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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY PERIOD PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarterly Period ended March 31, 2026
Commission File Number 0-20127


Escalon Medical Corp.
(Exact name of registrant as specified in its charter)


Pennsylvania33-0272839
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
435 Devon Park Drive, Suite 824, Wayne, PA 19087
(Address of principal executive offices, including zip code)
(610) 688-6830
(Registrant’s telephone number, including area code)

N/A
Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act: NONE
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  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company. or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyo

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  Yes  x  No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 7,415,329 shares of common stock, $0.001 par value outstanding as of May 14, 2026.








  Page
PART I Financial Information
Item I.
Item 2.
Item 3.
Item 4.
PART II Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 




PART 1. FINANCIAL INFORMATION
Item I. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


March 31,
2026		June 30,
2025
(Unaudited)
ASSETS
Current assets:
Cash $3,342,537 $545,835 
Restricted cash— 256,550 
Accounts receivable1,444,179 1,667,394 
    Less: allowance for credit losses(102,677)(164,499)
  Accounts receivable, net1,341,502 1,502,895 
Inventories1,657,651 2,142,263 
Other current assets224,841 164,394 
Total current assets6,566,531 4,611,937 
Property and equipment, net29,516 34,589 
Right-of-use assets865,212 253,953 
License and patent, net8,224 29,792 
Other long term assets62,788 62,788 
Total assets$7,532,271 $4,993,059 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of note payable $— $40,708 
Current portion of EIDL loan3,466 3,370 
Accounts payable897,168 1,387,192 
Accrued expenses783,777 633,422 
Related party accrued interest 112,389 112,389 
Current portion of operating lease liabilities 153,768 86,521 
Deferred revenue490,131 327,919 
Other short term liabilities91,860 93,727 
Total current liabilities2,532,559 2,685,248 
Note payable, net of current portion— 85,761 
Operating lease liabilities, net of current portion717,046 168,015 
EIDL loan, net of current portion136,298 138,928 
Total liabilities3,385,903 3,077,952 
Commitments and Contingencies (Note 10)
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value; 2,000,000 shares authorized; 2,000,000 shares issued and outstanding (liquidation value of $1,064,266 and $1,025,531)645,000 645,000 
Common stock, $0.001 par value; 35,000,000 shares authorized; 7,415,329 shares issued and outstanding 7,415 7,415 
Additional paid-in capital69,702,043 69,702,043 
Accumulated deficit(66,208,090)(68,439,351)
Total stockholders’ equity4,146,368 1,915,107 
Total liabilities and stockholders’ equity$7,532,271 $4,993,059 
See notes to unaudited condensed consolidated financial statements.



ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31,For the Nine Months Ended March 31,
2026202520262025
Net revenues:
Products$2,471,554 $3,314,827 $8,423,866 $9,068,890 
Service plans136,969 159,365 451,425 407,204 
Revenues, net2,608,523 3,474,192 8,875,291 9,476,094 
Costs and expenses:
Cost of revenue1,661,861 1,874,287 5,251,835 5,089,050 
Marketing, general and administrative1,336,017 1,159,113 3,769,544 3,420,504 
Research and development29,908 164,755 377,188 461,554 
Total costs and expenses
3,027,786 3,198,155 9,398,567 8,971,108 
(Loss) income from operations(419,263)276,037 (523,276)504,986 
Other income (expenses)
Gain from sales of AXIS software2,813,525 — 2,813,525 — 
Other income (expenses)(17,622)— (50,704)(5,000)
Interest expense, net(3,204)(4,565)(8,284)(14,710)
Income tax expense— — — — 
Net income 2,373,436 271,472 2,231,261 485,276 
 Less undeclared dividends on preferred stocks12,723 12,689 38,735 38,629 
 Less income allocated to convertible preferred stocks1,154,308 123,323 1,072,070 212,849 
Net income applicable to common stockholders$1,206,405 $135,460 $1,120,456 $233,798 
Net earnings per share
Basic earnings per share applicable to common stockholder$0.16 $0.02 $0.15 $0.03 
Diluted earnings per share$0.16 $0.02 $0.15 $0.03 
Weighted average shares—basic7,415,329 7,415,3297,415,3297,415,329 
Weighted average shares—diluted14,510,43614,166,21714,510,43614,166,217 
See notes to unaudited condensed consolidated financial statements.



ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
 Series A Convertible Preferred StockCommon StockAdditional
Paid-in
Capital		Accumulated
Deficit		Total
Stockholders’
Equity
 Shares AmountSharesAmount  
Balance at June 30, 20252,000,000 $645,000 7,415,329 $7,415 $69,702,043 $(68,439,351)$1,915,107 
Net loss— — — — — (239,852)(239,852)
Balance at September 30, 20252,000,000 645,000 7,415,329 7,415 69,702,043 (68,679,203)1,675,255 
Net income— — — — — 97,677 97,677 
Balance at December 31, 20252,000,000 645,000 7,415,329 7,415 69,702,043 (68,581,526)1,772,932 
Net income— — — — — 2,373,436 2,373,436 
Balance at March 31, 20262,000,000 $645,000 7,415,329 $7,415 $69,702,043 $(66,208,090)$4,146,368 

Series A Convertible Preferred Stock Common StockAdditional
Paid-in
Capital		 Accumulated DeficitTotal
Stockholders’
Equity
 Shares Amount Shares Amount
Balance at June 30, 20242,000,000 $645,000 7,415,329 $7,415 $69,702,043 $(68,544,876)$1,809,582 
Net loss— — — — — (32,217)(32,217)
Balance at September 30, 20242,000,000 645,000 7,415,329 7,415 69,702,043 (68,577,093)1,777,365 
Net income— — — — — 246,021 246,021 
Balance at December 31, 20242,000,000 645,000 7,415,329 7,415 69,702,043 (68,331,072)2,023,386 
Net income— — — — — 271,472 271,472 
Balance at March 31, 20252,000,000 $645,000 7,415,329 $7,415 $69,702,043 $(68,059,600)$2,294,858 
See notes to unaudited condensed consolidated financial statements.




