Escalon Medical Corporation

02/17/2026 | Press release | Distributed by Public on 02/17/2026 15:02

Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements contained in, or incorporated by reference in, this Quarterly Report on Form 10-Q are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan," "possible," "project," "should," "will," and similar words or expressions. The Company's forward-looking statements include certain information relating to general business strategy, growth strategies, financial results, liquidity, the Company's ability to continue as a going concern,
discontinued operations, research and development, product development, the introduction of new products, the potential markets and uses for the Company's products, the Company's ability to increase its sales campaign effectively, the Company's regulatory filings with the FDA, acquisitions, dispositions, the development of joint venture opportunities, intellectual property and patent protection and infringement, the loss of revenue due to the expiration or termination of certain agreements, the effect of competition on the structure of the markets in which the Company competes, increased legal, accounting and Sarbanes-Oxley compliance costs, information security, cybersecurity and data privacy risks, defending the Company in litigation matters and the Company's cost saving initiatives. The reader must carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by assumptions that fail to materialize as anticipated, including risks related to inflation and tariffs, the ability to continue as a going concern including the ability to raise capital, manage operations and pursue business partnerships and cost-cutting measures, and the other risks described in the Company's Form 10-K for the fiscal year ended June 30, 2025. Consequently, no forward-looking statement can be guaranteed, and actual results may vary materially. It is not possible to foresee or identify all factors affecting the Company's forward-looking statements, and the reader therefore should not consider the list of such factors contained in its periodic report on Form 10-K for the year ended June 30, 2025 and this Form 10-Q quarterly report to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.
Executive Overview-six-month periods ended December 31, 2025and 2024
The following highlights are discussed in further detail within this Form 10-Q. The reader is encouraged to read this Form 10-Q in its entirety to gain a more complete understanding of factors impacting Company performance and financial condition.
•Consolidated net revenue increased approximately $265,000 or 4.4%, to $6,267,000 during the six months ended December 31, 2025 as compared to the same period of last fiscal year. The increase in net revenue is mainly attributed to an increase of $455,000 in sales of Sonomed products, offset by a decrease of $207,000 in sales of Trek products during the six months ended December 31, 2025.
•Consolidated cost of revenue totaled approximately $3,590,000, or 57.3%, of total revenue during the six months ended December 31, 2025, as compared to $3,215,000, or 53.6%, of total revenue of the same period of last fiscal year. The increase of 3.7% in cost of revenue as a percentage of total revenue is mainly due to change in product mix.
•Consolidated marketing, general and administrative expenses increased $173,000, or 7.7%, to $2,434,000 during the six months ended December 31, 2025, as compared to the same period of last fiscal year. The increase is mainly due to a $91,000 increase in payroll, $49,000 in advertising expenses, $35,000 in legal expenses, $27,000 in travel expenses, and $20,000 in benefits, partially offset by an $60,000 accounts receivable credit loss adjustment and a decrease of $27,000 in network expenses during the six months ended December 31, 2025.
•Consolidated research and development expenses increased $50,000 or 16.8%, to $347,000 during the six months ended as compared to the same period of the prior fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is mainly due to an increase of $64,000 ultrasound consulting expenses offset by nonrecurring AXIS consulting expenses of $14,000 during the six months ended December 31, 2025.
Company Overview
The following discussion should be read in conjunction with the interim unaudited condensed consolidated financial statements and the notes thereto, which are set forth in Item 1 of this report.
The Company operates in the healthcare market specializing in the development, manufacture, marketing and distribution of medical devices and pharmaceuticals in the area of ophthalmology. The Company and its products are subject to regulation and inspection by the FDA. The FDA requires extensive testing of new products prior to sale and has jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing. The Company's Internet address is www.escalonmed.com. Under the trade name of Sonomed-Escalon the Company develops, manufactures and markets ultrasound systems used for diagnosis or biometric applications in ophthalmology, develops, manufactures and distributes ophthalmic surgical products under the Trek Medical Products name, and manufactures and markets digital camera systems for ophthalmic fundus photography and image management systems.
