Escalon Announces Initiatives to Streamline Operations, to Enhance
    Operational Efficiencies and to Return the Company to Profitability

    WAYNE, Pa., Sept. 28 /PRNewswire-FirstCall/ -- Escalon Medical Corp.
(Nasdaq: ESMC) today announced results for its fiscal fourth quarter and
twelve months ended June 30, 2006. Net revenue for fiscal 2006 totaled
$29,791,000, a 10.6% increase from the $26,925,000 reported in fiscal 2005.
Product revenue increased approximately 15.4% during fiscal year ended June
30, 2006 as compared to the prior fiscal year. The increase is primarily
related to strong sales in the Company's Drew, Sonomed, Vascular and
Medical/Trek/EMI business units.
    For fiscal 2006, the Company reported a net loss of $1,986,000, or
$0.32 per diluted share, compared with net income of $2,448,000, or $0.39
per diluted share, in fiscal 2005. Fiscal 2006 net income was negatively
impacted by a $2,500,000 loss at the Company's Drew business unit. In
addition, during fiscal 2006, costs associated with legal and accounting
services for litigation matters relating to IntraLase royalty dispute and
other corporate matters were in excess of $500,000. Management anticipates
that future costs associated with litigation matters other than IntraLase,
will be substantially less than that expended in fiscal 2006.
    Streamline Operations
    Escalon has recently completed a detailed review of its operations as
well as a re-evaluation of the Drew business model and today announced
several strategic initiatives that, when fully implemented, are expected to
result in an annual reduction in operating expenses of approximately $1.9
million. The Company announced that the following actions are currently
underway:
    *  To reduce costs and expand operating margins, Drew's Connecticut
       manufacturing facility will be closed and its operations will be moved
       to Drew's Dallas manufacturing facility.  The implementation of this
       move began in August 2006 and is expected to be completed in early
       November 2006.  Once fully implemented, this initiative is expected to
       result in total annual savings of approximately $540,000.

    *  Concurrent with the move of Drew's Connecticut facility to Texas, the
       Company has implemented cost reduction actions in Dallas. These actions
       include the elimination of redundant positions and the renegotiation of
       two of Drew's leases in Dallas, allowing Drew to close one of its
       buildings and renew a lease on a larger facility. Once fully
       implemented these initiatives are expected to result in total annual
       savings of approximately $440,000.

    *  The Company has implemented rationalization actions within Drew's
       Barrow, UK facility. This includes the elimination of redundant
       positions in Barrow; the strategic decision not to renew a lease on one
       of the Drew Barrow properties that has expired; and the realization of
       other savings related to the reduction of the Company's footprint in
       the UK, including IT, storage facilities and vehicles.  Once fully
       implemented, these initiatives are expected to result in total annual
       savings of approximately $567,000.

