ESCALON MEDICAL CORP MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

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The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto 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 $231,000 or 2.2%, to
$10,703,000 during the year ended June 30, 2022 as compared to the prior fiscal
year. The increase in net revenue is attributed to an increase of approximately
$846,000 in sales of Sonomed's ultrasound products mainly due to increased sales
in Europe and Middle East. The increase is offset by a decrease of approximately
$384,000 in sales of Trek products, a decrease of $201,000 in the service plans
when a large contract was terminated during the year ended June 30, 2022 and a
decrease of $30,000 of other Digital revenue.


•Consolidated cost of goods sold totaled approximately $6,096,000, or 57.0%, of
total revenue during the year ended June 30, 2022, as compared to $6,044,000, or
57.7%, of total revenue of the prior fiscal year. The decrease of 0.7% 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 increased $516,000,
or 14.5%, to $4,086,000 during the year ended June 30, 2022, as compared to the
prior fiscal year. The increase in marketing, general and administrative
expenses is mainly due to increased consulting expense related to AXIS
regulatory filing, trade show expenses, travel expense, increased headcount and
network expense. The increase to accounts receivable allowance of $155,000 for
year ended June 30, 2022 based on the Company's historical trends, specific
customer issues and current economic trends also contributed to the increase in
marketing, general and administrative expenses.


•Consolidated research and development expenses increased $101,000 or 11.3%, to
$991,000 during the year ended June 30, 2022 as compared to the same period of
the prior fiscal year. Research and development expenses were primarily expenses
associated with the introduction of new or enhanced products. The increase in
research and development expense is mainly due to mainly due to increased
consulting expense in year ended June 30, 2022.


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Operating results

Completed exercises June 30, 2022 and 2021


The following table shows consolidated net revenue, as well as identifying
trends in revenues for the years ended June 30, 2022 and 2021. Table amounts are
in thousands:

                             For the Years Ended June 30,
                                                         2022          2021        % Change
Net Revenue:
Products                                              $  9,980      $  9,548          4.5  %
Service plans                                              723           924        (21.8) %
Total                                                 $ 10,703      $ 10,472          2.2  %


Consolidated net revenue increased approximately $231,000 or 2.2%, to
$10,703,000 during the year ended June 30, 2022 as compared to the prior fiscal
year. The increase in net revenue is attributed to an increase of approximately
$846,000 in sales of Sonomed's ultrasound products mainly due to increased sales
in Europe and Middle East. The increase is offset by a decrease of approximately
$384,000 in sales of Trek products, a decrease of $201,000 in the service plans
when a large contract was terminated during the year ended June 30, 2022, and a
decrease of $30,000 of other Digital revenue.

Sales abroad

The following table shows domestic and international sales from continuing operations. The amounts in the table are in thousands:

                              For the Years Ended June 30,
                                                2022                 2021
Domestic                                                    $  5,720        53.4  %    $  6,255        59.7  %
Foreign                                                        4,983        46.6  %       4,217        40.3  %
Total                                                       $ 10,703       100.0  %    $ 10,472       100.0  %



The following table presents consolidated cost of goods sold and as a percentage
of revenues for the years ended June 30, 2022 and 2021. Table amounts are in
thousands:

                                      For the Years Ended June 30,
                                                                     2022          %          2021          %
Cost of Goods Sold:
                                                                   $ 6,096       57.0  %    $ 6,044       57.7  %
Total                                                              $ 6,096       57.0  %    $ 6,044       57.7  %



  Consolidated cost of goods sold totaled approximately $6,096,000, or 57.0%, of
total revenue during the year ended June 30, 2022, as compared to $6,044,000, or
57.7%, of total revenue of the prior fiscal year. The decrease of 0.7% 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, 2022 and 2021. Table
amounts are in thousands:

                                                For the Years Ended June 30,
                                                                    2022                     2021                      % Change

Marketing, General and Administrative:

                                                             $         4,086          $         3,570                             14.5  %
Total                                                        $         4,086          $         3,570                             14.5  %



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Consolidated marketing, general and administrative expenses increased $516,000,
or 14.5%, to $4,086,000 during the year ended June 30, 2022 as compared to the
prior fiscal year. The increase in marketing, general and administrative
expenses is mainly due to increased consulting expense related to AXIS
regulatory filing, trade show expenses, travel expense, increased payroll and
network expense. The increase to accounts receivable allowance of $155,000 for
year ended June 30, 2022 based on the Company's historical trends, specific
customer issues and current economic trends also contributed to the increase in
marketing, general and administrative expenses.

