UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Escalon Medical Corp.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Notice of Annual Meeting of Shareholders
To Be Held June 30, 2010

 

To the Shareholders of Escalon Medical Corp.:

 

The annual meeting of shareholders of Escalon Medical Corp. will be held at 9:00 a.m., local time, on June 30, 2010, at the offices of the Company, 435 Devon Park Drive, Building 100, Wayne, PA 19087. This meeting constitutes our annual meeting for 2009. At our annual meeting, our shareholders will act on the following matters:

 

 

All shareholders of record as of the close of business on June 8, 2010 are entitled to vote at our annual meeting.

 

Our 2009 Annual Report is being mailed to shareholders together with this Notice.

 

It is important that your shares be voted at our annual meeting. Please complete, sign and return the enclosed proxy card in the envelope provided whether or not you expect to attend our annual meeting in person.

 

By Order of the Board of Directors,

 

Richard J. DePiano

Chairman and Chief Executive Officer

 

June 14, 2010

Wayne, Pennsylvania

ESCALON MEDICAL CORP.

 

PROXY STATEMENT

 

This proxy statement contains information relating to the annual meeting of shareholders of Escalon Medical Corp. to be held on June 30, 2010, at the offices of the Company, 435 Devon Park Drive, Building 100, Wayne, PA 19087 at 9:00 a.m., local time, and at any adjournment, postponement or continuation of the annual meeting. This proxy statement and the accompanying proxy are first being mailed to shareholders on or about June 14, 2010. Unless the context indicates otherwise, all references in this proxy statement to “we,” “us,” “our” “Escalon” or the “Company” mean Escalon Medical Corp. and its subsidiaries.

 

CONTENTS

 

 

 

At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting on the cover page of this proxy statement, including the election of two Class I directors and any other matters that properly come before our annual meeting. In addition, our management will report on our performance during fiscal 2009 and recent fiscal periods and respond to appropriate questions from shareholders.

 

Holders of common stock of record at the close of business on the record date, June 8, 2010, are entitled to receive notice of and to vote at our annual meeting, and any adjournment, postponement or continuation of our annual meeting.

 

As of the record date, 7,413,930 shares of common stock were outstanding, each of which is entitled to one vote with respect to each matter to be voted on at our annual meeting.

 

All shareholders as of the record date, or their duly appointed proxies, may attend our annual meeting. Even if you currently plan to attend our annual meeting, we recommend that you also submit your proxy as described below so that your vote will be counted if you later decide not to attend our annual meeting.

 

If you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at our annual meeting.

 

The presence at our annual meeting, in person or by proxy, of the holders of a majority of the shares of our common stock outstanding on the record date will constitute a quorum, permitting the conduct of business at our annual meeting. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares present at our annual meeting.

 

If you or your duly authorized attorney-in-fact complete, properly sign and return the accompanying proxy card to us, it will be voted as you direct. If you are a registered shareholder and attend our annual meeting, you may deliver your completed proxy card in person. “Street name” shareholders who wish to vote at our annual meeting will need to obtain a signed proxy from the institution that holds their shares.

 

Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised by filing with our Secretary either a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be revoked if you attend our annual meeting in person and request that your proxy be revoked, although attendance at our annual meeting will not by itself revoke a previously granted proxy.

 

Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our Board of Directors. Our Board of Directors recommends a vote:

 

 

Election of Class I Directors.  The two persons receiving the highest number of “FOR” votes cast by the holders of our common stock for election as Class I directors will be elected. A properly executed proxy marked “WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although the proxy will be counted for purposes of determining whether a quorum is present. Abstentions and shares held by brokers or nominees as to which voting instructions have not been received from the beneficial owner of or persons otherwise entitled to vote the shares and as to which the broker or nominee does not have discretionary voting power, i.e., broker non-votes, will not be taken into account in determining the outcome of the election. We do not permit cumulative voting in the election of directors.

 

Other Matters.  The affirmative vote of a majority of the votes cast by the holders of our common stock on the proposal will be required to approve any other matter that properly comes before our annual meeting. Abstentions and broker non-votes do not constitute votes cast and therefore will not affect the outcome of the vote.

