ESCALON MEDICAL: EXAMINATION AND ANALYSIS BY THE FINANCIAL SITUATION AND RESULTS OF OPERATIONS DIRECTORATE (Form 10-K)

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The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes and other financial information contained elsewhere in this Form 10-K and the discussion under “Risk Factors” included in Item 1A of this Form 10-K.

•Consolidated net revenue increased approximately $1,072,000 or 11.4%, to
$10,472,000 during the year ended June 30, 2021 as compared to the prior fiscal
year. The increase in net revenue is attributed to an increase of approximately
$1,064,000 in sales of Sonomed's ultrasound products and an increase of
approximately $51,000 in sales of Trek
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products. The increase is offset by a decrease in the service plans of $38,000
and other Digital revenue of $5,000. The ultrasound sales increased after
COVID-19 negatively impacted the sales of ultrasound during the year ended June
30, 2020.

•Consolidated cost of goods sold totaled approximately $6,044,000, or 57.7%, of
total revenue during the year ended June 30, 2021, as compared to $5,198,000, or
55.3%, of total revenue of the prior fiscal year. The increase of 2.4% in cost
of goods sold as a percentage of total revenue is mainly due to change of
product mix.

•Consolidated marketing, general and administrative expenses decreased $305,000,
or 7.9%, to $3,570,000 during the year ended June 30, 2021, as compared to the
prior fiscal year. The decrease in marketing, general and administrative
expenses is mainly due to decreased consulting expense, travel expense, office
rent expense due to closure of office in Massachusetts, payroll expense, and
trade show expense impacted by COVID-19.

•Consolidated research and development expenses decreased $232,000 or 20.7%, to
$890,000 during the year ended June 30, 2021 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 decreased payroll expense for
the replacement of senior positions and reduced consulting expense in year ended
June 30, 2021.

COVID-19 disclosure
On March 11, 2020, the World Health Organization declared the outbreak of a
coronavirus (COVID-19) a pandemic. This pandemic has had a significant impact on
the global and domestic economy, and is likely to impact the operations of the
Company. The Company has been assessing the impact of the COVID-19 pandemic on
the business, including the impact on the financial condition and results of
operations, financial resources, changes in accounting judgment as well as the
impact on the supply and demand, etc. The Company is considered an essential
business and has been able to maintain operations during the lockdown. The
Company remains in strong communications with the customer and there is no
evidence showing that COVID-19 will greatly effect collection of accounts
receivable as the date of this filing. However, the Company does not know the
extent and duration of the impact of COVID-19 on its business due to the
uncertainty about the spread of the virus.

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Results of operations

Years Ended June 30, 2021 and 2020
The following table shows consolidated net revenue, as well as identifying
trends in revenues for the years ended June 30, 2021 and 2020. Table amounts are
in thousands:
                             For the Years Ended June 30,
                                                         2021         2020        % Change
Net Revenue:
Products                                              $  9,548      $ 8,438         13.2  %
Service plans                                              924          962         (4.0) %
Total                                                 $ 10,472      $ 9,400         11.4  %


Consolidated net revenue increased approximately $1,072,000 or 11.4%, to
$10,472,000 during the year ended June 30, 2021 as compared to the prior fiscal
year. The increase in net revenue is attributed to an increase of approximately
$1,064,000 in sales of Sonomed's ultrasound products and an increase of
approximately $51,000 in sales of Trek products. The increase is offset by a
decrease in the service plans of $38,000 and other Digital revenue of $5,000.
The ultrasound sales increased after COVID-19 negatively impacted the sales of
ultrasound during the year ended June 30, 2020.

Foreign sales

The following table presents national and international sales from continuing operations. The amounts in the tables are in thousands:

                              For the Years Ended June 30,
                                                2021                 2020
Domestic                                                    $  6,255        59.7  %    $ 5,781        61.5  %
Foreign                                                        4,217        40.3  %      3,619        38.5  %
Total                                                       $ 10,472       100.0  %    $ 9,400       100.0  %



The following table presents consolidated cost of goods sold and as a percentage
of revenues for the years ended June 30, 2021 and 2020. Table amounts are in
thousands:

                                      For the Years Ended June 30,
                                                                     2021        % Change        2020           %
Cost of Goods Sold:
                                                                   $ 6,044          57.7  %    $ 5,198        55.3  %
Total                                                              $ 6,044          57.7  %    $ 5,198        55.3  %



  Consolidated cost of goods sold totaled approximately $6,044,000, or 57.7%, of
total revenue during the year ended June 30, 2021, as compared to $5,198,000, or
55.3%, of total revenue of the prior fiscal year. The increase of 2.4% in cost
of goods sold as a percentage of total revenue is mainly due to change of
product mix.

  The following table presents consolidated marketing, general and
administrative expenses for the years ended June 30, 2021 and 2020. Table
amounts are in thousands:

                                                For the Years Ended June 30,
                                                                    2021                     2020                      % Change

Marketing, General and Administrative:

                                                             $         3,570          $         3,875                             (7.9) %
Total                                                        $         3,570          $         3,875                             (7.9) %



Consolidated marketing, general and administrative expenses decreased $305,000,
or 7.9%, to $3,570,000 during the year ended June 30, 2021 as compared to the
prior fiscal year. The decrease in marketing, general and administrative
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expenses is mainly due to decreased consulting expense, travel expense, office
rent expense due to closure of office in Massachusetts, payroll expense, and
trade show expense impacted by COVID-19.
The following table presents consolidated research and development expenses for
the years ended June 30, 2021 and 2020.
Table amounts are in thousands:
                                         For the Years Ended June 30,
                                                                      2021        2020        % Change
Research and Development:
                                                                     $ 890      $ 1,122         (20.7) %
Total                                                                $ 890      $ 1,122         (20.7) %


Consolidated research and development expenses decreased $232,000, or 20.7%, to
$890,000 during the year ended June 30, 2021 as compared to 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 mainly due to decreased payroll expense for
the replacement of senior positions and reduced consulting expense in year ended
June 30, 2021.
Impairment
The Company tests indefinite-life intangible assets for possible impairment on
an annual basis at June 30, and at any other time events occur or circumstances
indicate that the carrying amount of intangible assets may be impaired. No
impairments were recorded in year ended June 30, 2021. Due to the low market
capitalization of the Company's common stock as of December 31, 2019, the
Company performed an interim impairment test on its intangible asset. The
outcome of this impairment test resulted in non-cash charge for the full
impairment of the indefinite-lived intangible assets (trade mark and trade
names) of $605,000, which was recorded in the consolidated financial statements
for fiscal year 2020. The Company tests lease right-of-use ("ROU") assets for
possible impairment on an annual basis by comparing the undiscounted cash flow
to the carrying amount of the ROU assets since 2021. There was no impairment of
the ROU assets in the year ended June 30, 2021.
Other Income (Expense)

   The Company did not have significant other income during the fiscal year
ended June 30, 2021. The other income of $758,000 for year ended June 30, 2020
is due to the termination of the retirement benefits obligation when Mr. DePiano
Sr. passed away on October 3, 2019.


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Liquidity and capital resources

Our total cash on hand as of June 30, 2021 was approximately $1,651,000 of cash
on hand and restricted cash of approximately $256,000 compared to approximately
$826,000 of cash on hand and restricted cash of $255,000 as of June 30, 2020.
Approximately $48,000 was available under our line of credit as of June 30,
2021.

On April 27, 2020, the Company entered into a Payroll Protection Plan ("PPP")
loan for $500,000 in connection with the CARES Act related to COVID-19. The
promissory note has a fixed payment schedule. The PPP loan is unsecured. A final
payment for the unpaid principal and accrued interest will be payable no later
than two years after the funding date. The note will bear interest at a rate of
1.00% per annum. The Company submitted PPP loan forgiveness application on
August 2, 2021. The PPP loan forgiveness was approved on August 13, 2021. The
full amount of the PPP loan was classified as current as of June 30, 2021.