ESCALON MEDICAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended March 31,
20262025
Cash Flows from Operating Activities:
Net income$2,231,261 $485,276 
Adjustments to reconcile net income to net cash provided by operating activities:
Net gain from sales of AXIS software(2,813,525)— 
Change in allowance for credit loss(61,322)— 
Depreciation and amortization19,587 29,267 
Non cash lease expense75,982 187,280 
Change in operating assets and liabilities:
Accounts receivable222,715 (4,636)
Inventories484,612 (131,208)
Other current assets(60,447)21,757 
Accounts payable (490,024)(294,141)
   Accrued expenses150,355 174,939 
Change in operating lease liability(70,963)(203,194)
   Deferred revenue162,212 96,014 
 Other short-term and long-term liabilities(1,867)3,611 
Net cash (used in) provided by operating activities(151,424)364,965 
Cash Flows from Investing Activities:
Net proceeds from sales of AXIS software2,825,000 — 
Purchase of equipment (4,421)— 
Net cash provided by investing activities 2,820,579 — 
Cash Flows from Financing Activities:
            Proceeds from related party loan100,000 — 
            Repayment of note payable(126,469)(30,469)
            Repayment of EIDL loan(2,534)(2,525)
            Repayment of related party loan(100,000)— 
Net cash used in financing activities(129,003)(32,994)
Net increase in cash, cash equivalents and restricted cash2,540,152 331,971 
Cash, and restricted cash, beginning of period802,385 465,455 
Cash, and restricted cash, end of period$3,342,537 $797,426 
Cash, and restricted cash consist of the following:
End of period
Cash $3,342,537 $540,908 
Restricted cash — 256,518 
$3,342,537 $797,426 
Beginning of period
Cash $545,835 $209,033 
Restricted cash 256,550 256,422 
$802,385 $465,455 


Supplemental Schedule of Cash Flow Information:
Interest paid$8,315 $16,060 
Non Cash Finance Activities
Non-cash ROU assets and Liability recognition$687,241 $227,930 
See notes to unaudited condensed consolidated financial statements


Escalon Medical Corp. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Basis of Presentation

Escalon Medical Corp. ("Escalon" or "Company") is a Pennsylvania corporation initially incorporated in California in 1987, and reincorporated in Pennsylvania in November 2001. Within this document, the Company collectively shall mean Escalon, which includes its division called "Trek" and its wholly owned subsidiaries: Sonomed, Inc. (“Sonomed”), Escalon Digital Solutions, Inc. (“EMI”), and Sonomed IP Holdings, Inc.

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 United States Food and Drug Administration (the “FDA”). The FDA and other government authorities require extensive testing of new products prior to sale and have jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing.

The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required for interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of March 31, 2026, and the results of operations and cash flows for the interim periods ended March 31, 2026, and 2025, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended June 30, 2025 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on September 29, 2025. Operating results for the nine months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2026.

The Company’s common stock trades on the OTCQB Market under the symbol “ESMC.”

2. Going Concern

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the continuous enhancement of the current products, development of new products; changes in domestic and foreign regulations; ability to manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products and its ability to raise capital to support its operations.

To date, the Company’s operations have not generated sufficient revenues to enable consistent profitability. It had a net loss from operations for the nine months ended March 31, 2026 and has historically incurred recurring losses from operations and incurred negative cash flows from operating activities. Additionally, there is uncertainty in the market related to tariffs and the related impacts to the international business and supply chain cost impacts. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the twelve months following issuance of these unaudited condensed consolidated financial statements.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company's continuance as a going concern is dependent on its future profitability and on the ongoing support of its shareholders, affiliates and creditors. In order to mitigate the going concern issues, the Company is actively pursuing business partnerships, managing its continuing operations, and implementing cost-cutting measures. The Company may not be successful in any of these efforts.

3. Summary of Significant Accounting Policies



New Accounting Pronouncements
Recently Adopted Accounting Standards
In July 30, 2025, the Financial accounting Standards Board (the "FASB") issued Accounting Standard Update (ASU) 2025-5, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets” to simplify the estimation of expected credit losses for current accounts receivable and current contract assets arising from revenue-transactions under ASC 606. Key changes include a practical expedient, available to all entities, that allows assuming that conditions as of the balance sheet date will remain unchanged over the life of those assets. The amendments are effective for annual periods beginning after December 15, 2025, including interim periods, with early adoption permitted; the guidance should be applied prospectively. The Company adopted this ASU for the nine months ended March 31, 2026 and the adoption did not have a material effect on the financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending June 30, 2026. The Company is currently evaluating the timing and impacts of adoption of this ASU.
In November 2024, FASB issued ASU 2024-03, Income Statement reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expense, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for the fiscal years beginning after December 15, 2026, and for interim periods within the fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements and related disclosure.
In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarifies the effective date of ASU 2024-03. ASU 2024-03 expands disclosure requirements to require disaggregation of specified expense captions by natural expense categories. The amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and for interim periods within those fiscal years beginning after December 15, 2027; early adoption is permitted. The Company is currently evaluating its impact on our footnote disclosures.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Segment Information

The Company has one operating and reportable segment. The Company’s Chief Operating Decision Maker (CODM) is its Chief Executive Officer and Chief Operating Officer, who reviews financial information presented on a consolidated basis for the purpose of allocating resources and evaluating financial performance.
Accounts Receivable

Accounts receivables are recorded at net realizable value. The Company performs ongoing credit evaluations of customers financial conditions and does not require collateral for accounts receivable arising in the normal course of business. The Company maintains allowances for potential credit losses based on the Company’s historical trends, specific customer issues and current economic trends. Accounts are written off against the allowance when they are determined to be uncollectible based on management’s assessment of individual accounts. While such credit losses have historically been within the Company’s


expectation and the provision established, the Company cannot guarantee about the amount of future credit losses or the sufficiency of the allowance therefore. The Company recorded an allowance for credit losses of $102,677 and $164,499 as of  March 31, 2026 and June 30, 2025, respectively.