 

If you sign your proxy card or broker voting instruction card with no further instructions, your shares will be voted in accordance with the recommendations of our Board, i.e., FOR the election of our nominees for Class I directors.

 

We are making this solicitation and will pay the cost of soliciting proxies on behalf of our Board of Directors, including expenses of preparing and mailing this proxy statement. In addition to mailing these proxy materials, the solicitation of proxies or votes may be made in person or by telephone or telegram by our regular officers and employees, none of whom will receive special compensation for such services. Upon request, we will also reimburse brokers, nominees, fiduciaries and custodians and persons holding shares in their names or in the names of nominees for their reasonable expenses in sending proxies and proxy material to beneficial owners.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table indicates, as of May 31, 2010, information about the beneficial ownership of our common stock by (1) each director as of May 31, 2010, (2) each Named Executive Officer, (3) all directors and executive officers as of May 31, 2010 as a group and (4) each person who we know beneficially owns more than 5% of our common stock. All such shares were owned directly with sole voting and investment power unless otherwise indicated.

 

Beneficial Ownership Table

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires that our officers and directors, as well as persons who own 10% or more of a class of our equity securities, file reports of their ownership of our securities, as well as statements of changes in such ownership, with us and the Securities and Exchange Commission (the “SEC”). Based upon written representations received by us from our officers, directors and 10% or greater shareholders, and our review of the statements of beneficial ownership changes filed with us by our officers, directors and 10% or greater shareholders during fiscal 2009, we believe all such filings required during the fiscal 2009 were made on a timely basis.

 

The election of our directors by our shareholders is governed by the Pennsylvania Business Corporation Law and our Bylaws. The following discussion summarizes these provisions and describes the process our Governance and Nominating Committee will follow in connection with the nomination of candidates for election as directors by the holders of our common stock.

 

Our Governance and Nominating Committee is responsible for recommending to the Board of Directors candidates to stand for election to the Board of Directors at the annual meeting. Our Governance and Nominating Committee will also consider director candidates recommended by shareholders in accordance with the advance notice procedures in Section 2.3 of our Bylaws. These procedures are described under “Shareholder Proposals” in this proxy statement. The Governance and Nominating Committee may also consider director candidates proposed by our management. We have not utilized third-party executive search firms to identify candidates for director.

 

With the exception of applicable rules of the SEC and the Nasdaq Stock Market^SM (“Nasdaq”), our Governance and Nominating Committee does not have any specific, minimum qualifications for candidates for election to our Board of Directors, and our Governance and Nominating Committee may take into account such factors as it deems appropriate. Our Governance and Nominating Committee examines the specific attributes of candidates for election to our Board of Directors and also considers the judgment, skill, diversity, business experience, the interplay of the candidate’s experience with the experience of the other members of our Board of Directors and the extent to which the candidate would contribute to the overall effectiveness of our Board of Directors.

 

Our Governance and Nominating Committee will utilize the following process in identifying and evaluating candidates for election as members of our Board of Directors:

 

 

Our Governance and Nominating Committee met in fiscal 2009, but our entire Board of Directors performed the functions of the Governance and Nominating Committee with respect to the nominating of candidates for election at the 2009 Annual Meeting. The Board of Directors met on May 12, 2010 for the purpose of nominating candidates for election as directors by our shareholders at this annual meeting of shareholders, constituting our 2009 annual meeting, and approved the nomination of the persons named below.

 

Our Board of Directors currently consists of six members, four of whom are considered independent for purposes of the applicable Nasdaq rules. The current independent directors are Anthony J. Coppola, Lisa A.

Napolitano, Fred G. Choate and William L. G. Kwan. Each director is elected for a three-year term and until his/her successor has been duly elected.

 

Two Class I directors are to be elected at our annual meeting. Unless otherwise instructed, the proxies solicited by our Board of Directors will be voted for the election of the nominees named below. The two Class I nominees are currently directors of the Company.

