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Escalon(R) Reports Second Quarter Fiscal 2008 Results
Date:2/14/2008

Company Reports Improved Second Quarter Product Revenue and Continues to

Broaden Product Portfolio

WAYNE, Pa., Feb. 14 /PRNewswire-FirstCall/ -- Escalon Medical Corp. (Nasdaq: ESMC) today announced results for its fiscal second quarter and six months ended December 31, 2007.

For the second quarter of fiscal 2008, the Company reported improved sales in the Company's Drew, Vascular and Escalon Digital Solutions (EMI) business units, which increased approximately 16%, 10% and 36%, respectively, compared with the same period last fiscal year. Product revenue increased approximately $415,000, or 6%, to $7,450,000 during the three-month period ended December 31, 2007, compared with the same period in 2006. The Company reported net revenue of $7,495,080, a 1.8% decrease from the $7,636,740 reported in the prior year period. This decline was primarily due to decreased royalties received from the IntraLase License Agreement as a result of the settlement agreement between the Company and IntraLase dated February 27, 2007. These decreases were offset by the sales increases at Drew, Vascular and EMI mentioned above.

For the second quarter of fiscal 2008, the Company reported a net loss of $(639,346), or $(0.10) per diluted share, compared with a net loss of $(470,103), or $(0.07) per diluted share, in the second quarter of fiscal 2007. This was attributable to decreased royalties received from the IntraLase License Agreement, as well as increased expenses for the ongoing development of new products. Cost of goods sold totaled approximately $3,951,000, or 53% of product revenue, for the three-month period ended December 31, 2007, compared with $3,878,000, or 55% of product revenue, for the same period last fiscal year.

For the six-month period ended December 31, 2007, the Company reported net revenue of $14,388,351 compared with $14,804,900 in the prior period. This decline was primarily due to decreased royalties received from the IntraLase License Agreement as a result of the settlement agreement between the Company and IntraLase dated February 27, 2007. Product revenue increased approximately 5% during the six-month period ended December 31, 2007 as compared with the same period last fiscal year. The increase was primarily related to increases in the Drew and EMI business units.

The Company reported a net loss for the six months ended December 31, 2007 of $(1,468,137), or $(0.23) per diluted share, compared with a net loss of $(1,184,220), or $(0.19) per diluted share, in the prior year period. Cost of goods sold totaled approximately $7,874,000, or 55% of product revenue, for the six-month period ended December 31, 2007, compared with $7,509,000, or 55% of product revenue, for the same period last fiscal year.

Operating expenses decreased approximately 5% during the six-month period ended December 31, 2007 as compared with the same period in the prior fiscal year. This was due to a significant decrease in legal fees related to the IntraLase litigation and to the Company's realizing the effect of the cost reduction plan implemented in the prior fiscal year.

Recap of Fiscal Second Quarter 2008

Richard J. DePiano, Chairman and Chief Executive Officer, commented, "During the second quarter, we continued to see the benefits of the restructuring plans implemented in fiscal 2007, as evidenced by our lower operating expenses for the six-month period. Further, we extended our product portfolio during the second quarter. In January, we received our third FDA market clearance since December for our VascuView(TM) Visual Ultrasound System. This follows earlier clearances to market of our MASTER-VU(R) and D3 Hematology Systems. We are very pleased with these developments, as we expect these products will be well received in the U.S. marketplace."

Mr. DePiano added, "Turning to our operating performance for the second quarter of fiscal 2008, product revenue grew by $415,000, or 6%, to $7,450,000 compared to $7,034,000 last year. In the Drew business unit, product revenue increased $437,000, or 16%, compared with the same period last fiscal year. This is mainly due to the introduction of the newly introduced Trilogy and D3 instruments, and increased reagent revenues generated from Drew's United Kingdom facility."

"At our Sonomed business unit, product revenue decreased $203,000, or 7%, compared with the last fiscal year. This was primarily caused by an increase in sales discounts during the period, resulting from a large increase in sales to more price sensitive international markets combined with a decrease in overall domestic sales. Product revenue increased $80,000, or 10%, to $876,000 in the Vascular business unit during the three-month period ended December 31, 2007, compared with the same period last fiscal year. This was due to an increase in direct sales to end users by the Company's domestic sales team, and by turning over the territory of a terminated domestic distributor to the domestic sales team."

"In our Medical/Trek business unit, product revenue decreased $48,000, or 13%, to $331,000 during the second quarter 2008 as compared with the same period last fiscal year. This is primarily attributable to a decrease in the sale of Trek's mature product line and less contract work than in the same period last fiscal year. Additionally, product revenue increased $149,000, or 36% in our EMI business unit, when compared with last year. This is due to increased sales of digital imaging systems. The EMI division continues to realize the benefits of the successful expansion of its sales effort and product offerings."

Mr. DePiano concluded, "We continue to see improved sales progress at our Drew, Vascular and EMI units and improved results in our Medical/Trek business unit. Additionally, we expect to maintain momentum during the second half of fiscal 2008 regarding new product introductions. We also expect continued benefits from new product introductions and our streamlined operations in fiscal 2008."

Non-GAAP Measures

To supplement the Company's consolidated financial statements presented in accordance with GAAP, the Company has begun providing certain non-GAAP measures of financial performance. These non-GAAP measures include non-GAAP net loss and non-GAAP loss per fully diluted share.

