Escalon: Expansion Efforts Impact Gross Margins

Escalon Medical managed solid revenue growth its first fiscal quarter of 2009. The company reported quarterly revenues of $8.7 million, compared with $6.9 million in the same period last year. The increase was primarily due to the acquisition of JAS Diagnostics in June.

Escalon operates through several wholly owned subsidiaries: Sonomed, Escalon Digital Solution, Trek, Escalon Vascular Access and Drew Scientific. The companies offer medical devices and pharmaceuticals in the areas of ophthalmology, diabetes, hematology and vascular access.

All of these subsidiaries experienced year-over-year growth with the exception of the Trek business unit – sales there were off 16%. Trek offers an aging line of Ispan Intraocular gases and fiber optic light sources.

In the near term, the company remains committed to growth. The company has received five new FDA clearances since July 2007. Escalon’s Sonomed subsidiary is planning to launch three new products in the next six months.

Richard DePiano, Chairman and CEO, commented, “We continue to take steps to diversify our product portfolio, enhance our market position as well as build on our strengths, and believe these initiatives will ultimately support the continued expansion of the organization and generate long-term financial growth.”

Expansion efforts have taken their toll on gross margins. Operating expenses increased 11.3% in the most recent quarter as Escalon ramped up its research and development spending. The cost of goods sold as a percentage of revenue decreased slightly to 56% of product revenues, compared to 57% of in the same period last year.

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