Market Overview

Escalon Announces That the Restructuring of Its IVD Business is Largely Completed


Escalon Medical Corp.'s (Nasdaq: ESMC) subsidiary, Drew Scientific, Inc., today announced that it has successfully completed the outsourced manufacturing of its HbA1c instruments and recently received the first lot of instruments for sale. Drew has also identified an outsourcing partner for its hematology instruments and anticipates outsourced hematology units being available for sale by the summer of 2012. Drew will continue to produce certain hematology instruments until its partner is able to deliver units in the summer of 2012.

The outsourcing initiative started in 2011 was designed to significantly reduce Drew's labor force and eliminate an expensive manufacturing site, reduce inventory carrying costs and streamline operations. We believe the outsourcing initiative implemented thus far will result in annual savings of approximately $1,100,000. Upon completion of the outsourcing initiative we anticipate additional annual savings.

As previously reported, due to a change in French law that required the consolidation of laboratories in France, Drew's Biocode Hycell division's business model was essentially rendered obsolete. Considerable effort was given to composing an alternate business plan that would have shifted BHH's focus to international sales. Unfortunately, employment laws and regulations in France made it prohibitively expensive to implement any reorganization plan.

Consequently, Drew's decision not to continue to fund BHH was based on the economic realities of the BHH operation and limited restructuring opportunities. We were disappointed with the lack of reasonable alternatives available to the Company in regards to BHH. Fortunately, revenues of approximately $1,200,000 of high margin legacy Drew diabetes reagents that were being produced by BHH were preserved by production being successfully transferred to our Miami facility without supply interruption to our customers. Historical losses from operations at BHH were ($1,232,904), ($635,952) and ($1,068,040) in 2011, 2010, 2009, respectively.

Given the lack of acceptable reorganization alternatives these losses were likely to increase. We expect that the insolvency declaration will limit these projected losses from encumbering future earnings. Furthermore, our other clinical diagnostics business unit Escalon Clinical Diagnostics, which includes Drew Scientific and JAS Diagnostics, will continue to service the IVD market. Our plan to consolidate its reagent manufacturing to our Miami facility allows our management's focus to be on adding new product offerings to bring to market through its extensive distribution network.

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