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

Because our operations have not historically generated sufficient revenues to
enable profitability we will continue to monitor costs and expenses closely and
may need to raise additional capital in order to fund operations.

We expect 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, we 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 June 30, 2021 we had an accumulated deficit of approximately $68.9
million, incurred recurring losses from operations and negative cash flows from
operating activities in prior years. These factors raise substantial doubt
regarding our ability to continue as a going concern, and our ability to
generate cash to meet our cash requirements for the following twelve months as
of the filing date of this form 10-K.

The following table shows all of the liquidity and capital resources at
June 30, 2021 and 2020. The amounts in the tables are in thousands:

                                                                      June 30,                     June 30,
                                                                        2021                         2020
Current Ratio:
Current assets                                                         $4,593                       $4,333
Less: Current liabilities                                               3,397                        2,865
Working capital                                                        $1,196                       $1,468
Current ratio                                                         1.35 to 1                    1.51 to 1
Debt to Total Capital Ratio:
Line of credit, note payable, lease liabilities, PPP
loan and EIDL loan                                                     $1,772                       $2,042
Total debt                                                              1,772                        2,042
Total equity                                                            1,460                        1,512
Total capital                                                          $3,232                       $3,554
Total debt to total capital                                             54.8%                        57.5%


Working Capital Position
Working capital decreased approximately $272,000 to $1,196,000 as of June 30,
2021, and the current ratio decreased to 1.35 to 1 to 1 from 1.51 to 1 when
compared to June 30, 2020.
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The decrease in working capital is due to an increase in current liabilities of
$532,000, offset by an increase in current assets of approximately $260,000 as
of June 30, 2021. The PPP loan of $500,000 mainly contributes to the increase of
the current liabilities.
Debt to total capital ratio was 54.8% and 57.5% as of June 30, 2021 and June 30,
2020, respectively.
Cash Flow Provided By (Used In) Operating Activities
During year ended June 30, 2021 the Company provided approximately $839,000 of
cash in operating activities as compared to approximately $168,000 of cash used
in operating activities during the year ended June 30, 2020.
  For the year ended June 30, 2021, its cash provided by operations is mainly
due to a decrease in inventory of $368,000, a decrease in accounts receivable of
$221,000, and an increase in accounts payable of $342,000. The cash inflow is
offset by a decrease in deferred revenue of $152,000. The remaining offsetting
items for cash provided by operations is comprised of less significant items.
For the year ended June 30, 2020, the Company had a net loss of approximately
$650,000, which includes non cash post-retirement adjustment of $758,000, non
cash lease expense of $342,000, and impairment loss of $605,000, non cash
depreciation expense of $50,000 and an increase in accounts receivable allowance
$12,000. Cash inflows were mainly due to a decrease in other current assets of
$69,000, a decrease in inventory of $94,000, a decrease in accounts receivable
of $171,000, an increase in deferred revenue of $89,000, an increase in accounts
payable of $94,000, an increase in accrued expenses of $95,000 and an increase
in other long-term liabilities of $9,000. The cash inflow is offset by an
increase in other long term assets of $11,000, a decrease in operating lease
liability of $345,000, a decrease in accrued post retirement benefits of
$34,000, and a decrease in liabilities of discontinued operations of $1,000.
Cash Flows Used In Investing Activities
Cash flows used in investing activities for the year ended June 30, 2021 and
2020 were due to purchase of equipment of $9,000 and $60,000 respectively.
Any necessary capital expenditures have generally been funded out of cash from
operations, and 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 and, accordingly, does not believe that the Company
will have to commit material resources to capital investment for the foreseeable
future.
Cash Flows Provided by (Used in) Financing Activities
For the year ended June 30, 2021 the cash used in the financing activities of
$4,000 was due to auto loan payment.
For the year ended June 30, 2020 the cash provided by the financing activities
of $647,000 was due to $500,000 of PPP loan, $150,000 of EIDL loan and cash used
in financing activities of $3,000 was due to auto loan payment.
Debt Financing

  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 the
Wall Street Journal Prime. The index rate at the date of the agreement is 5.000%
per annum. Interest on the unpaid principal balance of the note will be
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. The interest rate was 5%
as of June 30, 2021. The Company is required to hold $250,000 in a TD bank
savings account as collateral.

  As of June 30, 2021 and June 30, 2020, the line of credit balance was $201,575
with TD bank. The line of credit interest expense was $10,000 and $11,000 for
the years ended June 30, 2021 and 2020, respectively.

COVID-19 relief loans and liabilities

Payroll Protection Program (“PPP”)

On April 27, 2020, the Company entered into a PPP loan for $500,000 in
connection with the CARES Act related to COVID-19. The Company submitted the
loan forgiveness application on August 2, 2021. All of the loan and accrued
interest qualify for loan forgiveness based on the terms of the program. The PPP
loan forgiveness was approved on August 13, 2021. The full amount of the PPP
loan was classified as current as of June 30, 2021.

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Economic 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. $146,859 of the EIDL loan was
included in the non current portion of other notes payable.

Withholding tax on employer’s wages

  The CARES Act allows employers to defer the deposit and payment of
the employer share of Social Security tax that would otherwise be due on or
after March 27, 2020, and before January 1, 2021. The Company has deferred
approximately $82,000 of the social security tax as of June 30, 2021.
Approximately $41,000 of the employer payroll tax withholding deferral was
included in other short-term liabilities and the remaining half was included in
other long-term liabilities.
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. is 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 the Company owes the Holders for 2,000,000 shares of Series A
Convertible Preferred Stock (the "Preferred Stock"). As of June 30, 2021 and
June 30, 2020 the cumulative dividends payable is $174,131 ($0.0871 per share)
and $122,709 ($0.0614 per share), respectively.

  Mr. DePiano Sr. passed away on October 3, 2019 and left a will by which he
appointed Richard J. DePiano, Jr., the Chief Executive Officer of the Company,
as executor. Richard DePiano Jr. was elected to serve as chairman of the
Company's board. Mr. DePiano, Jr. qualified as executor and has control over the
listed shares in his capacity as executor of Mr. DePiano Sr.'s estate.
Common Stock
  The Company's common stock has been quoted on the OTCQB Market since November
18, 2016. The OTCQB Venture Market requires companies be current in their
reporting and must undergo an annual verification and management certification
process. Companies must also meet a minimum ($0.01) bid test and may not be in
bankruptcy.

Other

  The Company's forecast of the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement and involves risks and uncertainties, and actual results could vary as
a result of a number of factors, including the factors discussed in "Risk
Factors" included in this Form 10-K . If the Company raises funds in the future,
the Company may be required to raise those funds through public or private
financings, strategic relationships or other arrangements at prices and other
terms that may not be as favorable as they would without such qualification. The
sale of additional equity and debt securities may result in additional dilution
to the Company's shareholders. Additional financing may not be available in
amounts or on terms acceptable to the Company or at all.
Off-balance Sheet Arrangements and Contractual Obligations

  The Company was not a party to any off-balance sheet arrangements during the
years ended June 30, 2021 and 2020.
Critical Accounting Estimate
The preparation of financial statements requires management to make estimates
and assumptions that impact amounts reported therein. The most significant of
those involve the application of FASB issued authoritative guidance concerning
Revenue Recognition, Goodwill and Other Intangible Assets, discussed further in
the notes to consolidated financial statements included in this Form 10-K. The
consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, and, as such,
include amounts based on informed estimates and judgments of management.