The activity for the allowance for credit losses during three months and nine months ended March 31, 2026 and 2025, is as follows

 For the Three Months Ended March 31,For the Nine Months Ended March 31,
 2026202520262025
Balance, at beginning of the period$102,677 $171,104 $164,499 $171,104 
Provision — — 28,000 — 
Recovery— — (88,134)— 
Write-offs— — (1,688)— 
Balance, at the end of the period$102,677 $171,104 $102,677 $171,104 

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis and include freight-in materials, labor and overhead costs. Inventories are written down if the estimated net realizable value is less than the recorded value. The Company reviews the carrying cost of inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, the Company must make estimates regarding the estimated realizable value of inventory. The estimate is based, in part, on age of inventory. If actual conditions are less favorable than those the Company has projected, the Company may need to increase its reserves for excess and obsolete inventories. Any increases in the reserves will adversely impact the Company’s results of operations. The establishment of a reserve for excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold. If the Company is able to sell such inventory any related reserves would be reversed in the period of sale. In accordance with industry practice, service parts inventory is included in current assets, although service parts are carried for established requirements during the serviceable lives of the products and, therefore, not all parts are expected to be sold within one year.
Deferred Revenue

The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to payments received for the customer care plans for a 12-month period. The consideration received is recognized monthly over the service period. Revenue recorded that was included within prior period deferred revenue was $237,000 and $187,000, respectively for the three-month periods ended March 31, 2026 and 2025. Revenue recorded that was included within prior period deferred revenue was $422,000 and $459,000, respectively for the nine-month periods ended March 31, 2026 and 2025.
(in thousands)Three Months Ended March 31,Nine Months ended March 31,
2026202520262025
Beginning of Period$440 $342 $328 $280 
Additions326 316 788 710 
Revenue Recognized(276)(282)(626)(614)
End of Period$490 $376 $490 $376 

Earnings Per Share
    
The Company used the two-class method to compute net income per common share. These participating securities included the Company’s convertible preferred stock which accrues dividends payable. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.

Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during


the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current period earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses.

Diluted net income per common share is computed under the two-class method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options. The Company analyzed the potential dilutive effect of any outstanding dilutive securities under the “if-converted” method and treasury-stock method when calculating diluted earnings per share, in which it is assumed that the outstanding participating securities convert into common stock at the beginning of the period or date of issuance, if later. The Company reports the more dilutive of the approaches (two-class or “if-converted”) as its diluted net income per share during the period. Basic earning per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. As of March 31, 2026 and 2025, the average market prices for the three months and nine months then ended are less than the exercise price of all the outstanding stock options and, therefore, the inclusion of the stock options would be anti-dilutive.


For the Three Months Ended March 31,For the Nine Months Ended March 31,
2026202520262025
Numerator:
  Numerator for basic income per share:
Net income $2,373,436 $271,472 $2,231,261 $485,276 
Less undeclared dividends on convertible stocks12,723 12,689 38,735 38,629 
Less net income allocated to convertible preferred stocks1,154,308 123,323 1,072,070 212,849 
Net income applicable to common stockholders$1,206,405 $135,460 $1,120,456 $233,798 
Numerator for diluted earnings per share:
Net income$2,373,436 $271,472 $2,231,261 $485,276 
Undeclared dividends on convertible stocks12,723 12,689 38,735 38,629 
Diluted income $2,360,713 $258,783 $2,192,526 $446,647 
Denominator:
Denominator for basic income per share - weighted average shares outstanding7,415,329 7,415,329 7,415,329 7,415,329 
Weighted average preferred stock converted to common stock7,095,107 6,750,888 7,095,107 6,750,888 
Denominator for diluted earnings per share - weighted average and assumed conversion14,510,436 14,166,217 14,510,436 14,166,217 
Net earnings per share:
Basic net earnings per share$0.16 $0.02 $0.15 $0.03 
Diluted net earnings per share$0.16 $0.02 $0.15 $0.03 
Weighted average shares - basic7,415,329 7,415,329 7,415,329 7,415,329 
Weighted average shares - diluted14,510,436 14,166,217 14,510,436 14,166,217 

The following table summarizes convertible securities that, if exercised would have an anti-dilutive effect on earnings per share.



For the Three Months Ended March 31,For the Nine Months Ended March 31,
2026202520262025
Stock options21,000 21,000 21,00021,000
Total potential dilutive securities not included in income per share21,000 21,000 21,00021,000
Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the period in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The estimated annual effective tax rate is updated quarterly based on changes in the forecast of full-year income and tax expense. For the three months and nine months ended March 31, 2026 and 2025, the Company’s provision for income taxes and effective tax rate were zero.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company will continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a corresponding income tax benefit in the period the release is recorded. The amount of the valuation allowance release will be determined based on the available sources of future taxable income as of the period in which the release is recorded. As of March 31, 2026 and June 30, 2025, the Company has recorded a full valuation allowance against its deferred tax assets.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying unaudited condensed consolidated statements of operations. As of March 31, 2026 and June 30, 2025, no accrued interest or penalties were required to be included on the related tax liability line in the condensed consolidated balance sheets.

4. Inventories

March 31,June 30,
(in thousands)20262025
Inventories:
        Raw Material$881 $1,121 
        Work-In-Process106 96 
        Finished Goods671 925 
Total inventories$1,658 $2,142 

5. Related Party Transactions and Preferred Stock



On February 14, 2018, the Company entered into a Debt Exchange Agreement (the “Exchange Agreement”) with Mr. DePiano Sr., the Company's former Chairman and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano Sr. was the sole owner and sole trustee (the “Holders”).  Pursuant to the terms of the Exchange Agreement, effective February 15, 2018, the Holders exchanged a total of $645,000 principal amount of debt related to the accounts receivable factoring program for 2,000,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”). As of March 31, 2026 and June 30, 2025, the related party interest accrual of $112,389 related to the debt prior to the exchange, remained as an on demand payable.
    
Each share of Preferred Stock entitles the Holder thereof to 13 votes per share and will vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the Company’s stockholders.  As a result of this voting power, the Holders as of March 31, 2026 beneficially own approximately 77.81% of the voting power on all actions to be taken by the Company’s stockholders.

