10-K

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                    FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 2005

                         COMMISSION FILE NUMBER: 0-29302

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                             TLC VISION CORPORATION
             (Exact name of registrant as specified in its charter)

                                                          
            NEW BRUNSWICK, CANADA                                 980151150
          (State or jurisdiction of                            (I.R.S. Employer
       incorporation or organization)                        Identification No.)



                                                               
       5280 SOLAR DRIVE, SUITE 300
          MISSISSAUGA, ONTARIO                                      L4W 5M8
(Address of principal executive offices)                          (Zip Code)



          Registrant's telephone, including area code: (905) 602-2020

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

     None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

     Common Shares, No Par Value, with common share purchase rights

NAME OF EACH EXCHANGE ON WHICH REGISTERED:

     Nasdaq National Market
     Toronto Stock Exchange

     Indicate by check mark whether the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No

     Indicate by check mark whether the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
[ ] Yes [X] No

     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 and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] 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 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. [ ]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b(2) of the Exchange Act.

     [ ] Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b(2) of the Exchange Act). [ ] Yes [X] No

     As of June 30, 2005, the aggregate market value of the registrant's Common
Shares held by non-affiliates of the registrant was approximately $548.5
million.

     As of March 10, 2006, there were 68,766,000 shares of the registrant's
Common Shares outstanding.

     DOCUMENTS INCORPORATED BY REFERENCE:

     Definitive Proxy Statement for the Company's 2006 annual shareholders
meeting (incorporated in Part III to the extent provided in Items 10, 11, 12 and
13).

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This Annual Report on Form 10-K (herein, together with all amendments, exhibits
and schedules hereto, referred to as the "Form 10-K") contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which
statements may be identified by the use of forward looking terminology, such as
"may", "will", "expect", "anticipate", "estimate", "plans" or "continue" or the
negative thereof or other variations thereon or comparable terminology referring
to future events or results. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth elsewhere in this Form
10-K. See "Item 1A. Risk Factors" for cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from results referred to in forward-looking statements. The Company
operates in a continually changing business environment and new factors emerge
from time to time. The Company cannot predict such factors nor can it assess the
impact, if any, of such factors on its financial position or results of
operations. Accordingly, forward-looking statements should not be relied upon as
a predictor of actual results. The Company disclaims any responsibility to
update any forward-looking statement provided in the Form 10-K. Unless the
context indicates or requires otherwise, references in this Form 10-K to "we,"
"our," "us," the "Company" or "TLCVision" shall mean TLC Vision Corporation and
its subsidiaries. References to "$" or "dollars" shall mean U.S. dollars unless
otherwise indicated. References to "C$" shall mean Canadian dollars. References
to the "Commission" shall mean the U.S. Securities and Exchange Commission.

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     TLC Vision Corporation is a diversified eye care services company dedicated
to improving lives through better vision by providing eye doctors with the tools
and technologies they need to deliver high quality patient care. The majority of
the Company's revenues come from laser refractive surgery, which involves using
an excimer laser to treat common refractive vision disorders such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. The Company's
business models include arrangements ranging from owning and operating fixed
site centers to providing access to lasers through fixed site and mobile service
relationships. In addition to refractive surgery, the Company is diversified
into other eye care businesses. Through its MSS, Inc. (formerly Midwest Surgical
Services, Inc.) ("MSS") subsidiary, the Company furnishes hospitals and other
facilities with mobile or fixed site access to cataract surgery equipment,
supplies and technicians. The Company is continuing to expand MSS into other
mobile diagnostic services, such as glaucoma screening. Through its ambulatory
surgery center ("ASC") subsidiaries, TLCVision develops, manages and has equity
participation in single- and multi-specialty ASCs. The Company also owns a 51%
majority interest in Vision Source, which provides franchise opportunities to
independent optometrists. In addition, the Company is a 51% majority owner of
OccuLogix, Inc. ("OccuLogix"), which focuses on the treatment of a specific eye
disease known as dry age-related macular degeneration, via rheopheresis, a
process for filtering blood. OccuLogix is also a reporting company with the
Commission, and its stock is publicly traded on the Nasdaq National Market and
the Toronto Stock Exchange.

     The Company focuses on three main strategic initiatives: (1) continue to
grow its core refractive business through same store growth in premium-priced
centers, successful roll-out of the Company's recently introduced value-priced
strategy and successful integration of acquisitions, while maintaining its
access base; (2) grow its other health care services MSS, ASCs and Vision
Source; and (3) expand into new eye care segments. Financial information about
the Company's business segments is contained in Note 17 "Segment Information" to
the consolidated financial statements.

REFRACTIVE DISORDERS

The eye is a complex organ composed of many parts, and normal vision requires
these parts to work well together. When a person looks at an object, light rays
are reflected from the object to the cornea. In response, the cornea and lens
refract and focus the light rays directly on the retina. At the retina, the
light rays are converted to electrical impulses that are transmitted through the
optic nerve to the brain, where the image is translated and perceived.

