<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              --------------------

                                  FORM 10-K/A

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2002.
                                       OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934 for the transition period from .......... to ..........

                         COMMISSION FILE NUMBER 0-20127
                          -----------------------------

                              ESCALON MEDICAL CORP.
             (Exact name of registrant as specified in its charter)
                    -----------------------------------------

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<S>                                                      <C>
        PENNSYLVANIA                                           33-0272839
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                            Identification Number)
</TABLE>

                    351 EAST CONESTOGA ROAD, WAYNE, PA 19087
          (Address of principal executive offices, including zip code)

                                 (610) 688-6830
              (Registrant's telephone number, including area code)

        Securities registered pursuant to section 12(b) of the Act: NONE

           Securities registered pursuant to section 12(g) of the Act:
                    COMMON STOCK, PAR VALUE $0.001 PER SHARE

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the last 90 days. YES [X] NO [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         At August 22, 2002, 3,345,851 shares of Common Stock were outstanding,
and the aggregate market value of the shares of Common Stock held by the
Registrant's nonaffiliates was approximately $6,122,908 (based upon the closing
price of the Common Stock on the Nasdaq SmallCap Market on such date).

         A list of Exhibits to this Annual Report on Form 10-K begins on page
21.
<PAGE>
                              ESCALON MEDICAL CORP.
                          ANNUAL REPORT ON FORM 10-K/A
                     FOR THE FISCAL YEAR ENDED JUNE 30, 2002

                                TABLE OF CONTENTS

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                                                                               Page
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PART I

        Item 1.       Business                                                   3
        Item 2.       Properties                                                12
        Item 3.       Legal Proceedings                                         12
        Item 4.       Submission of Matters to a Vote of Security Holders       13

PART II

        Item 5.       Market for Registrant's Common Equity and Related
                             Stockholder Matters                                13
        Item 6.       Selected Financial Data                                   13
        Item 7.       Management's Discussion and Analysis of Financial
                             Condition and Results of Operations                14
        Item 7A.      Quantitative and Qualitative Disclosures about
                             Market Risk                                        22
        Item 8.       Financial Statements and Supplementary Data               23
        Item 9.       Changes in and Disagreements with Accountants on
                             Accounting and Financial Disclosure                23

PART III

        Item 10.      Directors and Executive Officers of the Registrant        23
        Item 11.      Executive Compensation                                    24
        Item 12.      Security Ownership of Certain Beneficial Owners
                             and Management                                     24
        Item 13.      Certain Relationships and Related Transactions            24

PART IV

        Item 14       Exhibits, Financial Statement Schedules and Reports
                             on Form 8-K                                        24

SIGNATURES                                                                      26

CERTIFICATIONS                                                                  27
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<PAGE>
                                     PART I

ITEM 1.        BUSINESS

COMPANY OVERVIEW

        Escalon Medical Corp. ("Escalon") was incorporated in California in 1987
as Intelligent Surgical Lasers, Inc. Escalon's present name was adopted in
August 1996. Escalon reincorporated in Delaware in November 1999, and then
reincorporated in Pennsylvania in November 2001. Within this document, the
"Company" collectively shall mean Escalon and its wholly-owned subsidiaries:
Sonomed, Inc. ("Sonomed"), Escalon Vascular Access, Inc. ("Vascular"), Escalon
Digital Vision, Inc. ("Digital") and Escalon Pharmaceutical, Inc.
("Pharmaceutical"). The Company operates in the healthcare market, specializing
in the development, manufacture, marketing and distribution of ophthalmic
medical devices, pharmaceuticals and vascular access devices. The Company and
its products are subject to regulation and inspection by the U.S. Food and Drug
Administration (FDA). The FDA requires extensive testing of new products prior
to sale and have jurisdiction over the safety, efficacy and manufacturing of
products, as well as product labeling and marketing.

        In February 1996, the Company acquired substantially all of the assets
and certain liabilities of Escalon Ophthalmics, Inc. ("EOI"), a developer and
distributor of ophthalmic surgical products. Prior to this acquisition, the
Company devoted substantially all of its resources to the research and
development of ultrafast laser systems designed for the treatment of ophthalmic
disorders. As a result of the EOI acquisition, Escalon changed its market focus
and is no longer developing laser technology. In October 1997, the Company
licensed its intellectual laser properties to a privately held company, in
return for an equity interest and future royalties on sales of products
relating to the laser technology. The privately held company undertook
responsibility for funding and developing the laser technology through to
commercialization. The privately held company began selling products related to
the laser technology during fiscal 2002. The material terms of the license are
that in exchange for licensing the Company's laser patents, which expire in
2014, it will receive a 2.5 percent royalty on future product sales that are
based on the licensed laser patents, subject to deductions for royalties
payable to third parties up to a maximum of 50% of royalties otherwise due and
payable to the Company and a 1.5% royalty on product sales that are not based
on the licensed laser patents. The Company receives a minimum annual license
fee of $15,000 per year during the term of the license. The minimum annual
license fee is offset against the royalty payments. The license was dated
October 23, 1997 and Amended and Restated in October 2000 and expires upon the
later of the following events: (1) the last to expire of the laser patents; (2)
ten years from the effective date of the amendment and restated agreement; or
(3) the fifth anniversary date of the first commercial sale. The material
termination provisions are as follows: (1) the default in payment of any
royalty; (2) the default in the making of any required report; (3) making of
any false report; (4) the commission of any material breech of any covenant or
promise under the license agreement; or (5) Licensee may terminate at any time
after ninety days notice. If the Licensee were to terminate the agreement, it
would not be permitted to utilize the licensed technology necessary to
manufacture its current products.

        To further diversify its product portfolio, in January 1999, the
Company's Vascular subsidiary acquired the vascular access product line from
Radiance Medical Systems, Inc. ("Radiance"). Vascular's products use Doppler
technology to aid medical personnel in locating arteries and veins in difficult
circumstances. Currently, this product line is concentrated in the cardiac
catheterization market; however, the Company began marketing the products in the
area of oncology during fiscal 2002. In January 2000, the Company purchased
Sonomed, a privately held manufacturer of ophthalmic ultrasound diagnostic
equipment, accounted for as an asset purchase. In April 2000, Digital formed a
joint venture, Escalon Medical Imaging, LLC ("Imaging") with MegaVision, Inc.
("MegaVision"), a privately held company, to develop and market a digital camera
back for ophthalmic photography. The Company terminated its joint venture with
MegaVision and commenced operations within its Digital business unit on January
1, 2002.
<PAGE>
SONOMED BUSINESS

Sonomed develops, manufactures and markets ultrasound systems used for
diagnostic or biometric applications in ophthalmology. The systems are of three
types: A-scans, B-scans and pachymeters.

        A-Scans

        The A-scan provides information about the internal structure of the eye
by sending a beam of ultrasound along a fixed axis through the eye and
displaying the various echoes reflected from surfaces intersected by the beam.
The principal echoes occur at the cornea, both surfaces of the lens and the
retina. The system displays the position and magnitudes of the echoes on an
electronic display. This allows ophthalmologists to view structures within the
eye and differentiate between normal tissue and pathology, such as tumors and
cysts. The A-Scan also includes software for measuring distances within the eye.
This information is primarily used to calculate lens power for implants; for
example, in preparation for cataract operations.

        B-Scans

        The B-Scan is primarily a diagnostic tool, which supplies information to
physicians where the media within the eye are cloudy or opaque. Whereas
physicians normally use light, which cannot pass through such media, the
ultrasound beam is capable of passing through the opacity and displaying an
image of the internal structures of the eye. Unlike the A-scan, the B-scan
transducer is not in a fixed position; it swings through a 60 degree sector to
provide a two dimensional image of the eye.

        Pachymeters

        The pachymeter uses the same principles as the A-scan, but the system is
tailored to measure the thickness of the cornea. With the advent of refractive
surgery (where the cornea is actually cut and reshaped) this measurement has
become critical. Surgeons must know the precise thickness of the cornea so as to
set the blade to make a cut of approximately 20 percent of the thickness of the
cornea.

VASCULAR BUSINESS

Vascular develops, manufactures and markets vascular access products. These
products are Doppler-guided vascular access assemblies used to locate desired
vessels for access. Primary specialty groups which use the device are cardiac
catheter labs, interventional radiology, vascular labs, critical care units,
anesthesia and cancer centers. The Company's vascular products include the PD
Access (TM) and Smartneedle(TM) lines of monitors, Doppler-guided bare needles
and Doppler-guided infusion needles.

        PD Access(TM) and Smartneedle(TM) Monitors, needles and catheter
Products

        These patented devices detect blood flow using Doppler ultrasound
technology and differentiate between a venous and arterial vessel. The devices
utilize a miniature Doppler ultrasound probe that is positioned within the lumen
of a vascular access needle. When the Doppler-guided needle pierces the skin of
a patient, the probe and monitor can determine if the user is approaching an
artery or vein, guiding them to a successful access.

MEDICAL / TREK BUSINESS

Medical/Trek develops, manufactures and distributes ophthalmic surgical products
under the Escalon Medical Corp. and/or Trek Medical Products names. The products
are primarily utilized by vitreoretinal ophthalmic surgeons. The following is a
summary of the business's key product lines:
<PAGE>
        Adatosil(R) 5000 Silicone Oil ("Silicone Oil")

        Silicone Oil is a specialty product used in worst-case detached retina
surgery as a mechanical aid in the reattachment procedure. The Company
distributed Silicone Oil until August 13, 1999, at which time the license and
distribution rights for this product were sold to Bausch & Lomb Surgical, Inc.
The license and distribution rights were sold for $2.1 million and additional
cash consideration based on future sales to be received through August 2005 (See
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations for additional details).

        ISPAN Intraocular Gases

        The Company distributes two intraocular gas products, C3F8 and SF6,
which are used by vitreoretinal surgeons as a temporary tamponade in detached
retina surgery. Under a non-exclusive distribution agreement with Scott Medical
Products ("Scott"), Escalon distributes packages of Scott gases in canisters
containing 25 grams or less of gas. Along with the intraocular gases, the
Company manufactures and distributes a patented disposable universal gas kit,
which delivers the gas from the canister to the patient.

        Viscous Fluid Transfer Systems

        Escalon markets viscous fluid transfer systems and related disposable
syringe products, which aid surgeons in the process of injecting and extracting
Silicone Oil. Adjustable pressures and vacuums provided by the equipment allow
surgeons to manipulate the flow of Silicone Oil during surgery.

        Fiber Optic Light Sources

        Light source and fiber optic products are widely used by vitreoretinal
surgeons during surgery. The Company offers surgeons a complete line of light
sources along with a variety of fiber optic probes and illuminated tissue
manipulators.

DIGITAL BUSINESS

        Digital formed the joint venture with MegaVision to develop a digital
camera system for ophthalmic fundus photography. The Company terminated its
joint venture with MegaVision and commenced operations within its Digital
business unit on January 1, 2002.

        CFA Camera Back

        The images furnished by the CFA camera system furnish a very high level
of detail. The camera back is being marketed to medical institutions,
educational institutions and ophthalmologists for the purpose of photographic
diagnosis of retinal disorders.

PHARMACEUTICAL BUSINESS

The Company retains the license and distribution rights for Povidone-Iodine 2.5%
Solution. The product will require further development before achieving FDA
approval. The Company has suspended further development pending the
establishment of strategic partnership arrangements. Povidone-Iodine 2.5%
Solution is a broad-spectrum anti-microbial intended to prevent opthalmia
neonatorum in newborns.

RESEARCH AND DEVELOPMENT

        Escalon conducts medical device and vascular access product development
at its New Berlin, Wisconsin facility located near Milwaukee. The development of
ultrasound ophthalmic equipment is performed at the Company's Lake Success, New
York facility located on Long Island.
<PAGE>
MANUFACTURING AND DISTRIBUTION

        Escalon leases 13,500 square feet of space in New Berlin, Wisconsin for
its surgical products and vascular access operations. The facility is currently
used for engineering, product design and development, manufacturing and product
assembly. Various vendors are used to subcontract component manufacture,
assembly and sterilization. Manufacturing facilities include a class 10,000
clean room. A class 10,000 clean room is a controlled environment for producing
devices while avoiding any significant contaminants. The cleanliness provided by
this class 10,000 clean room exceeds the requirements of the FDA. All of the
Company's ophthalmic surgical products and vascular access products are
distributed from its Wisconsin facility. The Company designs, develops and
services its ultrasound ophthalmic products at its facility in Lake Success, New
York. This facility contains 7,100 square feet. The Company has aggressively
pursued and achieved ISO9001 certification at both of its manufacturing
facilities for all medical and ultrasound devices produced. ISO9001 requires an
implemented quality system that applies to product design. These certifications
can be obtained only after a complete audit of a company's quality system by an
independent outside auditor. These certifications require that these facilities
undergo periodic reexamination. CE certification has been obtained for
disposable delivery systems, fiber optic light probes, vascular access products
and certain ultrasound models. The manufacture, testing and marketing of each of
the Company's products entails risk of product liability. Product liability
insurance is carried by Escalon to cover the primary risk.

GOVERNMENTAL REGULATIONS

        The Company's products are subject to stringent ongoing regulation by
the FDA and similar health authorities, and if the FDA's approvals or clearances
of our products are restricted or revoked we could face delays that would impair
our ability to generate funds from operations.

        The FDA and similar health authorities in foreign countries extensively
regulate our activities. We must obtain either 510(k) clearances or pre-market
approvals and new drug application approvals prior to marketing a product in the
United States. Foreign regulation also requires that we obtain other approvals
from foreign government agencies prior to the sale of products in those
countries. Also, we may be required to obtain FDA approval before exporting a
product or device that has not received FDA marketing clearance or approval.

        We have received the necessary FDA approvals for all of our products
that we currently market. Any restrictions on or revocation of the FDA approvals
and clearances that we have obtained, however, would prevent the continued
marketing of the impacted products and other devices. These restrictions or
revocations could result from the discovery of previously unknown problems with
the product. Consequently, FDA revocation would impair our ability to generate
funds from operations.

        The FDA and comparable agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon the manufacturing and
marketing of pharmaceutical and medical device equipment and related disposable,
including the obligation to adhere to the FDA's Good Manufacturing Practice
regulations. Compliance with these regulations requires time-consuming detailed
validation of manufacturing and quality control processes, FDA periodic
inspections and other procedures. If the FDA finds any deficiencies in the
validation processes, for example, the FDA may impose restrictions on marketing
the affected products until such deficiencies are corrected.

        We have received CE (European Community) Mark of approval on several of
our products that allow us to sell the products in the countries comprising the
European Community. In addition to the CE Mark, however, some foreign countries
may require separate individual foreign regulatory clearances. We cannot assure
that we will be able to obtain regulatory clearances for other products in the
United States or foreign markets.

        The process for obtaining regulatory clearances and approvals and
underlying clinical studies for any new products or devices and for multiple
indications for existing products is lengthy and will require substantial
commitments of our financial resources and our management's time and effort. Any
delay in
<PAGE>
obtaining clearances or approvals or any change in existing regulatory
requirements would materially adversely affect our business.

        Our failure to comply with applicable regulations would subject us to
fines, delays or suspensions of approvals or clearances, seizures or recalls of
products, operating restrictions, injunctions or civil or criminal penalties,
which would affect adversely our business, financial condition and results of
operations.

MARKETING AND SALES


        The Medical/Trek business unit sells its ophthalmic device and
instrument products directly to end users through internal sales and marketing
employees located at the Company's Wisconsin facility. Sales are primarily to
teaching institutions, key hospitals and eye surgery centers focusing primarily
on physicians and operating room personnel performing vitreoretinal surgery.
Vascular access products are marketed domestically through internal sales and
marketing employees located in Pennsylvania, Illinois and at its Wisconsin
facility, as well as through five independent distributors and sales
representatives located in Florida, Missouri, Ohio and Washington managed by the
Company's sales team. The Sonomed product line is sold through internal sales
employees located at the Company's New York facility. Sonomed utilizes a
network of distributors both domestically and abroad. Sonomed also sells
directly to medical institutions in the domestic market.


SERVICE AND SUPPORT

        Escalon maintains a full-service program for all products sold. Limited
warranties are given on all products against defects and performance. Product
repairs are made at the Wisconsin facility for surgical devices and vascular
access products. Sonomed's products are serviced at the New York facility.

THIRD PARTY REIMBURSEMENT

        It is expected that physicians and hospitals will purchase the Company's
ophthalmic products and that they in turn will bill various third-party payers
for health care services provided to their patients. These payers include
Medicare, Medicaid and private insurers. Government agencies generally reimburse
health care providers at a fixed rate based on the procedure performed.
Third-party payers may deny reimbursement if they determine that a procedure
performed using any one of the Company's products was unnecessary,
inappropriate, not cost-effective, experimental or used for a non-approved
indication.

PATENTS, TRADEMARKS AND LICENSES

        The pharmaceutical and medical device communities place considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company's policy is to protect its technology by
aggressively obtaining patent protection for all of its developments and
products, both in the United States and in selected countries outside the United
States. It is the Company's policy to file for patent protection in those
foreign countries in which the Company believes such protection is necessary to
protect its economic interests. Twenty-one United States issued patents, and
nineteen patents issued abroad cover the Company's surgical products and
pharmaceutical technology. With respect to the Company's ultrafast laser systems
(licensed to a privately held company), sixteen patents have been issued in the
United States and eleven overseas. Vascular access products are covered by
eighteen patents, which provide protection in the United States, Europe, Japan
and other countries overseas. The Company intends to vigorously defend its
patents if the need arises.

        While in the aggregate the Company's patents are of material importance
to its business taken as a whole; these patents, trademarks and license are
those which are critical to the Company's ability to generate revenues are as
follows:

    -   In the ophthalmic business, the Company has developed significant
        consumer and eye care professional recognition of products sold under
        the Escalon and Sonomed trademark. The Escalon trademark is currently
        due for renewal on January 19, 2013, and the Company intends to renew
        the trademark. The Sonomed trademark is currently due for renewal on
        April 16, 2006 and the Company intends to renew the trademark.
<PAGE>
    -   In the Vascular business, the company has two patents which are of
        material importance. The first patent is the apparatus for the
        cannulation of blood vessels. The apparatus includes a needle for
        penetrating a blood vessel. The needle is connected to a syringe and an
        improved flow sensing assembly is positioned within the syringe for
        locating blood vessels. The improved flow sensing assembly has a hollow,
        tubular interior conductor construction that provides for simplified
        manufacture and assembly while providing improved sensitivity. This
        patent expires twenty years from its filing date and will expire on
        February 23, 2011. The second patent is an apparatus similar to the
        first patent. This second patent is also an apparatus for the
        cannulation of blood vessels. The apparatus includes a needle for
        penetrating a blood vessel. The needle is connected to a syringe and a
        flow sensing assembly, unlike the hollow, tubular interior conductor of
        the first patent, this includes a solid inner conductor spaced from an
        outer conductor by a plastic support rod. This patent expires twenty
        years from it's filing date and will expire on January 11, 2009.