Critical Accounting Estimates
The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact amounts reported therein. On a regular basis, we evaluate these estimates. These estimates are based on management's historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.
Our significant accounting policies are more fully described in Note 3-Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this report.
Results of Operations
Three and Six Months Ended December 31, 2025 and 2024
The following table shows consolidated net revenue, as well as identifying trends in revenues for the three and six months ended December 31, 2025 and 2024. Table amounts are in thousands:
For the Three Months Ended December 31, For the Six Months Ended December 31,
2025 2024 % Change 2025 2024 % Change
Net Revenue:
Products $ 3,415 $ 3,103 10.1 % $ 5,952 $ 5,754 3.4 %
Service plans 176 118 49.2 % 315 248 27.0 %
Total $ 3,591 $ 3,221 11.5 % $ 6,267 $ 6,002 4.4 %
Consolidated net revenue increased approximately $370,000or 11.5%, to $3,591,000during the three months ended December 31, 2025as compared to the same period of last fiscal year. The increase in net revenue is mainly attributed to an increase of $583,000 in sales of Sonomed products, offset by a decrease of $192,000 in sales of Trek products during the three months ended December 31, 2025.
Consolidated net revenue increased approximately $265,000 or 4.4%, to $6,267,000 during the six months ended December 31, 2025as compared to the same period of last fiscal year. The increase in net revenue is mainly attributed to an increase of $455,000 in sales of Sonomed products, offset by a decrease of $207,000 in sales of Trek products during the six months ended December 31, 2025.
Foreign sales
The following table presents domestic and international sales from continuing operations for the three and six months ended December 31, 2025 and 2024. Table amounts are in thousands:
For the Three Months Ended December 31, For the Six Months Ended December 31,
2025 2024 2025 2024
Domestic $ 1,727 48.1 % $ 1,699 52.7 % $ 3,360 53.6 % $ 3,445 57.4 %
Foreign 1,864 51.9 % 1,522 47.3 % 2,907 46.4 % 2,557 42.6 %
Total $ 3,591 100.0 % $ 3,221 100.0 % $ 6,267 100.0 % $ 6,002 100.0 %
The following table presents consolidated cost of revenue and as a percentage of revenues for the three and six months ended December 31, 2025 and 2024. Table amounts are in thousands:
For the Three Months Ended December 31, For the Six Months Ended December 31,
2025 % 2024 % 2025 % 2024 %
Cost of Revenue:
$ 2,035 56.7 % $ 1,647 51.1 % $ 3,590 57.3 % $ 3,215 53.6 %
Total $ 2,035 56.7 % $ 1,647 51.1 % $ 3,590 57.3 % $ 3,215 53.6 %
Consolidated cost of revenue totaled approximately $2,035,000, or 56.7%, of total revenue during the three months ended December 31, 2025, as compared to $1,647,000, or 51.1%, of total revenue same period of last fiscal year. The increase of 5.6%in cost of revenue as a percentage of total revenue is mainly due to change in product mix.
Consolidated cost of revenue totaled approximately $3,590,000, or 57.3%, of total revenue during the six months ended December 31, 2025, as compared to $3,215,000, or 53.6%, of total revenue same period of last fiscal year. The increase of 3.7% in cost of revenue as a percentage of total revenue is mainly due to change in product mix.
The following table presents consolidated marketing, general and administrative expenses for the three and six months ended December 31, 2025 and 2024. Table amounts are in thousands:
For the Three Months Ended December 31, For the Six Months Ended December 31,
2025 2024 % Change 2025 2024 % Change
Marketing, General and Administrative:
$ 1,326 $ 1,162 14.1 % $ 2,434 $ 2,261 7.7 %
Total $ 1,326 $ 1,162 14.1 % $ 2,434 $ 2,261 7.7 %
Consolidated marketing, general and administrative expenses increased $164,000, or 14.1%, to $1,326,000during the three months ended December 31,2025 as compared to the same period of last fiscal year. The increase is mainly due to a $40,000 increase in payroll, $28,000 accounts receivable credit loss adjustment, a $22,000 increase in advertising expenses, and $22,000 in travel expenses, increased fringe benefits expenses, offset by a decrease of $21,000 network expenses during the three months ended December 31, 2025.