 

If any of the nominees becomes unavailable for any reason, the proxies intend to vote for a substitute nominee designated by our Board of Directors. Our Board of Directors has no reason to believe the nominees named will be unable to serve if elected. Any vacancy occurring on our Board of Directors for any reason may be filled by a majority vote of our directors then in office until the expiration of the term of the class of directors in which the vacancy exists.

 

The names of the nominees for Class I directors and the Class II directors and Class III directors who will continue in office after our annual meeting until the expiration of their respective terms, together with certain information regarding them, are as follows:

 

 

 

 

 

 

The SEC and Nasdaq have adopted regulations and listing requirements that relate to our corporate governance. Our Board of Directors has adopted standards and practices in order to comply with those regulations that apply to us. We have has adopted a Code of Ethics, which can be accessed on our web site at www.escalonmed.com. Our independent directors meet at regularly scheduled meetings at which only independent directors are present.

 

We believe Shareholders are best served if the Board retains flexibility to decide what leadership structure works best for the Company based on the facts and circumstances existing from time to time. Currently, the offices of Chairman and CEO are held by the same person, Richard J. DePiano. The Board does not believe that its independence or performance would be enhanced by requiring that the Chairman be an independent director. The Board follows sound corporate governance practices to ensure its independence and effective functioning. Most

importantly, four of the six directors are independent and meet regularly in scheduled executive sessions. These sessions are led by an independent director with clear duties to ensure proper checks and balances. In addition, the Board’s audit, compensation and governance committees are and have for many years been composed solely of independent directors. This means that oversight of critical issues such as the integrity of the Company’s financial statements, CEO and senior management compensation is entrusted to independent directors. The Board retains the right to review this determination as facts and circumstances change.

 

Our Board of Directors met eight times in fiscal 2009. Our Board of Directors has an Executive Committee, an Audit Committee, a Governance and Nominating Committee and a Compensation Committee.

 

Our Audit Committee consists of Anthony J. Coppola, William L.G. Kwan and Lisa A. Napolitano. The Committee met five times in fiscal 2009. Each member of the Audit Committee is independent within the meaning of the rules of Nasdaq and of the SEC. Consistent with the Sarbanes-Oxley Act of 2002, the Audit Committee has responsibility for:

 

 

Our Audit Committee operates pursuant to a written charter, the full text of which is available on our website.

 

Our Governance and Nominating Committee consists of Anthony J. Coppola, Fred G. Choate and Lisa A. Napolitano. Each member of the Governance and Nominating Committee is independent within the meaning of the rules of Nasdaq and of the SEC. Our Governance and Nominating Committee has responsibility for:

 

 

Our Governance and Nominating Committee operates pursuant to a written charter, the full text of which is available on our website.

 

Our Compensation Committee consists of Anthony J. Coppola, Fred G. Choate and Lisa A. Napolitano. The Committee met one time in fiscal 2009. Each member of the Compensation Committee is independent within the meaning of the rules of Nasdaq and of the SEC. Our Compensation Committee has responsibility for:

 

 

Our Compensation Committee operates pursuant to a written charter, the full text of which is available on our website. Our Compensation Committee’s charter reflects these responsibilities, and the Compensation Committee and our Board of Directors reviews the charter annually.

 

Our shareholders may communicate with our Board of Directors through our Secretary. Shareholders who wish to communicate with any of our directors may do so by sending their communication in writing addressed to a particular director, or in the alternative, to “Non-management Directors” as a group, in care of our Secretary at our headquarters, 435 Devon Park Drive, Building 100, Wayne, PA 19087. All such communications that are received by our Secretary will be promptly forwarded to the addressee or addressees set forth in the communication.

 

We actively encourage our directors to attend our annual meetings of shareholders because we believe director attendance at our annual meetings provides our shareholders with an opportunity to communicate with the members of our Board of Directors. All of our directors attended our 2008 annual meeting of shareholders held in 2009 and intend to be in attendance at this annual meeting with respect to 2009.

 

Our executive officers are as follows:

 

 

Mr. DePiano has been a director of the Company since February 1996 and has served as Chairman and Chief Executive Officer of the Company since March 1997. Mr. DePiano has been the Chief Executive Officer of the Sandhurst Company, L.P. and Managing Director of the Sandhurst Venture Fund since 1986. Mr. DePiano also serves Chairman of the Board of Directors of PhotoMedex, Inc.