The following table shows consolidated research and development expenses for the years ended June 30, 2022 and 2021.

The amounts in the table are in thousands:

                                         For the Years Ended June 30,
                                                                      2022       2021       % Change
Research and Development:
                                                                     $ 991      $ 890          11.3  %
Total                                                                $ 991      $ 890          11.3  %


Consolidated research and development expenses increased $101,000, or 11.3%, to
$991,000 during the year ended June 30, 2022 as compared to the prior fiscal
year. Research and development expenses were primarily expenses associated with
the introduction of new or enhanced products. The increase in research and
development expense is mainly due to increased consulting expense in year ended
June 30, 2022.


Other income (expense)

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 promissory note has a
fixed payment schedule. The Company submitted the loan forgiveness application
on August 2, 2021. The full amount of the PPP loan and accrued interest of
$6,305 were forgiven on August 13, 2021 and reported as other income during the
year ended June 30, 2022.


Russia-Ukraine War

In February 2022, Russia invaded Ukraine. As military activity proceeds and
sanctions, export controls and other measures are imposed by many countries
against Russia, Belarus and specific areas of Ukraine, the war is increasingly
affecting the global economy and financial markets, as well as exacerbating
ongoing economic challenges, including rising inflation and global supply-chain
disruption. The Company has operations or activities in countries and regions
outside the United States. As a result, its global operations are affected by
economic, political and other conditions in the foreign countries in which it
does business as well as U.S. laws regulating international trade, although the
Company has not yet assessed that the war has had a material effect on its
financial position or results of operations.
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Cash and capital resources


Our total cash on hand as of June 30, 2022 was approximately $594,000 of cash on
hand and restricted cash of approximately $256,000 compared to approximately
$1,651,000 of cash on hand and restricted cash of $256,000 as of June 30, 2021.
Approximately $48,000 was available under our line of credit as of June 30,
2022.

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, 2022 we had an accumulated deficit of approximately $68.9
million, incurred recurring losses from operations and negative cash flows from
operating activities in current year and as well as 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 presents the overall liquidity and capital resources at
June 30, 2022 and 2021. The amounts in the tables are in thousands:


                                                                      June 30,                     June 30,
                                                                        2022                         2021
Current Ratio:
Current assets                                                         $4,186                       $4,593
Less: Current liabilities                                               3,002                        3,397
Working capital                                                        $1,184                       $1,196
Current ratio                                                         1.39 to 1                    1.35 to 1
Debt to Total Capital Ratio:
Line of credit, note payable, lease liabilities, PPP
loan and EIDL loan                                                     $1,205                       $1,772
Total debt                                                              1,205                        1,772
Total equity                                                            1,478                        1,460
Total capital                                                          $2,683                       $3,232
Total debt to total capital                                             44.9%                        54.8%


Working Capital Position

Working capital decreased by approximately $12,000 at $1,184,000 of the June 30, 2022and the current ratio went from 1.35 to 1 to 1.39 to 1 to 1 compared to June 30, 2021.

The decrease in working capital is due to a decrease in current liabilities of
$395,000offset by a decrease in current assets of approximately $407,000
mainly due to the cancellation of the PPP loan as of June 30, 2022offset by the current year operating loss and investment in inventory and accounts receivable.

The debt to total capital ratio was 44.9% and 54.8% at June 30, 2022 and June 30, 2021respectively.

Cash flow generated by (used in) operating activities

During the year ended June 30, 2022 the Company used approximately $1,050,000 of cash in operating activities compared to approximately $839,000 cash provided by operating activities during the year ended June 30, 2021.


  For the year ended June 30, 2022, its cash used in operations is mainly due to
non cash other income of $506,000, an increase in inventory of $187,000, an
increase in accounts receivable of $615,000, and a decrease in accounts payable
of $90,000. The cash outflow is offset by an increase in accrued expense of
$218,000. The remaining offsetting items for cash used in operations is
comprised of less significant items.
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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.

Cash flows used in investing activities


There was no cash flow used in investing activities for the year ended June 30,
2022. Cash flow used in investing activities for the year ended June 30, 2021
were due to purchase of equipment of $9,000.