Any deviation from normal vision is called a refractive error. Myopia,
hyperopia, astigmatism and presbyopia are different types of refractive errors.

     -    Myopia (nearsightedness) means the eye is longer than normal resulting
          in difficulty seeing distant objects as clearly as near objects.

     -    Hyperopia (farsightedness) means the eye is shorter than normal
          resulting in difficulty seeing near objects as clearly as distant
          objects.

     -    Astigmatism means the cornea is oval-shaped resulting in blurred
          vision.


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     -    Presbyopia is the loss of lens and eye muscle flexibility due to the
          natural aging process, causing difficulty in focusing on near objects
          and usually corrected by reading glasses. Because vision correction
          surgery cannot reverse the aging process, presbyopia cannot be
          corrected surgically. However, there are surgical and non-surgical
          techniques available that can effectively manage presbyopia.

TREATMENT FOR REFRACTIVE DISORDERS

     Eyeglasses. Eyeglasses remain the most common method of correcting
     refractive errors because they are safe and relatively inexpensive.
     Eyeglasses correct nearsightedness and farsightedness by using appropriate
     lenses to diverge or converge light rays and focus them directly on the
     retina. The drawbacks of eyeglasses are possible dissatisfaction with
     personal appearance, inability to participate in certain sports or work
     activities and possible distortion in visual images when eyeglasses are
     used to correct large refractive errors.

     Contact Lenses. Contact lenses correct nearsightedness, farsightedness and
     astigmatism similarly to eyeglasses. If fitted and used as directed,
     contact lenses are an effective and safe way to correct refractive errors.
     However, daily use of contact lenses can result in the increased risk of
     corneal infections, hypersensitivity reactions and other problems.

     Surgical Procedures. Vision correction surgery is an elective procedure
     available that alters the way light rays are focused directly on the
     retina, thus eliminating or dramatically reducing the need for eyeglasses
     or contact lenses. Several types of vision correction surgery are
     available, and prospective patients are encouraged to carefully consider
     the alternatives, the associated benefits and risks of each procedure, and
     seek the advice of their eye care professional. Vision correction surgeries
     available at TLCVision include:

     -    LASIK (Laser In Situ Keratomileusis). LASIK corrects nearsightedness,
          farsightedness and astigmatism by using an excimer laser to reshape
          the cornea. Because LASIK creates a corneal flap to reshape the cornea
          and does not disrupt the front surface of the cornea, it generally is
          less painful, has a quicker recovery period and shorter post-operative
          need for steroid eye drops than other surgical procedures. LASIK is
          currently the most common vision correction surgery and may be the
          treatment of choice for patients desiring a more rapid visual
          recovery.

     -    CustomLASIK. Widely introduced in 2003, CustomLASIK is a
          technologically supported advancement to LASIK. CustomLASIK involves
          increased pre-operative diagnostic capabilities that measure the eye
          from front to back using "wavefront" technology to create a three
          dimensional corneal map. The information from that map guides the
          laser in customizing the laser ablation to an individual's visual
          irregularities, beyond myopia, hyperopia and astimgatism. CustomLASIK
          using wavefront technology has the potential to improve not only how
          much a person can see, in terms of visual acuity measured by the
          standard 20/20 eye chart, but also how well an individual can see in
          terms of contrast sensitivity and fine detail. This translates to a
          reduced occurrence of night vision disturbances post-LASIK.

     -    PRK (Photorefractive Keratectomy). PRK corrects nearsightedness,
          farsightedness and astigmatism by using an excimer laser to reshape
          the cornea without making a flap. PRK removes the protective surface
          layer of the cornea to reshape the cornea. The risk of pain, infection
          and corneal scarring is higher with PRK than with LASIK; however, the
          intra-operative risks are lessened with PRK because no corneal flap is
          created.

     -    LASEK (Laser Assisted Sub-Epithelial Keratectomy). LASEK corrects
          nearsightedness, farsightedness and astigmatism by using an excimer
          laser to reshape the cornea. Unlike LASIK that creates a corneal flap,
          LASEK loosens and folds the protective outer layer of the cornea (the
          epithelium) during the procedure and, as a result, combines the
          advantages of LASIK with the safety of PRK. The risk of pain,
          infection and corneal scarring is higher with LASEK than with LASIK;
          however, the intra-operative risks are lessened with LASEK because the
          flap which is created is only in the epithelium. The United States
          Food and Drug Administration has not yet approved use of the excimer
          laser for LASEK.

     -    AK (Astigmatic Keratotomy). AK corrects astigmatism by making
          microscopic incisions in the cornea to relax and change the shape of
          the cornea.

     -    INTACS. INTACS corrects very low levels of nearsightedness (-1.00
          diopters to -3.00 diopters) by implanting rings in the cornea to
          reshape it rather than surgically altering the cornea. INTACS may also
          be used to correct irregularities in the shape of the cornea.

     -    CK (Conductive Keratoplasty). For patients age 40 and older, CK is
          designed for the temporary reduction of farsightedness (+.75 to +3.25
          diopters) and uses radio frequency instead of a laser to reshape the
          cornea.