Subject to the terms and conditions of Preferred Stock, the holder of any share or shares of the Preferred Stock has the right, at its option at any time, to convert each such share of Preferred Stock (except that, upon any liquidation of the Company, the right of conversion will terminate at the close of business on the business day fixed for payment of the amounts distributable on the Preferred Stock) into 2.15 shares of Common Stock (the “Conversion Ratio”).  The Conversion Ratio is subject to standard provisions for adjustment in the event of a subdivision or combination of the Company’s Common Stock and upon any reorganization or reclassification of the capital stock of the Company. If the Holders were to convert their shares of Preferred Stock into Common Stock at the Conversion Ratio the Holders would receive a total of 4,300,000 shares of Common Stock, or approximately 36.70% of the then outstanding shares of Common Stock assuming such conversion.

Each outstanding share of the Preferred Stock accrues dividends calculated cumulatively at the annual rate of $.0258 per share (such amount subject to equitable adjustment in the event of any stock dividend, stock split, combination, reclassification other similar event), payable upon the earlier of (i) a liquidation, dissolution or winding up of the Company or (ii) conversion of the Preferred Stock into Common Stock. Upon either of such events, all such accrued and unpaid dividends, whether or not earned or declared, to and until the date of such event, will become immediately due and payable and will be paid in full. The dividends payable to the holders of the Preferred Stock are payable in cash or, at the election of any such holder, in a number of additional shares of Common Stock equal to the amount of the dividend expressed in dollars divided by the then applicable Conversion Ratio, described above. As of March 31, 2026 and June 30, 2025 the cumulative dividends payable are $419,266 ($0.2096 per share) and $380,531 ($0.1903 per share), respectively.

After Mr. DePiano Sr. passed away on October 3, 2019, the abovementioned shares of Preferred Stock are now held in Richard DePiano Sr Trust under the Will (TUW) with Mr. DePiano, Jr. as the trustee.

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 $100,000 short-term loan and accrued interest of $4,037 was paid off on February 19, 2026.

6. TD Note Payable

On June 29, 2018 the Company entered a business loan agreement with TD bank receiving a line of credit evidenced by a promissory note of $250,000. The interest is subject to change based on changes in an independent index which is the Wall Street Journal Prime Rate. The index rate at the date of the agreement is 5.000% per annum. Interest on the unpaid principal balance of the note is calculated using a rate of 0.740 percentage points over the index, adjusted if necessary for any minimum and maximum rate limitations, resulting in an initial rate of 5.740% per annum based on a year of 360 days. TD Bank elected to exercise the term note conversion option to convert the loan balance of $201,575 to a five-year term note effective March 29, 2023 ("the Conversion Date"). On October 17, 2025, the Company fully repaid its outstanding loan with TD Bank of $113,960 with its restricted cash. As a result, the Company has no outstanding balance under the TD Bank loan agreement as of March 31, 2026.

7. Long-term debt

Economic Injury Disaster Loan ("EIDL")

EIDL is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue due to the Coronavirus (COVID-19) pandemic. EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses, such as continuation to health care benefits, rent, utilities, and fixed debt payments. The Company received


$150,000 EIDL loan. The annual interest rate is 3.75%. The payment term is 30 years and the monthly payment is $731 from July 1, 2021. The EIDL loan is secured by the tangible and intangible personal property of the Company.

The future annual principal amounts and accrued interest to be paid as of March 31, 2026 are as follows:
Year ending June 30,EIDL Loan Payment
2026 (remaining of FY 2026)$836 
20273,499 
20283,632 
20293,771 
20303,914 
Thereafter124,112 
Total$139,764 

8. Concentration of Credit Risk

Credit Risk

Financial Instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, restricted cash and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas principally within the United States and international. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral.

Major Customer

One customer accounted for 17% of net sales during the three months ended March 31, 2026. One customer accounted for approximately 14% of net sales during the nine months ended March 31, 2026.
One customer accounted for approximately 14% of net sales during the three months ended March 31, 2025. One customer accounted for approximately 16% of net sales during the nine months ended March 31, 2025.

As of March 31, 2026, the Company had one customer that represented approximately 25% of the total accounts receivable balance. As of June 30, 2025, the Company had one customer that represents approximately 21% of the total accounts receivable balance.

Major Supplier

The Company's two largest suppliers accounted for 37% and 12% of the total purchases for the three months ended March 31, 2026.The Company's two largest suppliers accounted for 39% and 12% of the total purchases for the nine months ended March 31, 2026.

The Company's two largest suppliers accounted for the total purchases for 42% and 14% of total purchases for the three months ended March 31, 2025.  The Company's one largest supplier accounted for the total purchases for 42% of total purchases for the nine months ended March 31, 2025. 

As of March 31, 2026, the Company had one supplier that represented approximately 30% of the total accounts payable balance. As of June 30, 2025, the Company had two suppliers that represented 30% and 28% of the total accounts payable balance.

Foreign Sales

Domestic and international sales from continuing operations are as follows:


(in thousands)For the Three Months Ended March 31,For the Nine Months Ended March 31,
2026202520262025
Domestic$1,587 61 %$1,789 51 %$4,946 56 %$5,218 55 %
Foreign1,022 39 %1,685 49 %3,929 44 %4,258 45 %
Total$2,609 100 %$3,474 100 %$8,875 100 %$9,476 100 %

9. Leases

The Company leases certain facilities and equipment under operating leases and leases that meet the definition of a short term lease, as defined in ASC 842. The Company has elected not to apply the recognition requirements of ASC 842, for short term leases, as the term is 12 months or less.

On October 23rd, 2025, the Company entered into a new lease agreement for three office spaces in a building located at 865 Merrick Avenue, Westbury, New York. The lease has a seven year term, with no option to extend. The lease has monthly payments ranging from $10,390 to $12,407 for the three spaces, and the Company determined the discount rate for the lease to be 9.49%. On the lease commencement date, only one space was available for use. The Company recognized a right of use asset and a lease liability of $365,967. The remaining two spaces were available for use during the quarter ended March 31, 2026. The Company recognized an additional right of use asset and a lease liability of $321,274 accordingly. The addition of the lease did not have a material impact on the Company's results of operations for the three months and nine months ended March 31, 2026, but is expected to affect future cash flows and operating expenses.

