1
                                                                    EXHIBIT 10.5

                              EMPLOYMENT AGREEMENT

         This Employment Agreement is made as of July 1, 1999 by and between
Escalon Medical Corp., a California corporation ("Employer"), and Ronald L.
Hueneke, an individual residing at 8846 Lake Drive, West Lake, Wisconsin 53129
("Employee").


                                    RECITALS:

         WHEREAS, Employer desires to employ Employee as President and Chief
Operating Officer and Employee desires to accept such employment on the terms
set forth herein.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:

         1. DUTIES. Employer hereby employs Employee to serve as President and
Chief Operating Officer. Employee agrees to be so employed by Employer and to
devote his best efforts to advance the interests of Employer. Employee agrees to
devote substantially all of his business time to performing duties hereunder;
provided, however, that Employee shall be permitted to devote a portion of his
business time to serve as an advisor to the Medical College of Wisconsin.
Employee shall not be required to relocate from Wisconsin to any other location
at which Employer conducts business.

         2. TERM. Subject to the provisions of Section 4 hereof, the term of Em-
ployee's employment hereunder shall commence on the date hereof and shall
continue for a term of one year; provided, however, that the term of this
Agreement shall thereafter be renewed automatically from year to year unless
Employer or Employee shall have given the other notice of termination, effective
at the end of the current term, not less than 90 days prior to the expiration
thereof.

         3. COMPENSATION.

                  (a) BASE SALARY. For the services rendered by Employee under
this Agreement, Employer agrees to pay Employee a salary at the rate of $105,000
per annum (such salary, as adjusted from time to time, is herein called the
"Salary"), payable in accordance with Employer's normal payroll practices.

                  (b) BONUS. At the end of each fiscal year of Employer that
ends during the term of this Agreement, the Compensation Committee of Employer's
Board of Directors shall determine whether to pay Employee a bonus (the "Bonus")

                                      -1-
   2
with respect to such fiscal year. The award of any Bonus shall be in the sole
discretion of the Employer's Compensation Committee.

                  (c) FRINGE BENEFITS. During the term of this Agreement,
Employer shall provide to Employee life, health and dental insurance and any
other insurance generally provided for executive employees of Employer on the
same terms as such insurance is provided to such employees.

         4. TERMINATION. The provisions of this Section 4 shall be applicable
notwithstanding anything to the contrary contained herein.

                  (a) DEATH. In the event of the death of Employee during the
term of this Agreement, this Agreement shall terminate effective as of the date
of Employee's death, and Employer shall have no further obligation or liability
hereunder except that Employer shall pay to Employee's estate the portion, if
any, of Employee's Salary and any earned but unpaid Bonus for the period through
the date of Employee's death that remains unpaid.

                  (b) TOTAL DISABILITY. In the event of a mental or physical
condition that in the reasonable opinion of Employer renders Employee unable or
incompetent to perform his duties hereunder ("Total Disability") which continues
for a period of 180 consecutive days during the term of this Agreement, Employer
shall have the right to terminate Employee's employment hereunder by giving
Employee ten days' written notice thereof and, upon expiration of such ten-day
period, Employer shall have no further obligation or liability under this
Agreement except Employer shall pay to Employee the portion, if any, of
Employee's Salary and any earned but unpaid Bonus for the period through the
date of termination that remains unpaid.

                  (c) NO OTHER TERMINATION. Except upon a breach of this
Agreement by Employee or as otherwise expressly set forth in this Section 4,
Employer shall not be permitted to terminate Employee's employment hereunder. In
the event of a breach of this Section 4, Employee shall be entitled to receive
from Employer as Employee's sole damages and remedy, and Employer agrees to pay
as liquidated damages, all compensation to which Employee would have been
entitled under Section 3 hereof as and when such compensation would have been
received had Employee's employment not been terminated for the remainder of the
initial one-year term of this Agreement, without regard to other events
occurring thereafter that would cause a termination of employment under this
Section 4, except for a violation of Section 5 hereof. Employee shall receive
the liquidated damages agreed to herein without any obligation to prove actual
damages.

         5. NON-DISCLOSURE AND NON-COMPETITION.

                  (a) NON-DISCLOSURE. Employee acknowledges that in the course
of performing services for Employer, Employee will obtain knowledge of
Employer's

                                      -2-
   3
business plans, products, processes, software, know-how, trade secrets,
formulas, methods, models, prototypes, discoveries, inventions, improvements,
disclosures, names and positions of employees and/or other proprietary and/or
confidential information (collectively the "Confidential Information"). Employee
agrees to keep the Confidential Information secret and confidential and not to
publish, disclose or divulge to any other party, and Employee agrees not to use
any of the Confidential Information for Employee's own benefit or to the
detriment of Employer without the prior written consent of Employer, whether or
not such Confidential Information was discovered or developed by Employee.
Employee also agrees not to divulge, publish or use any proprietary and/or
confidential information of others that Employer is obligated to maintain in
confidence.