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 used in financing activities

For the year ended June 30, 2022 cash used in financing activities of
$4,000 was due to the repayment of the car loan and the repayment of the EIDL loan of $3,000.

For the year ended June 30, 2021 cash used in financing activities of
$4,000 was due to repayment of the car loan.

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, 2022. The Company is required to hold $250,000 in a TD bank
savings account as collateral.

  As of June 30, 2022 and June 30, 2021, the line of credit balance was $201,575
with TD bank. The line of credit interest expense was $10,000 and $10,000 for
the years ended June 30, 2022 and 2021, 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 promissory note had a
fixed payment schedule. The full amount of the PPP loan and accrued interest
were forgiven on August 13, 2021 and reported as other income during the year
ended June 30, 2022.

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 of $731 started on July 1st, 2021. The EIDL loan is secured by the
tangible and intangible personal property of the Company. The Company submitted
an EIDL loan increase application on May 6, 2022, increasing the loan amount
from $150,000 to $200,000. The loan modification was not approved as the funding
was exhausted.

Employer payroll tax deduction


  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. 50% of the
deferred employment taxes was paid before December 31, 2021. The remaining 50%
is not due until December 31, 2022. Approximately $41,000 was reported as
short-term other liabilities as of June 30, 2022 and is to paid by December 31,
2022.

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Favorite 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, 2022 and
June 30, 2021 the cumulative dividends payable is $225,731 ($0.1129 per share)
and $174,131 ($0.0871 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.

Ordinary actions


  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 has not been party to any off-balance sheet arrangement during the years ended June 30, 2022 and 2021.

Critical accounting estimates and policies


The preparation of financial statements requires management to make estimates
and assumptions that impact amounts reported therein. 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:

irrecoverable debts,

obsolete inventory,


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


  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. There was no impairment of the long-lived
assets, including the ROU assets in the year ended June 30, 2022 and 2021.
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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 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, 2022 and 2021,
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, 2022 and 2021, 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 whether an agreement is a lease at the inception of a contract. Operating lease right-of-use assets are included in right-of-use assets on the Consolidated Balance Sheets. The current and long-term components of

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operating lease debts are included in the current portion of operating lease debts and operating lease debts, net of the current portion, respectively in 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.

Earnings (loss) Per Share

  Earnings (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, 2022 and 2021, 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 year
ended June 30, 2021. Therefore, basic and diluted loss per common share for the
year ended June 30, 2021 are the same.

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 (PCAOB ID 711)                        24
  Consolidated Balance Sheets at June 30, 2022 and 2021                                         26

Consolidated Statements of Income for the Years Ended June 30, 2022 and 2021

                                                                                            27

Consolidated Statements of Equity for the Years Ended June 30, 2022 and 2021

                                                                                   28

Consolidated Statements of Cash Flows for the Years Ended June 30, 2022 and 2021

                    29
  Notes to Consolidated Financial Statements                                                    31



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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, 2022 and 2021, 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, 2022 and 2021, 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 ability of the company to continue its activity


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 the current year and 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.

Basis for Opinion

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 provide 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, 2022, the Company's net inventory balance was approximately $1.6
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.
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How we addressed 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.

Allowance for doubtful accounts

Description of the case


At June 30, 2022, the Company's accounts receivable balance, net of an allowance
for doubtful accounts of approximately $236,000, was approximately $1.5 million.
As discussed in Note 3 of the financial statements, the Company maintains the
allowance 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.

How We Addressed the Matter in Our Audit
Our audit procedures related to management's judgments underlying the
calculation of the allowance for doubtful accounts, 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
doubtful accounts.
b.We tested the mathematical accuracy of the Company's calculation of the
allowance for doubtful accounts.
c.We evaluated the impact of subsequent collections on the outstanding accounts
receivable balance as of June 30, 2022.
d.We evaluated the risk of collectability based on graphical location.