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     -    PTK (Phototherapeutic Keratectomy). PTK treats abrasions, scars or
          other abnormalities of the cornea caused by injury or surgery. PTK
          uses an excimer laser to remove superficial opacities and
          irregularities of the cornea to improve vision or reduce symptoms of
          pain or discomfort due to an underlying eye condition.

     -    Refractive IOL Procedures. Intraocular lenses (IOL's) are permanent or
          semi-permanent, artificial lenses that are implanted to replace or
          supplement the eye's natural crystalline lens. While not a common
          procedure for correcting refractive errors, the placement of a
          refractive IOL can help patients who are not candidates for LASIK.
          IOL's have been used in the United States since the late 1960's to
          restore visual function to cataract patients, and more recently are
          being used in refractive surgery procedures. There are several types
          of refractive IOL's: phakic IOL's, multi-focal IOL's and accommodating
          IOL's. Patient suitability and quality of visual outcome for each of
          these lens options varies.

LASER CORRECTION PROCEDURES

     Excimer laser technology was developed by International Business Machines
Corporation in 1976 and has been used in the computer industry for many years to
etch sophisticated computer chips. Excimer lasers have the desirable qualities
of producing very precise ablation (removal of tissue) without affecting the
area outside of the target zone. In 1981, it was shown that the excimer laser
could ablate corneal tissue. Each pulse of the excimer laser can remove 0.25
microns of tissue in 12 billionths of a second. The first laser experiment on
human eyes was performed in 1985 and the first human eye was treated with the
excimer laser in the United States in 1988.

     Excimer laser procedures are designed to reshape the outer layers of the
cornea to treat vision disorders by changing the curvature of the cornea. Prior
to the procedure being performed, the doctor develops a treatment plan taking
into consideration the exact correction required utilizing the results of each
individual patient's eye examination and diagnostic tests performed, such as
topography and wavefront analysis. The treatment plan is entered into the laser
and the software of the excimer laser then calculates the optimal number of
pulses needed to achieve the intended corneal correction using a specially
developed algorithm. These procedures are performed on an outpatient basis using
only topical anesthetic eye drops that promote patient comfort during the
procedure. Patients are reclined in a chair, an eyelid holder is inserted to
prevent blinking, and the surgeon positions the patient in direct alignment with
the fixation target of the excimer laser. A thin flap of the outermost layer of
the cornea is then cut using either a microkeratome blade or a femtosecond
laser. The surgeon uses a foot switch to apply the excimer beam that emits a
rapid succession of excimer laser pulses, and once complete, the flap is
returned to its original position. The typical procedure takes 10 to 15 minutes
from set-up to completion, with the length of time of the actual excimer laser
treatment lasting between 15 to 90 seconds, depending on the amount of
correction required.

     In order to market an excimer laser for commercial sale in the United
States, the manufacturer must obtain pre-market approval ("PMA") from the United
States Food and Drug Administration ("FDA"). An FDA PMA is specific for each
laser manufacturer and model and sets out a range of approved indications.
However, the FDA is not authorized to regulate the practice of medicine.
Therefore, in the same way that doctors often prescribe drugs for "off-label"
uses (i.e., uses for which the FDA did not originally approve the drug), a
doctor may use a device such as the excimer laser for a procedure or an
indication not specifically approved by the FDA, if that doctor determines that
it is in the best interest of the patient. The initial FDA PMA approval for the
sale of an excimer laser for refractive procedures was granted in 1995 for the
laser of Summit Technologies, Inc. (now Alcon Laboratories, Inc., a division of
Nestle, S.A.). That first approval was for the treatment of myopia. To date, the
FDA has approved for sale excimer lasers from approximately seven different
manufacturers for LASIK and from approximately eight different manufacturers for
PRK, including VISX, Inc. ("VISX") the market leader and the provider of most of
the Company's excimer lasers. In Canada and Europe, the use of excimer lasers to
perform refractive surgery is not currently subject to regulatory approval, and
excimer lasers have been used to treat myopia since 1990 and to treat hyperopia
since 1996. The Health Protection Branch of Health Canada regulates the sale of
devices, including excimer lasers used to perform procedures at the Company's
Canadian eye care centers.

THE REFRACTIVE MARKET

     While estimates of market size should not be taken as projections of
revenues or of the Company's ability to penetrate that market, Market Scope's
November 2005 Comprehensive Report on the Refractive Market estimates that the
2006 U.S. refractive market potential is 107.1 million eyes. To date, based on
Market Scope's estimate of the number of people who have had procedures, only an
estimated 8% of this target population has had laser vision correction.

     Estimates by Market Scope indicate that 1.1 million laser vision correction
procedures were performed in the U.S. in 2003, 1.3 million were performed in
2004 and 2005, and an estimated 1.4 million will be performed in 2006. The
Company believes that the profitability and growth of its refractive business
will depend upon continued increasing acceptance of laser vision correction in
the United States and, to a lesser extent, Canada, and upon consumer confidence
and the condition of the U.S. economy.