The following items require significant estimation or judgment:

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estimates are used in determining valuation allowances for deferred income
taxes,
uncollectible receivables,
obsolete inventory,
sales returns and rebates,
warranty liabilities,
right-of-use assets and related lease liabilities,
and valuation of intangible assets.
Actual results achieved in the future could differ from current estimates. The
Company used what it believes are reasonable assumptions and, where applicable,
established valuation techniques in making its estimates.
Intangible Assets and Long-Lived assets
  Intangible assets deemed to have indefinite lives (including trademark and
trade names) are not amortized but, instead, are subject to an annual impairment
assessment. Additionally, if events or conditions were to indicate the carrying
value or a reporting unit may not be recoverable, the Company would evaluate the
other intangible assets for impairment at that time.
  Long-lived assets including intangible assets deemed to have finite lives, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment
indicators include, among other conditions, cash flow deficits, historic or
anticipated declines in revenue or operating profit or material adverse changes
in the business climate that indicate that the carrying amount of an asset may
be impaired. When impairment indicators are present, the recoverability of the
asset is measured by comparing the carrying value of the asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If the
projected undiscounted cash flows from the asset are less than the carrying
value of the asset the asset is considered to be impaired. The impairment to be
recognized is measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset.

  The Company tests indefinite-life intangible assets for possible impairment on
an annual basis at June 30, and at any other time events occur or circumstances
indicate that the carrying amount of intangible assets may be impaired. During
the year ended June 30, 2021, no impairments were recorded. Due to the low
market capitalization of the Company's common stock as of December 31, 2019, the
Company performed an interim impairment test on its intangible asset. The
outcome of this impairment test resulted in non-cash charge for the full
impairment of the indefinite-lived intangible assets (trade mark and trade
names) of $605,000, which was recorded in the consolidated financial statements
for the year ended June 30, 2020.
Accrued Warranties

  The Company provides a limited one-year warranty against manufacturer's
defects on its products sold to customers. The Company's standard warranties
require the Company to repair or replace, at the Company's discretion, defective
parts during such warranty period. The Company accrues for its product warranty
liabilities based on estimates of costs to be incurred during the warranty
period, based on historical repair information for warranty costs.
Revenue Recognition

  The Company recognizes revenue when its performance obligations with its
customers have been satisfied. At contract inception, the Company determines if
the contract is within the scope of Accounting Standards Codification ("ASC")
Topic 606, Revenue from Contracts with Customers, and then evaluates the
contract using the following five steps: (1) identify the contract with the
customer; (2) identify the performance obligations; (3) determine the
transaction price; (4) allocate the transaction price to the performance
obligations; and (5) recognize revenue when (or as) the entity satisfies a
performance obligation. The Company only recognizes revenue to the extent that
it is probable that a significant revenue reversal will not occur in a future
period.
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 the Company's forecasts of future sales and 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
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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.
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
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 year 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 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. As of June 30, 2021 and 2020,
the Company has a fully recorded 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 consolidated
statements of operations. As of June 30, 2021 and 2020, no accrued interest or
penalties were required to be included on the related tax liability line in the
consolidated balance sheets.
The Company dissolved Escalon Holdings, Inc. and Escalon IP Holdings, Inc. in a
tax-free dissolution under Section 332 of the Internal Revenue Code during the
year ended June 30, 2021. There is no tax impact on the consolidated financial
statements of the Company's current and prior years.
Leases

  The Company determines if an arrangement is a lease at the inception of a
contract. Operating lease right-of-use ("ROU") assets are included in
right-of-use assets on the consolidated balance sheets. The current and
long-term components of operating lease liabilities are included in the current
portion of operating lease liabilities and operating lease liabilities, net of
current portion, respectively on the consolidated balance sheets.

  Operating lease ROU assets and operating lease liabilities are recognized
based on the present value of the future minimum lease payments over the lease
term. As most of the Company's leases do not provide an implicit rate, the
Company uses an incremental borrowing rate based on the information available at
the commencement date in determining the present value of future payments.
Certain leases may include options to extend or terminate the lease. Lease
expense for minimum lease payments is recognized on a straight-line basis over
the lease term.
Loss Per Share
  Loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the year. All outstanding stock
options are considered potential common stock. All outstanding convertible
preferred stock are considered common stock at the beginning of the period or at
the time of issuance, if later, pursuant to the if-converted method. The
dilutive effect, if any, of stock options is calculated using the treasury stock
method. As of June 30, 2021 and 2020, the average market prices for the years
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. In
addition, since the effect of common stock equivalents is anti-dilutive with
respect to losses, the convertible preferred stock has also been excluded from
the Company's computation of loss per common for the years ended June 30, 2021
and 2020. Therefore, basic and diluted loss per common share for the years ended
June 30, 2021 and 2020 are the same.
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Recently Issued Accounting Standards
The Company considers the applicability and impact of all accounting standards
updates ("ASUs"). Management periodically reviews new accounting standards that
are issued.
New Accounting Pronouncements Not yet Adopted
  In June 2016 the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which
adds a new Topic 326 to the Codification and removes the thresholds that
companies apply to measure credit losses on financial instruments measured at
amortized cost, such as loans, receivables, and held-to-maturity debt
securities. The guidance in ASU 2016-13 is effective for "public business
entities," as defined, that are SEC filers for fiscal years and for interim
periods with those fiscal years beginning after December 15, 2022. Early
adoption of the guidance is permitted for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. The adoption of
this standard is not expected to have a material impact on the Company's
consolidated financial statements.

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FINANCIAL STATEMENTS AND ADDITIONAL DATA

                             Escalon Medical Corp.
                   Index to Consolidated Financial Statements

                                                                                         Page
  Report of Independent Registered Public Accounting Firm                                       25

Consolidated balance sheets at June 30th, 202 1 and 20 20

                     27

Consolidated statements of income for the years ended June 30th, 202 1

  and     20    20                                                                              28

Consolidated statements of equity for the years ended June 30th, 202 1 and 20 20

                                                                   29

Consolidated statements of cash flows for the years ended June 30th, 202 1

  and     20    20                                                                              30
  Notes to Consolidated Financial Statements                                                    32



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            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the board of directors and shareholders of Escalon Medical Corp.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Escalon Medical
Corp. and its subsidiaries (the "Company") as of June 30, 2021 and 2020, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended, and the related notes (collectively referred to
as the "financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of
June 30, 2021 and 2020, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

The company’s ability to continue operating

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant accumulated deficit and
recurring losses from operations and negative cash flows from operating
activities in prior years raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2 to the financial statements. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

Opinion base

These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that
our audits provides a reasonable basis for our opinion.

Critical audit questions

The critical audit matters communicated below are matters arising from the
current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.

Inventory valuation

Description of the case

At June 30, 2021, the Company's net inventory balance was approximately $1.4
million. As discussed in Note 3 of the financial statements, the Company adjusts
the inventory carrying value at the lower of cost or the net realizable value,
which includes an estimate of the allowance for obsolescence.



                                       25
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How we approached the issue in our audit

Our audit procedures related to management's judgments underlying the
calculation of the allowance for obsolete inventory, including the following,
among others:
a.We evaluated the appropriateness and consistency of management's methods and
assumptions used in developing the Company's estimate of the allowance for
obsolete inventory.
b.We evaluated the appropriateness of specific inputs supporting management's
estimate.
c.We tested the mathematical accuracy of the Company's calculation of the
allowance for obsolete inventory.


             /s/ Friedman LLP

             We have served as the Company's auditor since 2018.