             /s/ Friedman LLP

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

             Marlton, New Jersey

             September 28, 2022





                                       25
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                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS


                                                                 June 30,               June 30,
                                                                   2022                   2021
ASSETS
Current assets:
Cash and cash equivalents                                    $     593,869          $   1,650,970
Restricted cash                                                    256,165                255,920
Accounts receivable, net                                         1,541,750              1,081,702
Inventories, net                                                 1,603,955              1,416,727
Other current assets                                               190,043                187,357
Total current assets                                             4,185,782              4,592,676
Property and equipment, net                                         52,660                 81,442
Right-of-use assets                                                788,257                843,559
License, net                                                        82,750                102,400
Other long term assets                                              62,788                 62,789
Total assets                                                 $   5,172,237          $   5,682,866
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
Current portion of EIDL loan                                         3,105                  2,862
Accounts payable                                                 1,012,451              1,102,125
Accrued expenses                                                   901,996                695,553
Related party accrued interest                                     112,389                112,389
Current portion of operating lease liabilities                     304,737                279,051
Deferred revenue                                                   332,383                363,700
Other short term liabilities                                       129,961                136,107
Total current liabilities                                        3,001,998              3,396,763
Note payable, net of current portion                                 3,888                  7,839
Operating lease liabilities, net of current portion                538,794                630,330
EIDL loan, net of current portion                                  149,540                147,138
Other long-term liabilities                                              -                 40,860
Total long-term liabilities                                        692,222                826,167
Total liabilities                                                3,694,220              4,222,930
Commitments and Contingencies (Note 10.)
Shareholders' equity:
Series A convertible preferred stock, $0.001 par value;
2,000,000 shares authorized; 2,000,000 shares issued and
outstanding (liquidation value of $870,731 and $819,131)           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                                            (68,876,441)           (68,894,522)
Total shareholders' equity                                       1,478,017              1,459,936
Total liabilities and shareholders' equity                   $   5,172,237          $   5,682,866


                 See notes to consolidated financial statements
                                       26
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                            ESCALON MEDICAL CORP. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                              For the Years Ended June 30,
                                                                                                        2022                        2021
Net revenues:
Products                                                                                        $        9,980,343          $        9,547,606
Service plans                                                                                              722,727                     924,011
Revenues, net                                                                                           10,703,070                  10,471,617
Costs and expenses:
Cost of goods sold                                                                                       6,096,169                   6,044,399
Marketing, general and administrative                                                                    4,085,982                   3,570,433
Research and development                                                                                   990,982                     890,482

Total costs and expenses                                                                                11,173,133                  10,505,314
Loss from operations                                                                                      (470,063)                    (33,697)
Other income (expense)
Other income                                                                                               506,305                       2,530
Interest income                                                                                                245                         985
Interest expense                                                                                           (18,406)                    (21,841)
Total other income, net                                                                                    488,144                     (18,326)
Net income (loss)                                                                                           18,081                     (52,023)
Undeclared dividends on preferred stocks                                                                    51,600                      51,422
Net income (loss) applicable to common
shareholders                                                                                    $          (33,519)         $         (103,445)
Net income (loss) per share
Basic income (loss) per share                                                                   $             0.00          $            (0.01)
Diluted income (loss) per share                                                                 $             0.00          $            (0.01)
Weighted average shares-basic                                                                               7,415,329                7,415,329
Weighted average shares-diluted                                                                            13,220,202                7,415,329


                 See notes to consolidated financial statements
                                       27
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                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   FOR THE YEARS ENDED JUNE 30, 2022 AND 2021

                                                                                                                    Additional                                       Total
                                                                                                                      Paid-in             Accumulated            Shareholders'
                          Series A Convertible Preferred Stock                    Common Stock                        Capital               Deficit                 Equity
                               Shares              Amount                    Shares                Amount
Balance at June
30, 2021                        2,000,000          $ 645,000                 7,415,329           $ 7,415          $ 69,702,043          $ (68,894,522)         $    1,459,936

Net income                              -                  -                         -                 -                     -                 18,081                  18,081
Balance at June
30, 2022                        2,000,000          $ 645,000                 7,415,329           $ 7,415          $ 69,702,043          $ (68,876,441)         $    1,478,017



                                                                                                                              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


                 See notes to consolidated financial statements
                                       28
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                                    ESCALON MEDICAL CORP. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          For the Years Ended June 30,
                                                                           2022                      2021
Cash Flows from Operating Activities:
Net income (loss)                                                 $        18,081               $   (52,023)

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


Increase in accounts receivable allowance                                 155,267                    10,000

Other income-gain on PPP loan forgiveness                                (506,305)                        -
Depreciation and amortization                                              48,432                    44,812
Non cash lease expense                                                    279,719                   274,615