    -   The Company licensed its ultrafast laser systems to a privately held
        company. The patents are concerning a multiwavelength laser source for
        providing a plurality of pulsed laser beams comprises a plurality of
        laser diodes optically connected with an oscillator to establish a beam
        of pulses of monochromatic light. A dispersion line for spreading
        wavelengths in each pulse optically connects the oscillator to a
        regenerative amplifier. An electro-optical crystal in the regenerative
        amplifier establishes the repetition rate of pulses in the laser beam
        and a pulse compressor is optically connected to the regenerative
        amplifier to establish the duration of each pulse. The laser source may
        also include a frequency doubler which is optically connected to the
        output of the pulse compressor to split the laser beam into components
        having different wavelengths. The material patents expire twenty years
        from their filing date and will expire between 2008 and 2014.

    -   The material terms of the license are that in exchange for the use of
        the Company's licensed laser patents it will receive a 2.5 percent
        royalty on future product sales that are based on the licensed laser
        patents, subject to deductions for royalties payable to third parties
        up to a maximum of 50% of royalties otherwise due and payable to the
        Company and a 1.5% royalty on product sales that are not based on the
        licensed laser patents. The Company receives a minimum annual license
        fee of $15,000 per year during the term of the license. The minimum
        annual license fee is offset against the royalty payments. The license
        was dated October 23, 1997 and Amended and Restated in October 2000 and
        expires upon the later of the following events: (1) the last to expire
        of the license patents; (2) ten years from the effective date of the
        amendment and restated agreement; or (3) the fifth anniversary date of
        the date of the first commercial sale. The material termination
        provision are as follows: (1) the default in payment of any royalty; (2)
        the default in the making of any required report; (3) making of any
        false report; (4) the commission of any material breach of any
        covenant or promise under the license agreement; or (5) licensee may
        terminate the agreement at any time after ninety days notice. If the
        licensee were to terminate it would not be permitted to utilize the
        licensed technology necessary to manufacture its current products.

    The duration of the Company's patents, trademarks and licenses vary through
    2020. The effects of the patents, trademarks and licenses are to strengthen
    the Company's position in the market.

COMPETITION

        There are numerous direct and indirect competitors of the Company in the
United States and abroad. These companies include: ophthalmic-oriented companies
that market a broad portfolio of products, including prescription ophthalmic
pharmaceuticals, ophthalmic devices, consumer products (such as contact lens
cleaning solution) and other eye care products; large integrated pharmaceutical
companies that market a limited number of ophthalmic pharmaceuticals in addition
to many other pharmaceuticals; and smaller specialty pharmaceutical and
biotechnology companies that are engaged in the development and
commercialization of prescription ophthalmic pharmaceuticals and products, and
possibly drug delivery systems.

        Several large companies dominate the ophthalmic market, with the balance
of the industry being highly fragmented. The Company believes that these large
companies capture approximately 85% of the overall ophthalmic market. The
balance of the market is composed of smaller companies ranging from start-up
entities to established market players. The ophthalmic market in general is
intensely competitive, with each company eager to expand its market share. As a
result of this competition, the Company believes that many of the industry's
smaller companies will either consolidate or fail. The Company's strategy is to
compete primarily on the basis of technological innovation to which it has
proprietary rights. The Company believes, therefore, that its success will
depend in large part upon protecting its intellectual property through patents
and other governmental regulations. At the same time, the Company recognizes
that there are other young and innovative companies that may develop competitive
technologies.

<PAGE>
        The vascular access product line is comprised of low-price, disposable
devices, and currently it has no direct competition. However, a significantly
higher priced non-disposable device that also facilitates vascular access is
currently marketed. There are a variety of other devices that directly compete
with Sonomed's ultrasound products and the camera back marketed by Digital.

Sonomed designs and manufacturers ophthalmic ultrasound products: A-Scans,
Pachymeters and B-Scans. The A-scans and pachymeters furnish internal
measurements of the eye and B-scans provide an image of the rear of the eye. The
principal competitors are Alcon Laboratories, Inc., Quantel, Inc. and Medtronic,
Inc. Management believes the Company to be in a market leadership position.
Sonomed has had a leading presence in the industry for over thirty years.
Management believes this has helped us build a reputation as a long-standing
operation that provides a quality product. This has enabled the Company to
establish effective distribution coverage within the USA market. The Company
seeks to preserve its position in the market through continued product
enhancement. Sonomed's market position can be threatened by various smaller
competitors offering similar products at a lower price. The development of
laser technologies for ophthalmic biometrics and imaging may also diminish the
Company's market position. This equipment can be used instead of ultrasound
equipment in most, but not all patients. Such equipment, however, is more
expensive.

Vascular produces the only device, which can be accommodated within a standard
needle for assisting a medical practitioner to gain access to a vessel in the
human vascular system. There are no similar devices in the market, which enables
a medical practitioner to gain access using their normal procedures. The only
similar product utilizes a separate ultrasound monitor but no disposables are
needed. When using the competing device the medical practitioner needs to look
at the monitor while advancing the needle into the patient. The perceived
disadvantage of the Company's vascular product is that its retail price is
substantially greater than the cost of a traditional needle.

The Trek business sells a broad range of ophthalmic surgical products. The more
significant products are ISPAN(R) gases and delivery systems. Medical/Trek also
manufactures various ophthalmic surgical products for major ophthalmic companies
to be sold under their name. To remain competitive the Company needs to maintain
a low cost operation. There are numerous other companies, which can provide this
manufacturing service.

There are numerous direct and indirect competitors of the Company in the United
States and abroad. The Company's competitors for medical devices and ophthalmic
pharmaceuticals include, but are not limited to Bausch & Lomb, Inc, Alcon
Laboratories, Inc., Paradigm Medical, Inc., Quantel, Inc. and Medtronic, Inc.

HUMAN RESOURCES

        As of June 30, 2002, the Company employed 57 full-time employees and 3
part-time employees. Thirty-one of the Company's full-time employees are
employed in manufacturing, 15 are employed in general and administrative
positions, 6 are employed in sales and marketing and 5 are employed in research
and development. Escalon's employees are not covered by a collective bargaining
agreement, and the Company considers its relations with its employees to be
good.


CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

        Certain statements contained in this Annual Report on Form 10-K and
other written and oral statements made from time to time by the Company do not
relate strictly to historical or current facts. As such, they are considered
"forward-looking statements" 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," "protect," "should," "will," 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 plans to
file applications with the Food and Drug Administration (the "FDA"), the
development of joint venture opportunities, the effects of competition on the
structure of the markets in which the Company competes and defending itself in
litigation matters. One must carefully consider forward-looking statements and
understand that such statements involve a variety of risks and uncertainties,
known and
<PAGE>
unknown, and may be affected by assumptions that fail to materialize as
anticipated. Consequently, no forward-looking statement can be guaranteed; and
actual results may vary materially. It is not possible to foresee or identify
all factors affecting the Company's forward-looking statements, and investors
therefore should not consider any list of such factors to be an exhaustive
statement of all risks, uncertainties or potentially inaccurate assumptions. The
Company undertakes no obligation to update any forward-looking statement.
Although it is not possible to create a comprehensive list of all factors that
may cause actual results to differ from the Company's forward-looking
statements, the most important factors include, without limitation, the
following:

        FUTURE CAPITAL NEEDS AND THE UNCERTAINTY OF ADDITIONAL FUNDING

        Our liquidity is affected by many factors, some of which are based on
the normal ongoing operations of our businesses and some of which arise from
fluctuations related to global markets and economies. The Company's current term
loan with PNC Bank, N.A. provides for quarterly principal payments, which
increase every six months, including a $2,000,000 final balloon payment, which
is due on June 30, 2004. We believe that cash on hand plus cash available from
our line of credit will be sufficient to satisfy our working capital, capital
expenditures and research and development until the balloon payment is due. We
may be required to secure additional debt or equity financing in order to
satisfy the balloon payment, and we cannot assure you that such financing will
be available when required on acceptable terms.

        CONCENTRATION OF REVENUES

        The Company realized 14.53% and 18.97% of its net revenue during the
fiscal years ended June 30, 2002 and 2001, respectively, from Bausch & Lomb's
sale of Silicone Oil. While management does not expect this revenue to decline
rapidly in the foreseeable future, any such decrease would have a significant
impact on our consolidated financial position, results of operations, cash flows
and stock price could be negatively impacted. The Company is entitled to receive
additional consideration, in varying amounts, through fiscal 2005.

        ECONOMIC AND REGULATORY CONDITIONS AND THE COMPETITIVE NATURE OF THE
        INDUSTRIES IN WHICH THE COMPANY COMPETES

        It is difficult to ascertain if the current economic downturn has
affected the Company's results. Management believes any effect has been limited
to our Sonomed business unit. Any further decline in our customers' markets or
further decline in general economic conditions would likely result in reduction
in demand for our products and services and could harm our consolidated
financial position, results of operations, cash flows and stock price. Should it
become necessary due to economic climate, we cannot assure you that the Company
will be able to reduce expenditures quickly enough to maintain profitability and
service our current debt. In addition, there is a risk that cost-cutting
initiatives will impair our ability to effectively develop and market products
and remain competitive in the industries in which we compete. These measures
could have long-term effects on our business by reducing our pool of technical
talent, decreasing or slowing improvements in our products, making it more
difficult for us to respond to customers, limiting our ability to increase
production quickly if and when the demand for our products increases and
limiting our ability to hire and retain key personnel. These circumstances could
cause our earnings to be lower than they otherwise might be.

        The Company could be affected by trends toward managed care, health-care
cost containment, and other changes in government and private sector
initiatives, in the United States and other countries in which the Company does
business, that are placing increased emphasis on the delivery of more
cost-effective medical therapies. Changes in governmental laws, regulations, and
accounting standards and the enforcement thereof and agency or government
actions or investigations involving the industry in general or the Company in
particular may be averse to the Company.
<PAGE>
        THE ABILITY OF THE COMPANY TO SUCCESSFULLY DEVELOP AND MARKET NEW
        PRODUCTS

        We generally sell our products in industries that are characterized by
rapid technological changes, frequent new product introductions and changing
industry standards. Without timely introduction of new products and
enhancements, our products will become technologically obsolete over time, in
which case our revenue and operating results would suffer. The success of our
new product offerings will depend on several factors, including our ability to:
(i) properly identify customer needs, (ii) innovate and develop new
technologies, services and applications, (iii) successfully commercialize new
technologies in a timely manner, (iv) manufacture and deliver our products in
sufficient volumes on time, (v) differentiate our offerings from our
competitors' offerings, (vi) price our products competitively, and (vii)
anticipate our competitors' announcements of new products, services or
technological innovations.

        DEPENDENCE ON KEY PERSONNEL

        Our future success depends partly on the continued service of our key
research, engineering, sales, marketing, manufacturing, executive and
administrative personnel. If we fail to retain and hire a sufficient number of
these personnel, we will not be able to maintain or expand our business.

        OUR ACQUISITIONS, STRATEGIC ALLIANCES, JOINT VENTURES AND DIVESTITURES
        MAY RESULT IN FINANCIAL RESULTS THAT ARE DIFFERENT THAN EXPECTED

        In the normal course of business, we engage in discussions with third
parties relating to possible acquisitions, strategic alliances, joint ventures
and divestitures. As a result of such transactions, our financial results may
differ from the investment community's expectations in a given quarter. In
addition, acquisitions and strategic alliances may require us to integrate a
different company culture, management team and business infrastructure. We may
have difficulty developing, manufacturing and marketing the products of a
newly-acquired company in a way that enhances the performance of our combined
businesses or product lines to realize the value from expected synergies.
Depending on the size and complexity of an acquisition, our successful
integration of the entity depends on a variety of factors including: (i) the
retention of key employees, (ii) the management of facilities and employees in
separate geographic areas. All of these efforts require varying levels of
management resources, which may divert our attention from other business
operations. If we do not realize the expected benefits or synergies of such
transactions, our consolidated financial position, results of operations and
stock price could be negatively impacted.

        THE OUTCOME OF LITIGATION MATTERS AND UNCERTAIN PROTECTION OF PATENTED
        AND PROPRIETARY INFORMATION

        Increased public interest in recent years in product liability claims in
the medical device industry could affect the Company should it become directly
involved. Recent events have made the investing public particularly sensitive to
listed companies reporting practices and accounting policies in general. The SEC
could make regulatory changes that could have a direct effect on the Company.
Additionally, the Company may find it necessary to enforce its legal right with
respect to patented and proprietary information. The outcome of any of these
matters and the financial impact they may have on the Company cannot be
foreseen.

        VOLATILITY OF STOCK PRICE AND THE ABILITY OF THE COMPANY TO MAINTAIN OUR
        LISTING ON THE NASDAQ SMALLCAP MARKET

        The public stock markets have experienced significant volatility in
stock prices in recent years, which could cause, the Company's stock price to
experience severe price changes that are unrelated or disproportionate to the
operating performance of the Company. The trading price of the Company's Common
Stock could be subject to wide fluctuations in response to, among other factors,
quarter to quarter variations in operating results, announcements of
technological innovations or new products by the Company or its competitors,
announcements of new strategic relationships by the Company or its competitors,
general conditions in the healthcare industry or the global economy generally,
or market volatility unrelated to the Company's business and operating results.
<PAGE>
        The Company's Common Stock is currently listed on the Nasdaq SmallCap
Market. In order to continue to be listed on the Nasdaq SmallCap Market, certain
listing requirements must be met. If Escalon's securities were delisted,
investors could find it more difficult to dispose of them, or to obtain accurate
quotations as to the market value of the Company's securities.

ITEM 2.        PROPERTIES

        The Company leases an aggregate of approximately 22,000 square feet of
space for its (i) corporate offices in Wayne, Pennsylvania, (ii)
manufacturing/warehouse facility in New Berlin, Wisconsin, (iii) manufacturing
facility in Lake Success, New York and (iv) consultant's office/storage facility
in Turnersville, New Jersey. The corporate offices leased in Wayne, Pennsylvania
covers approximately 1,100 square feet. The Wisconsin facility lease, covering
approximately 13,500 square feet of space expires in April 2007. The New York
facility lease, covering approximately 7,100 square feet expires during fiscal
2005. Annual rent under all of the Company's lease arrangements was $338,540 for
the year ended June 30, 2002.

ITEM 3.        LEGAL PROCEEDINGS

        As previously reported in reports filed with the Securities and Exchange
Commission, on or about June 8, 1995, a purported class action complaint
captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et al., 95 Civ.
4299, was filed in the United States District Court for the Southern District of
New York as a "related action" to In Re Blech Securities Litigation (a
litigation matter to which the Company is no longer a party). The plaintiff
purports to represent a class of all purchasers of the Company's stock from
November 17, 1993, to and including September 21, 1994. The complaint alleges
that the Company, together with certain of its officers and directors, David
Blech and D. Blech & Co., Inc. issued a false and misleading prospectus in
November 1993 in violation of Sections 11, 12 and 15 of the Securities Act of
1933. The complaint also asserts claims under section 10(b) of the Securities
Exchange Act of 1934 and common law. Actual and punitive damages in an
unspecified amount are sought, as well as constructive trust over the proceeds
from the sale of stock pursuant to the offering.

        On June 6, 1996, the court denied a motion by Escalon and the named
officers and directors to dismiss the Kozloski complaint and, on July 22, 1996,
the Company filed an answer to the complaint denying all allegations of
wrongdoing and asserting various affirmative defenses.

        In an effort to curtail its legal expenses related to this litigation,
while continuing to deny any wrongdoing, the Company reached an agreement to
settle this action on its behalf and on the behalf of its former and present
officers and directors, for $500,000. The court approved the settlement after a
fairness hearing on September 11, 2002. The Company's directors and officers
insurance carrier has agreed to fund a significant portion of the settlement
amount. Both the Company and the insurance carrier have deposited such funds in
an escrow account.

        On November 8, 2001, Digital, a wholly owned subsidiary of the Company,
initiated an action against MegaVision, Inc., Ken Boydston, Mark Maio and
Ophthalmic Imaging Services, Inc. in the United States District Court for the
Eastern District Court for the Eastern District of Pennsylvania seeking damages
and equitable relief for disputes arising between the parties and arising from
the operations of Escalon Medical Imaging, LLC. Escalon Medical Imaging, LLC is
a joint venture between Escalon Digital Vision, Inc. and MegaVision, Inc. The
action was docketed as Escalon Medical Imaging, LLC and Escalon Digital Vision,
Inc. v. MegaVision, Inc., Ken Boydston, Ophthalmic Imaging Systems and Mark
Maio, Civil Action No.: 01-CV-5669. Without admitting liability, fault or
wrongdoing and to provide and amicable resolution to the dispute, the parties
have executed agreements to settle the lawsuit. As part of the settlement
Digital is conducting all operations concerning manufacture, marketing,
distribution and support of the CFA camera system. Without admitting liability,
fault, or wrongdoing and in order to avoid the time and expense of the Lawsuit,
Digital, Escalon Medical Imaging, LLC and Mark Maio executed settlement
agreement and mutual release to settle the Lawsuit. The settlements did not have
a material financial impact on the Company. The Company received $363,536 net
assets, largely in the form of accounts receivable, inventory and fixed assets,
in lieu of cash, to reduce its balance due of $432,692 from Escalon
<PAGE>
Medical Imaging, LLC as a condition of the settlement. The remaining balance due
of $23,434 was charged as a loss from termination of joint venture.

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

               None.

                                     PART II

ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
               MATTERS

        Escalon's Common Stock trades on the Nasdaq SmallCap Market under the
symbol "ESMC." The Company's Common Stock has traded on the Nasdaq SmallCap
Market since June 7, 2000. The Common Stock previously traded on the Nasdaq
National Market. The table below sets forth, for the periods indicated, the high
and low sales prices as quoted on the Nasdaq Stock Market.

<TABLE>
<CAPTION>
      Fiscal Year Ended June 30, 2001         High             Low
      -------------------------------         ----             ---

<S>                                          <C>              <C>
  Quarter ended September 30, 2000           $3.13            $1.50
  Quarter ended December 31, 2000            $3.00            $1.41
  Quarter ended March 31, 2001               $2.75            $1.44
  Quarter ended June 30, 2001                $2.38            $1.48
</TABLE>

<TABLE>
<CAPTION>
     Fiscal Year Ended June 30, 2002          High             Low
     -------------------------------          ----             ---

<S>                                          <C>              <C>
  Quarter ended September 30, 2001           $2.06            $1.35
  Quarter ended December 31, 2001            $4.00            $1.60
  Quarter ended March 31, 2002               $2.73            $1.80
  Quarter ended June 30, 2002                $2.94            $1.95
</TABLE>


        As of August 22, 2002, there were 126 holders of record of the Company's
Common Stock. On August 22, 2002, the closing sale price of Escalon's Common
Stock as reported by the Nasdaq SmallCap Stock Market was $1.83 per share.

        Escalon has never declared or paid a cash dividend on its Common Stock
and presently intends to retain any future earnings to finance future growth and
working capital needs. In addition, the Company is party to loan agreements that
prohibit Escalon's payment of dividends.