Total lease expense, under ASC 842, was included in cost of revenue and marketing, general and administrative costs in the Company's unaudited condensed consolidated statement of operations for the three months and nine months ended March 31, 2026, and 2025 as follows:
Three Months Ended March 31,Nine Months ended March 31,
2026202520262025
Operating lease costs:
Fixed$49,694 $89,331 $109,967 $258,782 
Total:$49,694 $89,331 $109,967 $258,782 


Supplemental cash flow information was as follows:
Three Months Ended March 31,Nine Months ended March 31,
2026202520262025
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases$46,877 $89,516 $104,948 $268,266 
Total$46,877 $89,516 $104,948 $268,266 

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate)
under noncancelable operating leases with terms of more than one year to the total operating lease liabilities
recognized on the unaudited condensed consolidated balance sheets as of March 31, 2026:



The aggregate future lease payments for operating leases as of March 31, 2026 were as follows:
Operating
2026 (remaining of FY 2026)$62,051 
2027224,230 
2028215,467 
2029145,261 
2030147,420 
Thereafter340,205 
Total lease payments$1,134,634 
Less interest 263,820 
Present value of lease liabilities$870,814 

Average lease terms and discount rates were as follows:
March 31, 2026June 30, 2025
Weighted-average remaining lease terms (years)
Operating leases
5.763.18
Weighted-average discount rate
Operating leases
9.47 %5.74 %

10. Commitments and Contingencies
Legal Proceedings
The Company, from time to time is involved in various legal proceedings and disputes that arise in the normal course of business. These matters have included intellectual property disputes, contract disputes, employment disputes and other matters. The Company does not believe that the resolution of any of these matters has had or is likely to have a material adverse impact on the Company’s business, financial condition or results of operations.
11. Segment Information
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly provided to the Chief Operating Decision Maker ("CODM") in deciding how to allocate resources to an individual segment and in assessing performance.
The Company’s CODM is consisted of the Chief Executive Officer and Chief Operating Officer. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. The accounting policies of the Company’s reportable segment, as well as how the Company derives revenue, are consistent with those described in "Note 3-Basis of Presentation and Summary of Significant Accounting Policies” within these financial statements.
The CODM uses consolidated net income (loss), consistent with GAAP to assess performance, evaluate cost optimization, and allocate resources, including personnel-related and financial or capital resources, in the annual budget and forecasting process, as well as budget-to-actual variances on a monthly basis. As such, the Company has determined that it operates as one operating and reportable segment.

As the Company has only one reportable segment, all revenues, expenses, and operating results are attributable to that segment. Total assets attributable to the Company’s sole reportable segment were $7,532,271 and $4,993,059 as of March 31, 2026, and June 30, 2025.

The following tables set forth significant expense categories and other specified amounts included in consolidated net income that are otherwise regularly provided to the CODM for the three months and nine months ended March 31, 2026, and 2025:



Three Months Ended March 31,Nine Months ended March 31,
2026202520262025
Revenue$2,608,523 $3,474,192 $8,875,291 $9,476,094 
Cost of Revenue (1)(1,661,205)(1,867,386)(5,239,158)(5,068,273)
Research and Development(29,908)(164,755)(377,188)(461,554)
Sales and Marketing (322,766)(278,386)(1,029,009)(884,429)
General and Administrative (1)(2)(1,010,907)(880,393)(2,672,308)(2,527,585)
Depreciation and Amortization(3,000)(7,235)(19,582)(29,267)
Credit loss Adjustment— — (61,322)— 
Other expense(17,622)— (50,704)(5,000)
Gain from Sales of AXIS Software2,813,525 — 2,813,525 — 
Interest expense, net(3,204)(4,565)(8,284)(14,710)
Segment net income $2,373,436 $271,472 $2,231,261 $485,276 

(1) excluding depreciation and amortization expenses in cost of revenue, general and administrative expenses.
(2) excluding the credit loss adjustment.

12. Other Income

During the quarter ended March 31, 2026, the Company was a party to a certain asset purchase agreement by and between the Company and Optos Public Limited Company, a company incorporated in Scotland (“Optos”). Pursuant to the asset purchase agreement, the Company agreed to sell to Optos certain software-related assets associated with the Company’s AXIS platform (the “Disposition”) in exchange for the aggregate purchase price of $3,000,000 The purchase price is payable in three milestone installments, each in the amount and subject to the conditions as set forth in the asset purchase agreement, in addition to $25,000 which was paid upon the execution by the Company and Optos of a term sheet with respect to the Disposition. The Company received the full purchase price, less the deposit, and recognized a net gain of $2,813,525 before tax on the sale in the third quarter of fiscal year 2026. The pretax gain is calculated as the net proceeds less selling cost and the remaining book value of the license. The Company is evaluating the tax impact of the gain from sales on its condensed consolidated financial statements , and it is expected that the impact is not significant due to the existing and available net operating losses..

The Company considered the accounting guidance for discontinued operations noting that the disposition did not represent a strategic shift as required under the standard and therefore no adjustments were reflected in the condensed consolidated financial statements to reflect discontinued operations.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

    Certain statements contained in, or incorporated by reference in, this Quarterly Report on Form 10-Q are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will,” and similar words or expressions. The Company's forward-looking statements include certain information relating to general business strategy, growth strategies, financial results, liquidity, the Company's ability to continue as a going concern, discontinued operations, research and development, product development, the introduction of new products, the potential markets and uses for the Company's products, the Company's ability to increase its sales campaign effectively, the Company's regulatory filings with the FDA, acquisitions, dispositions, the development of joint venture opportunities, intellectual property and patent protection and infringement, the loss of revenue due to the expiration or termination of certain agreements, the effect of competition on the structure of the markets in which the Company competes, increased legal, accounting and Sarbanes-Oxley compliance costs, information security, cybersecurity and data privacy risks, defending the Company in litigation matters and the Company's cost saving initiatives. The reader must carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by assumptions that fail


to materialize as anticipated, including risks related to inflation and tariffs, the ability to continue as a going concern including the ability to raise capital, manage operations and pursue business partnerships and cost-cutting measures, and the other risks described in the Company's Form 10-K for the fiscal year ended June 30, 2025. Consequently, no forward-looking statement can be guaranteed, and actual results may vary materially. It is not possible to foresee or identify all factors affecting the Company's forward-looking statements, and the reader therefore should not consider the list of such factors contained in its periodic report on Form 10-K for the year ended June 30, 2025 and this Form 10-Q quarterly report to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.