 

Mr. DePiano, Jr. was appointed Chief Operating Officer and General Counsel of the Company December 28, 2006. Mr. DePiano, Jr. is the son of the Company’s Chairman and Chief Executive Officer. Mr. DePiano, Jr. joined the Company in November of 2000 as Vice President Corporate and Legal Affairs. Prior to joining the Company, Mr. DePiano, Jr. worked with Forceno & Arangio, L.L.P., from September 1998 until November 2000 as a Senior Associate representing individual and business clients in various areas of the law including mergers and acquisitions, automotive dealership representation, family, small and emerging businesses, securities law, venture capital financing, consumer finance and general corporate and commercial matters. Prior to this Mr. DePiano, Jr. was in private law practice since 1992. He served as President in 2008 and 2009 and was a member of the Board of Directors of the Delaware Valley Corporate Counsel Association from 2005 until 2010 (“DELVACCA”). Mr. DePiano, Jr. also serves as the Chairman of the Nominations Committee, Chairman of the Law School Initiative Committee and member of the Pro-Bono Committee of DELVACCA. He also is Vice Chairman of the Board of Directors of the Montgomery County Industrial Development Authority.

 

Mr. Wallace was appointed our Chief Operating Officer on January 1, 2008. Mr. Wallace has worked with us since 1997. Previous to being appointed Chief Operating Officer he was Executive Vice President of our Escalon Digital Solutions and Trek Medical subsidiaries. He has jointly held the position of Vice President-Quality, with quality and regulatory responsibilities for all of the our companies, and has also previously served as Operations Manager at Sonomed, Inc. and Quality Manager of Escalon Medical. He had previously worked with Lunar Corp (now GE Healthcare) and Trek Medical. He holds a BS Industrial Engineering and a MS Manufacturing Systems Engineering, both from the University of Wisconsin-Madison, is a senior member of the American Society of Quality, and has over 18 years experience in the medical device industry.

 

Mr. O’Connor was appointed Chief Financial Officer of the Company on June 30, 2006. Mr. O’Connor joined the Company from BDO Seidman, LLP where he served as a senior manager from 2004. His prior experience includes both public and private accounting roles as a manager at PricewaterhouseCoopers, LLP where he served in

the middle market advisory services group from 1998 until 2000, and positions of controller and chief financial officer of Science Dynamics, a manufacturer of high tech telecom equipment, from 2000 until 2002 and Ianieri & Giampapa, LLC, a certified public accounting firm from 2002 until 2004. Mr. O’Connor holds an MBA from Rutgers University — Graduate School of Management and a B.S. from Kean University. He is a certified public accountant and a member of the American Institute of Certified Public Accountants (AICPA).

 

The Compensation Committee of our Board of Directors, or our Compensation Committee, oversees our compensation and policies, our compensation levels, including reviewing and approving equity awards to our executive officers, and reviews and recommends annually for approval by our Board of Directors all compensation decisions relating to our executive officers.

 

Our Compensation Committee believes that the primary objectives of our compensation programs for our executive officers are to:

 

 

The most significant component of the compensation policy administered by our Compensation Committee is that a substantial portion of the aggregate annual compensation of our named executive officers should be based on our annual financial results, our overall sales, growth and our profitability. Our Compensation Committee also evaluates the achievement of our other corporate objectives and the contribution of each named executive officer to those achievements.

 

We rely on our judgment in making compensation decisions after reviewing our performance and the performance of our executives based on financial and operational objectives. We do not retain the services of any compensation consultants. Three of our named executive officers, Richard DePiano, Sr., Mark Wallace and Robert O’Connor, have employment, severance and change-of-control agreements. (See “Employment Agreements” below.)

 

For a number of years, we have maintained a cash incentive compensation program for our officers, including our named executive officers. The amount of the bonus is dependent upon several factors listed below including our financial results, sales growth and our profitability. Our Compensation Committee does not assign specific weights to these factors.