        The Company's Common Stock is currently listed on the Nasdaq SmallCap
Market. In order to continue to be listed on the Nasdaq SmallCap Market, certain
listing requirements must be met. If Escalon's securities were delisted,
investors could find it more difficult to dispose of them, or to obtain accurate
quotations as to the market value of the Company's securities.

ITEM 6.        SELECTED FINANCIAL DATA

        The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto included
herein in Item 8.
<PAGE>
<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED JUNE 30,
                                                             ----------------------------
STATEMENT OF OPERATIONS DATA:                   2002          2001          2000          1999          1998
                                             --------      --------      --------      --------      --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                          <C>           <C>           <C>           <C>           <C>
Sales revenue, net                           $ 12,074      $ 11,880      $  6,670      $  7,559      $  5,942
Costs and expenses:
  Cost of goods sold                            4,640         4,297         2,874         3,282         2,589
  Research and development                        555           492           984           738           495
  Marketing, general and
    administrative                              5,097         5,430         4,661         3,332         2,805
  Writedown of goodwill, license and
    distribution rights and patents                --            --           418            --            --
                                             --------      --------      --------      --------      --------
Total costs and expenses                       10,292        10,219         8,937         7,352         5,889
                                             --------      --------      --------      --------      --------
Income (loss) from operations                   1,782         1,661        (2,267)          207            53
                                             --------      --------      --------      --------      --------
Loss from termination of joint venture            (23)           --            --            --            --
Sale of silicone oil product line                  --            --         1,864            --            --
Sale of Betadine product line                      --            --            --           879            --
Equity in income (loss) of
  unconsolidated joint venture                      8           (19)          (33)           --            --
Interest income                                     2             2           149           145           119
Interest expense                                 (791)       (1,052)         (576)          (37)           (1)
Income tax expense                                 --            --            --            --            --
                                             --------      --------      --------      --------      --------
Net income (loss)                            $    978      $    592      $   (863)     $  1,194      $    171
                                             ========      ========      ========      ========      ========
Basic net income (loss) per share            $   0.29      $   0.18      $  (0.27)     $   0.10      $  (0.04)
                                             ========      ========      ========      ========      ========
Diluted net income (loss) per share          $   0.29      $   0.18      $  (0.27)     $   0.10      $  (0.04)
                                             ========      ========      ========      ========      ========
Weighted average shares - basic
  used in per share computation                 3,346         3,292         3,242         3,115         2,673
                                             ========      ========      ========      ========      ========
Weighted average shares - diluted
  used in per share computation                 3,360         3,308         3,242         3,115         2,673
                                             ========      ========      ========      ========      ========
</TABLE>



<TABLE>
<CAPTION>
                                                                      AT JUNE 30,
                                                                      -----------
BALANCE SHEET DATA:                            2002          2001          2000          1999          1998
                                             --------      --------      --------      --------      --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                          <C>           <C>           <C>           <C>           <C>
Cash and cash equivalents                    $    221      $     81      $    177      $  3,854      $  2,264
Working capital (deficit)                        (240)       (3,004)       (3,211)        3,801         3,465
Total assets                                   16,912        17,798        16,845        10,403         6,734
Long-term debt                                  5,191         4,502         4,900           733            --
Total liabilities                               9,719        11,691        11,430         4,125           685
Accumulated deficit                           (39,039)      (40,018)      (40,610)      (39,629)      (39,952)
Total shareholders' equity                      7,193         6,107         5,415         6,278         6,049
</TABLE>


Note: No cash dividends were paid in any of the years presented.

ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS

        The following discussion and analysis should be read together with the
consolidated financial statements and notes thereto and other financial
information contained elsewhere in this Form 10-K/A.
<PAGE>
        Escalon operates primarily in four reportable business segments:
Sonomed, Vascular, Medical/Trek and Digital. Sonomed develops, manufactures and
markets ultrasound systems used for diagnostic or biometric applications in
ophthalmology. Vascular develops, manufactures and markets vascular access
products. Medical/Trek develops, manufactures and distributes ophthalmic
surgical products under the Escalon Medical Corp. and/or Trek Medical Products
names. Digital manufactures, markets and distributes a digital camera system for
ophthalmic fundus photography. For a more complete description of these
businesses and their products, see Item 1 - Business, on page one.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED JUNE 30, 2002 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2001

        The following tables present consolidated net revenues by business
segment as well as identifying trends in business segment net revenues for the
fiscal years ended June 30, 2002 and 2001.

<TABLE>
<CAPTION>
                    Fiscal Years Ended June 30,
                 ---------------------------------
                  2002         2001       % change
                  ----         ----       --------
Net revenues:             (in thousands)

<S>              <C>         <C>         <C>
Sonomed          $ 6,071     $ 5,988        1.39%
Vascular           2,634       2,117       24.42%
Medical/Trek       3,102       3,775      -17.83%
Digital              267          --      100.00%
                 -------     -------      ------
                 $12,074     $11,880        1.63%
                 =======     =======      ======
</TABLE>

         Product revenues increased $194,000, or 1.63%, to $12,074,000 in fiscal
2002 as compared to $11,880,000 in fiscal 2001. Revenues in the Sonomed business
increased $83,000, or 1.39%, to $6,071,000. This increase is attributed to an
increase in international revenue of $172,000 offset by an $89,000 decrease
domestically. Sonomed hired a domestic sales person in February 2001 and an
international salesperson in September 2001. The hiring of the international
salesperson has the desired effect. However, the domestic market was weak.
Revenues in the Vascular business unit increased $517,000, or 24.42%, to
$2,634,000. Vascular's revenue increased as a result of two factors: (1)
increased usage within the marketplace, and (2) selling direct to the market
rather than through distributors caused more sales to be recognized at retail
price rather than wholesale. Vascular's unit sales increased 16.42% for the
fiscal year ended June 30, 2002 as compared to the same period last fiscal year.
The unit sales increase was complemented by increases in the average unit sales
prices of the majority of Vascular's needle products, due to the Company's
strategy of eliminating underperforming distributors. Vascular discounts its
products to distributors. Vascular began taking the sales directly to end users
thereby avoiding distributor discounts. Revenues in the Medical/Trek business
unit decreased $673,000, or 17.83%, to $3,098,000. The decrease was largely due
to a $500,000 decrease in revenue earned from Bausch & Lomb in connection with
Silicone Oil. This decrease was caused by a major competitor of Bausch & Lomb
introducing an alternative Silicone Oil product line as well as a contractual
step-down in royalties provided for in the sale of the product line. The
contract with Bausch & Lomb provides annual step-downs in the calculation of
Silicone Oil revenues to be received by the Company. These step-downs occur
during the first quarter of each fiscal year during the contract. For the fiscal
year ended June 30, 2002, the step-down caused a $385,000 decrease in Silicone
Oil revenue that the Company would have otherwise received had the step-down not
occurred. The remaining $115,000 decrease in Silicone Oil revenue is due to
fluctuations in the market demand for the product. The Company does not have
knowledge as to what factors have affected Bausch & Lomb's sale of Silicone Oil.
Sales of the Company's ISPAN(TM) gas products and certain OEM products decreased
by $173,000. Escalon experienced a temporary increase in the sales of its ISPAN
(TM) gas product due to the fulfillment of customers' backorders during the
fiscal year ended June 30, 2001. Revenues in the Digital business unit were
$267,000 for the fiscal year ended June 30, 2002. The Company terminated its
joint venture with MegaVision and commenced operations within its Digital
business unit on January 1, 2002.
<PAGE>
         The following table presents consolidated cost of goods sold by
reportable business segment and as a percentage of related segment net revenues
for the fiscal years ended June 30, 2002 and 2001.

<TABLE>
<CAPTION>
                                    Fiscal Years Ended June 30,
                                    ---------------------------
                                   2002                     2001
                        ---------------------     ---------------------
Cost of goods sold:        Dollars        %          Dollars        %
                           -------      -----        -------      -----
                        (in thousands)            (in thousands)

<S>                     <C>             <C>       <C>            <C>
Sonomed                     $2,704      45.16%        $2,237      37.36%
Vascular                       988      37.51%         1,016      47.99%
Medical/Trek                   838      22.20%         1,043      27.63%
Digital                        110      41.20%            --       0.00%
                            ------      -----         ------      -----
                            $4,640      38.43%        $4,296      36.16%
                            ======      =====         ======      =====
</TABLE>

         Cost of goods sold totaled $4,640,000, or 38.43% of net revenue for the
fiscal year ended June 30, 2002 as compared to $4,296,000, or 36.16% of net
revenue for the fiscal year ended June 30, 2001. Cost of goods sold in the
Sonomed business unit totaled $2,704,000, or 45.16% of net revenue for the
fiscal year ended June 30, 2002 as compared to $2,237,000, or 37.36% of net
revenue for the fiscal year ended June 30, 2001. This increase relates primarily
to lower net revenue per unit as Sonomed's revenue concentrated toward sales to
distributors to whom Sonomed discounts its products resulting in lower unit
sales prices. Cost of goods sold in the Vascular business unit totaled $988,000,
or 37.51% of net revenue for the fiscal year ended June 30, 2002 as compared to
$1,016,000 or 47.99% of net revenue for the fiscal year ended June 30, 2001.
This decrease is the result of increases in average unit sales prices across the
needle product line as well as reduced costs due to improved efficiency in the
manufacturing process. The improvement in the Vascular division was the direct
result of the retention of a manufacturing supervisor who strengthened operating
procedures which improved productivity. Cost of goods sold in the Medical/Trek
business unit totaled $838,000, or 22.20% of net revenue for the fiscal year
ended June 30, 2002 as compared to $1,043,000 or 27.63% of net revenue for the
fiscal year ended June 30, 2001. When Silicone Oil revenue is excluded, cost of
goods sold as a percentage of net revenue was 62.35% of net revenue and 68.64%
of net revenue for the fiscal years ended June 30, 2002 and 2001, respectively.
No costs are associated with Silicone Oil. The decrease in cost of goods sold is
attributed to product mix. During fiscal 2002 and 2001, customers placed orders
with the Medical/Trek business unit, which were in turn fulfilled. Product mix
is controlled by market demand. The market place had a higher demand for
products that can be produced at a lower cost of goods sold with respect to
revenue. Cost of goods sold in the Digital business unit totaled $110,000, or
41.20% of net revenue.

         The following table presents consolidated marketing, general and
administrative expenses as well as identifying trends in business segment
marketing, general and administrative expenses for the fiscal years ended June
30, 2002 and 2001.

<TABLE>
<CAPTION>
                                   Fiscal Years Ended June 30,
                                  -----------------------------
                                   2002       2001     % change
                                  ------     ------    --------
Marketing, general and                   (in thousands)
  administrative expenses
<S>                               <C>        <C>        <C>
Sonomed                           $1,441     $1,942     -25.80%
Vascular                             999      1,127     -11.36%
Medical/Trek                       2,510      2,348       6.90%
Digital                              129         --     100.00%
Other                                 18         14      28.57%
                                  ------     ------     ------
                                  $5,097     $5,431     -6.15%
                                  ======     ======     ======
</TABLE>
<PAGE>

         Marketing, general and administrative expenses decreased $334,000, or
6.15%, for the fiscal year ended June 30, 2002 as compared to the fiscal year
ended June 30, 2001. In the Sonomed business unit, marketing, general and
administrative expenses decreased $501,000, or 25.80%. Depreciation and
amortization expenses decreased $735,000, primarily due to the application of
SFAS 142 discussed in Note 3 of the Notes to Consolidated Financial Statements.
Salaries and other personnel related costs increased $168,000, primarily due to
the addition of a domestic salesperson and a salesperson for Latin America and
the Pacific Rim. Bad debts increased by $101,000 as the Company reserved for
specific international accounts receivable. In the Vascular business unit,
marketing, general and administrative expenses decreased by $128,000, or 11.36%.
Depreciation and amortization expenses decreased $83,000 primarily due to the
application of SFAS 142. Salaries, commissions and other personnel related
expenses increased $81,000 and consulting expenses decreased $151,000 primarily
due to the addition of a sales and marketing manager and a clinical support
specialist. Marketing, general and administrative expenses in the Medical/Trek
business unit increased $162,000, or 6.90%. Executive and administrative
compensation increased primarily due to the Company's strengthening of its
management team and the centralization of the Company's finance function to the
corporate office. The addition of an executive manager mid way through fiscal
2001 and the addition of clerical accounting staff resulted in the strengthening
of the management team. This increase amounted to $245,000. Legal and accounting
fees increased $135,000, primarily due to the amendment of the Company's loans
with PNC Bank, N.A., required filings with the SEC relating to the
reincorporation into Pennsylvania and the issuance of shares to Radiance Medical
Systems, Inc., and the litigation discussed in Note 16 of the Notes to
Consolidated Financial Statements. This increase was offset by a $64,000
decrease in commissions expense related to the termination of contracts with
distributors, a $57,000 decrease in travel, lodging and meals and entertainment
due to concerted cost reduction efforts in this area and a $30,000 reduction in
temporary services. Marketing, general and administrative expenses in the
Digital business unit totaled $129,000.


         The following table presents consolidated research and development
expenses as well as identifying trends in business segment research and
development expenses for the fiscal years ended June 30, 2002 and 2001.

<TABLE>
<CAPTION>
                                   Fiscal Years Ended June 30,
                                   ---------------------------
                                 2002       2001      % change
                                 ----       ----      --------
Research and                             (in thousands)
  development
<S>                              <C>       <C>        <C>
Sonomed                          $ 409     $ 321        27.41%
Vascular                            64        22       190.91%
Medical/Trek                        76       157       -51.59%
Digital                             --        --         0.00%
Other                                6        (8)      -175.00%
                                 -----     -----       ------
                                 $ 555     $ 492        12.80%
                                 =====     =====       ======
</TABLE>

         Research and development expenses increased $63,000, or 12.80%, for the
fiscal year ended June 30, 2002 as compared to the fiscal year ended June 30,
2001. In the Sonomed business unit, research and development expenses increased
$88,000. This relates largely to the redesign of one of Sonomed's product lines
and was offset by a $15,000 decrease in consulting expenses. Research and
development expenses in the Vascular business unit increased $42,000, primarily
due to a $28,000 increase in prototype and patent expenses and an $11,000
increase in consulting expenses. Research and development in the Medical/Trek
business unit decreased $81,000, primarily due to $45,000 decrease in salaries
and other personnel related costs largely due to reduced headcount, a $15,000
decrease in consulting expenses, an $8,000 decrease in ISO/CE marking expenses
and a $6,000 decrease in prototype expenses.

         On December 18, 2000, the Company announced that it received 510(K)
clearance to begin marketing its high-end digital camera system for
ophthalmologists known as the CFA Digital Imaging System. As a result of the
approval, the Company began marketing the system through its joint venture
<PAGE>
with MegaVision through December 31, 2001. The Company terminated its joint
venture with MegaVision and commenced operations within the Company's Digital
business unit on January 1, 2002. Escalon recognized a joint venture gain of
$9,000 for the fiscal year ended June 30, 2002 and a joint venture loss of
$19,000 for the fiscal year ended June 30, 2001.

         Interest income remained unchanged for the fiscal year ended June 30,
2002 as compared to the fiscal year ended June 30, 2001. Interest income was
$2,000 for both fiscal years.

         Interest expense decreased $261,000 for the fiscal year ended June 30,
2002 as compared to the fiscal year ended June 30, 2001. These decreases
resulted from lower average balances in Escalon's term loan and line of credit
with PNC Bank, N.A., and from decreases in the floating interest rates
applicable to the term loan and line of credit.

         There is no provision for federal income taxes for the periods
presented as a result of utilization of net operating loss carryforwards and
related changes in the deferred tax valuation allowance.

FISCAL YEAR ENDED JUNE 30, 2001 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2000

         The following tables present consolidated net revenues by business
segment as well as identifying trends in business segment net revenues for the
fiscal years ended June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                   Fiscal Years Ended June 30,
                                   ---------------------------
                              2001         2000     % change
                              ----         ----     --------
Net revenues:                       (in thousands)

<S>                         <C>         <C>          <C>
Sonomed                     $ 5,988     $ 2,536      136.12%
Vascular                      2,117       2,345      -9.72%
Medical/Trek                  3,775       1,789      111.01%
                            -------     -------      ------
                            $11,880     $ 6,670       78.11%
                            =======     =======      ======
</TABLE>

         Product revenues increased $5,210,000, or 78.11%, to $11,880,000 in
fiscal 2001 as compared to $6,670,000 in fiscal 2000. Revenues in the Sonomed
business increased $3,452,000, or 136.12%, to $5,988,000. This increase was due
primarily to the fact that Sonomed's revenues represent a full year of operation
in fiscal 2001 as compared to only five and a half months of activity in fiscal
2000. (Sonomed was acquired in January 2000, see notes to consolidated financial
statements for a discussion of the Sonomed acquisition). Product revenues in the
Vascular business decreased $228,000, or 9.72%, to $2,117,000. This decrease was
primarily due to the Company shifting its sales strategy in this business unit.
During fiscal 2001, Escalon identified underperforming distributors and
terminated the Company's relationship with them, with internal staff picking up
the territories previously covered by these distributors. Also contributing to
the overall decrease was the fact that distributors experienced a surplus of
inventory during fiscal 2001 and subsequently reduced orders to the Company. In
the Company's Medical/Trek business unit, product revenues increased $1,986,000,
or 111.01%, to $3,775,000. Revenue earned in connection with Silicone Oil was
$574,000 from July 1, 1999 through August 13, 1999. Escalon sold its rights to
the product to Bausch & Lomb on August 13, 1999, and did not recognize any
revenue from Silicone Oil for a period of one year from the date of the sale.
Beginning on August 13, 2000, Escalon is entitled to receive from Bausch & Lomb,
a percentage of their gross profit from the sales of the product through fiscal
2005. From August 13, 2000 through June 30, 2001, revenue earned from Bausch &
Lomb in connection with Silicone Oil was $2,254,000, $1,680,000 more than the
Silicone Oil revenue recognized during the fiscal year ended June 30, 2000.
Revenue from the balance of the Medical/Trek product line increased by $306,000.
This increase was primarily due to the fulfillment of customers' backorders for
the Company's ISPAN(TM) gas product during the first quarter of fiscal 2001.