Executive Overview—nine-month periods ended March 31, 2026 and 2025

The following highlights are discussed in further detail within this Form 10-Q. The reader is encouraged to read this Form 10-Q in its entirety to gain a more complete understanding of factors impacting Company performance and financial condition.

•Consolidated net revenue decreased approximately $601,000 or 6.3%, to $8,875,000 during the nine months ended March 31, 2026 as compared to the same period of last fiscal year. The decrease in net revenue is mainly attributed to a decrease of $310,000 in sales of Sonomed products, a decrease of $305,000 in sales of Trek products and a decrease of $51,000 of Digital service revenue, partially offset by an increase of $92,000 in ultrasound service revenue during the nine months ended March 31, 2026. The decrease in Sonomed sales was mainly driven by backorders caused by a significant vendor’s fulfillment constraints related to shifting demand. Trek product sales declined compared to the prior year, which had higher-than-average order volume and fulfillment.

•Consolidated cost of revenue totaled approximately $5,252,000, or 59.2%, of total revenue during the nine months ended March 31, 2026, as compared to $5,089,000, or 53.7%, of total revenue of the same period of last fiscal year. The increase of 5.5% in cost of revenue as a percentage of total revenue is mainly due to change in product mix and a $98,000 retention and severance accrual associated with the sales of AXIS software, which significantly increased Digital cost of revenue.

•Consolidated marketing, general and administrative expenses increased $349,000, or 10.2%, to $3,770,000 during the nine months ended March 31, 2026, as compared to the same period of last fiscal year. The increase is mainly due to a $223,000 increase in payroll and fringe benefits expenses, a $81,000 increase in bonus, a $41,000 increase in advertising expenses, and a $35,000 increase in legal expenses, a $27,000 increase in travel expenses, partially offset by a $61,000 accounts receivable credit loss adjustment, a $41,000 decrease in commission expenses and a $27,000 decrease in network expenses during the nine months ended March 31, 2026.

•Consolidated research and development expenses decreased $85,000 or 18.4%, to $377,000 during the nine months ended as compared to the same period of the prior fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The decrease in research and development expense is mainly due to a $144,000 decrease of nonrecurring AXIS consulting expenses during the nine months ended March 31, 2026, offset by an increase of $33,000 ultrasound consulting expenses and an increase of $28,000 outside services .
Company Overview

    The following discussion should be read in conjunction with the interim unaudited condensed consolidated financial statements and the notes thereto, which are set forth in Item 1 of this report.

    The Company operates in the healthcare market specializing in the development, manufacture, marketing and distribution of medical devices and pharmaceuticals in the area of ophthalmology. The Company and its products are subject to regulation and inspection by the FDA. The FDA requires extensive testing of new products prior to sale and has jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing. The Company's Internet address is www.escalonmed.com. Under the trade name of Sonomed-Escalon the Company develops, manufactures and markets ultrasound systems used for diagnosis or biometric applications in ophthalmology, develops, manufactures and distributes ophthalmic surgical products under the Trek Medical Products name, and manufactures and markets digital camera systems for ophthalmic fundus photography and image management systems.
Critical Accounting Estimates


The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact amounts reported therein. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.
 
Our significant accounting policies are more fully described in Note 3—Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this report.


Results of Operations

Three and Nine Months Ended March 31, 2026 and 2025
The following table shows consolidated net revenue, as well as identifying trends in revenues for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
 For the Three Months Ended March 31,For the Nine Months Ended March 31,
 20262025% Change20262025% Change
Net Revenue:
Products$2,472 $3,315 (25.4)%$8,424 $9,069 (7.1)%
Service plans137 159 (13.8)%451 407 10.8 %
Total$2,609 $3,474 (24.9)%$8,875 $9,476 (6.3)%

Consolidated net revenue decreased approximately $865,000 or 24.9%, to $2,609,000 during the three months ended March 31, 2026 as compared to the same period of last fiscal year. The decrease in net revenue is mainly attributed to a decrease of $701,000 in sales of Sonomed products, a decrease of $98,000 in sales of Trek products and a decrease of $52,000 of Digital revenue during the three months ended March 31, 2026. The decrease in Sonomed sales was mainly driven by backorders caused by a significant vendor’s fulfillment constraints related to shifting demand. Trek product sales declined compared to the prior year, which had higher-than-average order volume and fulfillment.
Consolidated net revenue decreased approximately $601,000 or 6.3%, to $8,875,000 during the nine months ended March 31, 2026 as compared to the same period of last fiscal year. The decrease in net revenue is mainly attributed to a decrease of $310,000 in sales of Sonomed products, a decrease of $305,000 in sales of Trek products and a decrease of $51,000 of Digital service revenue offset by an increase of $92,000 in ultrasound service revenue during the nine months ended March 31, 2026. The decrease in Sonomed sales was mainly driven by backorders caused by a significant vendor’s fulfillment constraints related to shifting demand. Trek product sales declined compared to the prior year, which had higher-than-average order volume and fulfillment.

The following table presents domestic and international sales from continuing operations for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
For the Three Months Ended March 31,For the Nine Months Ended March 31,
2026202520262025
Domestic$1,587 60.8 %$1,789 51.5 %$4,946 55.7 %$5,218 55.1 %
Foreign1,022 39.2 %1,685 48.5 %3,929 44.3 %4,258 44.9 %
Total$2,609 100.0 %$3,474 100.0 %$8,875 100.0 %$9,476 100.0 %

The following table presents consolidated cost of revenue and as a percentage of revenues for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
 
 For the Three Months Ended March 31,For the Nine Months Ended March 31,
 2026%2025%2026% 2025% 
Cost of Revenue:
$1,662 63.7 %$1,874 53.9 %$5,252 59.2 %$5,089 53.7 %
Total$1,662 63.7 %$1,874 53.9 %$5,252 59.2 %$5,089 53.7 %

Consolidated cost of revenue totaled approximately $1,662,000, or 63.7%, of total revenue during the three months ended March 31, 2026, as compared to $1,874,000, or 53.9%, of total revenue same period of last fiscal year. The increase of 9.8% in cost of revenue as a percentage of total revenue is mainly due to change in product mix and a $98,000 retention and severance accrual associated with the sales of AXIS software.