 

Our officers receive the following types of compensation:

 

 

 

Our Compensation Committee recommends all compensation and equity awards to our executive officers for final discretionary action by our Board of Directors. Our Compensation Committee, in recommending the annual compensation of our officers, including our named executive officers, to be established by our Board of Directors, reviews the performance and compensation of our officers. In assessing the performance of our named executive officers in relation to the objectives established by our Board of Directors, our Compensation Committee reviews specific achievements associated with attainment of the objectives, the degree of difficulty of the objectives and the extent to which significant unforeseen obstacles or favorable circumstances affected their performance.

 

Our Compensation Committee recommends to our Board of Directors the base salaries, annual aggregate bonus amount and stock option grants to the members of our management. As part of its oversight of the compensation of our named executive officers, our Compensation Committee reviewed recommended the following compensation adjustments for fiscal 2009 for our named executive officers:

 

 

Section 162(m) of the Code generally does not allow us a deduction for federal income tax purposes to the extent that we pay annual compensation to any of our executive officers named in the Summary Compensation Table in this proxy statement that is in excess of $1 million. However, compensation paid to such an executive officer that is paid pursuant to a performance-based plan is generally not subject to the Section 162(m) limitation. Although our Compensation Committee is aware of the Section 162(m) limitation, our Compensation Committee believes that it is equally important to maintain flexibility and the competitive effectiveness of the compensation of our named executive officers. Our Compensation Committee may, therefore, from time to time, authorize compensation that is not deductible for federal income tax purposes if our Compensation Committee believes it is in our best interests and the best interests of our stockholders to do so.

 

Summary Compensation Table

 

The following table sets forth certain summary information concerning compensation that we paid or accrued to or on behalf of each of our executive officers during each of the fiscal years ended June 30, 2009, 2008 and 2007 (the “Named Executive Officers”).

 

 

 

 

Grants of Plan Based Awards

 

The following table sets forth certain information regarding plan-based awards granted during the fiscal year ended June 30, 2009.

 

 

 

 

The following table sets forth certain information regarding grants of equity awards held by the named executive officers as of June 30, 2009.

 

 

 

 

Potential Payments upon Termination or Change-in-Control

 

If Mr. DePiano’s employment with us is terminated by the Company or if he terminates his employment with us for good reason, as defined in the agreement, we would be obligated to pay him $8,000 per month for life. If Mr. DePiano were to die within a period of three years after such termination, we would be obligated to continue making such payments until a minimum of 36 monthly payments have been made to him and his beneficiaries in the aggregate.

 

Mr. O’Connor, pursuant to his offer letter, will be entitled to a severance payment equal to 100% of his annual base salary and an increase of his annual base salary to $250,000 in connection with a change of control.

 

Salary.  Salaries for named executive officers are determined based on a variety of factors, including the executive’s scope of responsibilities. Salaries are reviewed for our named executive officers once each year, and

may be adjusted after considering the factors listed below and the named executive officer’s performance. Executive management took a reduction in salary of ten percent (10%) during fiscal 2009.

 

Annual Cash Bonus.  In fiscal year 2009, named executive officers had the opportunity to earn a cash bonus. Bonuses are provided to reward achieving business results against individual annual performance commitments and to deliver cash as part of an overall compensation package that is competitive in the marketplace.

 

The Compensation Committee determines bonuses in its discretion based on performance across a combination of qualitative and quantitative objectives during the performance period. Working with our Chief Executive Officer, each named executive officer establishes these objectives annually. The Chief Executive Officer establishes his goals in consultation with the Board. The goals used to determine bonuses vary for each executive based on his responsibilities and may include financial or strategic measures, including:

 

 

For named executive officers other than the Chief Executive Officer, the Chief Executive Officer recommends individual bonus payments based on the executive’s performance against his goals for the year. The Compensation Committee considers the recommendations and makes a final decision on the bonus payments.

 

For Mr. DePiano, the Compensation Committee recommends a bonus payment to the independent members of the Board. In making this recommendation, the Compensation Committee considers the performance evaluation of Mr. DePiano. The Board considers the Committee’s recommendation and Mr. DePiano’s performance evaluation in determining the bonus for Mr. DePiano. No cash bonuses were awarded in fiscal 2009.