             Marlton, New Jersey

             September 27, 2021





                                       26
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                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS


                                                                 June 30,               June 30,
                                                                   2021                   2020
ASSETS
Current assets:
Cash and cash equivalents                                    $   1,650,970          $     825,958
Restricted cash                                                    255,920                255,281
Accounts receivable, net                                         1,081,702              1,312,935
Inventories, net                                                 1,416,727              1,785,030
Other current assets                                               187,357                154,193
Total current assets                                             4,592,676              4,333,397
Property and equipment, net                                         81,442                 97,214
Right-of-use assets                                                843,559              1,107,127
License, net                                                       102,400                122,050
Other long term assets                                              62,789                 62,789
Total assets                                                 $   5,682,866          $   5,722,577
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit                                               $     201,575          $     201,575
Current portion of note payable                                      3,401                  3,401
Current portion of PPP loan                                        500,000                221,297
Current portion of EIDL loan                                         2,862                      -
Accounts payable                                                 1,102,125                760,621
Accrued expenses                                                   695,553                681,047
Related party accrued interest                                     112,389                112,389
Current portion of operating lease liabilities                     279,051                278,634
Deferred revenue                                                   363,700                516,053
Other short term liabilities                                       136,107                 89,990
Total current liabilities                                        3,396,763              2,865,007
Note payable, net of current portion                                 7,839                 11,503
PPP loan, net of current portion                                         -                278,703
Operating lease liabilities, net of current portion                630,330                896,533
EIDL loan                                                          147,138                150,000
Other long-term liabilities                                         40,860                  8,872
Total long-term liabilities                                        826,167              1,345,611
Total liabilities                                                4,222,930              4,210,618

Equity: Series A convertible preferred shares, $ 0.001 face value; 2,000,000 authorized shares; 2,000,000 shares issued and outstanding (liquidation value of $ 819,131 and $ 767,709)

           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 capital                                      69,702,043             69,702,043
Accumulated deficit                                            (68,894,522)           (68,842,499)
Total shareholders' equity                                       1,459,936              1,511,959
Total liabilities and shareholders' equity                   $   5,682,866          $   5,722,577


                 See notes to consolidated financial statements
                                       27
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                           ESCALON MEDICAL CORP. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                            

For the past years June 30th,

                                                                                                      2021                        2020
Net revenues:
Products                                                                                      $        9,547,606          $        8,437,672
Service plans                                                                                            924,011                     962,359
Revenues, net                                                                                         10,471,617                   9,400,031
Costs and expenses:
Cost of goods sold                                                                                     6,044,399                   5,197,866
Marketing, general and administrative                                                                  3,570,433                   3,874,498
Research and development                                                                                 890,482                   1,122,324
Intangible assets impairment                                                                                   -                     605,006
Total costs and expenses                                                                              10,505,314                  10,799,694
Loss from operations                                                                                     (33,697)                 (1,399,663)
Other income (expense)
Other income                                                                                               2,530                     759,371
Interest income                                                                                              985                       3,592
Interest expense                                                                                         (21,841)                    (13,580)
Total other income, net                                                                                  (18,326)                    749,383
Net loss                                                                                                 (52,023)                   (650,280)
Undeclared dividends on preferred stocks                                                                  51,422                      51,741
Net loss applicable to common
shareholders                                                                                  $         (103,445)         $         (702,021)
Net loss per share
Basic loss per share                                                                          $            (0.01)         $            (0.09)
Diluted loss per share                                                                        $            (0.01)         $            (0.09)
Weighted average shares-basic                                                                             7,415,329                7,415,329
Weighted average shares-diluted                                                                           7,415,329                7,415,329


                 See notes to consolidated financial statements
                                       28
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                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
                                                                                                                    Additional                                       Total
                                                                                                                      Paid-in             Accumulated            Shareholders'
                          Series A Convertible Preferred Stock                    Common Stock                        Capital               Deficit                 Equity
                               Shares              Amount                    Shares                Amount
Balance at June
30, 2020                        2,000,000          $ 645,000                 7,415,329           $ 7,415          $ 69,702,043          $ (68,842,499)         $    1,511,959

Net loss                                -                  -                         -                 -                     -                (52,023)                (52,023)
Balance at June
30, 2021                        2,000,000          $ 645,000                 7,415,329           $ 7,415          $ 69,702,043          $ (68,894,522)         $    1,459,936



                                                                                                                              Additional                                        Total
                                                                                                                                Paid-in              Accumulated            Shareholders'
                                   Series A Convertible Preferred Stock                      Common Stock                       Capital                Deficit                 Equity
                                         Shares                 Amount                 Shares                Amount
Balance at June 30, 2019                  2,000,000          $ 645,000                7,415,329            $ 7,415          $ 69,702,043          $  (68,192,219)         $    2,162,239

Net loss                                          -                  -                        -                  -                     -                (650,280)               (650,280)
Balance at June 30, 2020                  2,000,000          $ 645,000                7,415,329            $ 7,415          $ 69,702,043          $  (68,842,499)         $    1,511,959


                 See notes to consolidated financial statements
                                       29
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                                    ESCALON MEDICAL CORP. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          For the Years Ended June 30,
                                                                           2021                      2020
Cash Flows from Operating Activities:
Net loss                                                          $       (52,023)              $  (650,280)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Increase in accounts receivable allowance                                  10,000                    12,008

Depreciation and amortization                                              44,812                    50,084
Non cash lease expense                                                    274,615                   342,058
Intangible assets impairment                                                    -                   605,006
Non cash post-retirement benefits adjustment                                    -                  (758,021)
Change in operating assets and liabilities:
Accounts receivable                                                       221,233                   171,162
Inventories                                                               368,303                    93,830
Other current assets                                                      (33,164)                   68,885
Other long-term assets                                                     
    -                   (10,874)
Accounts payable                                                          341,504                    94,111
  Accrued expenses                                                         14,506                    94,929
Accrued post-retirement benefits (related party)                                -                   (33,964)
Change in operating lease liability                                      (276,833)                 (344,608)
Deferred revenue                                                         (152,353)                   89,250
Other short-term and long-term liabilities                                 78,105                     7,929
Net cash provided by (used in) operating activities                       838,705                  (168,495)
Cash Flows from Investing Activities:
Purchase of equipment                                                      (9,390)                  (59,751)
Purchase of licenses                                                            -                         -
Net cash used in investing activities                                      (9,390)                  (59,751)

Cash flow from financing activities:

      Proceeds from PPP loan                                                    -                   500,000
      Proceeds from EIDL loan                                                   -                   150,000
      Repayment of note payable                                            (3,664)                   (3,393)
Proceeds from line of credit                                                    -                         -
Net cash (used in) provided by financing activities                        (3,664)                  646,607
Net increase in cash, cash equivalents and restricted cash                825,651                   418,361

Cash, cash equivalents and restricted cash, beginning of year 1,081,239

                   662,878
Cash, cash equivalents and restricted cash, end of year           $     1,906,890               $ 1,081,239

Cash, cash equivalents and restricted cash consist of the
following:
End of year
Cash and cash equivalents                                         $     1,650,970               $   825,958
Restricted cash                                                           255,920                   255,281
                                                                  $     1,906,890               $ 1,081,239
Beginning of year
Cash and cash equivalents                                         $       825,958               $   409,743


                                       30
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Restricted cash                                                       255,281              253,135
                                                                  $ 1,081,239          $   662,878

Supplemental Schedule of Cash Flow Information:
Income Taxes paid
Interest paid                                                     $    11,223          $    15,387
Non Cash Investing Activities
Non Cash Finance Activities
Record right-of-use assets per ASC 842, net of deferred rent
reclassification                                                  $    20,200          $ 1,448,184
Record lease liability per ASC 842                                $    20,200          $ 1,519,744
Dispose right-of-use assets                                       $     9,154          $         -
Dispose lease liability                                           $     9,154          $         -


                 See notes to consolidated financial statements
                                       31
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                     Escalon Medical Corp. and Subsidiaries
                   Notes to 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 dissolved two other inactive
entities, Escalon Holdings, Inc. and Escalon IP Holdings, Inc. in a tax-free
dissolution under Section 332 of the Internal Revenue Code in the year ended
June 30, 2021.