Consolidated cost of revenue totaled approximately $5,252,000, or 59.2%, of total revenue during the nine months ended March 31, 2026, as compared to $5,089,000, or 53.7%, of total revenue same period of last fiscal year. The increase of 5.5% in cost of revenue as a percentage of total revenue is mainly due to change in product mix and a $98,000 retention and severance accrual associated with the sales of AXIS software.



The following table presents consolidated marketing, general and administrative expenses for the three and nine months ended March 31, 2026 and 2025. Table amounts are in thousands:
 
 For the Three Months Ended March 31,For the Nine Months Ended March 31,
 20262025% Change 20262025% Change 
Marketing, General and Administrative:
$1,336 $1,159 15.3 %$3,770 $3,421 10.2 %
Total$1,336 $1,159 15.3 %$3,770 $3,421 10.2 %

Consolidated marketing, general and administrative expenses increased $177,000, or 15.3%, to $1,336,000 during the three months ended March 31, 2026 as compared to the same period of last fiscal year. The increase is mainly due to a $80,000 increase in bonus, a $84,000 increase in payroll and fringe benefits expenses, a $12,000 increase in consulting and a $10,000 increase in exhibits expenses, respectively, offset by a $18,000 decrease in commission expenses during the three months ended March 31, 2026.

Consolidated marketing, general and administrative expenses increased $349,000, or 10.2%, to $3,770,000 during the nine months ended March 31, 2026 as compared to the same period of last fiscal year. The increase is mainly due to a $223,000 increase in payroll and fringe benefits expenses, a $81,000 increase in bonus, a $41,000 increase in advertising expenses, and a $35,000 increase in legal expenses, a $27,000 increase in travel expenses, partially offset by a $61,000 accounts receivable credit loss adjustment, a $41,000 decrease in commission expenses and a $27,000 decrease in network expenses during the nine months ended March 31, 2026.
The following table presents consolidated research and development expenses for the three and nine months ended March 31, 2026 and 2025.
Table amounts are in thousands:
 For the Three Months Ended March 31,For the Nine Months Ended March 31,
 20262025% Change  20262025% Change  
Research and Development:
$30 $165 (81.8)%$377 $462 (18.4)%
Total$30 $165 (81.8)%$377 $462 (18.4)%

Consolidated research and development expenses decreased 135,000, or 81.8%, to $30,000 during the three months ended March 31, 2026 as compared to same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The decrease in research and development expense is mainly due to the decreased nonrecurring AXIS consulting expenses of $130,000 during the three months ended March 31, 2026. The AXIS consulting expenses discontinued and $40,000 consulting expense accrual was reversed during the third quarter of this current fiscal year.

Consolidated research and development expenses decreased $85,000, or 18.4%, to $377,000 during the nine months ended March 31, 2026 as compared to same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The decrease in research and development expense is mainly due to a $144,000 decrease of nonrecurring AXIS consulting expenses during the nine months ended March 31, 2026, offset by an increase of $33,000 ultrasound consulting expenses and an increase of $28,000 outside services.

Recently Announced Tariffs and Trade Measures

Beginning in the third quarter of fiscal year 2025, the U.S. government announced new tariffs on a broad range of imports, including a 10% tariff on most imports and additional individualized higher tariffs on certain specific goods and countries. In response, certain affected countries have imposed or may impose retaliatory tariffs on U.S. exports and may implement additional trade restrictions and/or other retaliatory measures in the future.

These recent and potential future tariffs and trade measures could adversely affect the Company’s business in several ways. Increased costs of imported raw materials, components, and finished goods may negatively impact profitability and gross


margins. The Company may face challenges in passing these increased costs on to its customers due to competitive pressures or market conditions. Additionally, the uncertainty surrounding the duration and extent of these tariffs, as well as potential trade policy changes, could disrupt the Company’s supply chain, require alternative and potentially more expensive sourcing options, and impact long-term strategic planning and investment decisions. The imposition of retaliatory tariffs by other countries could also reduce the demand for the Company’s exported products, negatively impacting revenue and international sales.

Management is actively monitoring these developments, assessing the potential impacts on the Company’s business, and evaluating possible mitigation strategies, including exploring alternative sourcing, adjusting pricing strategies where feasible, and analyzing potential shifts in global supply chains. However, the ultimate financial impact of these tariffs and the associated uncertainty cannot be reasonably estimated at this time. This situation could have a material adverse effect on the Company’s future financial condition, results of operations, and cash flows. The Company will continue to evaluate these developments and provide updates in future filings as the situation evolves and more information becomes available.


Liquidity and Capital Resources

Our total cash as of March 31, 2026 was approximately $3,343,000 of cash on hand compared to approximately $546,000 of cash on hand and restricted cash of $257,000 as of June 30, 2025.

On October 17, 2025, the Company fully repaid its outstanding TD Bank loan of $113,960 using its restricted cash. Following the repayment, the remaining balance of $142,622 in the restricted cash account was released.

Because the Company's operations have not historically generated sufficient revenues to achieve profitability the Company will continue to closely monitor costs and expenses and may need to raise additional capital to fund operations.

The Company expected to continue to fund operations from cash on hand and through capital raising sources if possible and available, which may be dilutive to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. Additionally, the Company may seek to sell additional equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness in connection with a debt financing would result in increased fixed obligations and could contain covenants that would restrict our operations.