Specifically, the Company believes the non-GAAP measures provide useful information to both management and investors by isolating certain expenses, gains and losses that may not be indicative of its core operating results and business outlook. In addition, the Company believes non-GAAP measures that exclude stock-based compensation expense enhance the comparability of results against prior periods.

The Company's reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, nor superior to, GAAP results. These non-GAAP measures are provided to enhance investors overall understanding of the Company's current financial performance and provide further information for comparative purposes due to depreciation and amortization and the adoption of the new accounting standard FAS 123R.

The non-GAAP measures and the reconciliation to the most directly comparable GAAP measure of all non-GAAP measures are as follows:

Six Months Ended Three Months Ended

December 31, December 31,

2007 2006 2007 2006

Net Income (Loss) $(1,468,137) $(1,184,220) $(639,346) $(470,103)

Non-GAAP adjustments:

Stock based

compensation $172,911 $123,774 $159,977 $123,774

Depreciation and

amortization $296,328 $282,082 $151,245 $146,803

Total adjustments $469,239 $405,856 $311,222 $270,577

Non-GAAP adjusted

income (loss) $(998,898) $(778,364) $(328,124) $(199,526)

Shares used in

computing fully

diluted earnings

per share 6,388,701 6,346,315 6,389,315 6,347,972

Non-GAAP adjusted

income (loss) per

fully diluted share $(0.16) $(0.12) $(0.05) $(0.03)

Founded in 1987, Escalon develops markets and distributes ophthalmic diagnostic and surgical products as well as vascular access devices. Drew, which operates as a separate business unit, provides instrumentation and consumables for the diagnosis and monitoring of medical disorders in the areas of diabetes, cardiovascular diseases and hematology, as well as veterinary hematology and blood chemistry. The Company seeks to utilize strategic partnerships to help finance its development programs and is also seeking acquisitions to further diversify its product line to achieve critical mass in sales and take better advantage of Escalon's distribution capabilities. Escalon has headquarters in Wayne, Pennsylvania and manufacturing operations in Long Island, New York, New Berlin, Wisconsin, Dallas, Texas, Waterbury, Connecticut and Barrow-in-Furness, U.K.

Note: This press release contains statements that are considered forward- looking under the Private Securities Litigation Reform Act of 1995, including statements about the Company's future prospects. They are based on the Company's current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include whether the Company is able to:
-- implement its growth and marketing strategies, improve upon the

operations of the Company's business units, including the integration

of Drew's and MRP's operations, the reorganization of the Drew business

and the integration of any acquisitions it may undertake, if any, of

which there can be no assurance,

-- implement cost reductions,

-- generate cash,

-- identify, finance and enter into business relationships and

acquisitions.

Other factors include uncertainties and risks related to:

-- new product development, commercialization, manufacturing and market

acceptance of new products,

-- marketing acceptance of existing products in new markets,

-- research and development activities, including failure to demonstrate

clinical efficacy,

-- delays by regulatory authorities, scientific and technical advances by

Escalon or third parties,

-- introduction of competitive products,

-- third party reimbursement and physician training, and

general economic conditions.

Further information about these and other relevant risks and uncertainties may be found in the Company's report on Form 10- K, and its other filings with the Securities and Exchange Commission, all of which are available from the Commission as well as other sources.

ESCALON MEDICAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended Six Months Ended

December 31, December 31,

2007 2006 2007 2006

Net revenues:

Product revenue $7,449,626 $7,033,860 $14,282,976 $13,577,446

Other revenue 45,454 602,880 105,375 1,227,454

Revenues, net 7,495,080 7,636,740 14,388,351 14,804,900

Costs and expenses:

Cost of goods sold 3,951,607 3,878,214 7,874,193 7,508,594

Research and development 876,750 1,080,950 1,800,111 1,794,555

Marketing, general and

administrative 3,372,353 3,144,611 6,312,261 6,700,511

Total costs and

expenses 8,200,710 8,103,775 15,986,565 16,003,660

Loss from operations (705,630) (467,035) (1,598,214) (1,198,760)

Other (expense) and

income:

Equity in Ocular

Telehealth Management,

LLC (16,611) (12,155) (50,722) (30,698)

Interest income 85,391 13,498 187,088 58,934

Interest expense (2,496) (5,654) (6,289) (14,939)

Total other income 66,284 (4,311) 130,077 13,297

Net (loss) before taxes (639,346) (471,346) (1,468,137) (1,185,463)

Benefit from income taxes - (1,243) 0 (1,243)

Net (loss) $(639,346) $(470,103) $(1,468,137) $(1,184,220)

Basic net (loss) per

share $(0.10) $(0.07) $(0.23) $(0.19)

Diluted net (loss) per

share $(0.10) $(0.07) $(0.23) $(0.19)

Weighted average shares

- basic 6,389,315 6,347,972 6,388,701 6,346,315

Weighted average shares

- diluted 6,389,315 6,347,972 6,388,701 6,346,315

SELECTED BALANCE SHEET DATA:

December 31, June 30,

2007 2007

Cash, cash equivalents and Investments $7,527,023 $8,879,462

Total current assets $20,063,637 $21,763,012

Total assets $43,292,124 $45,017,213

Current liabilities $4,131,912 $4,524,607

Long-term debt $- $-

Total shareholders' equity $38,073,212 $39,405,606


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SOURCE Escalon Medical Corp.
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