warrants exercisable for the purchase of 227,500 shares of EOI Common
Stock at $2.21 per share, which expire in January 2002 (the "Warrants"), were
issued to Genentech in payment of accrued interest on such Convertible Notes.
The Company and EOI entered into an Assets Sale and Purchase
Agreement dated as of October 9, 1995 and amended on December 19, 1995 (as
amended, the "Acquisition Agreement"), pursuant to which EOI agreed to sell
substantially all of its assets subject to certain of its liabilities (the
"Asset Acquisition") to the Company in exchange for shares of the Common Stock
(the "EOI Shares") representing 45% of the issued and outstanding shares of the
Common Stock. At the closing of the Asset Acquisition on February 12, 1996,
the EOI Shares consisted of 4,720,772 shares of the Common Stock.
Genentech and EOI agreed not to pursue the relationships and
activities contemplated by the License Agreement and entered into a Termination
and Settlement Agreement (the "Settlement Agreement") dated as of February 12,
1996. Under the Settlement Agreement, the parties agreed that: (i) the License
Agreement would be terminated; (ii) Genentech would return the Convertible
Notes and Warrants to EOI for cancellation, and all rights and obligations
represented thereby shall be fully discharged; and (iii) EOI would transfer and
deliver to Genentech 240,000 of the EOI Shares.
The 240,000 EOI Shares that are intended to be sold by
Genentech represent all of the shares of Common Stock currently held by
Genentech.
Except for the 240,000 EOI Shares issued to Genentech, the EOI
Shares, including the 160,000 EOI Shares that are a part of this offering, are
subject to a Lockup Agreement between the Company and EOI that was executed in
connection with the closing of the Asset Acquisition. The Company has agreed
to waive provisions of the Lockup Agreement with respect to $150,000 of the EOI
Shares that are part of this offering. The remaining EOI Shares that are part
of this offering will remain subject to the Lockup Agreement.
Four of EOI's directors are directors of the Company.
Sterling C. Johnson is the principal executive officer of each of EOI and the
Company.
Additional information as to the Selling Stockholders and
their beneficial ownership of the Common Stock is set forth below.
Common Stock To Be
Common Stock Beneficially Owned If
Beneficially Owned All Shares Offered
On February 12, 1996 Hereunder Are Sold
-------------------- ---------------------
Shares That May be
Name Shares Percent Offered Hereunder Shares Percent
---- ------ ------- ----------------- ------ -------
Genentech, Inc. 240,000 2.3 240,000 0 0
EOI Corp. 4,480,772 42.6 160,000 4,320,772 41.1
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PLAN OF DISTRIBUTION
The Company has been advised that the distribution of the
Shares by the Selling Stockholders, or by pledgees, donees or transferees of or
other successors in interest to the Selling Stockholders, may be effected from
time to time in one or more transactions (which may involve block transactions)
on the Nasdaq National Market or such other exchange or market in which the
Common Stock may from time to time be trading, in negotiated transactions or in
a combination of any such transactions. Such transactions may be effected by
the Selling Stockholders at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or at
fixed prices. The Selling Stockholders may affect such transactions by selling
Shares to or through broker-dealers, including purchases by a broker-dealer as
principal and resale by such broker-dealer for its account pursuant to this
Prospectus. Such broker-dealers will receive compensation in the form of
discounts or commissions from the Selling Stockholders and may receive
commissions from the purchasers of Shares for whom such broker-dealers may act
as agents (which discounts or commissions from the Selling Stockholders or such
purchasers, if in excess of those customary for the types of transactions
involved, will be disclosed in a supplemental prospectus).
The Company has been advised by EOI that EOI may distribute
certain of its 160,000 Shares registered hereby to third parties in negotiated
transactions in consideration for the settlement of litigation or other claims
not against the Company.
In order to comply with certain states' securities laws, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states the Shares may
not be sold unless the Shares have been registered or qualify for sale in such
state or an exemption from registration or qualification is available and is
complied with.
Any broker-dealer that participates with the Selling
Stockholders in the distribution of Common Stock may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any commissions or
discounts received by such broker-dealer and any profit on the resale of Shares
by such broker-dealer may be deemed to be underwriting discounts and
commissions under the Securities Act.