    *  The Company also announced that redundant or non-essential positions
       were identified at Escalon's corporate headquarters. These positions
       were eliminated in August and September 2006 for anticipated annual
       savings in salaries and benefits of approximately $372,000.
    These actions are expected to bring cumulative cost reductions, when
fully implemented, to approximately $1,900,000 annually. Due to severance
and other costs related to the downsizing, approximately $700,000 of these
cost reductions are expected to be realized in fiscal 2007.
    Commenting on these initiatives, Richard J. DePiano, Chairman and Chief
Executive Officer, said, "We have conducted a detailed review of our
operations, which has resulted in the implementation of significant changes
designed to reduce costs, improve operational efficiencies and heighten
asset utilization. We believe that these initiatives will deliver
considerable long- term benefits to our organization and will further
advance the operational successes that we have achieved with our Drew unit
since it was acquired in July 2004. Achievements at Drew have included the
strengthening of its manufacturing, sales and marketing capabilities as
well as the enhancement of existing products and the development of several
new products for launch in 2007. We have also been successful in boosting
production capacity, bringing Drew's product quality and customer
satisfaction level up to Escalon's standards and improving Drew's
distributor network for hematology, diabetes and veterinary applications.
Reflective of these efforts we have realized a significant increase in
Drew's revenue base as evidenced by a fiscal 2006 growth rate for Drew of
26.2%."
    "Looking ahead, we are committed to returning our Drew business
segment, and Escalon, to profitability. When combined with anticipated
top-line growth throughout our product groups, increased budgeted profits
within our legacy Escalon entities and the continued growth of our
IntraLase royalty revenue stream, these restructuring initiatives are
expected to return the Company to profitability during the second half of
fiscal 2007."
    Recap of Fiscal 2006
    Mr. DePiano continued, "Turning to our operating performance for fiscal
2006, we achieved sales growth across all major product groups and reported
2006 product revenues of $27,544,000, representing growth of 15.4%
year-over- year. These results are highlighted by 26.2% top-line growth at
our Drew business unit, which realized product revenue of $14,253,000. The
performance at Drew was driven by additional sales in the domestic and
international markets of diabetes and hematology instruments. Sales of
spare parts and reagents and controls, which are used to operate the
instruments, also increased during the period to support the increase in
the installed base of the related instruments.
    "Our Sonomed business unit achieved product revenues of $7,737,000
during 2006, representing growth of 1% year-over-year. The increase in
product revenue was primarily the result of an increase in sales of our EZ
AB scan ultrasound systems and an increase in export sales, which were
partially offset by a decrease in domestic sales and in demand for our
pachymeter product.
    "Product revenues at our Vascular unit rose 14.5%, year-over-year, to
$3,640,000, driven by an increase in direct sales to end users by the
Company's domestic sales team. These increases were partially offset by
decreases in revenue from the Company's distributor network. As part of our
commitment to enhance our position in the vascular access market, we
appointed Michael O'Donnell as President of Escalon Vascular Access in
January 2006. With a strong operational background, an extensive knowledge
of Escalon and strong knowledge of the industry, Michael is well-qualified
to assume this position. We believe this is a natural transition that
strengthens our Company as well as our opportunities for growth." Mr.
O'Donnell has over 14 years experience in the medical field and device
market and began working for Escalon in 2000 as Escalon Vascular Access'
Vice President of Sales. Prior to joining Escalon, Mr. O'Donnell held
various sales positions within the industry, including terms at Beckett
Healthcare, Infu-Tech and EquipNet.
    Mr. DePiano added, "In our Medical/Trek/EMI unit, product revenue
increased 10.8% to $1,914,000, primarily attributable to an increase in the
Trek business unit revenue from Bausch & Lomb. Also contributing to the
increase was an increase in EMI sales of digital imaging systems from the
February 2006 acquisition of MRP Group, Inc., a privately held ophthalmic
technology solutions provider."
    Mr. DePiano concluded, "Looking ahead, our strategic focus remains on
the basics of our business and ensuring strong operating performance. We
are committed to improving the performance of the Company, maximizing the
long- term value of our key products and building our presence worldwide."
    Founded in 1987, Escalon develops markets and distributes ophthalmic
diagnostic, surgical and pharmaceutical 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. 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 the Escalon's
distribution capabilities. Escalon has headquarters in Wayne, Pennsylvania
and manufacturing operations in Long Island, New York, New Berlin,
Wisconsin, Dallas, Texas, Oxford, 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, which provide current expectations or forecasts of future events.
Such statements can be identified by the use of terminology such as
"anticipate," "believe," "could," "estimate," "expect," "forecast,"
"intend," "may," "plan," "possible," "project," "should," "will," "would,"
and similar words or expressions. The Company's forward-looking statements
include certain information relating to general business strategy, growth
strategies, financial results, liquidity, product development, the
introduction of new products, the potential markets and uses for the
Company's products, the Company's regulatory filings with the FDA,
acquisitions, the development of joint venture opportunities, intellectual
property and patent protection and infringement, the loss of revenue due to
the expiration on termination of certain agreements, the effect of
competition on the structure of the markets in which the Company competes,
increased legal, accounting and Sarbanes-Oxley compliance costs, defending
the Company in litigation matters and the Company's cost saving
initiatives. Further information about these and other relevant risks and
uncertainties may be found in Escalon'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 STATEMENT OF OPERATIONS
                                  (Audited)

                                Three Months Ended           Year Ended
                                     JUNE 30,                 JUNE 30,
                               2006          2005        2006         2005

    Product revenue         $6,648,232   $7,215,583 $ 27,543,785 $ 23,864,322
    Other revenue              559,548      826,313    2,246,913    3,060,300
    Revenues, net            7,207,780    8,041,896   29,790,698   26,924,622
    Costs and expenses:
      Cost of goods sold     3,993,252    4,138,630   16,003,904   13,158,061
      Research and
       development             692,246      635,574    2,828,196    1,892,706
      Marketing, general
       and administrative    3,599,176    4,505,696   13,994,788   12,556,374
        Total costs and
         expenses            8,284,674    9,279,900   32,826,888   27,607,141

    Income (loss) from
     operations             (1,076,894)  (1,238,004)  (3,036,190)    (682,519)

    Other income and
     (expenses)
      Gain on Sale of
       Available for Sale
       Securities                    -    3,411,761    1,157,336    3,411,761
      Equity in Ocular
       Telehealth Management  (103,872)     (13,671)    (173,844)     (63,613)
      Interest income           49,890       15,655      161,588       69,262
      Interest expense         (16,100)     (12,582)     (63,521)     (55,116)
        Total other income
         and (expense)         (70,082)   3,401,163    1,081,559    3,362,294

    Income (loss) before
     taxes                  (1,146,976)   2,163,159   (1,954,631)   2,679,775

    Income taxes                (4,715)     147,727       31,309      231,665

    Net income (loss)      $(1,142,261)  $2,015,432  $(1,985,940)  $2,448,110

    Basic net income
     (loss) per share         $ (0.186)      $0.346     $ (0.323)      $0.420

    Diluted net income
     (loss) per share         $ (0.186)      $0.323     $ (0.323)      $0.393

        Weighted average
         shares - basic      6,152,455    5,831,564    6,152,455    5,831,564
        Weighted average
         shares - diluted    6,152,455    6,231,024    6,152,455    6,231,024



    SELECTED BALANCE SHEET DATA:
                                                           June 30,
                                                     2006           2005
                                                  (audited)      (audited)

    Cash, cash equivalents and investments        $3,379,710     $5,115,772
    Total current assets                          14,911,249     17,664,898
    Total assets                                  38,644,767     40,049,336
    Current liabilities                            4,295,109      4,051,694
    Long-term debt                                   162,551        391,793
    Total shareholders' equity                    33,100,107     34,518,849

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