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     There can be no assurance that laser vision correction will be more widely
accepted by eye care doctors or the general population as an alternative to
existing methods of treating refractive disorders. The acceptance of laser
vision correction may be affected adversely by its cost (particularly since
laser vision correction is typically not covered fully or at all by government
insurers or other third party payors and, therefore, must be paid for primarily
by the individual receiving treatment), concerns relating to its safety and
effectiveness, general resistance to surgery, the effectiveness of alternative
methods of correcting refractive vision disorders, the lack of long-term
follow-up data and the possibility of unknown side effects. There can be no
assurance that long-term follow-up data will not reveal complications that may
have a material adverse effect on the acceptance of laser vision correction.
Many consumers may choose not to have laser vision correction due to the
availability and promotion of effective and less expensive non-surgical methods
for vision correction. Any future reported adverse events or other unfavorable
publicity involving patient outcomes from laser vision correction procedures
also could adversely affect its acceptance whether or not the procedures are
performed at TLCVision eye care centers. Market acceptance also could be
affected by regulatory developments. The failure of laser vision correction to
achieve continued increased market acceptance would have a material adverse
effect on the Company's business, financial condition and results of operations.

MARKET FOR CATARACT SURGERY

     According to the American Academy of Ophthalmology, cataract surgery
currently is the most frequently performed non-elective surgical procedure in
the United States, with more than 2.8 million people having cataract surgery
each year. Medicare pays approximately $4.4 billion annually for 2.2 million
patients having cataract surgery. According to the American Academy of
Ophthalmology, individuals between the ages of 52 and 64 have a 50% chance of
having a cataract. By age 75, almost everyone has a cataract. Fifty percent of
the people between the ages of 75 and 85 with cataracts have lost some vision as
a result. The National Eye Institutes of Health Cataracts indicates that
cataracts are the leading cause of blindness in the world, and cataracts affect
more than 20 million Americans aged 65 and older. U.S. Census Bureau data
indicates that there are approximately 35 million Americans who are age 65 or
older.

TLC VISION CORPORATION

     TLCVision was originally incorporated by articles of incorporation under
the Business Corporations Act (Ontario) on May 28, 1993. By articles of
amendment dated October 1, 1993, the name of the Company was changed to TLC The
Laser Center Inc., and by articles of amendment dated March 22, 1995, certain
changes were effected in the issued and authorized capital of the Company with
the effect that the authorized capital of the Company became an unlimited number
of Common Shares. On September 1, 1998, TLC The Laser Center, Inc. amalgamated
under the laws of Ontario with certain wholly owned subsidiaries. By articles of
amendment filed November 5, 1999, the Company changed its name to TLC Laser Eye
Centers Inc. On May 13, 2002, the Company filed articles of continuance with the
province of New Brunswick and changed its name to TLC Vision Corporation. On May
15, 2002, the Company completed its business combination with LaserVision, a
leading U.S. provider of access to excimer lasers, microkeratomes, cataract
equipment and related support services.

BUSINESS STRATEGY

     TLCVision's business strategy is to be a diversified eye care services
company, leveraging its relationships with over 13,000 ophthalmologists and
optometrists throughout North America to (1) continue to grow its core
refractive business through same store growth in premium-priced centers,
successfully roll-out the Company's recently introduced value-priced strategy
and successfully integrate acquisitions, while maintaining its access base; (2)
grow its other health care services MSS, ASCs and Vision Source; and (3) expand
into new eye care segments.

GROWING THE CORE REFRACTIVE BUSINESS

     The Company will focus on growing the core refractive business through
increasing surgical volume through existing premium-priced centers, entry into
the large, under-penetrated, value-priced consumer segment with introduction of
new centers and supporting our access customer base. The primary tactic in
increasing surgical volume include the following initiatives:

     -    direct-to-consumer advertising in new value-priced center markets;

     -    integration of TruVision, a managed care contractor acquired in 2005,
          which serves as a patient acquisition channel;

     -    additional marketing to health plans and health plan members for
          increased penetration in the managed care market;


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     -    continued commitment to a co-management model, which allows primary
          care doctors to provide the best clinical outcomes for their patients
          while retaining them in their practice;

     -    continuing clinical education to ophthalmologists and optometrists;

     -    quality patient outcomes support through the TLCVision quality
          assurance and improvement system;

     -    practice development education and tools focused on educating the
          staff of the ophthalmologists and optometrists;

     -    cooperative marketing/advertising programs to build awareness for the
          procedure;

     -    access to emerging technologies; and

     -    selected expansion into new and existing markets.

DIVERSIFICATION BEYOND REFRACTIVE LASER BUSINESSES

     TLCVision's diversification strategy is to expand into a broader eye care
services company through internal business development and complementary
acquisitions. The Company believes it can continue to leverage its relationships
with a large number of ophthalmologists and optometrists to create new business
opportunities. The primary focus of the Company's diversification strategy is in
the United States, where the Company continues to position itself to benefit
from the growing market for eye care services.