Change in operating assets and liabilities:
Accounts receivable                                                      (615,315)                  221,233
Inventories                                                              (187,229)                  368,303
Other current assets                                                       (2,684)                  (33,164)

Accounts payable                                                          (89,674)                  341,504
  Accrued expenses                                                        218,373                    14,506
Change in operating lease liability                                      (290,267)                 (276,833)
  Deferred revenue                                                        (31,317)                 (152,353)
 Other short-term and long-term liabilities                               (47,006)                   78,105
Net cash (used in) provided by operating activities                    (1,049,925)                  838,705
Cash Flows from Investing Activities:
Purchase of equipment                                                           -                    (9,390)

Net cash used in investing activities                                           -                    (9,390)

Cash flow from financing activities:

      Repayment of EIDL loan                                               (2,980)                        -
      Repayment of note payable                                            (3,951)                   (3,664)

Net cash used in financing activities                                      (6,931)                   (3,664)

Net increase (decrease) in cash, cash equivalents and restricted cash

                                                                   (1,056,856)                  825,651

Cash, cash equivalents and restricted cash at the beginning of the year 1,906,890

                 1,081,239
Cash, cash equivalents and restricted cash, end of year           $       850,034               $ 1,906,890

Cash, cash equivalents and restricted cash consist of the
following:
End of year
Cash and cash equivalents                                         $       593,869               $ 1,650,970
Restricted cash                                                           256,165                   255,920
                                                                  $       850,034               $ 1,906,890
Beginning of year
Cash and cash equivalents                                         $     1,650,970               $   825,958
Restricted cash                                                           255,920                   255,281
                                                                  $     1,906,890               $ 1,081,239

Supplemental Schedule of Cash Flow Information:
Income taxes paid                                                 $             -               $         -
Interest paid                                                     $        18,406               $    11,223

Non-monetary financial activities

                                       29
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Record right-of-use assets per ASC 842 $224,417 $20,200
Rental liability record according to ASC 842 $224,417 $20,200
Assign right-of-use assets

               $       -      $  9,154
Dispose lease liability                   $       -      $  9,154


                 See notes to consolidated financial statements
                                       30
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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 was spared from the government
shutdown during the pandemic. The supply chain challenges could increase the
costs of products and numbers of backorders and could adversely affect our
results of operations. In February 2022, Russia invaded Ukraine. As military
activity proceeds and sanctions, export controls and other measures are imposed
by many countries against Russia, Belarus and specific areas of Ukraine, the war
is increasingly affecting the global economy and financial markets, as well as
exacerbating ongoing economic challenges, including rising inflation and global
supply-chain disruption. The Company has operations or activities in countries
and regions outside the United States. As a result, its global operations are
affected by economic, political and other conditions in the foreign countries in
which the Company has business as well as U.S. laws regulating international
trade, although the Company has not yet assessed that the war has had a material
effect on its financial position or results of operations. The Company will
continue to monitor the impacts of the Russia-Ukraine war on macroeconomic
conditions and continually assess the effect these matters may have on customer
demand, suppliers' ability to deliver products, cybersecurity risks and its
liquidity and access to capital.


The common shares of the Company are traded on the OTCQB market under the symbol “ESMC”.

2. Going concern


The Company's operations are subject to a number of factors that can affect its
operating results and financial condition. Such factors include, but are not
limited to: the continuous enhancement of the current products, development of
new products; changes in domestic and foreign regulations; ability 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, 2022, 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 current and 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
                                       31
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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.



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 United States of America 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, 2022 and 2021 restricted cash included approximately $256,000,
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, 2022 and 2021.

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 $236,000
and $100,000 as of June 30, 2022 and 2021.

                                                     June 30,
                                               2022           2021
                    Balance, July 1         $ 100,480      $ 122,515
                    Increase in allowance     155,267         10,000

                    Write-offs                (19,398)       (32,035)
                    Balance, June 30        $ 236,349      $ 100,480



                                       32
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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 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,
                                            2022                  2021
Raw materials                      $     1,010,471            $   833,105
Work in process                            138,182                171,097
Finished goods                             805,698                773,451
Total inventories                  $     1,954,351            $ 1,777,653

Allowance for obsolete inventory          (350,396)              (360,926)
Inventories, net                   $     1,603,955            $ 1,416,727


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,
2022 and 2021 was approximately $29,000 and $25,000, respectively.

