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Escalon(R) Reports Third Quarter Fiscal 2008 Results

WAYNE, Pa., May 15 /PRNewswire-FirstCall/ -- Escalon Medical Corp. (Nasdaq: ESMC) today announced results for its fiscal third quarter and nine months ended March 31, 2008.

For the third quarter of fiscal 2008, product revenue increased 18% to $8,139,000 compared with $6,900,000 reported in the same period last fiscal year. Product revenues were driven by increased sales in each of the Company's business units.

Net revenue for the third quarter of fiscal 2008 totaled $8,188,000 compared with $16,559,000 reported in the prior year period. Fiscal third quarter 2007 revenue reflected a settlement agreement that the Company entered into with IntraLase Corp. to acquire the intellectual property under the licensing agreement and to resolve all outstanding disputes and litigation between the parties. Under the terms of the settlement agreement, IntraLase made a lump sum payment to the Company of $9.6 million.

For the third quarter of fiscal 2008, the Company reported a net loss of $(1,943,000), or $(0.30) per diluted share, compared with net income of $8,271,000, or $1.32 per diluted share, in the third quarter of fiscal 2007. This was attributable to decreased royalties received as a result of the settlement agreement relating to the IntraLase license agreement, as well as increased expenses for the ongoing development of new products and increased headcount and marketing efforts across the Company's business segments. Cost of goods sold totaled approximately $4,912,000, or 60% of product revenue, for the three-month period ended March 31, 2008 as compared with $4,036,000, or 59% of product revenue, for the same period last fiscal year.

For the nine-month period ended March 31, 2008, the Company reported net revenue of $22,576,000 compared with $31,364,000 in the prior period. Product revenue increased approximately $1,944,000, or 10%, to $22,422,000 during the nine-month period ended March 31, 2008 as compared with the same period last fiscal year. The increase was related to increases in the Vascular, Drew, Sonomed, and EMI business units.

The Company reported a net loss for the nine months ended March 31, 2008 of $(3,411,000), or $(0.53) per diluted share, compared with net income of $7,087,000, or $1.14 per diluted share, in the prior year period. Cost of goods sold totaled approximately $12,787,000, or 57% of product revenue, for the nine-month period ended March 31, 2008 as compared with $11,545,000, or 56% of product revenue, for the same period last fiscal year. Operating expenses increased approximately 3% during the nine-month period ended March 31, 2008 as compared with the same period last fiscal year.

Recap of Fiscal Third Quarter 2008

Richard J. DePiano, Chairman and Chief Executive Officer, commented, "We continue to see increased product revenue from our expanded product portfolio, as well as the benefits of plans we implemented during fiscal 2007. During the current fiscal year, we have received four FDA market clearances for new product offerings including our new VascuView(TM) Visual Ultrasound System in January 2008. These products have been well received by our customers and we expect to realize further success as we continue broadening our portfolio and bringing new products to the marketplace."

Mr. DePiano added, "Turning to our third quarter financial performance, product revenue increased by approximately $1,240,000, or 18%, compared with the same period last fiscal year. In the Drew business unit, product revenue increased $390,000, or 12%, primarily due to sales of the new D3 instrument, and increased reagent revenues generated from Drew's United Kingdom facility."

"At our Sonomed business unit, we delivered an increase of 12% in product revenue, realizing increased sales of our VuMax(R) II and E-Z Scan(TM) A/B Scan ultrasound systems, primarily into international markets. Product revenue increased $531,000, or 58%, to $1,445,000 in the Vascular business unit during the three-month period, driven by Vascular's new VascuView(TM) system."

"In our Medical/Trek business unit, product revenue decreased $18,000, or 5%, to $327,000 during the third quarter 2008 as compared with the same period last fiscal year. This is primarily attributed to a decrease in the sale of Trek's mature product line of Ispan Intraocular gases and fiber optic sources. However, in our EMI business unit product revenue increased $76,000, or 32%, to $313,000, due to increased sales of EMI's digital imaging systems, resulting from the continuing expansion of sales efforts and product offerings."

Mr. DePiano did highlight areas of concern noting, "the development of Drew's proposed new diabetes instrument has been significantly delayed due to difficulties related to the final phase of the instrument's development. Drew, in consultation with independent consultants, is in the process of evaluating the development of the instrument. Until the evaluation is completed Drew will not be able to estimate the timing of a 510(k) application submission for the instrument to the FDA or whether a submission will be made."