Consolidated marketing, general and administrative expenses increased $173,000, or 7.7%, to $2,434,000 during the six months ended December 31, 2025 as compared to the same period of last fiscal year. The increase is mainly due to a $91,000 increase in payroll, $49,000 in advertising expenses, $35,000 in legal expenses, $27,000 in travel expenses, and $20,000 in benefits, partially offset by an $60,000 accounts receivable credit loss adjustment and a decrease of $27,000 in network expenses during the six months ended December 31, 2025.
The following table presents consolidated research and development expenses for the three and six months ended December 31, 2025 and 2024.
Table amounts are in thousands:
For the Three Months Ended December 31, For the Six Months Ended December 31,
2025 2024 % Change 2025 2024 % Change
Research and Development:
$ 131 $ 156 (16.0) % $ 347 $ 297 16.8 %
Total $ 131 $ 156 (16.0) % $ 347 $ 297 16.8 %
Consolidated research and development expenses decreased 25,000, or 16.0%, to $131,000 during the three months ended December 31, 2025as compared to same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The decrease in research and development expense is mainly due to the decreased nonrecurring AXIS consulting expenses of $50,000 offset by an increase of $25,000 in ultrasound consulting expenses during the three months ended December 31, 2025.
Consolidated research and development expenses increased $50,000, or 16.8%, to $347,000 during the six months ended December 31, 2025as compared to same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is mainly due to an increase of $64,000 ultrasound consulting expenses offset by nonrecurring AXIS consulting expenses of $14,000 during the six months ended December 31, 2025.
Recently Announced Tariffs and Trade Measures
Beginning in the third quarter of fiscal year 2025, the U.S. government announced new tariffs on a broad range of imports, including a 10% tariff on most imports and additional individualized higher tariffs on certain specific goods and countries. In response, certain affected countries have imposed or may impose retaliatory tariffs on U.S. exports and may implement additional trade restrictions and/or other retaliatory measures in the future.
These recent and potential future tariffs and trade measures could adversely affect the Company's business in several ways. Increased costs of imported raw materials, components, and finished goods may negatively impact profitability and gross margins. The Company may face challenges in passing these increased costs on to its customers due to competitive pressures or market conditions. Additionally, the uncertainty surrounding the duration and extent of these tariffs, as well as potential trade policy changes, could disrupt the Company's supply chain, require alternative and potentially more expensive sourcing options, and impact long-term strategic planning and investment decisions. The imposition of
retaliatory tariffs by other countries could also reduce the demand for the Company's exported products, negatively impacting revenue and international sales.
Management is actively monitoring these developments, assessing the potential impacts on the Company's business, and evaluating possible mitigation strategies, including exploring alternative sourcing, adjusting pricing strategies where feasible, and analyzing potential shifts in global supply chains. However, the ultimate financial impact of these tariffs and the associated uncertainty cannot be reasonably estimated at this time. This situation could have a material adverse effect on the Company's future financial condition, results of operations, and cash flows. The Company will continue to evaluate these developments and provide updates in future filings as the situation evolves and more information becomes available.
Liquidity and Capital Resources
Our total cash as of December 31, 2025 was approximately $337,000 of cash on hand compared to approximately $546,000 of cash on hand and restricted cash of $257,000 as of June 30, 2025.
On October 17, 2025, the Company fully repaid its outstanding TD Bank loan of $113,960 using its restricted cash. Following the repayment, the remaining balance of $142,622 in the restricted cash account was released.
Because the Company's operations have not historically generated sufficient revenues to achieve profitability the Company will continue to closely monitor costs and expenses and may need to raise additional capital to fund operations.
The Company expected to continue to fund operations from cash on hand and through capital raising sources if possible and available, which may be dilutive to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. Additionally, the Company may seek to sell additional equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness in connection with a debt financing would result in increased fixed obligations and could contain covenants that would restrict our operations.