Property, plant and equipment consist of the following items:

                                                           June 30,
                                                     2022           2021
Equipment                                         $ 771,097      $ 748,725
Furniture and fixtures                              128,499        150,871
Leasehold improvements                               39,048         39,048
                                                    938,644        938,644

Less: Accumulated amortization (885,984) (857,202)

                                                  $  52,660      $  81,442


Intangible assets and long-lived assets


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
                                       33
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by the amount by which the carrying amount of the asset exceeds the fair value
of the asset. There was no impairment of the long-lived assets, including the
ROU assets in the year ended June 30, 2022 and 2021.


Accumulated guarantees


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 continued 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. The full amount of the PPP loan and accrued interest were
forgiven on August 13, 2021 and reported as other income during the year ended
June 30, 2022.

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 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.

                                       34
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Revenue from product sales and installation of AXIS Image Management System software is recognized upon delivery or installation. Customer service plan revenue is recognized proportionately over the service period, which is a 12-month period.


  The Company has elected the following practical expedients in applying ASC
606:
•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 prior to its performance. The Company’s deferred revenue relates to payments received for customer service plans for a 12 month period. The consideration received is recognized monthly over the service period.

                                                  Years ended June 30,
                                                                  2022           2021
                Beginning of Year                              $ 364,000      $ 516,000
                Additions                                        692,000        772,000
                Revenue Recognized                              (723,000)      (924,000)
                End of Year                                    $ 333,000      $ 364,000



Included in accrued expenses as of June 30, 2022 is approximately $213,000 of
customer deposits that will be recorded as income in the consecutive period once
the products have been shipped.

Shipping and handling revenues and costs

Shipping and handling revenue is included in product revenue and related costs are included in cost of goods sold.

Research and development

All research and development costs are charged to earnings as incurred.

Advertising costs

Advertising costs are charged to earnings as incurred. Advertising expenses for the financial years ended June 30, 2022 and 2021 was $0 and $4,000. The Company had internal marketing activities during the year ended June 30, 2022 and 2021.

Earnings (loss) per share

                                       35
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Earnings (loss) per share is computed by dividing net income (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, 2022 and 2021, 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 year ended June 30,2021. Therefore, basic and diluted loss per common
share for the year ended June 30, 2021 are the same.

                                                   For the Years Ended June 30,
                                                                    2022                             2021
Numerator:

Basic loss per share numerator:

 Net income (loss)                                       $                18,081          $                (52,023)
Undeclared dividends on preferred stock                                   51,600                            51,422
Net income ( loss) applicable to common
shareholders                                             $               (33,519)         $               (103,445)

Net income (loss) applicable to common
shareholders                                             $               (33,519)         $               (103,445)
Undeclared dividends on preferred stock                                   51,600                                 -
Net income (loss)                                        $                18,081          $               (103,445)

Denominator:

Denominator for basic earnings (loss) per
share - weighted average shares
outstanding                                                            7,415,329                         7,415,329

 Denominator for diluted earnings (loss)
per share - weighted average and assumed
conversion                                                            13,220,202                         7,415,329
Net income (loss) per share:
Basic net income (loss) per share                        $                  0.00          $                  (0.01)
Diluted net income (loss) per share                      $                  0.00          $                  (0.01)



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

                                       36
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                                       37
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                                                        For the Years Ended June 30,
                                                                                   2022                                   2021
Stock options                                                                     157,000                                157,000
Convertible preferred stock                                                          -                                  5,460,873
Total potential dilutive
securities not included in
income per share                                                                  157,000                               5,617,873


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.

  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, 2022 and June
30, 2021, 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, 2022 and June 30, 2021, 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.

New Accounting Pronouncements

Recently issued accounting standards

                                       38
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The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). Management periodically reviews newly issued accounting standards.

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 to the Company's
consolidated financial statements.

4. Intangible assets

The Company’s intangible assets consist of the following:

Licenses


  The Company purchased no new licenses for year end June 30, 2022 and 2021,
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, 2022 and 2021. Annual amortization related entirely to licenses is estimated
to be $19,650 for the years ending June 30, 2023 through 2026 and $4,150
thereafter.