     TLCVision plans to further diversify its business in three ways:

     -    continuing to expand the Company's existing cataract service business,
          MSS, through focused growth strategies and acquisitions of
          complementary businesses;

     -    continuing to develop the Company's optometric practice franchising
          organization, Vision Source, through increasing the number of
          affiliated practice franchises; and

     -    continuing to develop or acquire ophthalmic ambulatory surgery centers
          through the Company's ASC subsidiary.

DESCRIPTION OF REFRACTIVE LASER CENTERS BUSINESS

     The Company currently owns and manages 77 TLCVision refractive centers in
the United States and five centers in Canada. Each TLCVision center has a
minimum of one excimer laser with many of the centers having two or more lasers.
The majority of the Company's excimer lasers are manufactured by VISX.

     The Company centers employ different pricing and patient acquisition
strategies depending upon the market. Its premium-priced TLC centers feature
premier surgeons and is driven by the co-management referral relationship, with
a price inclusive of all follow up visits and the TLC Lifetime Commitment. Its
value-priced LASIK Select brand, introduced in late 2005, will feature
experienced surgeons and is a consumer advertising driven model, with a lower
price point and a la carte pricing options.

     A typical TLCVision center has between 3,000 and 5,000 square feet of space
and is located in a medical or general office building. Although the legal and
payment structures can vary from state to state depending upon state and
provincial law and market conditions, the Company generally receives revenues in
the form of (1) amounts charged patients for procedures performed at laser
centers, (2) management and facility fees paid by doctors who use the TLCVision
center to perform laser vision correction procedures and (3) administrative fees
for billing and collection services from doctors who co-manage patients treated
at the centers. Most TLCVision centers have a clinical director, who is an
optometrist and oversees the clinical aspects of the center and builds and
supports the network of affiliated eye care doctors. Most centers also have a
receptionist, ophthalmic technicians and patient consultants. The number of
staff depends on the activity level of the center. One senior staff person, who
is designated as the executive director of the center, assists in preparation of
the annual business plan and supervises the day-to-day operations of the center.

     TLCVision has developed proprietary management and administrative software
and systems designed to assist eye care professionals in providing high levels
of patient care. The software permits TLCVision centers to provide a potential
candidate with current information on affiliated doctors throughout North
America, to help them locate the closest TLCVision center, to permit


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tracking of calls and procedures, to coordinate patient and doctor scheduling
and to produce financial and surgical outcome reporting and analysis. The
software has been installed in all TLCVision centers. TLCVision also has an
online consumer consultation site on its premium-priced website
(www.tlcvision.com), as well as its value-priced website
(www.lasikselectvision.com). These consumer consultation sites allow consumers
to book their consultation with the Company online. TLCVision also maintains two
call centers (1-800-CALL TLC VISION and 1-866-393-9870), which are staffed seven
days a week.

     The Company's "Lifetime Commitment" program, established in 1997 and
offered through TLCVision premium-priced centers, entitles patients within a
certain range of vision correction to have certain enhancement procedures for
further correction at no cost at any time during their lifetime, if necessary.
To remain eligible for the program, patients are required to have an annual eye
exam, at the patient's expense, with a TLCVision affiliated doctor. The purpose
of the program is to respond to a patient's concern that the patient's sight
might regress over time, requiring an enhancement procedure. In addition, the
program responds to the doctors' concern that patients may not return for their
annual eye examination once their eyes are treated. The Company believes that
this program has been well received by both patients and doctors.

PRICING

     At TLCVision premium-priced centers in the United States, patients are
typically charged between $1,500 and $2,500 per eye for LASIK (or on average
approximately $2,000 per eye). The Company typically charges an additional $350
to $500 per eye for custom ablation. At TLCVision premium-priced centers in
Canada, patients are typically charged approximately C$1,700 per eye for LASIK.
The primary care eye doctor also charges patients an average of $400 or 20% of
the patient fee for pre- and post-operative care, though the total procedure
costs to the patients are often included in a single invoice. In the TLCVision
value-priced centers, patients are typically charged between $999 and $1799,
with custom ablation and IntraLase flap creation at the higher rates. Although
competitors in certain markets continue to charge less for these procedures, the
Company believes that important factors affecting competition in the laser
vision correction market, other than price, are quality of service, reputation
and skill of surgeon, customer service reputation, and relationships with
affiliated doctors.

     The cost of laser vision correction procedures is not covered by provincial
health care plans in Canada or reimbursable under Medicare or Medicaid in the
United States. However, the Company believes it has positioned itself well in
the private insurance and employer market through its "Corporate Advantage"
program, which offers discounts to participants and is now available to more
than 100 million individuals.