The costs and expenses of the registration of the Shares will
be paid by EOI. These costs and expenses borne by EOI will include, without
limitation, all registration and filing fees, printing expenses and costs of
special audits incident to or required by the registration of the Shares.
Notwithstanding the foregoing, in the event that EOI does not pay any of such
fees or expenses relating to Genentech, the Company (and not Genentech) will be
liable for their payment.
LEGAL MATTERS
The valid issuance of the shares of Common Stock offered
hereby has been passed upon for the Company by Morgan, Lewis & Bockius LLP, Los
Angeles, California.
EXPERTS
The financial statements of the Company at June 30, 1995 and
1994, and, for each of the three years in the period ended June 30, 1995, and
for the period from inception to June 30, 1995, incorporated by reference from
the Company's Current Report on Form 8-K, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The financial statements of EOI at December 31, 1994 and 1993,
and for each of the three years in the period ended December 31, 1994,
incorporated by reference from the Company's Current Report on Form 8-K, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities being registered.
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 353
Legal fees and expenses (including Blue Sky) . . . . . . . . . . . . . . . . . . . 15,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,400
=======
EOI is responsible for all of the foregoing fees and expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The California Corporations Code provides that California corporations
may include provisions in their articles of incorporation relieving directors
of monetary liability for breach of their fiduciary duty as directors, except
for the liability of a director resulting from (i) any transaction from which
the director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or the absence of good faith, (iii) acts or
omissions constituting an unexcused pattern of inattention to the director's
duty, (iv) acts or omissions showing a reckless disregard for the director's
duty or (v) the making of an illegal distribution to shareholders or an illegal
loan or guaranty. The Company's Restated Articles of Incorporation, as
amended, provide that the liability of the Company's directors is eliminated to
the fullest extent permissible under California Law.
The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by California law,
including circumstances in which indemnification is otherwise discretionary
under California law. In addition, agreements entered into by the Company with
its directors and officers require the Company to indemnify such persons
against expenses, judgments, fines, settlements and other amounts reasonably
incurred in connection with any proceeding to which any such person may be made
a party by reason of the fact that such person was an agent of the Company.
The indemnification agreements set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registration in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 16. EXHIBITS.
2.1 Assets Sale and Purchase agreement between Registrant and
Escalon Ophthalmics, Inc., Dated October 9, 1995*
4.1 Specimen Common Stock Certificate**
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5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality
of the securities being offered***
23.1 Consent of Ernst & Young LLP***
23.2 Consent of Ernst & Young LLP***
23.3 Consent of Morgan, Lewis & Bockius LLP (included as part of
its opinion filed as Exhibit 5.1 hereto)
24.1 Powers of Attorney ***
99.1 Termination and Settlement Agreement dated as of February 12,
1996, between EOI Corp. and Genentech, Inc.*
__________
* Filed as an appendix to the Registration Statement on Form S-4
dated December 20, 1995.
** 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).
*** Filed as an exhibit to Registration Statement on Form S-3 filed
May 1, 1996 (Registration No. 333-4382).
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such information in the
Registration Statement:
(b) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(c) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby further undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
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15
indemnification against such liabilities (other than the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Skillman, State of New Jersey, on August 27, 1996.
ESCALON MEDICAL CORP.
(Registrant)
By: /s/ Sterling C. Johnson
-------------------------------------
Sterling C. Johnson, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President (Principal Executive Officer) and August 27, 1996
Director
/s/ Sterling C. Johnson
- ----------------------------------
Sterling C. Johnson
Vice President of Finance (Principal August 27, 1996
/*/ Financial Officer and Principal Accounting
- ---------------------------------- Officer) and Assistant Secretary
John T. Rich
/*/ Director August 27, 1996
- ----------------------------------
Anthony B. Evnin
/*/ Director August 27, 1996
- ----------------------------------
Robert J. Kunze
/*/ Director August 27, 1996
- ----------------------------------
Jay L. Federman, M.D.
/*/ Director August 27, 1996
- ----------------------------------
Richard J. De Piano
/*/ Director August 27, 1996
- ----------------------------------
Jack M. Dodick, M.D.
/*/ By: /s/ Sterling C. Johnson August 27, 1996
- ----------------------------------
Sterling C. Johnson,
Attorney in Fact
II-4