The following table shows the licenses amortized to June 30, 2022:

                                                                         Adjusted
                                 Gross                                   Gross                                        Net
                                 Carrying                                Carrying              Accumulated            Carrying
                                 Amount             Impairment           Amount                Amortization           Value
Amortized Intangible Assets
Licenses
                                 $ 199,000          $         -          $    199,000          $    (116,250)         $ 82,750
Total                            $ 199,000          $         -          $    199,000          $    (116,250)         $ 82,750



The following table shows the licenses amortized to June 30, 2021:

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

Amortized intangible asset licenses

                                     $ 199,000          $         -          $ 199,000          $     (96,600)         $ 102,400
Total                                $ 199,000          $         -          $ 199,000          $     (96,600)         $ 102,400


5. Accrued Expenses

The following table shows the accrued charges:

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                                                               June 30,
                                                         2022           2021
Accrued compensation                                  $ 445,651      $ 464,213
Line of credit and notes payable interest accrual             -         11,506
Customer deposits                                       212,555         64,494
Warranty reserve                                         32,078         32,078
Tax payable                                             100,380        100,834
Other accruals                                          111,332         22,428
Total accrued expenses                                $ 901,996      $ 695,553


Remuneration earned at June 30, 2022 and 2021 mainly concerns payroll, paid holidays and social charges.

6. Line of credit


  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, 2022. 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, 2022 and 2011, the line of credit balance was $201,575 with TD
bank. The line of credit interest expense was approximately $10,000 and $10,000
for the years ended June 30, 2022 and 2021, respectively.

7. Long-term debt

Paycheck 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 full amount of the PPP
loan was classified as current as of June 30, 2021.The full amount of the PPP
loan and accrued interest were forgiven on August 13, 2021 and reported as other
income during the year ended June 30, 2022.

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 Company submitted an EIDL loan
increase application on May 6, 2022, increasing the loan amount from $150,000 to
$200,000. The loan modification was not approved as the funding was exhausted

Future annual amounts of principal and accrued interest payable from
June 30, 2022 are the following:

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                    Year ending June 30,     EIDL Loan Payment
                    2023                    $            3,105
                    2024                                 3,084
                    2025                                 3,202
                    2026                                 3,324
                    2027                                 3,582
                    Thereafter                         136,348
                    Total                   $          152,645


Other short-term and long-term liabilities


  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. 50% of the
deferred employment taxes was paid before December 31, 2021. The remaining 50%
is not due until December 31, 2022. Approximately $41,000 of the employer
payroll tax withholding deferral was reported as short-term other liabilities as
of June 30, 2022.



8. Capital Stock Transactions

Stock Option Plans

As of June 30, 2022, 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, 2022, 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 years ended June 30, 2022 and 2021:

                                                              2022                                        2021
                                                                        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               157,000            $     1.47
Granted                                                  -                     -                     -                     -
Exercised                                                -                     -                     -                     -
Forfeited                                                -                     -                     -            $        -
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 on stock options outstanding at
June 30, 2022:

                                       41
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                                                Weighted
                               Number           Average         Weighted          Number         Weighted
                            Outstanding        Remaining         Average       Exercisable        Average
                            at June 30,       Contractual       Exercise       at June 30,       Exercise
                                2022          Life (Years)        Price            2022            Price
Range of Exercise Prices
$0.79                        21,000                    3.83    $    0.79        21,000          $    0.79
$1.45 to $2.12              136,000                    1.83    $    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, 2022 and 2021.


9. Income Taxes

The provision for income taxes for the years ended June 30, 2022 and 2021 includes the following:



                                    2022          2021
Current income tax provision
Federal                          $      -      $      -
State                                   -             -
                                        -             -
Deferred income tax provision
Federal                           (82,615)       51,366
State                             (23,605)       14,676

Change in valuation allowance 106,220 (66,042)

                                        -             -

Income tax expense (benefit) – $ – $

Income tax expense (benefit) as a percentage of loss for years ended
June 30, 2022 and 2021 differ from the statutory federal tax rate due to the following:


                                       2022          2021
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 components of net deferred tax assets and liabilities as of
June 30, 2022 and 2021 are as follows:

                                       42
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                                             2022             2021

Deferred tax assets: Net operating loss carried forward $7,430,299 $7,352,719
Executive Retirement Costs