 

On May 12, 1998, the Company entered into an employment agreement with Richard J. DePiano as the Chairman and Chief Executive Officer of the Company. The initial term of the employment agreement commenced on May 12, 1998 and continued through June 30, 2001. The employment agreement renews on July 1 of each year for successive terms of three years unless either party notifies the other party at least 30 days prior to such date of the notifying party’s determination not to renew the agreement. The current base salary provided under the agreement, as adjusted for yearly cost of living adjustments, is $317,700 per year, and the agreement provides for additional incentive compensation in the form of a cash bonus to be paid by the Company to Mr. DePiano at the discretion of the Board of Directors. The agreement also provides for health and long-term disability insurance and other fringe benefits as well as an automobile allowance of $800 per month.

 

On June 23, 2005, the Company entered into a Supplemental Executive Retirement Benefit Agreement with Mr. DePiano. The agreement provides for the payment of supplemental retirement benefits to Mr. DePiano in the event of his termination of service Mr. DePiano with the Company under the following circumstances:

 

 

 

During the fourth quarter of fiscal 2005, we recorded as an expense in our Consolidated Statement of Income, $1,087,000, which represents the present value of the supplemental retirement benefits awarded.

 

As President and General Counsel, Mr. DePiano, Jr. received an annual salary of $167,670.

 

As Chief Financial Officer, Mr. O’Connor’s annual base salary is $191,330. Mr. O’Connor has been granted stock options to purchase 60,000 shares of the Company’s common stock, which are exercisable in full as of the June 30, 2006 grant date. The exercise price of these options is $5.05 per share. Mr. O’Connor, pursuant to his offer letter, will be entitled to a severance payment equal to his annual base salary and an increase of his annual base salary to $250,000 in connection with a change of control.

 

As Chief Operating Officer, Mr. Wallace received an annual salary of $150,000.

 

No named executive officer exercised options during the year ended June 30, 2009. No awards were made to any named executive officer during such fiscal year under any long-term incentive plan. We do not currently sponsor any defined benefit or actuarial plans.

 

The following table shows securities authorized for issuance under equity compensation plans.

 

 

The following report of our Compensation Committee does not constitute proxy solicitation material and shall not be deemed filed or incorporated by reference into any of our filings under the Securities Act of 1933 (“Securities Act”) or the Exchange Act, except to the extent that we specifically incorporate this Compensation Committee report by reference therein.

Our Compensation Committee held a telephonic joint meeting with the Board of Directors of the Company on May 12, 2010. The committee reviewed and discussed the compensation discussion and analysis that appears under the caption “Executive Compensation” with management.

 

Based on the review and discussion by our Compensation Committee with management, the members of our Compensation Committee then held a meeting on May 12, 2010 at which they recommended to our Board of Directors that our Board of Directors approve the inclusion of the compensation disclosure and analysis in this Proxy Statement under the caption “Executive Compensation” for filing with the SEC.

 

Compensation Committee:
Anthony J. Coppola
Lisa A. Napolitano
Fred G. Choate

 

May 12, 2010

 

None of our directors were paid any directors fees by us during the fiscal year ended June 30, 2009. In fiscal 2009, each of our non-employee directors was awarded a grant of options to purchase 10,000 shares of our common stock under our 1999 Equity Incentive Plan with an exercise price of $2.22 per share, which was the closing price of our common stock on the NASDAQ Capital Market on September 25, 2008, which options became fully vested immediately upon grant. Directors are reimbursed for expenses incurred in connection with attending meetings of the Board and Board Committees.

 

The following table sets forth certain information regarding the compensation paid to our directors for their service during the fiscal year ended June 30, 2009.

 

 

 

 

Compensation Committee Interlocks and Insider Participation

 

No members of our compensation committee are former or current officers, or have other interlocking relationships, as defined by the SEC.

 

We recognize that related person transactions present a heightened risk of conflicts of interest and can create the appearance of a conflict of interest. Therefore, all proposed related person transactions are disclosed to our board of directors before we enter into the transaction, and, if the transaction continues for more than one year, the continuation is reviewed annually by our board of directors.