  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.

  On March 11, 2020, the World Health Organization declared the outbreak of a
coronavirus (COVID-19) a pandemic. This pandemic has had a significant impact on
the global and domestic economy, and has and is likely to continue to impact the
operations of the Company. The Company has been assessing the impact of the
COVID-19 pandemic on the business, including the impact on the financial
condition and results of operations, financial resources, changes in accounting
judgment as well as the impact on the supply and demand, etc. The Company is
considered an essential business and has been able to maintain operations during
the lockdown. The Company applied for and received $500,000 in April 2020 under
the Payroll Protection Program ("PPP loan") which will help reverse the negative
impact in terms of the liquidity. The Company submitted the loan forgiveness
application on August 2, 2021. The PPP loan forgiveness was approved and the
full amount and accrued interest was forgiven on August 13, 2021. The Company
also received Economic Injury Disaster loan ("EIDL") loan of $150,000. The
annual interest rate is 3.75%. The payment term is 30 years and the monthly
payment is $731 from July 1, 2021. The Company remains in strong communications
with the customers and there is no evidence showing that COVID-19 will greatly
effect collection of accounts receivable as of date of this filing. However, the
Company does not know the extent and duration of the impact of COVID-19 on its
business due to the uncertainty about the spread of the virus.

The Company’s common shares trade on the OTCQB market under the symbol “ESMC”.

2. Business continuity

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 of
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 profitability. As of June 30, 2021, the Company had an accumulated
deficient of $68.9 million, and incurred recurring losses from operations and
incurred negative cash flows from operating activities in prior years. These
factors raise substantial doubt regarding the Company's ability to continue as a
going concern for the following twelve months as of the filing date of this form
10-K.

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 on-going 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,
implementing cost-cutting measures and seeking to sell certain assets. The
Company may not be successful in any of these efforts.



                                       32
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3. Summary of Significant Accounting Policies
Principles of Consolidation
The 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 affected in the US Generally Accepted Accounting Principles ("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.
Cash and Cash Equivalents
For the purposes of reporting cash flows, the Company considers all cash
accounts, which are not subject to withdrawal restrictions or penalties, and
highly liquid investments with original maturities of 90 days or less to be cash
and cash equivalents. From time to time cash balances exceed federal insurance
limits.
Restricted Cash
As of June 30, 2021 and 2020 restricted cash included approximately $256,000 and
$255,000 respectively, which was pursuant to the requirements in the TD Bank
Loan entered into June 2018 (see Note 6).
Foreign Currency Translation
The Company's functional currency is the US dollar. Transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a
currency other than the functional currency are included in the results of
operations as incurred. Foreign currency transaction gains or losses included in
net loss were immaterial for the years ended June 30, 2021 and 2020.
Accounts Receivable

Accounts receivable are recorded at net realizable value. The Company performs
ongoing credit evaluations of customers' financial condition 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. The
Company recorded an allowance for doubtful accounts of approximately $100,000
and $123,000 as of June 30, 2021 and 2020.

                                                     June 30,
                                               2021           2020
                    Balance, July 1         $ 122,515      $ 110,507
                    Increase in allowance      10,000         12,008

                    Write-offs                (32,035)             -
                    Balance, June 30        $ 100,480      $ 122,515



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 the Company's forecasts of future sales and 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
                                       33
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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.
                                         For the years ended June 30,
                                            2021                  2020
Raw materials                      $       833,105            $   837,135
Work in process                            171,097                342,929
Finished goods                             773,451                965,892
Total inventories                  $     1,777,653            $ 2,145,956

Allowance for obsolete inventory          (360,926)              (360,926)
Inventories, net                   $     1,416,727            $ 1,785,030


Property and Equipment

  Property and equipment are recorded at cost. Leasehold improvements are
amortized on a straight-line basis over the lesser of the estimated useful life
of the asset or lease term. Depreciation on property and equipment is recorded
using the straight-line method over the estimated economic useful life of the
related assets. Estimated useful lives are generally three years to five
years for computer equipment and software, five years to seven years for
furniture and fixtures and five years to ten years for production and test
equipment. Depreciation and amortization expense for the years ended June 30,
2021 and 2020 was approximately $25,000 and $30,000, respectively.

Tangible fixed assets consist of the following elements:

                                                           June 30,
                                                     2021           2020
Equipment                                         $ 748,725      $ 739,335
Furniture and fixtures                              150,871        150,871
Leasehold improvements                               39,048         39,048
                                                    938,644        929,254

Less: Accumulated depreciation and amortization (857,202) (832,040)

                                                  $  81,442      $  97,214


Intangible Assets and Long-Lived Assets
Intangible assets deemed to have indefinite lives (including trademark and trade
names) are not amortized but, instead, are subject to an annual impairment
assessment. Additionally, if events or conditions were to indicate the carrying
value or a reporting unit may not be recoverable, the Company would evaluate the
other intangible assets for impairment at that time.
Long-lived assets including intangible assets deemed to have finite lives, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment
indicators include, among other conditions, cash flow deficits, historic or
anticipated declines in revenue or operating profit or material adverse changes
in the business climate that indicate that the carrying amount of an asset may
be impaired. When impairment indicators are present, the recoverability of the
asset is measured by comparing the carrying value of the asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If the
projected undiscounted cash flows from the asset are less than the carrying
value of the asset the asset is considered to be impaired. The impairment to be
recognized is measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
The Company tests indefinite-life intangible assets for possible impairment on
an annual basis at June 30, and at any other time events occur or circumstances
indicate that the carrying amount of intangible assets may be impaired. No
impairments were recorded in year ended June 30, 2021. Due to the low market
capitalization of the Company's common stock as of December 31, 2019, the
Company performed an interim impairment test on its intangible asset. The
outcome of this impairment test resulted in non-cash charge for the full
impairment of the indefinite-lived intangible assets (trade mark and trade
names) of $605,000, which was recorded in the consolidated financial statements
for fiscal year 2020.
                                       34
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Accrued Warranties
The Company provides a limited one-year warranty against manufacturer's defects
on its products sold to customers. The Company's standard warranties require the
Company to repair or replace, at the Company's discretion, defective parts
during such warranty period. The Company accrues for its product warranty
liabilities based on estimates of costs to be incurred during the warranty
period, based on historical repair information for warranty costs.
PPP Loans
  The Company's policy is to account for the PPP loan (See Note 7) as debt. The
Company will continue to record the loan as debt until either (1) the loan is
partially or entirely forgiven and the Company has been legally released, at
which point the amount forgiven will be recorded as income or (2) the Company
pays off the loan.
Fair Value of Financial Instruments

The carrying amounts for cash and cash equivalents, restricted cash, accounts
receivable, accounts payable and accrued liabilities approximate their fair
value because of their short-term maturity. The carrying amount of the accrued
post retirement benefits approximates fair value since the Company utilizes
approximate current market interest rates to calculate the liability. The
Company determined that the carrying amount of the notes payable and lease
liabilities approximates fair value since such debt borrowing bears interest at
the approximate current market rate. While the Company believes the carrying
value of the assets and liabilities are reasonable, considerable judgment is
used to develop estimates of fair value; thus the estimates are not necessarily
indicative of the amounts that could be realized in a current market exchange.
Revenue Recognition

  The Company recognizes revenue when its performance obligations with its
customers have been satisfied. At contract inception, the Company determines if
the contract is within the scope of Accounting Standards Codification ("ASC")
Topic 606, Revenue from Contracts with Customers, and then evaluates the
contract using the following five steps: (1) identify the contract with the
customer; (2) identify the performance obligations; (3) determine the
transaction price; (4) allocate the transaction price to the performance
obligations; and (5) recognize revenue when (or as) the entity satisfies a
performance obligation. The Company only recognizes revenue to the extent that
it is probable that a significant revenue reversal will not occur in a future
period.