                    -                -
General business credit                            -                -
Allowance for doubtful accounts               49,633           21,100
Accrued vacation                              48,969           49,336
Inventory reserve                             73,583           69,432

Accelerated depreciation                      57,628           65,432
Warranty reserve                               6,736            6,736
Total deferred income tax assets           7,666,848        7,564,755
Valuation allowance                       (7,649,471)      (7,543,251)
                                              17,377           21,504
Deferred income tax liabilities:
Accelerated depreciation                     (17,377)         (21,504)

Total deferred tax liabilities (17,377) (21,504)

                                         $         -      $         -


As of June 30, 2022, the Company has a valuation allowance of $7,649,471, which
primarily relates to the federal net operating loss carryforwards. During the
year ended June 30, 2022, the valuation allowance increased by $106,220 and
during the year ended June 30, 2021, the valuation decreased by $66,042. 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 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 $33,921,000
and $3,208,000, respectively, of which $25,147,000 and $2,785,000, respectively,
will expire over the next ten years, $6,707,000 and $423,000, respectively, will
expire in years eleven through twenty, and $2,067,000 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, 2019 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, 2022, 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 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 proceeding


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.


                                       43
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11. 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, 2022
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 (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, 2022
and 2021 the cumulative dividends payable is $225,731 ($0.1129 per share) and
$174,131 ($0.0871 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.

12. 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 customer

One customer accounted for approximately 11% of net sales during the year ended June 30, 2022. One client accounted for approximately 15% of net sales during the year ended June 30, 2021.


  As of June 30, 2022 the Company had one customer that represents approximately
13% of the total accounts receivable balance. As of June 30, 2021 the Company
had one customer that represents approximately 23% of the total accounts
receivable balance.

Major Supplier

                                       44
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  The Company's two largest suppliers accounted for 39% and 12% of the total
purchases for the year ended June 30, 2022. The Company's two largest suppliers
accounted for the total purchases for 40% and 10% of total purchases for the
year ended June 30, 2021. As of June 30, 2022 the Company had one supplier that
represent approximately 36% of the total accounts payable balance. As of June
30, 2021 the Company had two customer that represents 39% and 12% of the total
accounts payable balance.

Sales abroad

  Domestic and international sales from continuing operations are as follows:

(in thousands)                      For the Years Ended June 30,
                                                      2022                 2021
Domestic                                                          $  5,720        53.4  %    $  6,255        59.7  %
Foreign                                                              4,983        46.6  %       4,217        40.3  %
Total                                                             $ 10,703       100.0  %    $ 10,472       100.0  %



13. 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, 2022 and 2021
as follows:

                                      Year Ended June 30,
                                        2022        2021
Operating lease costs:
Fixed                                  337,774     346,302
Total:                              $  337,774   $ 346,302



  Supplemental cash flow information was as follows:

                                                                            

Year ended June 30th,

                                                                          2022               2021

Cash paid for amounts included in the measurement of lease liabilities Operating cash flow for operating leases

                                   334,912    $      335,549
Total                                                              $        334,912    $      335,549



  Leases recorded on the balance sheet consist of the following:

                                                                                                        June 30,
Leases (operating)                             Classification on the Balance Sheet                   2022                 2021
Assets
Operating lease ROU assets                     Right-of-use asset                         $    788,257          $   843,559
Liabilities
                                               Current portion of operating lease
Current                                        liabilities                                $    304,737          $   279,051
Non-current                                    Operating lease liabilities                $    538,794          $   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, 2022:

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  The aggregate future lease payments for operating leases as of June 30, 2022
were as follows:
                                          Operating

2023                                      343,242
2024                                      350,142
2025                                      211,215
2026                                        2,728

Total lease payments                      907,327
Less interest                              63,796

Present value of lease obligations $843,531



  Average lease terms and discount rates were as follows:

                                                            June 30,
                                                        2022         2021
Weighted-average remaining lease terms (years)
Operating leases                                           2.61        3.35
Weighted-average discount rate
Operating leases                                        5.65  %     5.65  %


On April 28, 2022 the Company extended the lease agreement for its Wisconsin
warehouse, which will end in April 30, 2022 for a term of three years. The lease
agreement has a lease ROU assets and lease liability of approximately $224,000,
respectively. The Company classified the amended lease as an operating lease
under ASC 842.

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