CO-MANAGEMENT MODEL

     The Company has developed and implemented a medical co-management model
under which it not only establishes, manages and operates TLCVision
premium-priced centers and provides an array of related support services, but
also coordinates the activities of primary care doctors (usually optometrists),
who co-manage patients, and refractive surgeons (ophthalmologists), who perform
laser vision correction procedures in affiliation with the local center. The
primary care doctors assess whether patients are candidates for laser vision
correction and provide pre- and post-operative care, including an initial eye
examination and follow-up visits. The co-management model permits the surgeon to
focus on providing laser vision correction surgery while the primary care doctor
provides pre- and post-operative care. In addition, most TLCVision
premium-priced centers have an optometrist on staff who works to support and
expand the local network of affiliated doctors. The staff optometrist provides a
range of clinical training and consultation services to affiliated primary care
doctors to support these doctors' individual practices and to assist them in
providing quality patient care. See "Item 1 - Business - Government Regulation -
Regulation of Optometrists and Ophthalmologists."

     TLCVision believes that its strong relationships with its affiliated eye
care doctors, though non-exclusive, represent an important competitive advantage
for its premium-priced centers.

     The Company believes that primary care doctors' relationships with
TLCVision and the doctors' acceptance of laser vision correction enhances the
doctors' practices. The affiliated eye doctors (usually optometrists) charge
fees to assess candidates for laser vision correction and provide pre- and
post-operative care, including an initial eye examination and follow-up visits.
The primary care doctor's potential revenue loss from sales of contact lenses
and eyeglasses may be offset by professional fees earned from both laser vision
correction pre- and post-operative care and examinations required under the
Company's "Lifetime Commitment" program.

SALES AND MARKETING

     The Company also seeks to increase its refractive procedure volume and its
market penetration through other innovative marketing programs for both the
TLCVision premium-priced and value-priced centers.


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     While TLCVision believes that many myopic and hyperopic people are
potential candidates for laser vision correction, these procedures must compete
with corrective eyewear and surgical and non-surgical treatments for myopia and
hyperopia. The decision to have laser vision correction largely represents a
choice dictated by an individual's desire to reduce or eliminate their reliance
on eyeglasses or contact lenses.

     The Company markets to doctors, corporations and directly to the public. In
support of the premium-priced centers, a portion of the Company's marketing
resources are devoted to joint marketing programs with affiliated doctors. The
Company provides doctors with brochures, videos, posters and other materials
that help them educate their patients about laser vision correction. Those
doctors who wish to market directly to their patients or the public may receive
support from the Company in the development of marketing programs.

     The Company believes that the most effective way to market to doctors is to
be perceived as a leader in the eye care industry. To this end, the Company
strives to be affiliated with clinical leaders, educate doctors on laser vision
and refractive correction and remain current with new procedures, technology and
techniques. See "Item 1 - Business - Ancillary Businesses and Support Programs."
The Company also promotes its services to doctors in Canada and the United
States through conferences, advertisements in journals, direct marketing, its
web sites and newsletters.

     In support of the value-priced centers, a portion of the Company's
marketing resources are devoted to direct to consumer advertising which is the
primary vehicle for attracting this market segment.

     The Company believes that as market acceptance for laser vision correction
increases, competition among surgical providers will continue to grow and many
candidates for laser vision correction will increasingly select a provider based
on factors other than solely price.

     TLCVision has also developed marketing programs directed primarily at large
employers and third party providers to provide laser vision correction to their
employees and participants through a TLCVision center. Participating employers
may partially subsidize the cost of an employee's laser vision correction at a
TLCVision center, and the procedure may be provided at a discounted price. The
Company has more than 1,500 participating employers. In addition, more than 100
million individuals qualify for the program through arrangements between
TLCVision and third party providers. TruVision, acquired by the Company in 2005,
is a managed care contractor, with key contracts among leading health plans in
the U.S., providing discounted LASIK benefits.

     Tiger Woods, world-famous golfer and TLCVision patient, continues to serve
as spokesperson for the Company in marketing efforts, including those aimed
directly to the public. The Company uses a variety of traditionally accepted
advertising, direct marketing and public relations efforts to reach potential
patients. The Company maintains a comprehensive Internet strategy with the goal
of having a leading refractive presence on the Internet, through TLCVision-owned
websites and partnerships and sponsorships with other websites.

     CONTRACTS WITH EYE DOCTORS

     In each market where the Company operates a premium-priced center, the
Company works with a network of eye care doctors (mostly optometrists) who
perform the pre-operative and post-operative care for patients who have had
laser vision correction. Those doctors then co-manage their patients with
affiliated surgeons in that the surgeon performs the laser vision correction
procedure itself, while the optometrist performs the pre-operative screening and
post-operative care. In most states and provinces, co-management doctors have
the option of charging the patient directly for their services or having the
Company collect the fees on their behalf.

     Most surgeons performing laser vision correction procedures through a
TLCVision center owned, managed or operated by the Company do so under one of
three types of standard agreements (as modified for use in the various U.S.
states as required by state law). Each agreement typically prohibits surgeons
from disclosing confidential information relating to the center, soliciting
patients or employees of the center, or participating in any other eye care
center within a specified area. However, although certain affiliated surgeons
performing laser vision correction at the Company's branded laser eye centers
have agreed to certain restrictions on competing with, or soliciting patients or
employees associated with the Company, there can be no assurance that such
agreements will be enforceable.