As of December 31, 2025 the Company had an accumulated deficit of approximately $68.6 million. It had net loss from operations for the six months ended December 31, 2025 and has historically incurred recurring losses from operations and negative cash flows from operating activities. The Company generated net income from operations in fiscal year 2025 and fiscal 2023, and reported positive cash flows from operating activities in fiscal years 2025, 2021 and 2023. While the overall trend has been toward profitability, the Company had net profit for just two years of the last five years, and currently the Company has adverse ratios of cash to current liabilities and days payable outstanding. Additionally, there is uncertainty in the market related to the tariffs and the related impacts to the international business and supply chain cost impacts. It remains uncertain whether the Company will keep the profitability trend and sales growth. These factors raise substantial doubt regarding our ability to continue as a going concern, and the Company's ability to generate cash to meet our cash requirements for the following twelve months as of the filing date of this form 10-Q.
During November 2025, the Company entered into a loan agreement with TUW. Under the terms of the agreement, TUW provided financing to the Company in the amount of $100,000 to support working capital needs secured by collateral. The loan has an annualized interest rate of 14% during the three-month term.
The following table presents overall liquidity and capital resources as of December 31, 2025 and June 30, 2025. Table amounts are in thousands:
December 31 June 30,
2025 2025
Current Ratio:
Current assets $4,288 $4,612
Less: Current liabilities $2,603 2,685
Working capital $1,685 $1,927
Current ratio 1.65 to 1 1.72 to 1
Debt to Total Capital Ratio:
Note payable, lease liabilities, EIDL loan and related party loan $820 $523
Total equity 1,773 1,915
Total capital $2,593 $2,439
Total debt to total capital 31.6% 21.5%
Working Capital Position
Working capital decreased approximately $242,000 to$1,685,000 as of December 31, 2025, and the current ratio decreased to 1.65 to 1 from 1.72 to 1 when compared to June 30, 2025.
The decrease in working capital is mainly driven by a net operating loss, lower inventory levels, and an increase in accrued expenses and deferred revenue.
Debt to total capital ratio was 31.6% and 21.5% as of December 31 2025 and June 30, 2025, respectively.
Cash Flow (Used in) Provided by Operating Activities
During the six months ended December 31, 2025 the Company used approximately $432,000 of cash in operating activities as compared to approximately $334,000 of cash provided by operating activities during the six months ended December 31, 2024.
For the six months ended December 31, 2025, its cash used in operations is mainly due to an increase in accounts receivable of $673,000, a decrease in accounts payable of $394,000, offset by a decrease in inventories of 618,000 and an increase in accrued expenses of $115,000, and deferred revenue of $112,000, The remaining offsetting items for cash used in operations is comprised of less significant items.
For the six months ended December 31, 2024, its cash provided by operations is due to a net income of $214,000, a decrease in accounts receivable of $513,000, and an increase in accrued liability of 116,000, and an increase in deferred revenue of $62,000, offset by a decrease in accounts payable of $465,000, and an increase in inventory of $106,000. The remaining offsetting items for cash provided by operations is comprised of less significant items.
Cash Flows Used in Investing Activities
Cash flows used in investing activities for the six months ended December 31, 2025 was due to purchase of the fixed assets of $4,000. There were no cash flows used in investing activities for the quarter ended December 31, 2024.
Any necessary capital expenditures have generally been funded out of cash from operations, The Company is not aware of any factors that would cause historical capital expenditure levels to not be indicative of capital expenditures in the future. Accordingly, the Company does not believe that it will have to commit material resources to capital investment for the foreseeable future.
Cash Flows Used in (Provided by) Financing Activities
For the six months ended December 31, 2025 the cash used in financing activities was due to repayment of TD bank loan balance of $126,000, and repayment of EIDL loan of $2,000, offset by the proceeds from the related party short-term loan of $100,000.
For the six months ended December 31, 2024 the cash used in financing activities was due to loan payments of $21,000 and repayment of EIDL loan of $2,000.
Off-balance Sheet Arrangements and Contractual Obligations
The Company was not a party to any off-balance sheet arrangements during the six months ended December 31, 2025 and June 30, 2025.
Escalon Medical Corporation published this content on February 17, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 17, 2026 at 21:03 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]