Net Income Rose 62% on 7% Increase in Revenues

    WAYNE, Pa., May 17 /PRNewswire-FirstCall/ -- Escalon Medical Corp.
(Nasdaq Small Cap: ESMC) today announced results for its fiscal third quarter
and nine months ended March 31, 2004.  For the third quarter of fiscal 2004,
Escalon Medical reported a 62.4% gain in net income to $739,174, or $0.172 per
diluted share, from net income of $455,134, or $0.133 per diluted share, in
the third quarter of fiscal 2003.  Net revenue for the quarter was $3,612,778
compared to $3,386,892 in the prior year period, a 6.7% gain.  Product revenue
increased by 8.8% during the quarter to $3,019,536.
    For the third quarter, revenue from Sonomed increased 22.0% to $1,978,000
compared to $1,621,000 in the prior year period.  Sales and Marketing
initiatives helped to drive sales in the Middle East and Europe and improved
economic conditions benefited Latin American sales.  Revenue in the Vascular
business increased 5.5% to $728,000 in the third quarter of fiscal 2004
compared to $690,000 in the year ago period.  Product revenue in the Company's
Medical / Trek business decreased 24.1% to $308,000 in the quarter from
$406,000 in the third quarter of fiscal 2003 due to decreased OEM shipments.
Revenue in the EMI business unit was $6,000 for the quarter, with no units
shipped.  This compares to $59,000 in the third quarter of 2003.  Royalty
revenue was $593,000 in the quarter compared to $610,000 in the year ago
period, primarily related to annual step downs in the Company's contract for
Silicone Oil with Bausch & Lomb.  Receipt of royalty revenue from future sales
of Silicone Oil by Bausch & Lomb is expected to continue through fiscal 2005.
In addition to Silicone Oil, the Company also receives royalty payments
related to the licensing of its intellectual laser properties.  The Company's
two royalty revenue streams will fluctuate depending on the demand of the
underlying products.
    The gross margin as a percent of product revenue was 54.8% in the current
quarter compared to 57.5% in the year ago period primarily due to increased
international sales at Sonomed, which carry lower margins.  Marketing, general
and administrative expenses declined to 34.7% of net revenues in the third
quarter from 36.0% of net revenues in the year ago period.  Research and
development spending was $167,123 from $204,283 in the year ago quarter,
primarily due to reduced headcount.
    For the first nine months of fiscal 2004, Escalon Medical reported a
105.6% gain in net income to $2,183,291, or $0.564 per diluted share, from net
income of $1,061,963, or $0.309 per diluted share, in the first nine months of
fiscal 2003.  Net revenue for the first nine months of fiscal 2004 was
$10,782,345 compared to $9,662,408 in the prior year period, an 11.6% gain.
Product revenue was $9,004,696 compared to $8,039,301, a 12.0% gain.
    "This was a solid quarter for Escalon, driven by strong gains at Sonomed
and continued growth at Vascular," commented Richard J. DePiano, Chairman and
Chief Executive Officer.  "At Sonomed, we continue to benefit from solid
demand for our pachymeter and additional sales and marketing resources in
Europe and the Middle East.  In addition, we received 510 (k) marketing
clearance from the FDA for our new B-Scan, the E-Z Scan(TM).  We introduced
this product as well as a new ultrasound bio-microscope, the UBM/35S, at the
American Society of Cataract & Refractive Surgery Symposium and Congress in
May.  These products round out our portfolio of diagnostic tools, enabling
ophthalmologists to have access to both the front and back of the eye, which
is particularly useful given the continued advances and procedures in the
treatment of ophthalmic disorders."
    "In our Vascular segment, revenues continued to benefit from increased
sales coverage in key European markets for our PD Access(TM) and Smart
Needle(TM) products.  We are particularly excited about the opportunity for
our recently enhanced Doppler Guided Peripheral IV Needle.  The product is
currently being introduced at select institutions in the Philadelphia and
Chicago regions as part of a focused product launch.  The growing oncology and
hematology markets expand the potential for this product considerably, and
feedback from select surgeons that have used the product has been
encouraging."
    Mr. DePiano concluded, "Importantly, we made substantial improvements to
our balance sheet during the quarter.  In addition to cash generated from
operations, in March we completed a private equity financing, selling 800,000
common shares and warrants to purchase an additional 120,000 shares, netting
approximately $9.8 million.  This allowed us to significantly improve working
capital, which increased to $13.7 million from $889,000 at June 30, 2003.  We
now have considerable flexibility to reinvest in our businesses, including key
sales initiatives, both here and abroad.  On the strength of our balance
sheet, we will also strive to add a third leg to our business portfolio.  In
fact, we recently announced an exchange offer for the outstanding shares of
Drew Scientific Group PLC, a diagnostics company that specializes in
analytical systems for laboratory testing worldwide.  We cannot predict the
results of our exchange offer, however if completed, this would provide
Escalon with a third vehicle for expansion while providing Drew Scientific
with access to capital to grow its business."
    Founded in 1987, Escalon develops, markets and distributes ophthalmic
diagnostic, surgical and pharmaceutical products as well as vascular access
devices.  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 the Company's distribution capabilities.  Escalon has headquarters in
Wayne, Pennsylvania and manufacturing operations in Long Island, New York and
New Berlin, Wisconsin.