  The Company generates product revenue from the sale of medical device products
and the sale and installation of the Company's AXIS image management system
software. Revenue for service plans relate to the customer care plans for the
Company's equipment and AXIS image management system software.

  Revenue is recognized upon transfer of control of the promised goods or
services to the customer for an amount that reflects the consideration that the
Company expects to be entitled in exchange for those goods or services. The
Company's performance obligations are for product sales, installation of AXIS
image management system software and customer care plans. The performance
obligations are determined at contract inception based upon promises within the
contract that are distinct.

  The product sales and installation of AXIS image management system software
performance obligations are satisfied at a point in time, which is upon shipment
for product sales and upon successful installation for the AXIS image management
system. The performance obligation for customer care plans is satisfied over
time as the customer receives and consumes the Company's services.

  The Company invoices its customers upon shipment for product sales. For the
installation of AXIS image management system software and customer care plans,
the Company invoices its customers upon successful installation. Invoice
payments are generally due within 30 days of invoice date. The transaction price
is determined based on fixed consideration in the Company's customer contracts
and is recorded net of variable consideration. In determining the transaction
price, a significant financing component does not exist since the timing from
when the Company invoices its customers to when payment is received as it is
less than one year.

Revenues from product sales and installation of AXIS Image Management System software are recognized upon delivery or installation. Revenue from the customer service plan is prorated over the service period, which is a 12-month period.

The Company has chosen the following practical expedients for the application of ASC 606:

                                       35
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•Unsatisfied Performance Obligations - all performance obligations relate to
contracts with a duration of less than one year, the Company has elected to
apply the optional exemption provided in ASC 606 and therefore, is not required
to disclose the aggregate amount of the transaction price allocated to
performance obligations that are unsatisfied or partially unsatisfied at the end
of the reporting period.
•Contract Costs - all incremental customer contract acquisition costs are
expensed as they are incurred as the amortization period of the asset that the
Company otherwise would have recognized is one year or less in duration.
•Significant Financing Component - the Company does not adjust the promised
amount of consideration for the effects of a significant financing component as
the Company expects, at contract inception, that the period between when the
entity transfers a promised good or service to a customer and when the customer
pays for that good or service will be one year or less.
•Sales Tax Exclusion from the Transaction Price - the Company excludes from the
measurement of the transaction price all taxes assessed by a governmental
authority that are both imposed on and concurrent with a specific
revenue-producing transaction and collected by the Company from the customer.
•Shipping and Handling Activities - the Company elected to account for shipping
and handling activities as a fulfillment cost rather than as a separate
performance obligation.
•Portfolio Approach - the Company applied the Portfolio Approach to contract
reviews within its identified revenue streams that have similar characteristics
and the Company believes this approach would not differ materially than if
applying Topic 606 to each individual contract.


Deferred revenue

The Company recognizes deferred revenue when cash payments are received or due ahead of its performance. The Company’s deferred revenue relates to payments received for customer service plans for a period of 12 months. The consideration received is recognized monthly over the service life.

                                                  Years ended June 30,
                                                                  2021            2020
                Beginning of Year                              $ 516,000      $  427,000
                Additions                                        772,000       1,052,000
                Revenue Recognized                               924,000      $  963,000
                End of Year                                    $ 364,000      $  516,000



Shipping and Handling Revenues and Costs
Shipping and handling revenues are included in product revenue and the related
costs are included in cost of goods sold.
Research and Development
All research and development costs are charged to operations as incurred.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising expense for
the years ended June 30, 2021 and 2020 was $4,000 and $17,000, respectively. The
Company had in-house marketing activities during the year ended June 30, 2021.
Loss Per Share
Loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the year. All outstanding stock
options are considered potential common stock. All outstanding convertible
preferred stock are considered common stock at the beginning of the period or at
the time of issuance, if later, pursuant to the if-converted method. The
dilutive effect, if any, of stock options is calculated using the treasury stock
method. As of June 30, 2021 and 2020, the average market prices for the years
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. In
addition, since the effect of common stock equivalents is anti-dilutive with
respect to losses, the convertible preferred stock has also been excluded from
the Company's computation of loss per common for the years ended June 30, 2021
and 2020. Therefore, basic and diluted loss per common share for the years ended
June 30, 2021 and 2020 are the same.
                                       36
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                                              For the Years Ended June 30,
                                                               2021                            2020

Numerator:

Basic loss per share numerator:

 Net loss                                            $             (52,023)         $               (650,280)
Undeclared dividends on preferred
stock                                                               51,422                            51,741
Net loss applicable to common
shareholders                                         $            (103,445)         $               (702,021)

Net loss applicable to common
shareholders                                         $            (103,445)         $               (702,021)
Undeclared dividends on preferred
stock                                                                    -                                 -
Net loss                                             $            (103,445)         $               (702,021)
Denominator:
Denominator for basic loss per share
- weighted average shares outstanding                            7,415,329                         7,415,329

 Denominator for diluted loss per
share - weighted average and assumed
conversion                                                       7,415,329                         7,415,329
Net loss per share:
Basic net loss per share                             $               (0.01)         $                  (0.09)
Diluted net loss per share                           $               (0.01)         $                  (0.09)



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

                                                          For the Years Ended June 30,
                                                                                     2021                                    2020
Stock options                                                                                  157,000                               157,000
Convertible preferred stock                                                                  5,460,873                             5,118,060
Total potential dilutive
securities not included in
income per share                                                                             5,617,873                             5,275,060


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
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 year 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.

                                       37
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  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. As of June 30, 2021 and June
30, 2020, 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 consolidated
statements of operations. As of June 30, 2021 and June 30, 2020, no accrued
interest or penalties were required to be included on the related tax liability
line in the consolidated balance sheets. The Company dissolved Escalon Holdings,
Inc. and Escalon IP Holdings, Inc. in a tax-free dissolution under Section 332
of the Internal Revenue Code. There is no tax impact on the consolidated
financial statements of the Company's current and prior years.

Leases

  The Company determines if an arrangement is a lease at the inception of a
contract. Operating lease right-of-use ("ROU") assets are included in
right-of-use assets on the consolidated balance sheets. The current and
long-term components of operating lease liabilities are included in the current
portion of operating lease liabilities and operating lease liabilities, net of
current portion, respectively on the consolidated balance sheets.

  Operating lease ROU assets and operating lease liabilities are recognized
based on the present value of the future minimum lease payments over the lease
term. As most of the Company's leases do not provide an implicit rate, the
Company uses an incremental borrowing rate based on the information available at
the commencement date in determining the present value of future payments.
Certain leases may include options to extend or terminate the lease. Lease
expense for minimum lease payments is recognized on a straight-line basis over
the lease term.

New Accounting Pronouncements
Recently Issued Accounting Standards

The Company considers the applicability and impact of all updates to accounting standards (“ASU”). Management periodically reviews the new accounting standards that are published. New accounting positions not yet adopted

  In June 2016 the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which
adds a new Topic 326 to the Codification and removes the thresholds that
companies apply to measure credit losses on financial instruments measured at
amortized cost, such as loans, receivables, and held-to-maturity debt
securities. The guidance in ASU 2016-13 is effective for "public business
entities," as defined, that are SEC filers for fiscal years and for interim
periods with those fiscal years beginning after December 15, 2022. Early
adoption of the guidance is permitted for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. The adoption of
this standard is not expected to have a material impact to the Company's
consolidated financial statements.