         The following table presents consolidated cost of goods sold by
reportable business segment and as a percentage of related segment net revenues
for the fiscal years ended June 30, 2001 and 2000.
<PAGE>
<TABLE>
<CAPTION>
                                         Fiscal Years Ended June 30,
                                         ---------------------------
                                        2001                     2000
                                        ----                     ----
Cost of goods sold:           Dollars          %         Dollars          %
                              -------        -----       -------        -----
                          (in thousands)              (in thousands)

<S>                       <C>                <C>      <C>               <C>
Sonomed                        $2,237        37.36%       $  927        36.55%
Vascular                        1,016        47.99%        1,010        43.07%
Medical/Trek                    1,043        27.63%          937        52.38%
                               ------        -----        ------        -----
                               $4,296        36.16%       $2,874        43.09%
                               ======        =====        ======        =====
</TABLE>

         Cost of goods sold totaled $4,296,000, or 36.16% of net revenue for
fiscal 2001, as compared to $2,874,000, or 43.09% of net revenue, for fiscal
2000. Cost of goods sold in the Sonomed business increased $1,130,000, primarily
due to the fact that Sonomed's cost of goods sold represent a full year of
operation in fiscal 2001 as compared to only five-and-a-half months of activity
in fiscal 2000. Cost of goods sold in fiscal 2001 in the Vascular unit increased
$6,000 to $1,016,000, or 47.99% of net revenue, as compared to 43.07% of net
revenue in fiscal 2000. The net increase in cost of goods sold, as a percentage
of net revenue was the result of material costs increasing 0.89% and labor and
other employee-related expenses decreasing 4.03%. The reduction of cost of goods
sold as a percentage of net revenue in the Medical/Trek business unit was
primarily due to the revenues received from Bausch & Lomb related to Silicone
Oil. Cost of goods sold in this business unit in fiscal 2001 increased $107,000
to $1,043,000, or 27.63% of net revenue. Cost of goods sold as a percent of net
revenues was 52.38% during the same period last year. This decrease was due to
the fact that Silicone Oil revenue recognized during fiscal 2001 does not have
any costs associated with the revenue. Cost of goods sold for the Medical/Trek
business unit was 68.64%of net revenue for the fiscal year ended June 30, 2001,
when Silicone Oil revenue is excluded. The increase in cost of goods sold, as a
percentage of net revenue was the result of material costs increasing 6.65% and
labor and other employee-related expenses increasing 9.61%.

         The following table presents consolidated marketing, general and
administrative expenses by business segment as well as identifying changes in
these expenses for the fiscal years ended June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                       Fiscal Years Ended June 30,
                                    --------------------------------
                                     2001       2000        % change
                                    ------     ------       -------
Marketing, general and                   (in thousands)
  administrative expenses

<S>                                 <C>        <C>         <C>
Sonomed                             $1,942     $  951       104.21%
Vascular                             1,127      1,310      -13.97%
Medical/Trek                         2,348      2,400       -0.22%
                                    ------     ------        -----
                                    $5,431     $4,661        16.52%
                                    ======     ======        =====
</TABLE>


         Marketing, general and administrative expenses increased $769,000, or
16.52%, for fiscal 2001 as compared to fiscal 2000. Marketing, general and
administrative expenses in the Sonomed business increased $991,000, primarily
due to the fact that Sonomed's expenses represent a full year of operation in
fiscal 2001 as compared to only five-and-half months of activity in fiscal 2000.
This increase was offset by Vascular's $183,000 decrease. The main factors
contributing to this decrease were decreased salaries and employee-related
costs, which decreased by $163,000, the result of reduced headcount; and a
decrease in travel-related expenses, which resulted by $90,000, the direct
result of a concerted effort in this area. The decreases were partially offset
by an increase in consulting expense of $85,000, largely due to the retention of
a sales and marketing consultant. Marketing, general and administrative expenses
in the Medical/Trek businesses decreased by $52,000, largely due to a $51,000
decrease in royalties as a result of the Company's decision to discontinue
clinical trials of Ocufit SR(R) in December 1999.
<PAGE>
         The following table presents consolidated research and development
expenses by business segment as well as identifying trends in these expenses for
the fiscal years ended June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                  Fiscal Years Ended June 30,
                  --------------------------
                  2001     2000     % change
                  ----     ----     --------
Research and           (in thousands)
  development

<S>               <C>      <C>      <C>
Sonomed           $321     $126      154.76%
Vascular            22       72     -69.44%
Medical/Trek       157      786     -80.03%
                  ----     ----     -------
                  $492     $984     -50.00%
                  ====     ====     =======
</TABLE>

         Research and development expenses decreased $492,000, or 50.00%, for
fiscal 2001 as compared to fiscal 2000. Research and development expenses in the
Sonomed business increased $195,000, primarily due to the fact that Sonomed's
expenses represent a full year of operation in fiscal 2001 as compared to only
five-and-a-half months of activity in fiscal 2000. Research and development in
the Vascular and Medical/Trek business units decreased $679,000 when compared to
the same period last year. This was largely due to the fact that Escalon has
suspended development of Povidone-Iodine 2.5%, and also due to the fact that
development of Ocufit SR(R) was terminated in December 1999.

         In August 1999, the Company reported the sale of its license and
distribution rights for the Adatosil(R) 5000 Silicone Oil product line. The sale
resulted in a $1,864,000 gain after writing off the remaining net book value of
license and distribution rights associated with that product line.

         After completing the initial Phase I human clinical trials in late
December 1999, management reevaluated its Ocufit SR(R) ophthalmic drug delivery
system project. It was decided that further expenditures on this project were
not in the shareholders' best interest, and the project was discontinued. This
decision resulted in Escalon taking a non-cash charge of $418,000 in the second
and third quarter of fiscal 2000, which included a write-off of the net book
value for remaining goodwill and patent costs associated with this project.

         On December 18, 2000, Escalon announced it was granted 510(K) clearance
to begin marketing its high-end digital camera system for ophthalmologists known
as the CFA Digital Imaging System. The system was marketed through Imaging, the
Company's joint venture with MegaVision. As a result of the approval, Imaging
began selling the product in December 2000. The Company recognized a $19,000
loss from the joint venture during the fiscal year ended June 30, 2001 as
compared to a $33,000 loss during the fiscal year ended June 30, 2000.

         Interest income decreased by $147,000 for the fiscal year ended June
30, 2001, as compared to the fiscal year ended June 30, 2000. This decrease
resulted from the decrease in cash and cash equivalents available for investment
due to the significant changes in the Company arising from the Sonomed
acquisition.

         Interest expense increased by $476,000 for the fiscal year ended June
30, 2001, as compared to the fiscal year ended June 30, 2001. This was primarily
the result of corporate borrowing arrangements that did not exist until the
third quarter of fiscal 2000. In connection with the Sonomed acquisition, the
Company refinanced its existing bank debt, providing $12,000,000 of financing to
the Company.

         There was no provision for federal or state income taxes for the
periods presented as a result of utilization of net operating loss carryforwards
and related changes in the deferred tax valuation allowance.
<PAGE>
         LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 2002, Escalon had cash and cash equivalents of $221,000 as
compared to $81,000 at June 30, 2001, an increase of $140,000. This resulted
primarily from increases in cash of $2,029,000 provided by operating activities,
$204,000 net proceeds from due from joint venture and $107,000 provided by the
issuance of Common Stock, offset by $2,006,000 used to pay down the term loan
and the line of credit, $73,000 in loan finance fees, $96,000 used to purchase
fixed assets and a $25,000 payment for license and distribution rights.

         On January 14, 2000, Escalon replaced its $2,000,000 credit facility
obtained in January 1999. PNC Bank, N.A. granted a new $12,000,000 credit
facility to assist with the Sonomed acquisition. This included a $7,000,000
five-year term loan, a $5,000,000 line of credit and the release of the
requirement of the company to maintain a $1,000,000 certificate of deposit with
PNC Bank, N.A. The interest rate on the term loan was based on prime plus 1.0%
and the line of credit rate was based on prime plus 0.75%. An interest rate cap
agreement is used to reduce the potential impact of increases in interest rates
on the floating-rate term loan. At June 30, 2002, Escalon was party to an
interest rate cap agreement covering the term loan through January 1, 2003. The
agreement entitles the Company to receive from PNC Bank, N.A., the counter-party
to the agreement, on a monthly basis, the amounts, if any, by which the
Company's interest payments exceed 10.0% for the period July 1, 2002 through
January 1, 2003. Escalon paid $100,000 in finance fees that offset the
outstanding balance of the term loan and are being amortized over the term of
the loans using the effective interest method. Escalon paid $122,800 in interest
rate cap protection fees that also offset the outstanding balance of the loans.
These fees are being amortized over the term of the loans using the effective
interest method.

         On November 28, 2001, Escalon amended its loan agreement with PNC Bank,
N.A. The amendment included converting the existing balances on the term loan
and the line of credit into a $7,900,000 term loan and $2,000,000 available line
of credit. The aggregate balance of debt outstanding did not change as a result
of this refinancing. As of June 30, 2002, the amount outstanding against this
line of credit was $1,250,000. Principal payments due on the term loan have been
amended such that the balance is due within the five-year term of the original
agreement including a $2,000,000 balloon payment due on June 30, 2004. Interest
rates on the term loan and line of credit were increased to prime plus 1.75% and
prime plus 1.50, respectively. At June 30, 2002, the interest rates applicable
to the term loan and line of credit were 6.50% and 6.25%, respectively. PNC
Bank, N.A.'s prime rate as of June 30, 2002 was 4.75%. In connection with the
amended agreement, Escalon issued to PNC Bank, N.A. warrants to purchase 60,000
shares of the Company's Common Stock at an exercise price of $3.66 per share.
The warrants were valued at $4,800 using the Black-Sholes option pricing method
with the following assumptions: risk-free interest rate of 5.0%, expected
volatility of .18, expected warrant life of 42 months from vesting and expected
dividend rate of 0.0%. The Company also paid a $50,000 facility fee upon
execution of the loan agreement. Commencing March 1, 2002, the Company began
paying a 1.0% facility payable quarterly based on the aggregate principal amount
outstanding under the line of credit and term loan on January 1 of each year
until June 30, 2004. All of the Company's assets collateralize these agreements.

         The term loan and the line of credit contain various covenants,
including a requirement to maintain a defined ratio of earnings before interest,
taxes, depreciation and amortization ("EBITDA") to debt. Escalon did not achieve
the EBITDA to debt ratio for the fiscal year ended June 30, 2002, resulting in a
technical default under the loan agreements. PNC Bank, N.A. has waived this
requirement of the agreement as of June 30, 2002, and for the period ending July
1, 2003.

         On January 21, 1999, the Company's Vascular subsidiary and Radiance
Medical Systems, Inc. ("Radiance") entered into an Assets Sale and Purchase
Agreement. Pursuant to this agreement, Escalon acquired for cash the assets of
Radiance's vascular access business, and also agreed to pay royalties based on
future sales of the products of the vascular access business for a period of
five years following the close of the sale, with a guaranteed minimum royalty of
$300,000 per year. On February 21, 2001, the parties amended the agreement to
provide an adjustment in the terms of the payment of the royalties. Pursuant to
the amendments Escalon paid $17,558 in cash to Radiance, delivered a short-term
note in the amount of
<PAGE>
$64,884 that was satisfied in January 2002, and an additional note in the amount
of $717,558, payable in eleven quarterly installments commencing April 15, 2002,
and issued 50,000 shares of Escalon Common Stock to Radiance.

         The Company believes that cash on hand plus cash available from our
line of credit will be sufficient to satisfy our working capital, capital
expenditures and research and development until the balloon payment is due on
June 30, 2004. We may be required to secure additional debt or equity financing
in order to satisfy the balloon payment, and we cannot assure you that such
financing will be available when required on acceptable terms. Additionally, the
Company relies on the revenues received from Bausch & Lomb. While management
does not expect this revenue to decline rapidly in the foreseeable future, any
such decrease would have a significant impact on our consolidated financial
position, results of operations, cash flows and stock price could be negatively
impacted.

         The Company's Common Stock is currently listed on the Nasdaq SmallCap
Market. In order to continue to be listed on the Nasdaq SmallCap Market, certain
listing requirements must be met. As of June 30, 2002, Escalon complied with
these requirements. If Escalon's securities were delisted, an investor would
find it more difficult to dispose of them, or obtain accurate quotations as to
the market value of the Company's securities.

         CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported therein. The most
significant of those involve the application of SFAS No. 142, which is discussed
further in Notes 2 and 3.

         The financial statements are prepared in conformity with generally
accepted accounting principles, and, as such, include amounts based on informed
estimates and judgments of management. For example, estimates are used in
determining valuation allowances for uncollectible receivables, obsolete
inventory, deferred income taxes and purchased intangible assets. Actual results
could differ from those estimates.

         The Company used what it believes are reasonable assumptions and where
applicable, established valuation techniques in making its estimates.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         INTEREST RATE RISK

         The table below provides information about Escalon's financial
instruments, consisting primarily of debt obligations that are sensitive to
changes in interest rates. For debt obligations, the table represents principal
cash flows and related interest rates by expected maturity dates. Interest rates
are based upon the prime rate at June 30, 2002 plus 1.75% on the term loan and
1.50% on the line of credit. The Company is party to an interest rate cap
agreement covering the term loan through January 1, 2003. The interest rate cap
agreement is used to reduce the potential impact of increases on the
floating-rate term loan.
<PAGE>
<TABLE>
<CAPTION>
                                         Long-term debt classified as current as of June 30,
                                         ---------------------------------------------------
                                2002             2003           2004           2005   Thereafter      Total
                                ----             ----           ----           ----   ----------      -----
<S>                           <C>              <C>              <C>            <C>    <C>           <C>
Term loan - capped              900,000               --             --         --         --          900,000
  Interest rate - capped           6.50%              --             --         --         --

Term loan - no cap            1,050,000        4,800,000             --         --         --        5,850,000
  Interest rate - no cap           6.50%            6.50%            --         --         --

Line of credit - no cap       1,250,000               --             --         --         --        1,250,000
  Interest rate - no cap           6.25%              --             --         --         --

Radiance note                   260,932          260,932        130,461         --         --          652,325
  Interest rate                    6.25%              --             --         --         --

Deferred finance fees          (124,969)              --             --         --         --         (124,969)

Total                         3,335,963        5,060,932        130,461         --         --        8,527,356
</TABLE>


         EXCHANGE RATE RISK

         In fiscal 2002 approximately 20% of Escalon's net revenue was derived
from international sales. The price of all products sold overseas is denominated
in United States dollars and consequently incurs no exchange rate risk.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements of the Company are filed under this Item 8,
beginning on page F-2 of this report.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item 10 is incorporated by reference
to the information under the captions "Management" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" included in Escalon's proxy
statement for the Company's 2002 Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission.




COMPANY RESPONSE:



      The following disclosure will be included in the Form 10-K/A to be filed
      concurrently with this letter under Item 10. Directors and Executive
      Officers of the Registrant.



<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                         Director    Year Term             Principal Occupations During Past Five
   Name of Director        Since    Will Expire    Age         Years and Certain Directorships
----------------------------------------------------------------------------------------------------
      CLASS III
----------------------------------------------------------------------------------------------------
<S>                      <C>        <C>            <C>    <C>
Richard J. DePiano         1996         2005        61    Chairman and CEO of Escalon Medical
                                                          Corp. since March 1997.  CEO of the
                                                          Sandhurst Company, LP and Managing
                                                          Director of the Sandhurst Venture Fund
                                                          since 1986; Chairman of the Board of
                                                          Directors of Surgical Laser Technolo-
                                                          gies, Inc. and a director of Photomedex,
                                                          Inc.
----------------------------------------------------------------------------------------------------
Jay L. Federman, MD        1996         2005        63    Chief of the Division of Ophthalmology
                                                          at the Medical College of Pennsylvania
                                                          an M.C.P. Hahnemann School of Med-
                                                          icine and as Co-Director of the Retina
                                                          Service at Wills Eye Hospital in Phila-
                                                          delphia; Chairman of the Board of Dir-
                                                          ectors of Escalon Medical Corp. from
                                                          February 1996 to March 1997; Director
                                                          of Surgical Laser Technologies, Inc.
----------------------------------------------------------------------------------------------------
       CLASS I
----------------------------------------------------------------------------------------------------
William Kwan               1999         2003        61    Retired; Vice President of Business
                                                          Development of Alcon Laboratories,
                                                          Inc., a medical products company, from
                                                          October 1996 to 1999, and Vice Presi-
                                                          dent of International Surgical and Ins-
                                                          truments from November 1989 to
                                                          October 1996.
----------------------------------------------------------------------------------------------------
Anthony Coppola            2000         2003        64    Principal and operator of The Historic
                                                          Town of Smithville, Inc., a real estate
                                                          and commercial property company from
                                                          1988 to present; Retired Division Presi-
                                                          dent of SKF Industries, a manufacturing
                                                          company, from 1963 to 1986.
----------------------------------------------------------------------------------------------------
      CLASS II
----------------------------------------------------------------------------------------------------
Fred G. Choate             1998         2004        55    President of Beaumark Capital LLP, a
                                                          venture capital firm, since January 1999;
                                                          Manager of the greater Philadelphia
                                                          Venture Capital Corp. from 1992 to 1998;
                                                          Director of Berean Federal Savings
                                                          Bank
----------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<S>                        <C>          <C>         <C>   <C>
----------------------------------------------------------------------------------------------------
Jeffrey F. O'Donnell       1999         2004        41    President and CEO of PhotoMedex, Inc.,
                                                          a medical products company, since
                                                          November 1999; President and CEO of
                                                          X-Site Medical LLC, a medical products
                                                          company, from January 1999 to Novem-
                                                          ber 1999; President of Radiance Medical
                                                          Systems, Inc., a cardiology products
                                                          company, from May 1997 to January
                                                          1999; Vice President of Sales of Kensey
                                                          Nash Corporation, a cardiology prod-
                                                          ucts company, from January 1995 to
                                                          May 1997; Director of Radiance Medical
                                                          Systems, Inc. and PhotoMedex, Inc.
----------------------------------------------------------------------------------------------------
</TABLE>



                        EXECUTIVE OFFICERS OF THE COMPANY



<TABLE>
<CAPTION>
NAME                     AGE     POSITION
----                     ---     --------
<S>                      <C>     <C>
Richard J. DePiano       61      Chairman and Chief Executive Officer
Harry M. Rimmer          55      Senior Vice President, Finance, Secretary and Treasurer
</TABLE>



      Mr. DePiano has been a director of the Company since February 1996 and has
served as Chairman and Chief Executive Officer of the Company since March 1997.
Mr. DePiano has been the Chief Executive Officer of the Sandhurst Company, L.P.
and Managing Director of the Sandhurst Venture Fund since 1986. Mr. DePiano is
Chairman of the Board of Directors of Surgical Laser Technologies, Inc. Mr.
DePiano is a member of the Board of Directors of PhotoMedex, Inc.



      Mr. Rimmer was appointed Vice President, Corporate Development of the
Company in March 2000. In August 2000 his role was expanded to include Vice
President, Finance and Secretary. In August 2001 his role was expanded to
include Senior Vice President, Finance, Secretary and Treasurer. From 1996 until
1999 Mr. Rimmer served as the Finance Director for Irving Tissue, Inc., a
manufacturing and marketing company based in Philadelphia. In 1995 Mr. Rimmer
was the Finance Officer for a division of Scott Paper, and for the first eight
months of 1996 Mr. Rimmer was employed by the Kimberly Clark organization in
connection with the divestment of a business unit.