     Surgeons must meet the credentialing requirements of the state or province
in which they practice and must receive training approved by the manufacturer of
the laser on which they perform procedures. Surgeons are responsible for
maintaining appropriate malpractice insurance and most agree to indemnify the
Company and its affiliates for any losses incurred as a result of the surgeon's
negligence or malpractice.


                                        8



     Most states prohibit the Company from practicing medicine, employing
physicians to practice medicine on the Company's behalf or employing
optometrists to render optometric services on the Company's behalf. Because the
Company does not practice medicine or optometry, its activities are limited to
owning and managing eye care centers and affiliating with other health care
providers. Affiliated doctors provide a significant source of patients for laser
vision correction at the Company's centers. Accordingly, the success of the
Company's operations depends upon its ability to enter into agreements on
acceptable terms with a sufficient number of health care providers, including
institutions and eye care doctors, to render surgical and other professional
services at facilities owned or managed by the Company. There can be no
assurance that the Company will be able to enter into or maintain agreements
with doctors or other health care providers on satisfactory terms or that such
agreements will be profitable to the Company. Failure to enter into or maintain
such agreements with a sufficient number of qualified doctors will have a
material adverse effect on the Company's business, financial condition and
results of operations.

DESCRIPTION OF REFRACTIVE LASER ACCESS BUSINESS

     OVERVIEW

     TLCVision's access business provides access to excimer laser platforms,
microkeratomes, other equipment and value-added support services such as
training, technical support and equipment maintenance to eye surgeons for the
treatment of nearsightedness, farsightedness and astigmatism primarily in the
United States. TLCVision's access delivery system utilizes both mobile
equipment, which is routinely moved from site to site in response to market
demand, and fixed site locations. The Company believes that its flexible
delivery system enlarges the pool of potential locations, eye surgeons and
patients that it can serve, and allows it to effectively respond to changing
market demands. The Company also provides a broad range of support services to
the eye surgeons who use its equipment, including arranging for training of
physicians and staff, technical support and equipment maintenance, industry
updates and marketing advice, clinical advisory support, patient financing,
partnership opportunities and practice satelliting. As of December 31, 2005,
TLCVision was utilizing approximately 74 excimer lasers and 138 microkeratomes
in connection with its laser access business.

     Eye surgeons pay TLCVision a fee for each procedure the surgeon performs
using its equipment and services. The Company typically provides each piece of
equipment to many different eye surgeons, which allows it to more efficiently
use the equipment and offer it at an affordable price. TLCVision refers to its
practice of providing equipment to multiple eye surgeons as shared access.

     TLCVision's shared access and flexible delivery system benefits eye
surgeons in a variety of ways, including the ability to:

     -    avoid a large capital investment;

     -    reduce the risks associated with buying high technology equipment that
          may become obsolete;

     -    obtain technical support provided by the Company's laser engineers and
          microkeratome technicians;

     -    use the equipment without responsibility for maintenance or repair;

     -    cost-effectively serve small to medium-sized markets and remote
          locations; and

     -    serve satellite locations even in large markets.

     FLEXIBLE DELIVERY SYSTEM

     TLCVision seeks to maximize the number of locations, eye surgeons and
patients that can utilize its access and related services and respond quickly to
changing market demand by utilizing a flexible delivery system that features
both mobile and fixed site locations.

     TLCVision's mobile access systems are typically used by eye surgeons who
perform fewer than 30 procedures per month or are in markets where they are able
to offer consolidated surgery days to patients. A certified laser technician
accompanies each excimer laser from location to location. If an eye surgeon uses
the microkeratome service, the Company generally supplies one microkeratome, one
accessory kit and a second Company employee, who is certified by the
microkeratome manufacturer and acts as a surgical technician.

     Mobile laser equipment is provided by means of a proprietary
"Roll-On/Roll-Off" laser system. The Roll-On/Roll-Off laser system, elements of
which have been patented, consists of an excimer laser mounted on a motorized
air suspension platform. The Roll-On/Roll-Off laser system is transported
between locations in a specifically modified truck and allows an excimer laser
to be easily moved upon reaching its destination. Due to the design of the
Roll-On/Roll-Off system, the laser usually requires only minor adjustments and
minimal set-up time at each destination. As of December 31, 2005, TLCVision had
31 Roll-On/Roll-Off systems in operation, all of which were located in the
United States.


                                        9



     TLCVision's fixed site lasers are dedicated to single locations where eye
surgeons typically perform more than 40 cases per month over several surgery
days to maintain a competitive offering for patients. As of December 31, 2005,
the Company had approximately 41 U.S. fixed sites. Some fixed sites exclusively
serve single practice groups and others are located in ambulatory surgery
centers where they can be used by a qualified eye surgeon.