4. Intangible Assets
The Company's intangible assets consist of the following:

Brand and Trade names

  The Company tests indefinite-life intangible assets for possible impairment on
an annual basis at June 30, and at any other time events occur or circumstances
indicate that the carrying amount of intangible assets may be impaired. Due to
the low
                                       38
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market capitalization of the Company's common stock, the Company performed an
interim impairment test on its intangible asset during the year ended June 30,
2020. The outcome of this impairment test resulted in non-cash charge for the
full impairment of the indefinite-lived intangible assets (trademark and trade
names) of $605,006, which was recorded in the consolidated financial statements
for the year ended June 30, 2020. During the year ended June 30, 2021, no
impairments were recorded.


Licenses

  The Company purchased no new licenses for year end June 30, 2021 and 2020
respectively and the cost is capitalized and amortized over 10 years.
Amortization expense is approximately $20,000 for each of the years ended June
30, 2021 and 2020. Annual amortization related entirely to licenses is estimated
to be $19,650 for the years ending June 30, 2022 through 2026 and $4,150
thereafter.
The following table presents amortized licenses as of June 30, 2021:
                                                                         Adjusted
                                 Gross                                   Gross                                        Net
                                 Carrying                                Carrying              Accumulated            Carrying
                                 Amount             Impairment           Amount                Amortization           Value
Amortized Intangible Assets
Licenses
                                 $ 199,000          $         -          $    199,000          $     (96,600)         $ 102,400
Total                            $ 199,000          $         -          $    199,000          $     (96,600)         $ 102,400



The following table shows the licenses amortized at June 30, 2020:

                                                                             Adjusted
                                     Gross                                   Gross                                     Net
                                     Carrying                                Carrying           Accumulated            Carrying
                                     Amount             Impairment           Amount             Amortization           Value

Amortized intangible asset licenses

                                     $ 199,000          $         -          $ 199,000          $     (76,950)         $ 122,050
Total                                $ 199,000          $         -          $ 199,000          $     (76,950)         $ 122,050


5. Accrued Expenses
The following table presents accrued expenses:

                                                               June 30,
                                                         2021           2020
Accrued compensation                                  $ 464,213      $ 417,829
Line of credit and notes payable interest accrual        11,506          1,224
Customer deposits                                        64,494         14,320
Warranty reserve                                         32,078         32,078
Tax payable                                             100,834        100,176
Other accruals                                           22,428        115,420
Total accrued expenses                                $ 695,553      $ 681,047


Remuneration to be paid from June 30, 2021 and 2020 mainly concerns payroll, accumulated vacation and social charges.

6. Line of credit

                                       39
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  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 the
Wall Street Journal Prime. 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. The interest rate was 5% as of
June 30, 2021. The Company was required to put $250,000 in the TD bank savings
account as collateral. Mr. Richard J. DePiano Sr. executed a guarantee of the
loan in favor of TD Bank. Mr. DePiano Sr. passed away on October 3, 2019,
therefore the guarantee is now assumed by his estate.

  As of June 30, 2021 and 2010, the line of credit balance was $201,575 with TD
bank. The line of credit interest expense was approximately $10,000 and $11,000
for the years ended June 30, 2021 and 2020, respectively.

7. Long-term debt

Paycheque Protection Program (“PPP”) Loan

  On April 27, 2020, the Company entered into a PPP loan for $500,000 in
connection with the CARES Act related to COVID-19. The PPP loan was unsecured. A
final payment for the unpaid principal and accrued interest was payable no later
than two years after the funding date. The note had an interest at a rate of
1.00% per annum.The Company submitted the loan forgiveness application on August
2, 2021. The full amount of the PPP loan and accrued interest were forgiven on
August 13, 2021. The full amount of the PPP loan was classified as current as of
June 30, 2021.


Economic 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 to be paid as of June 30, 2021 are as
follows:

                    Year ending June 30,     EIDL Loan Payment
                    2022                    $            2,862
                    2023                                 2,971
                    2024                                 3,084
                    2025                                 3,202
                    2026                                 3,324
                    Thereafter                         134,557
                    Total                   $          150,000


Other short-term and long-term liabilities

The CARES law allows employers to defer the deposit and payment of the employer’s share of Social Security tax that would otherwise be due on or after March 27, 2020, and before January 1, 2021. The Company has postponed approximately $ 82,000 social security tax from June 30, 2021. Approximately $ 41,000 the carry-over of the employer’s withholding tax was included in other short-term debts and the remaining half was included in other long-term debts.

8. Capital Stock Transactions
Stock Option Plans
                                       40
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As of June 30, 2021, the Company had in effect two employee stock option plans
that provide for incentive and non-qualified stock options. Under the terms of
the plans, options may not be granted for less than the fair market value of the
Common Stock at the date of grant. Vesting generally occurs ratably between one
and five years and for non-employee directors, immediately, and the options are
exercisable over a period no longer than 10 years after the grant date. As of
June 30, 2021, options to purchase 157,000 shares of the Company's common stock
were outstanding, of which 157,000 were exercisable, and 0 shares were unvested.
The following is a summary of Escalon's stock option activity and related
information for the fiscal years ended June 30, 2021 and 2020:

                                                              2021                                        2020
                                                                        Weighted                                    Weighted
                                                   Common                Average               Common                Average
                                                    Stock               Exercise                Stock               Exercise
                                                   Options                Price                Options                Price
Outstanding at the beginning of the year           157,000            $     1.47               213,000            $     1.48
Granted                                                  -                     -                     -                     -
Exercised                                                -                     -                     -                     -
Forfeited                                                -                     -               (56,000)           $     1.51
Outstanding at the end of the year                 157,000            $     1.47               157,000            $     1.47
Exercisable at the end of the year                 157,000            $     1.47               157,000                  1.47
Weighted average fair value of options
granted during the year                                               $        -                                  $        -


The following table summarizes information about stock options outstanding as of
June 30, 2021:

                                                Weighted
                               Number           Average         Weighted          Number         Weighted
                            Outstanding        Remaining         Average       Exercisable        Average
                            at June 30,       Contractual       Exercise       at June 30,       Exercise
                                2021          Life (Years)        Price            2021            Price
Range of Exercise Prices
$0.79                        21,000                    4.83    $    0.79        21,000          $    0.79
$1.45 to $2.12              136,000                    2.83    $    1.57       136,000          $    1.57
Total                       157,000                                            157,000

There was no compensation expense related to stock options for the years ended.
June 30, 2021 and 2020.