             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE



Section 16(a) of the Exchange Act requires the Company's directors and executive
officers, and persons who own ten percent or more of the Company's Common Stock,
to file with the Commission reports of ownership and changes in ownership. To
the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the period July 1, 2001
through June 30, 2002, all filing requirements applicable to its officers and
directors were complied with, except that Richard J. DePiano, Jay L. Federman,
Ronald L. Hueneke, Fred G. Choate, William Kwan, Jeffrey O'Donnell, Fred G.
Choate and William Kwan filed their respective Form 5 late.



The following disclosure shall be included in the Form 10-K/A to be filed
concurrently with this letter under Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.



<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                               BENEFICIAL OWNERSHIP TABLE
-----------------------------------------------------------------------------------------------------------------------
                                             AMOUNT OF                     AMOUNT OF
                                             BENEFICIAL                    BENEFICIAL       AMOUNT OF
                                            OWNERSHIP OF                    OWNERSHIP       AGGREGATE       AGGREGATE
 NAME AND ADDRESS                           OUT STANDING     PERCENT       OF SHARES        BENEFICIAL       PERCENT
 OF BENEFICIAL OWNER                         SHARES(1)**     OF CLASS      UNDERLYING       OWNERSHIP        OF CLASS
                                                                            OPTIONS
-----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>           <C>              <C>             <C>
 Fred G. Choate (2)                               816           *            35,000            35,816          1.1%
-----------------------------------------------------------------------------------------------------------------------
 Richard J. DePiano                            16,528           *           445,000           461,528         12.2%
-----------------------------------------------------------------------------------------------------------------------
 Jay L. Federman, M.D.                         42,072          1.3%          55,000            97,072          2.9%
-----------------------------------------------------------------------------------------------------------------------
 Jeffrey F. O'Donnell                           1,000           *            35,000            36,000          1.1%
-----------------------------------------------------------------------------------------------------------------------
 William Kwan                                    -              *            50,000            50,000          1.5%
-----------------------------------------------------------------------------------------------------------------------
 Anthony Coppola                                 -              *            20,000            20,000            *
-----------------------------------------------------------------------------------------------------------------------
 Harry M. Rimmer                                 -              *            90,000            90,000          2.6%
-----------------------------------------------------------------------------------------------------------------------
 Ronald L. Hueneke                               -              *               0                0               *
-----------------------------------------------------------------------------------------------------------------------
 All directors and executive officers          60,416          1.8%         730,000           780,416         19.2%
 as a group (8 persons)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>



*     Less than 1%.

**    Includes outstanding shares owned by the named person but does not include
      shares as to which such person has the right to acquire.

(1)   Except as indicated in the footnotes to this table, the persons named in
      the table above have sole voting and investment power with respect to all
      shares shown as beneficially owned by them.

(2)   Mr. Choate shares voting power of 215 of these shares with his wife.



<TABLE>
<CAPTION>
                           EQUITY COMPENSATION PLAN INFORMATION

                           Number of securities    Weighted-Average     Number of securities
                           To be issued upon       Exercise price of    remaining available
                           Exercise of             outstanding          for future issuance
                           Outstanding options     options, warrants    under equity
                           Warrants and rights     and rights           compensation plans
                           -------------------     ----------           ------------------
<S>                        <C>                     <C>                  <C>
Equity Compensation
Plans approved by          1,151,750               $2.39                180,205
Security holders

Equity compensation
Plans not approved         -0-                     -0-                  -0-
By security holders
</TABLE>




<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

      The following table sets forth certain compensation paid by the Company to
its Chief Executive Officer and certain other highly compensated executive
officers of the Company for all services rendered in all capacities for the
periods shown. This table includes Ronald L. Hueneke, who left the Company
effective June 30, 2002.





                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                     Long-Term
                                    Annual Compensation          Compensation Awards
------------------------------------------------------------------------------------------------------------
                                                                               Securities
Name and                                                      Other Annual     Underlying      All Other
Principal Position       Year        Salary       Bonus       Compensation      Options     Compensation (1)
------------------------------------------------------------------------------------------------------------
<S>                      <C>       <C>          <C>           <C>              <C>          <C>
Richard J. DePiano       2002      $  250,000   $  93,000     $          -         50,000   $        36,324
Chairman and Chief       2001      $  250,000   $  60,000     $          -        105,000   $        18,320
Executive Officer        2000      $  240,000   $       -     $          -         90,000   $        27,400
------------------------------------------------------------------------------------------------------------
Harry M. Rimmer          2002      $  120,000   $   15,000    $          -         25,000   $             -
Senior Vice              2001      $   90,000   $    9,000    $          -         40,000   $             -
President - Finance      2000      $   22,500   $    9,000    $          -         25,000   $             -
------------------------------------------------------------------------------------------------------------
Ronal L. Hueneke         2002      $  120,000   $        -    $     25,841              -   $         7,800
Former President         2001      $  120,000   $        -    $          -         35,000   $         7,800
and Chief Operating      2000      $  105,000   $        -    $          -         27,500   $         6,500
Officer
------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Includes payment by the Company of (i) in the case of Mr. DePiano, (a) an
      automobile allowance and (b) insurance premiums paid for life insurance;
      (ii) in the case of Mr. Hueneke, an automobile allowance.

               OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                        % of Total
                           Number of      Options
                           Securities    Granted to
                           Underlying     Employees     Exercise
                             Options      in Fiscal       Price       Expiration
Name                        Granted        Year       (per share)        Date
--------------------------------------------------------------------------------
<S>                        <C>          <C>           <C>             <C>
Richard J. DePiano            50,000        29.11%    $      2.77        11/2/11
--------------------------------------------------------------------------------
Harry M. Rimmer               25,000        14.56%    $      2.77        11/2/11
--------------------------------------------------------------------------------
</TABLE>

(1)   These options were granted under the Company's 1999 Equity Incentive Plan
      and have a term of ten years, subject to earlier termination in certain
      events. See "Employment Agreements." The Options of Mr. Rimmer vest over a
      five-year period. The options of Mr. DePiano vest over a twenty-four month
      period.






                AGGREGATE OPTIONS EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUE

<TABLE>
<CAPTION>
                                                                            Value of Unexercised
                                                Number of Unexercised       in-the-Money Options
                                               Options at June 30, 2002       at June 30, 2002
--------------------------------------------------------------------------------------------------
                        Shares                                            Securities
                      Acquired on     Value                               Underlying   All Other
Name                   Exercise     Realized  Exercisable  Unexercisable    Options   Compensation
--------------------------------------------------------------------------------------------------
<S>                   <C>           <C>       <C>          <C>            <C>         <C>
Richard J. DePiano              -   $      -      395,208         49,792  $   42,375  $      2,938
--------------------------------------------------------------------------------------------------
Ronald L. Hueneke          53,667   $ 25,841        1,708              -  $      315  $          -
--------------------------------------------------------------------------------------------------
Harry M. Rimmer                 -   $      -       27,083         62,917  $    1,077  $      1,860
--------------------------------------------------------------------------------------------------
</TABLE>

(1)   Potential unrealized value is (i) the fair market value at fiscal 2002
      year-end less the option exercise price times (ii) the number of options.
      Fair market value as of fiscal 2002 year-end was determined based on a
      closing sale price on June 28, 2002 of $2.150.

      No awards were made to any named executive officer during such fiscal year
      under any long-term incentive plan. The Company does not sponsor any
      defined benefit or actuarial plans at this time.

EMPLOYMENT AGREEMENTS

      On May 12, 1998, the Company entered into an employment agreement with
Richard J. DePiano as the Chairman and Chief Executive Officer of the Company.
The initial term of the employment agreement commenced May 12, 1998 and
continued through June 30, 2001. The employment agreement renews on July 1 of
each year for successive terms of three years unless either party notifies the
other party at least 30 days prior to such date of the notifying party's
determination not to renew the agreement. The agreement currently provides for a
base salary of $250,000 per year plus incentive compensation in the form of a
cash bonus to be paid by the Company to Mr. DePiano at the discretion of the
Board of Directors. The agreement also provides for health and long-term
disability insurance and other fringe benefits as well as an automobile
allowance of $800 per month.

      On July 1, 1999 the Company entered into an employment agreement with
Ronald L. Hueneke to serve as the Company's President and Chief Operating
Officer, which expired on June 30, 2002. Mr. Hueneke's employment agreement
provided for a base salary at a rate established by the Company's Board of
Directors, which was set at $120,000 per annum during 2002. Mr. Hueneke was also
entitled to receive incentive compensation in the form of a cash bonus to be
paid to Mr. Hueneke at the discretion of the Board of Directors. The agreement
also provided for health, life and long-term disability insurance and other
fringe benefits. Ronald L. Hueneke left the Company upon the expiration of his
employment agreement on June 30, 2002.




COMPENSATION OF DIRECTORS

      None of the Company's directors was paid any directors fees by the Company
during the fiscal year ended June 30, 2002. On August 13, 2002, Dr. Federman,
Mr. Kwan, Mr. Coppola, Mr. Choate and Mr. O'Donnell were each issued stock
options to purchase 10,000 shares of the Company's Common Stock, which are
vested in full. The exercise price for each of these options was $1.45 per
share. Each option expires ten years after the date of grant and is exercisable
in full on the grant date. In addition, directors are reimbursed for expenses
incurred in connection with attending meetings.

      Jeffrey F. O'Donnell rendered consulting services to the Company pursuant
to a consulting agreement with the Company dated March 15, 1999. Mr. O'Donnell's
consulting agreement provided for an annual consulting fee of $48,000, payable
in monthly installments, and reimbursement of expenses reasonably incurred in
connection with his services performed for the Company. The consulting agreement
expired on June 30, 2001, and Mr. O'Donnell agreed not to compete with the
Company for a period of two years after the expiration of such agreement.



ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item 12 is incorporated by reference
to the information under the captions "Principal Stockholders" and "Management"
included in Escalon's proxy statement for the Company's 2002 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission.

<TABLE>
<CAPTION>
                           Number of securities      Weighted-average           Number of securities
                           to be issued upon         exercise price of          remaining available
                           exercise of               outstanding                for future issuance
                           outstanding options       options, warrants          under equity
                           warrants and rights       and rights                 compensation plans
<S>                        <C>                       <C>                        <C>
Equity Compensation
Plans approved by
Security Holders           1,151,750                 $2.39                      180,205

Equity Compensation
Plans not approved
by Security Holders        -0-                       -0-                        -0-
</TABLE>

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.

                                     PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         CONSOLIDATED FINANCIAL STATEMENTS

         See index to Consolidated Financial Statements on page F-1.



         CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

         All schedules have been omitted because they are not applicable, or not
required, or the information is shown in the financial statements or notes
thereto.

         EXHIBITS

         The following is a list of exhibits filed as part of this annual report
on Form 10-K/A where so indicated by footnote, exhibits, which were previously
filed, are incorporated by reference. For exhibits incorporated by reference,
the location of the exhibit in the previous filing is indicated parenthetically,
followed by the footnote reference to the previous filing.
<PAGE>


<TABLE>
<S>    <C>   <C>
3.1    (a)   Restated Articles of Incorporation of Registrant. (10)
       (b)   Agreement and Plan of Merger dated as of September 28, 2001 between Escalon
             Pennsylvania, Inc. and Escalon Medical Corp. (10)
3.2          Bylaws of Registrant. (10)
4.5    (a)   Warrant Agreement between Registrant and U.S. Stock Transfer Corporation. (1)
       (b)   Amendment to Warrant Agreement between the Registrant and U.S. Stock
             Transfer Corporation. (3)
       (c)   Amendment to Warrant Agreement between the Registrant and American Stock
             Transfer Corporation. (4)
4.6          Securities Purchase Agreement, dated as of December 31, 1997 by and among the
             Company and Combination. (6)
4.7          Registration Rights Agreement, dated as of December 31, 1997 by and among the
             Company and Combination. (6)
4.8          Warrant to Purchase Common Stock issued December 31, 1997 to David Stefansky. (6)
4.9          Warrant to Purchase Common Stock issued December 31, 1997 to Combination. (6)
4.10         Warrant to Purchase Common Stock issued December 31, 1997 to Richard Rosenblum. (6)
4.11         Warrant to Purchase Common Stock issued December 31, 1997 to Trautman, Kramer & Company. (6)
10.5         Employment Agreement between the Registrant and Ronald L. Hueneke dated July 1,
             1999. (12)
10.6         Employment Agreement between the Registrant and Richard J. DePiano dated May 12,
             1998. (8)
10.7         Non-Exclusive Distributorship Agreement between Registrant and Scott Medical
             Products dated October 12, 2000. (12)
10.9         Assets Sale and Purchase Agreement between the Registrant and Radiance Medical
             Systems, Inc. dated January 21, 1999. (7)
10.13        Supply Agreement between the Registrant and Bausch & Lomb Surgical, Inc., dated
             August 13, 1999. (7)
10.15        Registrant's  Amendment and Supplement  Agreement and Release between the Registrant and
             Radiance Medical  Systems,  Inc., Dated February 28, 2001 (13)
10.20        PNC Bank, N.A. Letter Agreement dated November 16, 2001. (14)
10.21        PNC Bank, N.A. Amended and Restated Committed Line of Credit Note dated November 16, 2001. (14)
10.22        PNC Bank, N.A. Amended and Restated Time Note dated November 16, 2001. (14)
10.23        PNC Bank, N.A. Pledge Agreement dated November 16, 2001, (14)
10.24        PNC Bank, N.A. Amended and Restated Security Agreement dated November 16, 2001. (14)
10.25        PNC Bank, N.A. Letter dated November 8, 1999 confirming Rate Cap Transaction for Notional amount of
             $3,000,000(*)
10.26        PNC Bank, N.A. Letter dated November 8, 1999 confirming Rate Cap Transaction for Notional amount of
             $7,000,000.(*)
11.1         Stock Purchase Agreement between the Registrant and the stockholders of Sonomed, Inc.
             dated January 14, 2000. (8)
11.2         Employment Agreement between the Registrant and Louis Katz dated January 14, 2000.
             (8)
11.3         Registrant's 1999 Equity Incentive Plan and Registrant's Equity Incentive Plan for
             Employees of Sonomed, Inc. (9)
11.4         Registrant's Amended and Restated 1999 Equity Incentive Plan. (9)
21           Subsidiaries. (11)
23.1         Consent of Parente Randolph, LLC, independent auditors. (*)
99.1         Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Richard J.
             DePiano (*)
99.2         Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Harry M.
               Rimmer (*)
</TABLE>


--------------

*    Filed herewith.

(1)  Filed as an exhibit to Pre-Effective Amendment No. 2 to the Company's
     Registration Statement on Form S-1 dated November 9, 1993 (Registration
<PAGE>
     No. 33-69360).

(2)  Filed as an exhibit to the Company's Registration Statement on Form S-8
     dated June 13, 1994 (Registration No. 33-80162).

(3)  Filed as an exhibit to the Company's Form 10-K for the year ended June 30,
     1994.

(4)  Filed as an exhibit to the Company's Form 10-K for the year ended June 30,
     1995.

(5)  Filed as an exhibit to the Company's Form 10-K for the Year ended June 30,
     1996.

(6)  Filed as an exhibit to the Company's Registration Statement on Form S-3
     dated January 20, 1998 (Registration No. 333-44513).


(7)  Filed as an exhibit to the Company's Form 10-K for the year ended June 30,
     1999.


(8)  Filed as an exhibit to the Company's Form 8-K/A, dated March 31, 2000.

(9)  Filed as an exhibit to the Company's Registration Statement on Form S-8
     dated February 25, 2000 (Registration No. 333-31138).

(10) Filed as an exhibit to the Company's Proxy Statement on Schedule 14A, as
     filed by the Company with the SEC on September 21, 2001.

(11) Filed as an exhibit to the Company's Form 10-K for the year ended June 30,
     2000.

(12) Filed as an exhibit to the Company's Form 10-K for the year ended June 30,
     2001.

(13) Filed as an exhibit to the Company's Form 10-Q for the quarter ended March
     31, 2001.


(14) Filed as an exhibit to the Company's Form 10-K/A for the year ended June
     30, 2002, filed by the Company with the SEC on March 3, 2003.


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              ESCALON MEDICAL CORP.
                                  (Registrant)


Dated:  April 10, 2003


                            By:/s/ Richard J.DePiano
                               ----------------------
                               Richard J. DePiano
                      Chairman and Chief Executive Officer

<PAGE>
                                  CERTIFICATION

I Richard J. DePiano, certify that:

         1.       I have reviewed this Annual Report on Form 10-K/A of Escalon
                  Medical Corp.

         2.       Based on my knowledge, this Annual Report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  Annual Report; and

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this Annual Report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the Registrant as of,
                  and for, the periods presented in this Annual Report.


Date:  April 10, 2003                             /s/  Richard J. DePiano
     --------------------                         -----------------------
                                                  Richard J. DePiano
                                                  Chairman and Chief
                                                  Executive Officer
                                                  (Principal Executive Officer)


                                  CERTIFICATION

I, Harry M. Rimmer, certify that:

         1.       I have reviewed this Annual Report on Form 10-K/A of Escalon
                  Medical Corp.

         2.       Based on my knowledge, this Annual Report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  Annual Report; and

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this Annual Report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the Registrant as of,
                  and for, the periods presented in this Annual Report.


Date:  April 10, 2003                            /s/  Harry M. Rimmer
     --------------------                        --------------------
                                                 Harry M. Rimmer
                                                 Senior Vice President - Finance
                                                 (Principal Financial and
                                                 Accounting Officer)

<PAGE>
                              ESCALON MEDICAL CORP.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                PAGE
                                                                                                ----

<S>                                                                                             <C>
Independent Auditors' Report                                                                     F-2

Consolidated Balance Sheets at June 30, 2002 and 2001                                            F-3

Consolidated Statements of Operations for the years ended June 30, 2002, 2001 and 2000           F-4

Consolidated Statements of Shareholders' Equity for the years ended June 30, 2002, 2001
         and 2000                                                                                F-5

Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001
         and 2000                                                                                F-6

Notes to Consolidated Financial Statements                                                       F-8
</TABLE>
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Escalon Medical Corp.:



         We have audited the accompanying consolidated balance sheets of Escalon
Medical Corp. and subsidiaries (the "Company") at June 30, 2002 and 2001, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Escalon
Medical Corp. and subsidiaries at June 30, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2002 in conformity with accounting principles generally accepted
in the United States of America.

         As discussed in Note 3 to the Consolidated Financial Statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, effective July 2001.