"In addition, Drew had anticipated that the joint development project that it had undertaken with Point Care Technologies, Inc. of Drew's 2280 HT HIV instrument would also be completed during the fiscal year ending June 30, 2008. Due to a dispute with Point Care, Drew is unable at this time to estimate when or if the 2280 HT HIV instrument will be completed."

Finally, Mr. DePiano noted that, "Drew is experiencing material margin compression on two of its instruments relating to unfavorable exchange rate fluctuations between the Euro and the United States dollar. Therefore, if the unfavorable exchange rate continues, the Company anticipates that Drew will continue to experience reduced margins on these products."

Non-GAAP Measures

To supplement the Company's consolidated financial statements presented in accordance with GAAP, the Company is 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 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:

Three Months Ended Nine Months Ended

March 31, March 31,

2008 2007 2008 2007

Net (Loss) Income $(1,942,622) $8,271,462 $(3,410,759) $7,087,242

Non-GAAP adjustments:

Stock based compensation $- $- $203,367 $123,772

Depreciation and

amortization $137,773 $155,392 $434,101 $437,474

Total adjustments $137,773 $155,392 $637,468 $561,246

Non-GAAP adjusted

(loss) income $(1,804,849) $8,426,854 $(2,773,291) $7,648,488

Shares used in computing

basic and fully diluted

earnings per share 6,389,315 6,251,847 6,388,905 6,238,515

Non-GAAP adjusted

income (loss) per

fully diluted share $(0.28) $ 1.35 $(0.43) $ 1.23

Founded in 1987, Escalon ( develops markets and distributes ophthalmic diagnostic, surgical and pharmaceutical products as well as vascular access devices. Drew Scientific, 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. Escalon 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, although such partnerships or acquisitions may not occur. 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. These statements 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


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 for year ended June 30, 2007 and on Form 10Q forth quarter ended March 31, 2008, and its other filings with the Securities and Exchange Commission, all of which are available from the Securities and Exchange Commission as well as other sources.




Three Months Ended Nine Months Ended

March 31, March 31,

2008 2007 2008 2007

Net revenues:

Product revenue $8,138,627 $6,900,461 $22,421,603 $20,477,907

Other revenue 48,940 9,658,299 154,315 10,885,753

Revenues, net 8,187,567 16,558,760 22,575,918 31,363,660

Costs and expenses:

Cost of goods sold 4,912,381 4,036,285 12,786,574 11,544,879

Research and

development 1,040,116 843,858 2,840,227 2,638,413

Marketing, general and

administrative 4,097,401 3,361,582 10,409,662 10,062,093

Total costs and

expenses 10,049,898 8,241,725 26,036,463 24,245,385

(loss) income from

operations (1,862,331) 8,317,035 (3,460,545) 7,118,275

Other (expense) and


Equity in Ocular

Telehealth Management,

LLC (14,013) (25,191) (64,735) (55,889)

Interest income 78,189 54,451 265,277 113,385

Interest expense (17,987) (8,676) (24,276) (23,615)

Total other income 46,189 20,584 176,266 33,881

Net (loss) income before

taxes (1,816,142) 8,337,619 (3,284,279) 7,152,156

Provision for income

taxes 126,480 66,157 126,480 64,914

Net (loss) income $(1,942,622) $8,271,462 $(3,410,759) $7,087,242

Basic net (loss) income

per share $(0.30) $1.39 $(0.53) $1.23

Diluted net (loss) income

per share $(0.30) $1.32 $(0.53) $1.14

Weighted average shares

- basic 6,389,315 5,932,920 6,388,905 5,787,753

Weighted average shares

- diluted 6,389,315 6,251,847 6,388,905 6,238,515


March 31, June 30,

2008 2007

Cash, cash equivalents and Investments $6,904,027 $8,879,462

Total current assets $19,706,039 $21,763,012

Total assets $42,944,737 $45,017,213

Current liabilities $5,727,063 $4,524,607

Long-term debt $ - $ -

Total shareholders' equity $36,130,674 $39,405,606

SOURCE Escalon Medical Corp.
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