9. Income taxes The provision for income taxes for the years ended June 30, 2021 and 2020 includes the following:

                                    2021          2020
Current income tax provision
Federal                          $      -      $      -
State                                   -             -
                                        -             -
Deferred income tax provision
Federal                           (51,366)       (8,061)
State                             (14,676)       (2,303)

Change in depreciation 66,042 10,364

                                        -             -

Tax expense (benefit) $ – $ –

                                       41
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Income tax expense as a percentage of loss for the years ended
June 30, 2021 and 2020 differ from the federal income tax rate because of the following:

                                       2021          2020
Statutory federal income tax rate     21.00  %      21.00  %
Permanent differences                  0.00  %       0.00  %

Valuation allowance                  (21.00) %     (21.00) %
Effective income tax rate              0.00  %       0.00  %

The elements of net deferred tax assets and liabilities as of
June 30, 2021 and 2020 are:

                                             2021             2020

Deferred tax assets: Net operating loss carryforward $ 7,352,719 $ 7,212,393
Retirement costs for executives

                    -                -
General business credit                            -          207,698
Allowance for doubtful accounts               21,100           25,728
Accrued vacation                              49,336           43,741
Inventory reserve                             69,432           69,432

Accelerated depreciation                      65,432           69,196
Warranty reserve                               6,736            6,736
Total deferred income tax assets           7,564,755        7,634,924
Valuation allowance                       (7,543,251)      (7,609,293)
                                              21,504           25,631
Deferred income tax liabilities:
Accelerated depreciation                     (21,504)         (25,631)

Total deferred tax liabilities (21,504) (25,631)

                                         $         -      $         -


As of June 30, 2021, the Company has a valuation allowance of $7,543,251, which
primarily relates to the federal net operating loss carryforwards. During the
year ended June 30, 2021, the valuation allowance decreased by $66,042 and
during the year ended June 30, 2020, the valuation decreased by $10,364. The
valuation allowance is a result of management evaluating its estimates of the
net operating losses available to the Company as they relate to the results of
operations of acquired businesses subsequent to their being acquired by the
Company. The Company evaluates a variety of factors in determining the amount of
the valuation allowance, including the Company's earnings history, the number of
years the Company's operating loss and tax credits can be carried forward, the
existence of taxable temporary differences, and near-term earnings expectations.
Future reversal of the valuation allowance will be recognized either when the
benefit is realized or when it has been determined that it is more likely than
not that the benefit will be realized through future earnings. The Company has
available federal and state net operating loss carry forwards of approximately
$33,528,000 and $3,267,000, respectively, of which $19,623,000 and $2,808,000,
respectively, will expire over the next ten years, $12,242,000 and $459,000,
respectively, will expire in years eleven through twenty, and $1,662,000 and $0,
respectively, which will not expire.
The Company continues to monitor the realization of its deferred tax assets
based on changes in circumstances, for example, recurring periods of income for
tax purposes following historical periods of cumulative losses or changes in tax
laws or regulations. The Company's income tax provision and management's
assessment of the realizability of the Company's deferred tax assets involve
significant judgments and estimates. If taxable income expectations change, in
the near term the Company may be required to reduce the valuation allowance
which would result in a material benefit to the Company's results of operations
in the period in which the benefit is determined by the Company.

Fiscal year ended June 30, 2018 and subsequent years remain open to tax
examination. However, to the extent allowed by law, the tax authorities may have
the right to examine prior periods where net operating losses were generated and
carried forward, and make adjustments up to the amount of the net operating loss
amount. At June 30, 2021, the Company did not have any significant unrecognized
tax positions. The Company has provided what it believes to be an appropriate
amount of tax for
                                       42
--------------------------------------------------------------------------------

items that involve interpretation to the tax law. However, events may occur in
the future that will cause the Company to reevaluate the current provision and
may result in an adjustment to the liability for taxes.

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. Retirement and post-retirement plans

  On June 23, 2005 the Company entered into a Supplemental Executive Retirement
Benefit Agreement with its former Chairman, Mr. DePiano Sr.. The agreement
provided for the payment of supplemental retirement benefits to the covered
executive in the event of the covered executive's termination of services. In
January 2013 the covered executive retired and the Company was obligated to pay
the executive $8,491 per month for life, with payments commencing the month
after retirement.
As of July 1, 2019 approximately $792,000 was accrued for Mr. DePiano, Sr.'s
retirement benefits. The amount represented the approximate present value of the
supplemental retirement benefits awarded using a discount rate of 4.5% as of
July 1, 2019. Mr. DePiano Sr. passed away on October 3, 2019. According to the
agreement, the benefits terminate upon Mr. DePiano, Sr.'s death. Therefore, the
Company recognized a gain with the termination of the retirement benefit
obligation of $758,000, which has been reported as other income for the year
ended June 30, 2020.
                         2021        2020
Balance July 1,         $  -      $ 791,985
Actuarial adjustment       -       (758,021)
Payment of benefits        -        (33,964)
Balance June 30,        $  -      $       -


12. Related party transactions and preferred shares

  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. is 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").

  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 June 30, 2021
beneficially own approximately 77.81% of the voting power on all actions to be
taken by the Company's shareholders.

  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
                                       43
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(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 is 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 June 30, 2021 and 2020 the cumulative dividends payable is $174,131
($0.0871 per share) and $122,709 ($0.0614 per share), respectively.

  Mr. DePiano Sr. passed away on October 3, 2019 and left a will by which he
appointed Richard J. DePiano, Jr., the Chief Executive Officer of the Company,
as executor. Richard DePiano Jr. was elected to serve as chairman of the
Company's board. Mr. DePiano, Jr. qualified as executor and has control over the
listed shares in his capacity as executor of Mr. DePiano Sr.'s estate.

  During the year ended June 30, 2020, the Company paid a company controlled by
Richard DePiano Jr.'s mother for the supply and installation of the carpet for
the Company's office.

13. 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 address the financial strength of its customer and, as a consequence,
believes that its receivable credit risk exposure is limited. The Company does
not require customers to post collateral.

Major client

One customer represented approximately 15% of net sales in the year ended June 30, 2021. One customer represented approximately 16% of net sales in the year ended June 30, 2020.

  As of June 30, 2021 the Company had one customer that represents approximately
23% of the total accounts receivable balance. As of June 30, 2020 the Company
had one customer that represents approximately 18% of the total accounts
receivable balance.

Major supplier

  The Company's two largest suppliers accounted for 40% and 10% of the total
purchases for the year ended June 30, 2021. The Company's two largest suppliers
accounted for the total purchases for 37% and 10% of total purchases for the
year ended June 30, 2020. As of June 30, 2021 the Company had two suppliers that
represent approximately 39% and 12% of the total accounts payable balance. As of
June 30, 2020 the Company had three customer that represents 38%, 12% and 11% of
the total accounts payable balance.

Foreign sales

  Domestic and international sales from continuing operations are as follows:
(in thousands)                      For the Years Ended June 30,
                                                      2021                 2020
Domestic                                                          $  6,255        59.7  %    $ 5,781        61.5  %
Foreign                                                              4,217        40.3  %      3,619        38.5  %
Total                                                             $ 10,472       100.0  %    $ 9,400       100.0  %



14. Leases

  The Company leases certain facilities and equipment under operating leases.
Total lease expense, under ASC 842, was included in cost of goods sold and
marketing, general and administrative costs in our unaudited condensed
consolidated statement of operations for the years ended June 30, 2021 and 2020
as follows:
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                                      Year Ended June 30,
                                        2021        2020
Operating lease costs:
Fixed                                  346,302     407,757
Total:                              $  346,302   $ 407,757


The additional cash flow information was as follows:

Year ended June 30th,

                                                                          2021               2020

Cash paid for amounts included in the valuation of lease debts Operating cash flow for operating leases

                                   335,549    $      391,384
Total                                                              $        335,549    $      391,384



  Leases recorded on the balance sheet consist of the following:
                                                                                                              June 30,
Leases (operating)                             Classification on the Balance Sheet                                2021
Assets
Operating lease ROU assets                     Right-of-use asset                                   $       843,559
Liabilities
Current                                        Current portion of operating lease liabilities       $       279,051
Non-current                                    Operating lease liabilities                          $       630,330



  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 consolidated balance sheets as of June 30, 2021:

  The aggregate future lease payments for operating leases as of June 30, 2021
were as follows:
                                          Operating

2022                                    $ 321,612
2023                                      263,162
2024                                      268,372
2025                                      141,865
2026                                        2,728

Total lease payments                      997,739
Less interest                              88,358

Present value of lease debts $ 909,381


  Average lease terms and discount rates were as follows:
                                                            June 30,
                                                        2021         2020
Weighted-average remaining lease terms (years)
Operating leases                                           3.35        4.17
Weighted-average discount rate
Operating leases                                        5.65  %     5.65  %


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