                                                           PARENTE RANDOLPH, LLC

Philadelphia, Pennsylvania
August 16, 2002


                                       F-2
<PAGE>
                          PART I. FINANCIAL INFORMATION

 ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                          June 30,          June 30,
                                                                                            2002              2001
                                                                                        ------------      ------------
<S>                                                                                     <C>               <C>
ASSETS
Current Assets:
  Cash and cash equivalents                                                             $    220,826      $     80,830
  Accounts receivable, net                                                                 2,093,877         2,317,476
  Inventory, net                                                                           1,572,067         1,499,821
  Other current assets                                                                       400,820           287,027
                                                                                        ------------      ------------
    Total current assets                                                                   4,287,590         4,185,154
Long-term note receivable                                                                    150,000           150,000
Furniture and equipment, net                                                                 626,377           631,877
Goodwill, net                                                                             10,591,795        10,591,795
Trademarks and trade names, net                                                              601,806           601,806
License and distribution rights, net                                                         246,988           262,613
Patents, net                                                                                 193,541           204,274
Due from joint venture                                                                            --           596,758
Other assets                                                                                 214,344           418,185
                                                                                        ------------      ------------
    Total assets                                                                        $ 16,912,440      $ 17,642,462
                                                                                        ============      ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Line of credit                                                                        $  1,250,000      $  4,626,009
  Current portion of long-term debt                                                        2,085,963         1,374,157
  Accounts payable                                                                           531,665           436,684
  Accrued compensation                                                                       498,954           399,535
  Other current liabilities                                                                  161,115           196,503
                                                                                        ------------      ------------
    Total current liabilities                                                              4,527,697         7,032,888
Long-term debt, net of current portion                                                     5,191,393         4,502,325
                                                                                        ------------      ------------
    Total liabilities                                                                      9,719,090        11,535,213
Commitments and Contingencies
Shareholders' Equity:
  Preferred stock, $0.001 par value; 2,000,000 shares authorized; no shares issued                --                --
  Common stock, $0.001 par value; 35,000,000 shares authorized; 3,345,851 and
    3,292,184 shares issued and outstanding at June 30, 2002 and 2001, respectively            3,346             3,292
  Additional paid-in capital                                                              46,228,710        46,121,519
  Accumulated deficit                                                                    (39,038,706)      (40,017,562)
                                                                                        ------------      ------------
    Total shareholders' equity                                                             7,193,350         6,107,249
                                                                                        ------------      ------------
Total liabilities and shareholders' equity                                              $ 16,912,440      $ 17,642,462
                                                                                        ============      ============
</TABLE>



                 See notes to consolidated financial statements


                                      F-3
<PAGE>
                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                               FOR THE YEARS ENDED JUNE 30,
                                                          2002              2001              2000
                                                      ------------      ------------      ------------

<S>                                                   <C>               <C>               <C>
Revenues, net                                         $ 12,073,932      $ 11,880,017      $  6,670,214
                                                      ------------      ------------      ------------

Costs and expenses:
  Cost of goods sold                                     4,640,325         4,296,525         2,874,194
  Research and development                                 554,760           491,582           983,853
  Marketing, general and administrative                  5,096,994         5,430,813         4,660,824
  Write-down of patent costs and goodwill, Ocufit               --                --           417,849
                                                      ------------      ------------      ------------
    Total costs and expenses                            10,292,079        10,218,920         8,936,720
                                                      ------------      ------------      ------------

Income from operations                                   1,781,853         1,661,097        (2,266,506)
                                                      ------------      ------------      ------------

Other income and expenses:
  Loss from termination of joint venture                   (23,434)               --                --
  Gain on sale of Silicone Oil product line                     --                --         1,863,915
  Equity in net income (loss) of unconsolidated
      joint venture                                          8,848           (19,164)          (33,382)
  Interest income                                            2,347             2,297           149,086
  Interest expense                                        (790,757)       (1,052,030)         (575,765)
                                                      ------------      ------------      ------------
    Total other income and expenses                       (802,996)       (1,068,897)        1,403,854
                                                      ------------      ------------      ------------

Income before taxes                                   $    978,856      $    592,200      $   (862,652)
Income taxes                                                    --                --                --
                                                      ------------      ------------      ------------

Net income (loss)                                     $    978,856      $    592,200      $   (862,652)
                                                      ============      ============      ============

Basic net income (loss) per share                     $      0.293      $      0.180      $     (0.266)
                                                      ============      ============      ============

Diluted net income (loss) per share                   $      0.291      $      0.179      $     (0.266)
                                                      ============      ============      ============

  Weighted average shares - basic                        3,345,851         3,292,184         3,242,184
                                                      ============      ============      ============

  Weighted average shares - diluted                      3,360,492         3,307,986         3,242,184
                                                      ============      ============      ============
</TABLE>


                       See notes to consolidated financial statements


                                       F-4
<PAGE>
                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
                FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000

<Table>
<Caption>

                                             Common Stock             Treasury Stock      Additional                   Total
                                        ------------------------   ---------------------    Paid-in    Accumulated  Shareholders'
                                         Shares        Amount       Shares      Amount      Capital      Deficit       Equity
                                        ---------   ------------   --------   ----------  -----------  ------------   ----------
<S>                                     <C>         <C>            <C>        <C>         <C>          <C>            <C>
Balance at June 30, 1999                3,377,164   $ 46,024,811    134,980   $(118,108)  $        --  $(39,629,002)  $6,277,701
Treasury stock retirement                (134,980)            --   (134,980)    118,108            --      (118,108)          --
Common stock conversion from no par to
  $.001 par value                              --    (46,021,569)        --          --    46,021,569            --           --
Net loss                                       --             --         --          --            --      (862,652)    (862,652)
                                        ---------   ------------   --------   ----------  -----------  ------------   ----------
Balance at June 30, 2000                3,242,184   $      3,242         --   $      --   $46,021,569  $(40,609,762)  $5,415,049
Common stock issued in connection with
  restructuring of liabilities             50,000             50         --          --        99,950            --      100,000
Net income                                     --             --         --          --            --       592,200      592,200
                                        ---------   ------------   --------   ----------  -----------  ------------   ----------
Balance at June 30, 2001                3,292,184   $      3,292         --   $      --   $46,121,519  $(40,017,562)  $6,107,249
Exercise of stock options                  53,667             54         --          --       107,191            --      107,245
Net income                                     --             --         --          --            --       978,856      978,856
                                        ---------   ------------   --------   ----------  -----------  ------------   ----------
                                        3,345,851   $      3,346         --   $      --   $46,228,710  $(39,038,706)  $7,193,350
                                        =========   ============   ========   ==========  ===========  ============   ==========
</Table>

                 See notes to consolidated financial statements


                                      F-5
<PAGE>
                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                        2002              2001              2000
                                                                    ------------      ------------      ------------
<S>                                                                 <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                          $    978,856      $    592,200      $   (862,652)
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
    Depreciation and amortization                                        215,165         1,038,741           666,770
    Net gain on sale of Silicone Oil product line                             --                --        (1,863,915)
    Write-down of patent costs and goodwill, Ocufit, net                      --                --           417,849
      Loss from termination of joint venture                              23,434                --                --
    Equity in net (income) loss of unconsolidated joint venture           (8,848)           19,164            33,382
    Change in operating assets and liabilities:
      Accounts receivable, net                                           350,546          (985,693)          586,424
      Inventory, net                                                     116,479            74,857           162,862
      Other current and long-term assets                                 194,545           406,358           (59,915)
      Accounts payable, accrued and other liabilities                    159,013            64,701          (416,506)
                                                                    ------------      ------------      ------------
        Net cash provided by (used in) operating activities            2,029,190         1,210,328        (1,335,701)
                                                                    ------------      ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments                                                       --                --        (7,043,061)
Proceeds from maturities of investments                                       --                --         7,043,061
Proceeds from sale of Silicone Oil product line                               --                --         2,117,180
Net change in cash and cash equivalents - restricted                          --                --         1,000,000
Purchase of Vascular Access business                                          --                --        (1,000,000)
Purchase of Sonomed, Inc., net of cash acquired                               --           (70,662)      (12,250,540)
Proceeds from (advances to) unconsolidated joint venture, net            204,247          (558,343)          (80,961)
Purchase of fixed assets                                                 (96,054)         (187,477)         (209,109)
Payment for patent costs                                                      --                --           (52,748)
Payment for license and distribution rights                              (25,000)          (34,027)          (41,228)
                                                                    ------------      ------------      ------------
        Net cash provided by (used in) investing activities               83,193          (850,509)      (10,517,406)
                                                                    ------------      ------------      ------------
</TABLE>


                 See notes to consolidated financial statements


                                      F-6
<PAGE>
                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES:                                      2002           2001            2000
                                                                        ----------     ----------     -----------
<S>                                                                     <C>            <C>            <C>
Line of credit (repayment) borrowing, net                                 (376,009)       593,905       3,032,105
Proceeds from term loan                                                         --             --       7,000,000
Principal payments on term loan                                         (1,630,117)    (1,050,000)     (1,633,332)
Issuance of common stock                                                   107,245             --              --
Payment of finance fees                                                    (73,506)            --        (222,800)
                                                                        ----------     ----------     -----------
        Net cash provided by (used in) financing activities             (1,972,387)      (456,095)      8,175,973
                                                                        ----------     ----------     -----------

        Net increase (decrease) in cash and cash equivalents               139,996        (96,276)     (3,677,134)
Cash and cash equivalents, beginning of period                              80,830        177,106       3,854,240
                                                                        ----------     ----------     -----------
Cash and cash equivalents, end of period                                $  220,826     $   80,830     $   177,106
                                                                        ==========     ==========     ===========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid                                                           $  793,005     $  962,275     $   575,765
                                                                        ==========     ==========     ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY:
Accrued royalties converted to short-term debt                                  $-     $   64,884              $-
                                                                        ==========     ==========     ===========
Long-term debt obligation incurred as a result of a royalty
  agreement                                                                     $-     $  717,558              $-
                                                                        ==========     ==========     ===========
Accrued royalties converted to common stock                                     $-     $  100,000              $-
                                                                        ==========     ==========     ===========
Deposit on furniture and equipment reclassed from other assets                  $-     $  105,044              $-
                                                                        ==========     ==========     ===========
Restructure of line of credit to long-term debt                         $3,000,000             $-              $-
                                                                        ==========     ==========     ===========
Transfer of title to assets in settlement of due from joint venture                                            --
  Accounts receivable                                                   $  126,947             $-              $-
                                                                        ==========     ==========     ===========
  Inventory                                                             $  188,725             $-              $-
                                                                        ==========     ==========     ===========
  Furniture and equipment                                               $   62,253             $-              $-
                                                                        ==========     ==========     ===========
</TABLE>


                 See notes to consolidated financial statements


                                      F-7
<PAGE>
                     ESCALON MEDICAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)      ORGANIZATION AND DESCRIPTION OF BUSINESS

         Escalon Medical Corp. ("Escalon") was incorporated in California in
1987 as Intelligent Surgical Lasers, Inc. Escalon's present name was adopted in
August 1996. Escalon reincorporated in Delaware in November 1999, and then
reincorporated in Pennsylvania in November 2001. Within this document, the
"Company" collectively shall mean Escalon and its wholly owned subsidiaries:
Sonomed, Inc. ("Sonomed"), Escalon Vascular Access, Inc. ("Vascular"), Escalon
Digital Vision, Inc. ("Digital") and Escalon Pharmaceutical, Inc.
("Pharmaceutical"). The Company operates in the healthcare market, specializing
in the development, manufacture, marketing and distribution of ophthalmic
medical devices, pharmaceuticals and vascular access devices.

         In February 1996, the Company acquired substantially all of the assets
and certain liabilities of Escalon Ophthalmics, Inc. ("EOI"), a developer and
distributor of ophthalmic surgical products. Prior to this acquisition, the
Company devoted substantially all of its resources to the research and
development of ultrafast laser systems designed for the treatment of ophthalmic
disorders. As a result of the EOI acquisition, Escalon changed its market focus
and is no longer developing laser technology. In October 1997, the Company
licensed its intellectual laser properties to a privately held company in return
for an equity interest and future royalties on product sales. The privately held
company had responsibility for funding and developing the laser technology
through to commercialization. The privately held company began selling products
related to the laser technology during fiscal 2002.

         To further diversify its product portfolio, in January 1999, the
Company's Vascular subsidiary acquired the vascular access product line from
Radiance Medical Systems, Inc. ("Radiance"). Vascular's products use Doppler
technology to aid medical personnel in locating difficult arteries and veins.
Currently, this product line is concentrated in the cardiac catheterization
market; however, the Company began marketing the products in the area of
oncology during fiscal 2002. In January 2000, the Company purchased Sonomed, a
privately held manufacturer of ophthalmic ultrasound diagnostic equipment. In
April 2000, Digital formed a joint venture, Escalon Medical Imaging, LLC
("Imaging") with MegaVision, Inc. ("MegaVision"), a privately held company, to
develop and market a digital camera back for ophthalmic photography. The Company
terminated its joint venture with MegaVision and commenced operations within its
Digital business unit on January 1, 2002.

(2)      SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Sonomed, Vascular, Pharmaceutical and
Digital. All intercompany transactions have been eliminated.

         USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Although these
estimates are based on management's knowledge of current events and actions
management may undertake in the future, actual results may ultimately differ
from those estimates.


                                      F-8
<PAGE>
         CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments with maturity of
three months or less at the time of purchase to be cash equivalents.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts for cash and cash equivalents, accounts
receivable, line of credit, accounts payable and accrued liabilities approximate
their fair value because of their short-term maturity. Due from joint venture is
valued at cost, which approximates fair value. The carrying amounts of long-term
debt approximate fair value since the Company's interest rates approximate
current interest rates.

         INVENTORIES

         Raw materials / work in process and finished goods are recorded at
lower of cost (first-in, first-out) or market. The composition of inventories is
as follows:

<TABLE>
<CAPTION>
                                      June 30,         June 30,
                                       2002             2001
                                    -----------      -----------

<S>                                 <C>              <C>
Raw materials / work in process     $ 1,273,611      $ 1,288,664
Finished goods                          343,409          313,325
                                    -----------      -----------
                                      1,617,020        1,601,989
Valuation allowance                     (44,953)        (102,168)
                                    -----------      -----------

                                    $ 1,572,067      $ 1,499,821
                                    ===========      ===========
</TABLE>

         ACCOUNTS RECEIVABLE

         The Company performs ongoing credit evaluations of its' customers
financial condition and does not require collateral for accounts receivable
arising in the normal course of business. The Company maintains allowances for
potential credit losses which, when realized, have been within the range of
management's expectations. Allowance for doubtful accounts was $216,836 and
$67,148 at June 30, 2002 and 2001, respectively.

         FURNITURE AND EQUIPMENT

         Furniture and equipment is recorded at cost. Depreciation is computed
using the straight-line method over the economic useful life of the related
assets, which are estimated to be eighteen months to ten years. Depreciation
expense for the years ended June 30, 2002, 2001 and 2000 was $163,807, $139,663
and $103,925, respectively.


                                      F-9
<PAGE>
Furniture and equipment consist of the following at:

<TABLE>
<CAPTION>
                                                        JUNE 30,        JUNE 30,
                                                          2002            2001
                                                     -----------      -----------

<S>                                                  <C>              <C>
Equipment                                            $ 1,052,405      $   874,146
Furniture and fixtures                                    58,000           65,435
Leasehold improvements                                    95,101           95,102
                                                     -----------      -----------
                                                       1,205,506        1,034,683
Less:  Accumulated depreciation and amortization        (579,129)        (402,806)
                                                     -----------      -----------
                                                     $   626,377      $   631,877
                                                     ===========      ===========
</TABLE>

         LONG-LIVED ASSETS

         The Company follows Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires impairment losses to be
recorded on long-lived assets when indications of impairment are present and
undiscounted cash flows estimated to be generated by those assets are less than
the asset's carrying amount. SFAS No. 121 also requires that long-lived assets
and certain identifiable intangibles held for sale be reported at the lower of
carrying amount or fair value less cost to sell. The Company continually
evaluates whether events and circumstances have occurred that indicate that the
remaining useful life of long-lived assets may warrant revision or that the
remaining balance may not be recoverable.

         INTANGIBLE ASSETS

         The Company follows Statement of Financial Accounting Standards No. 142
("SFAS No. 142"), "Goodwill and Other Intangible Assets," which discontinues the
amortization of goodwill and identifiable intangible assets that have indefinite
lives.

         REVENUE RECOGNITION

         The Company recognizes revenue from the sales of its products at the
time of shipment when title and risk of loss transfer. With respect to
additional consideration related to the sale of the Company's Silicone Oil
product line (Note 12), revenue is recognized after notification from the
customer of sales associated with the product.

         STOCK-BASED COMPENSATION

         As permitted by Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation," the Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees ("APB 25"), and related interpretations in accounting for its employee
stock option plans. Under APB 25, no compensation expense is recognized at the
time of the option grant because the exercise price of the Company's employee
stock option equals the fair market value of the underlying common stock on the
date of the grant.


                                      F-10
<PAGE>
         RESEARCH AND DEVELOPMENT

         All research and development costs are charged to operations as
incurred.

         DEFERRED INTEREST RATE CAP FEES

         Premiums paid for a purchased interest rate cap arrangement is
amortized using the effective interest method over the term of the cap.
Unamortized premiums are included as an offset to the balance of the current
portion of long-term debt. Amounts receivable under the cap agreement are
recorded as a reduction of interest expense.

         ADVERTISING COSTS

         Advertising costs are charged to operations as incurred. Advertising
expense for the years ended June 30, 2002, 2001 and 2000 was $37,959, $71,654
and $47,437, respectively.

         NET INCOME (LOSS) PER SHARE

         The Company follows Financial Accounting Standards Board Statement No.
128, " Earnings Per Share," in presenting basic and diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                            JUNE 30,         JUNE 30,        JUNE 30,
                                                              2002            2001            2000
                                                          -----------     -----------     -----------
<S>                                                       <C>             <C>             <C>
Numerator:
  Numerator for basic and diluted earnings per share:
    Net income                                            $   978,857     $   592,200     $  (862,652)
                                                          -----------     -----------     -----------

Denominator:
  Denominator for basic earnings per
    share - weighted average shares                         3,345,851       3,292,184       3,242,184
  Effect of dilutive securities:
    Employee stock options                                     14,641          15,802              --
                                                          -----------     -----------     -----------
  Denominator for diluted earnings
    per share - weighted average and
    assumed conversion                                      3,360,492       3,307,986       3,242,184
                                                          ===========     ===========     ===========

Basic earnings per share                                  $     0.293     $     0.180     $    (0.266)
                                                          ===========     ===========     ===========

Diluted earnings per share                                $     0.291     $     0.179     $    (0.266)
                                                          ===========     ===========     ===========
</TABLE>

         INCOME TAXES

         The Company accounts for income taxes under the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted rates and laws that will be in effect when
the differences are expected to reverse.


                                      F-11
<PAGE>
         JOINT VENTURE

         In April 2000, the Company through its wholly-owned subsidiary,
Digital, entered into a joint venture with MegaVision, Inc., with each entity
having a 50 percent interest. Amounts due from this joint venture amounted to
$-0- and $596,758 at June 30, 2002 and 2001, respectively. Income (loss) from
the joint venture was $8,848 and ($19,164) for the years ended June 30, 2002 and
2001, respectively. The Company terminated its joint venture with MegaVision and
commenced operations within its Digital business unit on January 1, 2002.

         RECLASSIFICATIONS

         Certain amounts in the 2001 and 2000 financial statements have been
reclassified to conform to the 2002 presentation.