                  (b) NON-COMPETITION. Employee agrees that, during his
employment by Employer hereunder and for an additional period of one year after
the termination of Employee's employment, neither Employee nor any corporation
or other entity in which Employee may be interested as a partner, trustee,
director, officer, employee, agent, shareholder, lender of money or guarantor,
or for which he performs services in any capacity (including as a consultant or
independent contractor) shall at any time during such period (i) be engaged,
directly or indirectly, in any Competitive Business (as that term is hereinafter
defined) or (ii) solicit, hire, contract for services or otherwise employ,
directly or indirectly, any of the employees of Employer. Nothing herein
contained shall be deemed to prevent Employee from investing in or acquiring one
per cent or less of any class of securities of any company if such class of
securities is listed on a national securities exchange or is quoted on the
Nasdaq Stock Market. For purposes of this Section 5(b), the term "Competitive
Business" shall mean any business that engages in the design, development,
manufacture, sale, lease, marketing or distribution of any products or provides
any services that are designed, developed, manufactured, sold, marketed or
distributed by Employer during the term of this Agreement.

         6. INVENTIONS AND DISCOVERIES.

                  (a) DISCLOSURE. Employee shall promptly and fully disclose to
Employer with all necessary detail, all developments, know-how, discoveries,
inventions, improvements, concepts, ideas, formulae, processes and methods
(whether copyrightable, patentable or otherwise) made, received, conceived,
acquired or written by Employee (whether or not at the request or upon the
suggestion of Employer, solely or jointly with others, during the period of his
employment with Employer that relate to any line of business, activities or
fields of interest or investigation engaged in by Employer) from time to time
during the course of Employee's employment by Employer, or that are otherwise
made through the use of Employer's time, facilities or materials (collectively,
the "Inventions").

                  (b) ASSIGNMENT AND TRANSFER. Employee agrees to assign and
transfer to Employer all of Employee's right, title and interest in and to the
Inventions, and Employee further agrees to deliver to Employer any and all
drawings,

                                      -3-
   4
notes, specifications and data relating to the Inventions, and to sign,
acknowledge and deliver all such further papers, including applications for and
assignments of copyrights and patents, and all renewals thereof, as may be
necessary to obtain copyrights and patents for any Inventions in any and all
countries and to vest title thereto in Employer and its successors and assigns
and to otherwise protect Employer's interests therein.

                  (c) RECORDS. Employee agrees that in connection with any
research, development or other services performed for Employer, Employee will
maintain careful, adequate and contemporaneous written records of all
Inventions, which records shall be the property of Employer.

         7. EMPLOYER DOCUMENTATION. Employee shall hold in a fiduciary capacity
for the benefit of Employer all documentation, disks, programs, data, records,
drawings, manuals, reports, sketches, blueprints, letters, notes, notebooks and
all other writings, electronic data, graphics and tangible information and
materials of a secret, confidential or proprietary information nature relating
to Employer or Employer's business that are in the possession or under the
control of Employee.

         8. INJUNCTIVE RELIEF. Employee acknowledges that his compliance with
the agreements in Sections 5, 6 and 7 hereof is necessary to protect the good
will and other proprietary interests of Employer and that Employee is one of the
principal executives of Employer and conversant with its affairs, its trade
secrets and other proprietary information. Employee acknowledges that a breach
of any of his agreements in Sections 5, 6 and 7 hereof will result in
irreparable and continuing damage to Employer for which there will be no
adequate remedy at law; and Employee agrees that in the event of any breach of
the aforesaid agreements, Employer and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as may be
proper.

         9. SUPERSEDES OTHER AGREEMENTS. This Agreement represents the entire
agreement between the parties regarding the subject matter hereof and supersedes
and is in lieu of any and all other employment arrangement or agreement, oral or
written, between Employer and Employee.

         10. AMENDMENTS. Any amendment to this Agreement shall be made in
writing and signed by the parties hereto.

         11. ENFORCEABILITY. If any provision of this Agreement shall be invalid
or unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so

                                      -4-
   5
modified or restricted, or as if such provision had not been originally
incorporated herein, as the case may be.

         12. CONSTRUCTION. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Wisconsin.

         13. ASSIGNMENT.

                  (a) BY EMPLOYER. The rights and obligations of Employer under
this Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of Employer.

                  (b) BY EMPLOYEE. This Agreement and the obligations created
hereunder may not be assigned by Employee.

         14. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when mailed by
certified or registered mail, return receipt requested, or sent by overnight
courier, addressed to the intended recipient as follows:

                           If to Employee:

                           Ronald L. Hueneke
                           8846 Lake Drive
                           West Lake, Wisconsin  53129

                           If to Employer:

                           Escalon Medical Corp.
                           351 East Conestoga Road
                           Wayne, PA  19087
                           Attention:  Richard J. DePiano,
                                           Chairman and CEO

Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.

         15. WAIVER. No claim or right arising out of a breach or default under
this Agreement shall be discharged in whole or in part by a waiver of that claim
or right unless the waiver is supported by consideration and is in writing and
executed by the aggrieved party hereto or its or his duly authorized agent. A
waiver by any party hereto of a breach or default by the other party hereto of
any provision of this Agreement shall not be deemed a waiver of future
compliance therewith, and such provisions shall remain in full force and effect.

                                      -5-
   6
         16. SURVIVAL OF COVENANTS. The provisions of Sections 5, 6, 7 and 8
hereof shall survive the termination of this Agreement. Furthermore, any
provision of this Agreement that provides a benefit to Employee and which by the
express terms hereof does not terminate upon the termination of Employee's
employment shall remain binding upon Employer until such time as such benefits
are paid in full to Employee or his successors.

         IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the date first above written.


                                 /s/ Ronald L. Hueneke
                                 -------------------------------
                                 Ronald L. Hueneke



                                 ESCALON MEDICAL CORP.


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

                                      -6-