 

The Company and a member of the Company’s Board of Directors are founding and equal members of Ocular Telehealth Management, LLC (“OTM”). OTM is a diagnostic telemedicine company providing remote examination, diagnosis and management of disorders affecting the human eye. OTM’s initial focus is on the diagnosis of diabetic retinopathy by creating access and providing annual dilated retinal examinations for the diabetic population. Through March 31, 2010 and 2009, the Company has invested $432,400 and $393,000, respectively in OTM, including $33,400 and $36,000 invested during the nine-month periods ended March 31, 2010 and 2009, respectively. As of March 31, 2010, the Company owned 45% of OTM. The Company provides administrative support functions to OTM. For the three month periods ended March 31, 2010 and 2009 the Company recorded losses of $20,963 and $31,336, respectively. For the nine-month periods ended March 31, 2010 and 2009 the Company recorded losses of $60,396 and $65,387, respectively.

 

Richard J. DePiano, Sr., the Company’s Chairman and Chief Executive Officer, participated in an accounts receivable factoring program that was implemented by the Company. Under the program, Mr. DePiano advanced the Company $157,332 which represented 80% of an amount due from a Drew customer in Algeria, as of March 31, 2010 the entire amount of the receivable remained outstanding. The receivable from Algeria, was not eligible to be sold to the Company’s usual factoring agent. Interest on the transaction is 1.75% per month, which is equal to the best price offered by the Company’s usual factoring agent. The transaction excluded fees typically charged by the factoring agent and provided much needed liquidity to the Company. As of the three month and nine month periods ended March 31, 2010 Mr. DePiano earned $5,056 in interest on the transaction. On March 31, 2010 the amount of principal and interest due to Mr. DePiano was $162,388.

 

Our Audit Committee approves the fees and other significant compensation to be paid to our independent registered public accounting firm for the purpose of preparing or issuing an audit report or related work. We provide appropriate funding, as determined by our Audit Committee, for payment of fees and other significant compensation to our independent registered public accounting firm. Our Audit Committee also preapproves all auditing services and permitted non-audit services, including the fees and terms thereof, to be performed for us by our independent registered public accounting firm. The Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent public auditors to management, but may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated is required to report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

Our Audit Committee reviewed and discussed with its current independent registered public accounting firm, Mayer Hoffman McCann, the following fees for services rendered for the 2009 fiscal year and considered the compatibility of any non-audit services with Mayer Hoffman McCann’s independence. A representative of the Company’s independent registered public accounting firm, Mayer Hoffman McCann, is expected to attend our annual meeting. A representative Mayer Hoffman McCann, will have an opportunity to make a statement and respond to questions at our annual meeting.

 

Audit Fees.  Mayer Hoffman McCann, our independent registered public accounting firm, billed us $224,975 and $175,000 in total for the fiscal years ended June 30, 2009 and 2008, respectively in connection with the audit of our annual consolidated financial statements.

Audit Related Fees.  We did not pay any audit related fees to Mayer Hoffman McCann during fiscal years ended June 30, 2009 and 2008.

 

Tax Fees.  We did not pay any fees to Mayer Hoffman McCann for tax services during the fiscal years ended June 30, 2009 and 2008.

 

All Other Fees.  We did not pay any fees to Mayer Hoffman McCann for all other services during the fiscal years ended June 30, 2009 and 2008.

 

The following report of our Audit Committee shall not be deemed proxy solicitation material, and shall not be deemed filed with the SEC or incorporated by reference into any of our filings under the Exchange Act or the Securities Act of 1933.

 

The Audit Committee of our Board of Directors was established in accordance with the Exchange Act and reviews the financial reporting process, including the overview of our financial reports and other financial information we provide to governmental or regulatory bodies, the public and others who rely thereon; our systems of internal accounting and financial controls; the selection, evaluation and retention of our independent registered public accounting firm; and the annual independent audit of our financial statements.