         RECENT ACCOUNTING PRONOUNCEMENTS

         In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets." It supercedes
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 144 retains the previously
existing accounting requirements related to the recognition and measurement of
the impairment of long-lived assets to be held and used, while expanding the
measurement requirements of long-lived assets to be disposed of by sale to
include discontinued operations. It also expands the previously existing
reporting requirements for discontinued operations to include a component of an
entity that either has been disposed of or is classified as held for sale.

         SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. Management does not expect the adoption of SFAS No. 144 to have a material
impact on financial position or results of operations.

         In January 2002, the SEC issued an interpretive release on disclosure
related to liquidity and capital resources, including off-balance sheet
arrangements. The Company does not have material off-balance sheet arrangements
or related party transactions and is not aware of factors that are reasonably
likely to adversely affect liquidity trends, other than those risk factors
presented in other Company filings.

         In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
the use of the purchase method of accounting for business combinations initiated
after June 30, 2001. SFAS No. 141 also requires that certain intangible assets
in a business combination be recognized as assets separately from goodwill and
existing intangible assets and goodwill be evaluated for these new separation
requirements upon adoption of SFAS No. 142.

 (3)     INTANGIBLE ASSETS

         ACQUIRED LICENSE AND DISTRIBUTION RIGHTS

         In connection with the acquisition of EOI assets (see Company Overview
in Part I of this Form 10-K/A, a portion of the purchase price was allocated to
certain product license and distribution agreements. This cost allocation was
based an evaluation by management, with such costs being amortized over an
eight-year period using the straight-line method. The values of these assets are
reevaluated periodically to determine if the estimated lives continue to be
appropriate. The sale of the Silicone Oil product line caused the Company to
write off $483,000 in cost and $214,000 in accumulated amortization in fiscal
2000.

         Accumulated amortization of license and distribution rights was
$205,379 and $164,754 at June 30, 2002 and 2001, respectively. Amortization
expense for the years ended June 30, 2002, 2001 and 2000 was $40,625, $38,256
and $42,558, respectively.


                                      F-12
<PAGE>
         PATENTS

         It is the Company's practice to seek patent protection on processes and
products in various countries. Patent application costs are capitalized and
amortized over their estimated useful lives, not exceeding seventeen years, on a
straight-line basis from the date the related patents are issued. Costs
associated with patents no longer being pursued are expensed. In fiscal 2000,
the Company discontinued its Ocufit project in the Medical / Trek business unit
resulting in the write-off of $353,000 in cost and $34,000 in accumulated
amortization. Accumulated patent amortization was $100,675 and $89,943 at June
30, 2002 and 2001, respectively. Amortization expense for the years ended 2002,
2001 and 2000 was $10,733, $10,733 and 15,062, respectively.

         The aggregate amortization expense for each of the next five years for
acquired license and distribution rights and patents are as follows:

<TABLE>
<CAPTION>
                 Year ending
                    June 30,
                 -----------

<S>               <C>
2003              $ 51,358
2004                41,973
2005                28,835
2006                28,835
2007                27,093
                  --------

                  $178,094
                  ========
</TABLE>

         GOODWILL, TRADEMARKS AND TRADE NAMES

         Goodwill, trademarks and trade names represent intangible assets
obtained from the EOI, Radiance and Sonomed acquisitions. Goodwill represents
the excess of purchase price over the fair market value of the net assets
acquired.

         In accordance with SFAS No. 142, effective July 2001, Escalon
discontinued the amortization of goodwill and identifiable intangible assets
that have indefinite lives. Intangible assets that have finite lives will
continue to be amortized over their useful lives. Goodwill will be assessed
annually for impairment. The standard required this impairment test to be
completed by December 31, 2001. In November 2001, management evaluated whether
the intangible assets were impaired and reviewed the allocation of intangible
assets related to the purchase of Sonomed as of the January 2000 acquisition
date, when the purchase price was allocated based on information available at
that time. Management concluded in December 2001 that the intangible assets
acquired with the purchase of Sonomed should be allocated as $10,547,488 to
goodwill and $665,000 to trademarks and trade names. Management has decided that
the original classification was incorrect, and therefore should be restated. The
result of this correction is solely a reclassification of the intangible assets
among customer lists, trademarks and trade names and goodwill. The total
reported value of the intangible assets has not changed. Therefore, this
correction had no effect on reported earnings, net worth or cash flows for any
prior fiscal years.

         Management evaluated whether the goodwill and other non-amortizable
intangible assets in the Sonomed and Vascular business units were impaired.
Management concluded that the carrying value of goodwill and other intangible
assets did not exceed their fair values and therefore were not impaired. The
Company evaluated the carrying value of goodwill as compared to its fair value
in the Medical / Trek business unit and concluded that its carrying value did
not exceed its fair value and therefore was not impaired. The Company made this
conclusion after evaluating the discounted cash flow of the Medical / Trek
business unit. In accordance with SFAS 142, the Company's intangible assets will
be assessed on an annual basis. Management also concluded that trademarks and
trade names had an indefinite life.


                                      F-13
<PAGE>
         Goodwill as of June 30, 2002, as allocated by reportable segment is as
follows:

<TABLE>
<CAPTION>
                                       Goodwill
                                       --------

<S>                                   <C>
             Sonomed                  $ 9,525,550
             Vascular                     941,218
             Medical / Trek               125,027
                                      -----------

                                      $10,591,795
                                      ===========
</TABLE>

         Accumulated amortization of goodwill at June 30, 2002 and 2001 was
$1,378,292 and $1,378,292, respectively. Amortization of goodwill for the years
ended June 30, 2002, 2001 and 2000 was $-0-, $813,347 and $433,799,
respectively. Accumulated amortization of trademarks and trade names at June 30,
2002 and 2001 was $63,194 and $63,194, respectively. Amortization of trademarks
and trade names for the years ended June 30, 2002, 2001 and 2000 was $-0-,
$43,332 and $19,862, respectively.

         The adjustment of previously reported net income and earnings per share
related to SFAS 142 primarily represents previous amortization of goodwill and
trademarks and trade names. The impact on net income, basic net earnings per
share and diluted net earnings per share for each of the last three fiscal years
is disclosed below:

<TABLE>
<CAPTION>
                                                   Fiscal year ended June 30,
                                         --------------------------------------------------
                                               2002             2001               2000
                                         --------------   --------------     --------------
<S>                                      <C>              <C>                <C>
Net income:
  Reported net income (loss)             $      978,857   $      592,200     $     (863,652)
  Add:  SFAS 142 adjustment                          --          856,679            453,661
                                         --------------   --------------     --------------
  Adjusted net income                    $      978,857   $    1,448,879     $     (409,991)
                                         ==============   ==============     ==============

Basic net income (loss) per share:
  Reported net income (loss)             $        0.293   $        0.180     $       (0.266)
  Add:  SFAS 142 adjustment                          --            0.260              0.140
                                         --------------   --------------     --------------
  Adjusted net income                    $        0.293   $        0.440     $       (0.126)
                                         ==============   ==============     ==============

Diluted net income (loss) per share:
  Reported net income (loss)             $        0.291   $        0.179     $       (0.266)
  Add:  SFAS 142 adjustment                          --            0.259              0.140
                                         --------------   --------------     --------------
  Adjusted net income                    $        0.291   $        0.438     $       (0.126)
                                         ==============   ==============     ==============
</TABLE>

(4)      LONG-TERM RECEIVABLE

         The Company entered into a loan agreement with an individual who was
involved in the development of its Ocufit SR(R) drug delivery system. The note
for $150,000, principal and accrued interest at three percent, is due May 2005.

(5)      PNC LINE OF CREDIT AND LONG-TERM DEBT

         On January 14, 2000, Escalon replaced its $2,000,000 credit facility
obtained in January 1999. PNC Bank, N.A. granted a new $12,000,000 credit
facility to assist with the Sonomed acquisition. This included a $7,000,000
five-year term loan, a $5,000,000 line of credit and the release of the
requirement of the company to maintain a $1,000,000 certificate of deposit with
PNC Bank, N.A. The interest rate on the


                                      F-14
<PAGE>
term loan was based on prime plus 1.0% and the line of credit rate was based on
prime plus 0.75%. Escalon paid $100,000 in finance fees that offset the
outstanding balance of the term loan and are being amortized over the term of
the loans using the effective interest method. An interest rate cap agreement is
used to reduce the potential impact of increases in interest rates on the
floating-rate term loan. At June 30, 2002, Escalon was party to an interest rate
cap agreement covering the term loan through January 1, 2003. The agreement
entitles the Company to receive from PNC Bank, N.A., the counter-party to the
agreement, on a monthly basis, the amounts, if any, by which the Company's
interest payments exceed 10.0% for the period July 1, 2002 through January 1,
2003. Escalon paid $122,800 in interest rate cap protection fees that also
offset the outstanding balance of the loans. These fees are being amortized over
the term of the loans using the effective interest method.

         On November 28, 2001, Escalon amended its loan agreement with PNC Bank,
N.A. The amendment included converting the existing balances on the term loan
and the line of credit into a $7,900,000 term loan and $2,000,000 available line
of credit. The aggregate balance of debt outstanding did not change as a result
of this refinancing. As of June 30, 2002, the amount outstanding against this
line of credit is $1,250,000. Principal payments due on the term loan have been
amended such that the balance is due within the five-year term of the original
agreement including a $2,000,000 balloon payment due on June 30, 2004. Interest
rates on the term loan and line of credit were increased to prime plus 1.75% and
prime plus 1.50, respectively. At June 30, 2002, the interest rates applicable
to the term loan and line of credit were 6.50% and 6.25%, respectively. PNC
Bank, N.A.'s prime rate as of June 30, 2002 was 4.75%. In connection with the
amended agreement, Escalon issued to PNC Bank, N.A. warrants to purchase 60,000
shares of the Company's Common Stock at an exercise price of $3.66 per share.
The warrants were valued at $4,800 using the Black-Sholes option pricing method
with the following assumptions: risk-free interest rate of 5.0%, expected
volatility of .18, expected warrant life of 42 months from vesting and expected
dividend rate of 0.0%. The Company also paid a $50,000 facility fee upon
execution of the loan agreement. Commencing March 1, 2002, the Company began
paying a 1.0% facility payable quarterly based on the aggregate principle amount
outstanding under the line of credit and term loan on January 1 of each year
until June 30, 2004. All of the Company's assets collateralize these agreements.

         The term loan and the line of credit contain various covenants,
including a requirement to maintain a defined ratio of historical earnings
before interest, taxes, depreciation and amortization ("EBITDA") to future debt
repayments. Due to the graduated nature of the debt repayment, Escalon did not
achieve the EBITDA to debt ratio, resulting in a technical default under the
loan agreements. PNC Bank, N.A. has waived this requirement of the agreement as
of June 30, 2002, and for the twelve-month period ending July 1, 2003.

         On January 21, 1999, the Company's Vascular subsidiary and Radiance
Medical Systems, Inc. ("Radiance") entered into an Assets Sale and Purchase
Agreement. Pursuant to this agreement, Escalon acquired for cash the assets of
Radiance's vascular access business, and also agreed to pay royalties based on
future sales of the products of the vascular access business for a period of
five years following the close of the sale, with a guaranteed minimum royalty of
$300,000 per year. On February 21, 2001, the parties amended the agreement to
provide an adjustment in the terms of the payment of the royalties. Pursuant to
the amendments Escalon paid $17,558 in cash to Radiance, delivered a short-term
note in the amount of $64,884 that was satisfied in January 2002, and an
additional note in the amount of $717,558, payable in eleven quarterly
installments commencing April 15, 2002, and has issued 50,000 shares of Escalon
Common Stock to Radiance.


                                      F-15
<PAGE>
         Following are maturities of long-term debt for each of the next five
years:

<TABLE>
<CAPTION>
                            PNC Bank       Radiance        Deferred
Year ending June 30,       Term Loan         Loan        Finance Fees       Total
--------------------       ---------         ----        ------------       -----

<S>                       <C>            <C>            <C>              <C>
         2003             $ 1,950,000    $   260,932    $  (124,969)     $ 2,085,963
         2004               4,800,000        260,932             --        5,060,932
         2005                      --        130,461             --          130,461
         2006                      --             --             --               --
         2007                      --             --             --               --
                          -----------    -----------    -----------      -----------

                          $ 6,750,000    $   652,325    $  (124,969)     $ 7,277,356
                          ===========    ===========    ===========      ===========
</TABLE>

 (6)     CAPITAL STOCK TRANSACTIONS

         CAPITALIZATION

         In November 1999, Escalon Medical Corp., a California corporation
("Escalon California"), merged with and into one of its wholly owned
subsidiaries, Escalon Medical Corp. (Formerly Escalon Delaware, Inc.), a
Delaware corporation, for the purpose of reincorporating Escalon California in
the state of Delaware. Pursuant to the merger, the separate corporate existence
of Escalon California ceased and the Company is the surviving corporation. In
November 2001, Escalon Medical Corp., a Delaware corporation ("Escalon
Delaware"), merged with and into one of its wholly owned subsidiaries, Escalon
Medical Corp. (Formerly Escalon Pennsylvania, Inc.), a Pennsylvania corporation,
for the purpose of reincorporating Escalon Delaware in the state of
Pennsylvania. Pursuant to the merger, the separate corporate existence of
Escalon Delaware ceased and the Company is the surviving corporation.

         STOCK OPTION PLANS

         Escalon has in effect five employee stock option plans, which provide
for incentive and non-qualified stock options to purchase a total of 1,373,268
shares of the Company's Common Stock. Under the terms of the plans, options may
not be granted for less than the fair market value of the Common Stock at the
date of the grant. Vesting generally occurs ratably over five years and is
exercisable over a period no longer than ten years after the grant date. As of
June 30, 2002, options to purchase 1,153,458 shares of the Company's Common
Stock were granted, 976,765 were exercisable and 178,497 were reserved for
future grants.

         Financial Accounting Standards Board Statement No. 123 ("SFAS No. 123")
requires pro forma information regarding net income and earnings per share as if
the Company has accounted for its employee stock options granted after December
31, 1994 under the fair value method of SFAS No. 123. The fair value of these
equity awards was estimated at the date of grant using the Black-Sholes option
pricing method. For all years presented, the expected option life of one year
from vesting and an expected dividend rate of 0.0 percent were used. The
weighted average assumptions used in fiscal 2000 were a risk-free interest rate
of 5.94 percent and an expected volatility of 1.502.

         For the purposes of pro forma disclosures, the estimated fair value of
the equity awards is amortized to expense over the options' vesting period. The
pro forma net loss for fiscal 2000 would have been $1,022,768, and the basic and
diluted earnings per share of Common Stock would be ($0.32).


                                      F-16
<PAGE>
         The following is a summary of Escalon's stock option activity and
related information for the fiscal years ended June 30, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                             2002                        2001                        2000
                                             ----                        ----                        ----
                                     Common       Weighted       Common       Weighted       Common      Weighted
                                      Stock       Average         Stock        Average       Stock        Average
                                     Options   Exercise Price    Options   Exercise Price   Options   Exercise Price
                                     -------   --------------    -------   --------------   -------   --------------

<S>                                 <C>        <C>             <C>         <C>           <C>          <C>
Outstanding at beginning
  of year                           1,090,000      $2.301        837,000      $2.377        314,500      $2.122

  Granted                             171,750      $2.674        264,500      $2.046        546,000      $2.510

  Exercised                           (53,667)     $1.998             --      $                  --          $-

  Forfeited                           (54,625)     $2.008        (11,500)     $1.962        (23,500)     $1.949
                                    ---------      ------      ---------      ------     ----------      ------

Outstanding at end of year          1,153,458      $2.385      1,090,000      $2.301        837,000      $2.377

Exercisable at end of year            976,765                    841,542                    468,743
                                    =========                  =========                 ==========

Weighted average fair value
of options granted during year                     $   --                     $   --                     $0.733
                                                   ======                     ======                     ======
</TABLE>

         Options granted during fiscal 2002 have a weighted average exercise
price of $2.674 and a remaining contractual life of 9.39 years. Those issued in
fiscal 2001 have a weighted average exercise price of $2.046 and a remaining
contractual life of 8.29 years. Fiscal 2000 option grants have a weighted
average exercise price of $2.510 and a remaining contractual life of 7.49 years.
Options were exercised during fiscal 2002 between $1.5625 and $2.3750 per share.

(7)      INCOME TAXES

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets, which are primarily considered
to be non-current, consisted of the following:

<TABLE>
<CAPTION>
                                                         At June 30,
                                                 ----------------------------
                                                     2002             2001
                                                 -----------      -----------
<S>                                              <C>              <C>
Deferred tax assets:
  Reserves and allowances                        $  (147,243)     $    58,000
  Net operating loss carryforwards                 9,009,927        9,206,000
  Tax credit carryforwards                           562,000          562,000
                                                 -----------      -----------
                                                   9,424,684        9,826,000
Valuation allowance                               (9,424,684)      (9,826,000)
                                                 -----------      -----------

Net deferred taxes                               $        --      $        --
                                                 ===========      ===========
</TABLE>

         At June 30, 2002, Escalon had federal income tax and state income tax
net operating loss carryforwards of approximately $25,762,000 and $2,717,000,
respectively. The difference between federal and state carryforward amounts is
primarily attributable to the Company's discontinuing its operations in


                                      F-17
<PAGE>
California. Federal and state operating loss carryforwards and tax credits will
expire at various dates between 2003 and 2013.

         The timing and manner in which the Company will utilize net operating
loss carryforwards to reduce federal taxable income in any year, or in total,
will be limited by provisions of the Internal Revenue Code, Section 382, and
related sections, which address changes in stock ownership. The annual
limitation is $2,763,638, of which $21,069,179 is cumulatively available to
reduce 2002 federal taxable income. Such limitations may have an impact on the
ultimate realization of these federal income tax carryforwards. The increase in
the deferred tax asset arising from net operating loss carryforwards and the
related valuation allowance from 2002 to 2001 is primarily attributable to the
impact of Section 382.

         For the years ended June 30, 2002 and 2001, Escalon recorded valuation
allowances of $9,424,684 and $9,826,000, respectively, based on uncertainty with
respect to the ultimate realization of the net deferred tax assets. The decrease
is a result of current taxable income recognized for the fiscal year ended June
30, 2002.

         In fiscal 2002 and 2001, no provision was required because of net
operating loss carryforwards. In fiscal 2000, Escalon recognized a tax benefit
of approximately $300,000, which was offset by a related valuation allowance.

         Approximately $8,200,000 of the federal net operating loss carryforward
at June 30, 2002 represents amounts that were transferred to the Company as a
result of the acquisition of EOI. Use of this transferred net operating loss is
also limited under Section 382. Any tax benefit realized from such use would
first reduce acquired goodwill. Although the Company believes that the
acquisition of EOI qualified as a tax-free reorganization, there is no certainty
that the Internal Revenue Service will agree. If the acquisition were not to
qualify as a tax-free reorganization, the net operating loss carryforward of EOI
would be treated as a purchase of assets and the tax basis of the acquired
assets would be increased.