As of March 31, 2026 the Company had an accumulated deficit of approximately $66.2 million. It had net loss from operations for the nine months ended March 31, 2026 and has historically incurred recurring losses from operations and negative cash flows from operating activities. The Company generated net income from operations in fiscal year 2025 and fiscal 2023, and reported positive cash flows from operating activities in fiscal years 2025, 2023 and 2021. While the overall trend has been toward profitability, the Company had net profit for just two years of the last five years. Additionally, there is uncertainty in the market related to the tariffs and the related impacts to the international business and supply chain cost impacts. It remains uncertain whether the Company will keep the profitability trend and sales growth. These factors raise substantial doubt regarding our ability to continue as a going concern, and the Company's ability to generate cash to meet our cash requirements for the following twelve months as of the filing date of this form 10-Q.

During the quarter ended March 31, 2026, the Company was a party to a certain asset purchase agreement by and between the Company and Optos Public Limited Company, a company incorporated in Scotland (“Optos”). Pursuant to the asset purchase agreement, the Company agreed to sell to Optos certain software-related assets associated with the Company’s AXIS platform (the “Disposition”) in exchange for the aggregate purchase price of $3,000,000. The purchase price was payable in three milestone installments, each in the amount and subject to the conditions as set forth in the asset purchase agreement, in addition to $25,000 which was paid upon the execution by the Company and Optos of a term sheet with respect to the Disposition. The Company received the full purchase price, less the deposit, and recognized a net gain of $2,813,525 before tax on the sale during the quarter ended March 31, 2026. The sale significantly increased the Company’s cash on hand and overall liquidity.

The following table presents overall liquidity and capital resources as of March 31, 2026 and June 30, 2025. Table amounts are in thousands:
 
March 31June 30,
 20262025
Current Ratio:
Current assets$6,567$4,612
Less: Current liabilities$2,5332,685
Working capital$4,034$1,927
Current ratio2.59 to 11.72 to 1
Debt to Total Capital Ratio:
Note payable, lease liabilities, EIDL loan and related party loan$1,011$523
Total equity 4,1461,915
Total capital $5,156$2,439
Total debt to total capital 19.6%21.5%
Working Capital Position


Working capital increased approximately $2,107,000 to $4,034,000 as of March 31, 2026, and the current ratio increased to 2.59 to 1 from 1.72 to 1 when compared to June 30, 2025.
The increase in working capital is mainly driven by the net proceeds from sales of AXIS software of $2,825,000, offset by a net operating loss of $523,000.
Debt to total capital ratio was 19.6% and 21.5% as of March 31 2026 and June 30, 2025, respectively.
Cash Flow (Used in) Provided by Operating Activities
During the nine months ended March 31, 2026 the Company used approximately $151,000 of cash in operating activities as compared to approximately $365,000 of cash provided by operating activities during the nine months ended March 31, 2025.
For the nine months ended March 31, 2026, its cash used in operations is mainly due to net operating loss of $523,000, a decrease in accounts payable of $490,000, offset by a decrease in inventories of 485,000, a decrease in accounts receivable of $223,000, an increase in deferred revenue of $162,000, and an increase in accrued expenses of $150,000. The remaining offsetting items for cash used in operations is comprised of less significant items.
For the nine months ended March 31, 2025, its cash provided by operations is due to a net income of $485,000, an increase in accrued expenses of 175,000, and an increase in deferred revenue of $96,000, offset by a decrease in accounts payable of $294,000, and an increase in inventory of 131,000. The remaining offsetting items for cash provided by operations is comprised of less significant items.
Cash Flows Provided by Investing Activities
Cash flows provided by investing activities for the nine months ended March 31, 2026 was due to net proceeds from sales of AXIS software of $2,825,000, offset by purchase of the fixed assets of $4,000. There were no cash flows used in investing activities for the quarter ended March 31, 2025.
Any necessary capital expenditures have generally been funded out of cash from operations, The Company is not aware of any factors that would cause historical capital expenditure levels to not be indicative of capital expenditures in the future. Accordingly, the Company does not believe that it will have to commit material resources to capital investment for the foreseeable future.
Cash Flows Used in Financing Activities
For the nine months ended March 31, 2026 the cash used in financing activities was due to repayment of TD bank loan balance of $126,000, and repayment of EIDL loan of $3,000.
For the nine months ended March 31, 2025 the cash used in financing activities was due to loan payments of $30,000 and repayment of EIDL loan of $3,000.
Off-balance Sheet Arrangements and Contractual Obligations

The Company was not a party to any off-balance sheet arrangements as of March 31, 2026 and June 30, 2025.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk

As a small reporting company, the Company is not required to provide the information required by this item.

Item 4. Controls and Procedures

(A)    Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Principal Financial and Accounting Officer, have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company's financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2026, the Chief Executive Officer and Principal Financial and Accounting Officer of the Company have concluded that such disclosure controls and procedures are not effective to ensure that the information required to be disclosed by the Company in reports that it files or submits under the


Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure. We identified a material weakness in internal control related to the proper design and implementation of controls over our estimates relating to the valuation of inventory specifically over the precision of management’s review during the year end June 30, 2023 and the remedies taken were not sufficient to change the management's conclusion on the internal control over financial reporting during the year end June 30, 2025.


(B)    Internal Control over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act), during the third quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. However, as noted above, we will continue to implement changes to our internal control over financial reporting to address the material weakness described above.


PART II. OTHER INFORMATION







Item 1. Legal Proceedings

This information set forth under Note 10, “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

As a small reporting company, the Company is not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the fiscal quarter ended March 31, 2026, no director or officer of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408 of Regulation S-K).

Item 6.    Exhibits
    
31.1 Certificate of Chief Executive Officer under Rule 13a-14(a).
31.2 Certificate of Principal Financial and Accounting Officer under Rule 13a-14(a).
32.1 Certificate of Chief Executive Officer under Section 1350 of Title 18 of the United States Code.


32.2 Certificate of Principal Financial and Accounting Officer under Section 1350 of Title 18 of the United States Code
101.INS     Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101 )


Signatures
    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Escalon Medical Corp.
(Registrant)
Date: May 15, 2026By:/s/ Richard J. DePiano, Jr.
Richard J. DePiano, Jr.
Chief Executive Officer
Date: May 15, 2026By:/s/ Mark Wallace
Mark Wallace
Chief Operating Officer and Principal Accounting & Financial Officer