 

Each of our Audit Committee members satisfies the independence requirements of the Exchange Act and Nasdaq rules and complies with the financial literacy requirements thereof. Our Board of Directors has determined that all members of Audit Committee, Anthony J. Coppola, Lisa A. Napolitano and William L.G. Kwan, satisfy the financial expertise requirements and have the requisite experience as defined by the SEC’s rules. Our Board of Directors adopted a written charter for our Audit Committee on May 9, 2000 and amended such charter on July 8, 2004. The full text of the Audit Committee Charter as currently in effect is available on our website. Our Audit Committee reviews and reassesses the adequacy of the charter on an annual basis.

 

Our Audit Committee has reviewed our audited consolidated financial statements and discussed those statements with management. Our Audit Committee has also discussed with Mayer Hoffman McCann, our independent registered public accounting firm during fiscal 2009, the matters required to be discussed by Statement of Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

Our Audit Committee received from Mayer Hoffman McCann and reviewed the written disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and discussed with Mayer Hoffman McCann matters relating to its independence. Our Audit Committee also considered the compatibility of the provision of non-audit services by Mayer Hoffman McCann with the maintenance of Mayer Hoffman McCann’s independence.

 

On the basis of these reviews and discussions, our Audit Committee recommended to the Board of Directors that our audited consolidated financial statements be included in our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2009 and be filed with the SEC.

 

Submitted by:
Audit Committee
Anthony J. Coppola
William L.G. Kwan
Lisa A. Napolitano

 

May 12, 2010

 

Any shareholder who, in accordance with and subject to the provisions of Rule 14a-8 of the proxy rules of the SEC, wishes to submit a proposal for inclusion in our proxy statement for our 2010 annual meeting of shareholders must deliver such proposal in writing to our Secretary at our principal executive offices at 435 Devon Park Drive, Building 100, Wayne, PA 19087 within a reasonable time prior to printing of our proxy materials.

 

Pursuant to Section 2.3 of our Bylaws, if a shareholder wishes to present at our 2010 annual meeting of shareholders (i) a proposal relating to nominations for and election of directors for consideration by the Governance and Nominating Committee of our Board of Directors or (ii) a proposal relating to a matter other than nominations for and election of directors, otherwise than pursuant to Rule 14a-8 of the proxy rules of the SEC, the shareholder must comply with the provisions relating to shareholder proposals set forth in our Bylaws, which are summarized below. Written notice of any such proposal containing the information required under our Bylaws, as described herein, must be delivered in person, by first class United States mail postage prepaid or by reputable overnight delivery service to the Governance and Nominating Committee in care of our Secretary, for nomination proposals only, or to the attention of our Secretary for all other matters, at our principal executive offices at 435 Devon Park Drive, Building 100, Wayne, PA 19087 during the period commencing on August 1, 2010 and ending on August 31, 2011.

 

A written proposal of nomination for a director must set forth:

 

 

Only candidates nominated by shareholders for election as a member of our Board of Directors in accordance with our Bylaw provisions as summarized herein will be eligible for consideration by the Governance and Nominating Committee to be nominated for election as a member of our Board of Directors at our 2010 annual meeting of shareholders, and any candidate not nominated in accordance with such provisions will not be considered or acted upon for election as a director at our 2010 annual meeting of shareholders.

 

A written proposal relating to a matter other than a nomination for election as a director must set forth information regarding the matter equivalent to the information that would be required under the proxy rules of the SEC if proxies were solicited for shareholder consideration of the matter at a meeting of shareholders. Only shareholder proposals submitted in accordance with the Bylaw provisions summarized above will be eligible for presentation at our 2010 annual meeting of shareholders, and any matter not submitted to our Board of Directors in accordance with such provisions will not be considered or acted upon at our 2010 annual meeting of shareholders.

 

Our Board of Directors does not know of any matters to be presented for consideration at our annual meeting other than the matters described in the notice of annual meeting, but if any matters are properly presented, proxies in the enclosed form returned to us will be voted in accordance with the recommendation of our Board of Directors or, in the absence of such a recommendation, in accordance with the judgment of the proxy holder.

 

By Order of the Board of Directors,

 

Chairman and Chief Executive Officer

 

June 14, 2010

Wayne, Pennsylvania