(8)      OPERATING LEASES

         Escalon leases its manufacturing, research and corporate office
facilities and certain equipment under non-cancelable operating lease
arrangements. The future minimum rentals to be paid under these leasing
arrangements as of June 30, 2002 are as follows:

<TABLE>
<CAPTION>
                        YEAR ENDING JUNE 30,          AMOUNT
                        --------------------          ------

<S>                                                  <C>
                                2003                 $296,117
                                2004                  278,461
                                2005                  146,262
                                2006                  119,040
                                2007                  128,960
                                                     --------
                               Total                 $968,840
                                                     ========
</TABLE>

         Rent expense charged to operations during the years ended June 30,
2002, 2001 and 2000 was $338,540, $294,050 and $210,118, respectively. Through
June 30, 2000, Escalon leased its Pennsylvania facility from an entity that is
100 percent owned by the Chief Executive Officer and Chairman of the Board of
the Company. The lease was classified as an operating lease. In August 2000, the
facility was sold to a party unrelated to Escalon. Rent expense was
approximately $24,000 in fiscal 2000.

 (9)     RETIREMENT PLAN

         Escalon adopted a 401(K) retirement plan effective January 1, 1994.
Employees become eligible for the plan commencing on the date of employment.
Company contributions are discretionary and no contributions have been made
since the plans inception.


                                      F-18
<PAGE>
         On January 14, 2000, Escalon acquired Sonomed. Sonomed adopted a 401(K)
profit sharing plan, which became effective on January 14, 1993. This plan has
continued subsequent to the acquisition and is available only to Sonomed
employees. Under the terms of the plan, which covers all employees who qualify
under certain age and length of service requirements, the Company makes
non-elective contributions on behalf of each participant eligible to share in
matching contributions for the plan year.

         The Company's matching contribution is equal to 50 percent of such
participant's voluntary employee contributions, up to a maximum of 10 percent of
each employee's compensation. Escalon's contribution for the fiscal years ended
June 30, 2002, 2001 and 2000 was $40,906, $25,615 and $10,008, respectively.

(10)     LICENSE OF INTELLECTUAL LASER PROPERTIES

         In October 1997, Escalon licensed its intellectual laser properties to
a privately held company in exchange for an initial 25 percent equity interest
in the privately held company. As a result of raising money from outside
investors, as of June 30, 2002, the Company's interest has been diluted to 2.48
percent. Escalon is entitled to a 2.5 percent royalty on future product sales
that are based on the Company's patented technology; a 1.5 percent royalty on
product sales not dependent on the Company's technology and an annual license
fee of $10,000 in 2000 and $15,000 per year thereafter during the term of the
license. The license fee may be credited in full against all royalties otherwise
due to be paid to the Company. Also contributed to the venture were the
Company's laser inventory, equipment and related furniture having a net book
value of $0. In December 1999, the privately held company received its first
510(K) approval from the FDA. The privately held company began selling its
products in calendar 2002.

(11)     ACQUISITION OF RADIANCE'S VASCULAR BUSINESS UNIT

         On January 21, 1999, Escalon acquired substantially all of the assets
used exclusively in Radiance's Vascular Access business unit, which uses Doppler
technology to aid medical personnel in locating difficult arteries and veins.
This business combination was accounted for as a purchase. The results of
operations for this business unit are included in the accompanying financial
statements since the date of acquisition. The total cost of the acquisition was
$2,104,442, which exceeded the fair value of the net assets of Radiance by
$1,086,110. The excess is classified as goodwill and, in accordance with SFAS
No. 142, will be assessed annually for impairment.

         At the time of acquisition, the Company and Radiance entered into an
Assets Sale and Purchase Agreement. Pursuant to this Assets Sale and Purchase
Agreement, the Company agreed to pay royalties based on future sales of products
of the Vascular business unit for a period of five years following the close of
this sale, with a guaranteed minimum royalty of $300,000 per year. In lieu of
the Company paying guaranteed minimum royalties over the remaining three years,
the Company has renegotiated with Radiance a lump-sum amount of $717,558 plus
interest to be paid over three years, as set forth in the Amendment and
Supplement to Asset Sale and Purchase Agreement and Release dated February 28,
2001. In connection therewith, the Company delivered to Radiance a term note in
the amount of $717,558, with interest at the prime rate as published in the Wall
Street Journal (New York Edition) plus one percent, with interest only payable
quarterly beginning on May 31, 2001 through January 15, 2002 and principle and
interest payable in eleven quarterly installments beginning on April 15, 2002.
In addition, the Amendment also accounts for $182,442 of accrued royalties for
the period ended January 21, 2001. Pursuant to the Amendment, the Company paid
$17,558 to Radiance, delivered a Short-Term Note in the amount of $64,884, with
interest at the prime rate as published in The Wall Street Journal (New York
Edition) plus one percent, with interest only payable quarterly beginning on May
31, 2001 and principle and interest payable in full on January 15, 2002, and
issued to Radiance 50,000 shares of the Company's Common Stock valued at
$100,000. The Company used its best efforts to register the shares of the
Company's Common Stock issued to Radiance in the Amendment on Form S-3 under the
Securities Act of 1933 in a manner that, upon being declared effective,
constituted a "shelf" registration for the purposes of Rule 415 under the
Securities Act of 1933.


                                      F-19
<PAGE>
(12)     SALE OF ADATOSIL(R) PRODUCT LINE

         In the first quarter of fiscal 2000, Escalon received $2,117,000 from
the sale of its license and distribution rights for the Silicone Oil product
line. This sale resulted in a $1,864,000 gain after writing off the remaining
net book value of license and distribution rights associated with that product
line. The Company will also continue to receive additional consideration based
on future sales of Silicone Oil through August 2005.

(13)     ACQUISITION OF SONOMED, INC.

         On January 14, 2000, Escalon purchased all of the outstanding capital
stock of Sonomed, a privately held manufacturer and marketer of ophthalmic
ultrasound diagnostic devices. This business combination was accounted for as a
purchase. The total cost of the acquisition (net of cash acquired) was
$12,212,540, $11,212,488 was allocated to proprietary rights and intangible
assets, including $10,547,488 to goodwill and $665,000 to trademarks and trade
names. In accordance with FAS 142, these intangible assets will be assessed
annually for impairment.

         In addition, Escalon entered into a three-year employment agreement
with the president of Sonomed, which provides for a $175,000 annual salary (plus
cost of living adjustments). The Company also issued certain employees of
Sonomed incentive stock options exercisable for the purchase of 330,000 shares
of the Company's Common Stock and agreed to make available to certain employees
of Sonomed, a bonus program of at least three percent of Sonomed's net quarterly
sales for a period of three years.

         The following pro forma results of operations information has been
provided to give effect to the purchase as if such transaction has occurred at
the beginning of the period presented. The information presented is not
necessarily indicative of future operations of the combined companies.

                         PRO FORMA RESULTS OF OPERATIONS
                     FOR THE FISCAL YEAR ENDED JUNE 30, 2000
                                   (UNAUDITED)

<TABLE>
<S>                                                      <C>
            Revenues                                     $10,553,616
            Net income                                   $   136,164
            Basic net income per share                   $     0.042
            Diluted net income per share                 $     0.042
            Weighted average shares - basic                3,242,184
            Weighted average shares - diluted              3,254,250
</TABLE>

 (14)    SEGMENTAL REPORTING

         During the years ended June 30, 2002 and 2001, Escalon's operations
were classified into four principle reportable segments that provide different
products or services. Separate management of each segment is required because
each business unit is subject to different marketing, production and technology
strategies.


                                      F-20
<PAGE>
         SEGMENTAL STATEMENTS OF OPERATION - FISCAL YEARS ENDED JUNE 30,

<TABLE>
<CAPTION>
                                  Sonomed                     Vascular                  Medical/Trek
                                  -------                     --------                  ------------
                             2002          2001          2002          2001          2002          2001
                           --------      --------      --------      --------      --------      --------
<S>                        <C>           <C>           <C>           <C>           <C>           <C>
Revenue, net               $  6,071      $  5,988      $  2,634      $  2,117      $  3,102      $  3,775
                           --------      --------      --------      --------      --------      --------
Costs and expenses:
  Cost of goods sold          2,704         2,237           988         1,016           838         1,043
  Research and
    development                 409           321            64            22            76           157
  Marketing, general
    and administrative        1,441         1,942           999         1,127         2,510         2,348
    Corporate admin
      allocation                782           459           526            --        (1,349)         (459)
                           --------      --------      --------      --------      --------      --------
    Total costs and
      expenses                5,336         4,959         2,577         2,165         2,075         3,089
                           --------      --------      --------      --------      --------      --------
Income from
  operations                    735         1,029            57           (48)        1,027           686
                           --------      --------      --------      --------      --------      --------
Other income and
  expenses:
Termination of JV                --            --            --            --            --            --
Equity in loss of
  unconsolidated JV              --            --            --            --            --            --
Interest income                  --            --            --            --             2             2
Interest expense               (742)       (1,029)          (48)          (23)           --            --
                           --------      --------      --------      --------      --------      --------
  Total other income
    and expenses               (742)       (1,029)          (48)          (23)            2             2
                           --------      --------      --------      --------      --------      --------
Income taxes                     --            --            --            --            --            --
                           --------      --------      --------      --------      --------      --------
Net income (loss)                (7)           --             9           (71)        1,029           688
                           --------      --------      --------      --------      --------      --------

Depreciation and
  amortization                   16           750            45           128           227           145
Assets                       11,988        12,123         2,465         2,652         1,983         2,180
Expenditures for
  long-lived assets              22            16            --            22            65           149
                           --------      --------      --------      --------      --------      --------
</TABLE>

<TABLE>
<CAPTION>
                                  Digital                      Other                      Total
                                  -------                      -----                      -----
                            2002          2001          2002          2001          2002          2001
                          --------      --------      --------      --------      --------      --------
<S>                       <C>           <C>           <C>           <C>           <C>           <C>
Revenue, net              $    267      $     --      $     --      $     --      $ 12,074      $ 11,880
                          --------      --------      --------      --------      --------      --------
Costs and expenses:
  Cost of goods sold           110            --            --            --         4,640         4,296
  Research and
    development                 --            --             6            (8)          555           492
  Marketing, general
    and administrative         129            --            18            14         5,097         5,431
    Corporate admin
      allocation                41            --            --            --            --            --
                          --------      --------      --------      --------      --------      --------
    Total costs and
      expenses                 280            --            24             6        10,292        10,219
                          --------      --------      --------      --------      --------      --------
Income from
  operations                   (13)           --           (24)           (6)        1,782         1,661
                          --------      --------      --------      --------      --------      --------
Other income and
  expenses:
Termination of JV              (24)           --            --            --           (24)           --
Equity in loss of
  unconsolidated JV              8           (19)           --            --             8           (19)
Interest income                 --            --            --            --             2             2
Interest expense                --            --            --            --          (790)       (1,052)
                          --------      --------      --------      --------      --------      --------
  Total other income
    and expenses               (16)          (19)           --            --          (804)       (1,069)
                          --------      --------      --------      --------      --------      --------
Income taxes                    --            --            --            --            --            --
                          --------      --------      --------      --------      --------      --------
Net income (loss)              (29)          (19)          (24)           (6)          978           592
                          --------      --------      --------      --------      --------      --------

Depreciation and
  amortization                  --            --            18            16           306         1,039
Assets                         296            --           211           843        16,943        17,798
Expenditures for
  long-lived assets             --            --            --            --            87           187
                          --------      --------      --------      --------      --------      --------
</TABLE>



            The Company operates in the healthcare market, specializing in the
development, manufacture marketing and distribution of ophthalmic medical
devices, pharmaceuticals and vascular access devices. The business segments
reported above are the segments for which separate financial information is
available and for which operating results are evaluated regularly by executive
management in deciding how to allocate resources and assessing performance. The
accounting policies of the business segments are the same as those described in
the summary of significant accounting policies. For the purpose of this
illustration corporate expenses, which principally consist of executive
management and administrative support functions, are allocated across the
business segments based primarily on each segment's net revenue. These expenses
are otherwise included in the Medical / Trek business unit.

            During the fiscal years ended June 30, 2002, Sonomed derived its
revenues from the sale of A-scans, B-scans and pachymeters. These products are
used for diagnostic or biometric applications in ophthalmology. Vascular derived
its revenues from the sale of PD Access (TM) and SmartNeedle(TM) monitors,
needles and catheter products. These products are used by medical personnel to
assist in gaining access to arteries and veins in difficult cases. Medical /Trek
derived its revenues from the sale of ISPAN(TM) gas products, various disposable
ophthalmic surgical products, revenues derived from Bausch & Lomb's sales of
Silicone Oil. Commencing January 1, 2002, Digital derived its revenues from the
sales of the CFA digital imaging system and related products.


                                      F-21
<PAGE>
            During the fiscal years ended June 30, 2002 and 2001, Escalon had
one entity, Bausch & Lomb, from which greater than 10 percent of consolidated
net revenues were derived. Revenues from Bausch & Lomb were $2,186,000, or 18.11
percent of consolidated net revenues during the fiscal year ended June 30, 2002,
and were $2,675,000, or 22.52 percent of consolidated net revenues during the
fiscal year ended June 30, 2001. This revenue is recorded in the Medical / Trek
business unit. Of the external revenues reported above, $2,240,000, $169,000,
$43,000, and $-0- were derived internationally in Sonomed, Vascular, Medical /
Trek and Digital, respectively, during the fiscal year ended June 30, 2002; and
$2,068,000, $170,000, $74,000, and $-0- were derived internationally in Sonomed,
Vascular, Medical / Trek and Digital, respectively, during the fiscal year ended
June 30, 2001.

(15)        DERIVATIVE FINANCIAL INSTRUMENT

            The Company entered into an interest rate collar transaction with a
financial institution, which is considered a derivative financial instrument, to
hedge its variable interest rate on its term loan (Note 4). The agreement is
used to reduce the potential impact of increases in interest rates on the
Company's floating-rate debt. The Company does not utilize interest rate swap
agreements or other financial instruments for trading or other speculative
purposes. The notional amount of the interest rate cap agreement is $3,000,000
and management believes that losses related to credit risk are remote.

            The fair value of the derivative financial instrument, which is the
amount the Company would receive or pay to terminate the agreement is not
significant. No carrying amount was recorded in the accompanying balance sheet
and no gains or losses were recognized in income during fiscal 2002.

(16)        LITIGATION

            As previously reported in reports filed with the Securities and
Exchange Commission, on or about June 8, 1995, a purported class action
complaint captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et
al., 95 Civ. 4299, was filed in the United States District Court for the
Southern District of New York as a "related action" to In Re Blech Securities
Litigation (a litigation matter to which the Company is no longer a party). The
plaintiff purports to represent a class of all purchasers of the Company's stock
from November 17, 1993, to and including September 21, 1994. The complaint
alleges that the Company, together with certain of its officers and directors,
David Blech and D. Blech & Co., Inc. issued a false and misleading prospectus in
November 1993 in violation of Sections 11, 12 and 15 of the Securities Act of
1933. The complaint also asserts claims under section 10(b) of the Securities
Exchange Act of 1934 and common law. Actual and punitive damages in an
unspecified amount are sought, as well as constructive trust over the proceeds
from the sale of stock pursuant to the offering.

            On June 6, 1996, the court denied a motion by Escalon and the named
officers and directors to dismiss the Kozloski complaint and, on July 22, 1996,
the Company Defendants filed an answer to the complaint denying all allegations
of wrongdoing and asserting various affirmative defenses.

            In an effort to curtail its legal expenses related to this
litigation, while continuing to deny any wrongdoing, the Company reached an
agreement to settle this action on its behalf and on the behalf of its former
and present officers and directors, for $500,000. The court approved the
settlement after a fairness hearing on September 11, 2002. The Company's
directors and officers insurance carrier has agreed to fund a significant
portion of the settlement amount. Both the Company and the insurance carrier
have deposited such funds in an escrow account.

            On November 8, 2001, Escalon Digital Vision, Inc., a wholly owned
subsidiary of the Company, initiated an action against MegaVision, Inc., Ken
Boydston, Mark Maio and Ophthalmic Imaging Services, Inc. in the United States
District Court for the Eastern District Court for the Eastern District of
Pennsylvania seeking damages and equitable relief for disputes arising between
the parties and arising from the operations of Escalon Medical Imaging, LLC.
Escalon Medical Imaging, LLC is a joint venture between Escalon Digital Vision,
Inc. and MegaVision, Inc. The action was docketed as Escalon Medical Imaging,
LLC and Escalon Digital Vision, Inc. v. MegaVision, Inc., Ken Boydston,
Ophthalmic Imaging Systems and Mark Maio, Civil Action No.: 01-CV-5669
("Lawsuit"). Without admitting liability, fault or


                                      F-22
<PAGE>
wrongdoing and to provide an amicable resolution to the dispute, Escalon Digital
Vision, Inc., Escalon Medical Imaging, LLC, MegaVision, Inc., Ken Boydston and
Mark Maio have executed agreements to settle the Lawsuit. As part of the
settlement Digital is conducting all operations concerning manufacture,
marketing, distribution and support of the CFA camera system. Without admitting
liability, fault, or wrongdoing and in order to avoid the time and expense of
the Lawsuit, Digital, Escalon Medical Imaging, LLC and Mark Maio executed
settlement agreement and mutual release to settle the Lawsuit. The settlements
did not have a material financial impact on the Company. The Company received
$363,536 net assets, largely in the form of accounts receivable, inventory and
fixed assets, in lieu of cash, to reduce its balance due of $432,692 from
Escalon Medical Imaging, LLC as a condition of the settlement. The remaining
balance due of $23,434 was charged as a loss from termination of joint venture.

(17)        REVENUE, NET

            Revenues, net include quarterly payments earned in connection with
the sale of the Adatosil(R) 5000 Silicone Oil ("Silicone Oil") product line.
This revenue totaled $1,754,000 for fiscal 2002 and $2,254,000 for the period
beginning on the commencement date of August 13, 2000 through June 30, 2001. The
Company is entitled to receive additional consideration, in varying amounts,
through fiscal 2005. Included in accounts receivable as of June 30, 2002 and
2001 was $457,000 and $726,000, respectively.


            The agreement with Bausch & Lomb, which commenced on August 13,
2000, is structured such that the Company receives consideration from Bausch &
Lomb based on their sales of Silicone Oil on a quarterly basis. The
consideration is calculated by multiplying Bausch & Lomb's net sales of the
Silicone Oil product line by 95%, deducting cost of goods sold (at a previously
agreed upon rate per unit), and multiplying the remaining balance by the
following factors:



<TABLE>
<S>                                                   <C>
                   From 8/13/00-8/12/01               100%
                   From 8/13/01-8/12/02               82%
                   From 8/13/02-8/12/03               72%
                   From 8/13/03-8/12/04               64%
                   From 8/13/04-8/12/05               45%
</TABLE>




                                      F-23