    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 improve upon
the operations of the Company's business units, generate cash and identify,
finance and enter into business relationships and acquisitions, including the
exchange offer of Drew Scientific, uncertainties and risks related to new
product development, commercialization, manufacturing and market acceptance of
new products, marketing acceptance of existing products in new markets, the
continuity of royalty revenue, research and development activities, including
failure to demonstrate clinical efficacy, delays by regulatory authorities,
scientific and technical advances by the Company or third parties,
introduction of competitive products, third party reimbursement and physician
training as well as 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 OPERATIONS

                              Three Months Ended         Nine Months Ended
                                    March 31,                 March 31,
                               2004         2003         2004         2003

    Product revenue        $ 3,019,536   $ 2,776,415  $ 9,004,696  $ 8,039,301
    Other revenue              593,242       610,477    1,777,649    1,623,107
    Revenues, net            3,612,778     3,386,892   10,782,345    9,662,408

    Costs and expenses:
     Cost of goods sold      1,364,600     1,178,377    3,827,059    3,536,340
     Research and development  167,123       204,283      600,245      578,337
     Marketing, general
      and administrative     1,254,516     1,220,007    3,789,801    3,786,148
     Write-down of Povidone
      Iodine license and
      distribution rights           --       195,950           --      195,950
        Total costs
         and expenses        2,786,239     2,798,617    8,217,105    8,096,775
    Income from operations     826,539       588,275    2,565,240    1,565,633

    Other income and (expenses):
     Interest income             9,356           609       10,317        2,087
     Interest expense          (93,794)     (133,750)    (320,233)   (505,757)
        Total other income
         and (expense)         (84,438)     (133,141)    (309,916)   (503,670)

    Income before income taxes 742,101       455,134    2,255,324    1,061,963

    Income taxes                 2,927            --       72,033           --

    Net income              $  739,174    $  455,134  $ 2,183,291  $ 1,061,963

    Basic net income
     per share              $    0.192    $    0.136  $     0.619  $     0.316

    Diluted net income
     per share              $    0.172    $    0.133  $     0.564  $     0.309

      Weighted average
       shares - basic        3,839,937     3,355,851    3,524,603    3,355,851

      Weighted average
       shares - diluted      4,286,761     3,420,474    3,869,901    3,441,180


    SELECTED BALANCE SHEET DATA:                       March 31,    June 30,
                                                         2004         2003
                                                      (unaudited)   (audited)

    Cash, cash equivalents and investments         $  12,916,378  $   298,390
    Total current assets                              17,033,630    4,758,660
    Total assets                                      29,059,335   16,890,231
    Current liabilities                                3,319,979    3,870,322
    Long-term debt                                     2,796,019    4,080,461
    Total shareholders' equity                        222,943,33    8,939,448

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