     VALUE-ADDED SERVICES

     TLCVision provides access eye surgeons value-added support services that
distinguish it from its competitors, enhance the Company's ability to compete
for business and enable it to grow with its customers by offering them various
service and support arrangements. The following value-added services help eye
surgeon customers to expand their practices, thereby increasing the use of
equipment and services:

     -    Technical Support and Equipment Maintenance - As of December 31, 2005,
          the Company employed 30 certified laser engineers and 23 microkeratome
          technicians. The laser engineers perform most required laser
          maintenance and help ensure rapid response to most laser repair or
          maintenance needs.

     -    Staff Training and Development - Through both field and
          corporate-based practice development support, TLCVision provides its
          access eye surgeon customers with a comprehensive menu of options to
          enhance patient education, staff knowledge, and patient recruitment.
          Start-up services include centralized refractive coordinator training
          programs and access to patient financing program. These centralized
          training programs and field-based support provide eye surgeon staff an
          opportunity to learn best practices with respect to patient
          conversion, patient flow and marketing programs. Extended services,
          such as corporate programs, database management and networking
          techniques, enable eye surgeon customers to experience continued
          growth in their practice.

     -    Building Relationships - TLCVision works to form relationships between
          access eye surgeons and optometrists. These optometric networks are
          valuable in referring patients to eye surgeons who use the Company's
          equipment and services. The Company helps to form these referral
          networks by training optometrists, who are then able to provide
          pre-operative screenings as well as post-surgical follow-up to their
          patients. TLCVision also provides access eye surgeon customers with
          marketing advice designed to foster these referrals and generate new
          patients.

     -    Clinical Advisors - TLCVision maintains a Clinical Advisory Group
          which conducts regular conference calls with access eye surgeon
          customers. Our clinical advisors, who are refractive surgeons and
          optometrists with extensive clinical experience, chair these
          conference calls. In addition, TLCVision conducts clinical advisory
          meetings at major industry conferences each year. The clinical
          advisors also make themselves available to consult with eye surgeon
          customers in addition to regularly scheduled conference calls and
          meetings.

     -    Practice Satelliting - TLCVision assists access eye surgeons with
          high-volume practices who desire to serve smaller markets through
          satellite surgical locations. This program allows eye surgeon
          customers to leverage their time performing eye surgery.

     SALES AND MARKETING

     TLCVision's business development personnel develop sales leads, which come
from sources such as customer contact through trade shows and professional
organizations. After identifying a prospective eye surgeon customer, the
regional manager guides the eye surgeon through the contract process. Once an
eye surgeon is prepared to initiate surgeries using our services and equipment,
the access operations department and business development personnel assume
primary responsibility for the ongoing relationship.

     MOBILE AND FIXED ACCESS AGREEMENTS

     Under standard refractive mobile access agreements with surgeons, TLCVision
provides some or all of the following: laser platform and microkeratome
equipment, certain related supplies for the equipment (such as laser gases, per
procedure cards and microkeratome blades), laser operator, microkeratome
technicians, maintenance and certain technology upgrades. In addition, the
Company may provide marketing assistance, coordination of surgeon training and
other support services. This access is provided on agreed upon dates at either
the surgeons' offices or a third party's facility. In return, the surgeons pay a
per procedure fee for access services and generally agree to exclusively use
TLCVision's equipment for refractive surgery. The Company does not provide
medical services to the patients or any administrative services to the access
surgeon customer.


                                       10



     Under standard refractive fixed access agreements with surgeons, TLCVision
generally provides the following: a fixed-base laser platform and microkeratome
equipment, certain related supplies for the equipment (such as laser gases, per
procedure cards and microkeratome blades), periodic maintenance and certain
technology upgrades. In return, the surgeons pay either a per procedure fee and
guarantee a minimum number of procedures per month, or a flat monthly fee plus
the cost of per procedure cards and blades. In addition, the surgeons generally
agree to use exclusively TLCVision's equipment for refractive surgery. The
Company does not provide a laser operator, microkeratome technician, medical
services or any administrative services to the access surgeon customer.

     Under joint venture arrangements, TLCVision directly or indirectly provides
either mobile or fixed-base laser access and the following: microkeratome
equipment, certain related supplies for the equipment (such as laser gases, per
procedure cards and microkeratome blades), laser operator, microkeratome
technician, maintenance and certain technology upgrades, the laser facility,
management services which include administrative services such as billing and
collections, staffing for the refractive practice, marketing assistance and
funds and other support services. TLCVision receives an access fee and
management services fees in addition to being reimbursed for the direct costs
paid by the Company for the laser facility operations. In return, the surgeons
generally agree to exclusively use its equipment for refractive surgery and/or
not to compete with the Company within a certain area. Neither TLCVision nor the
joint ventures provide medical services to the patients.

DESCRIPTION OF MOBILE CATARACT BUSINESS

     Through its MSS subsidiary, TLCVision provides mobile and fixed site
cataract equipment and related services in 40 states. As of December 31, 2005,
MSS employed 58 cataract equipment technicians and operated 55 mobile cataract
systems. An MSS certified surgical technician transports the mobile equipment
from one surgery location to the next and prepares the equipment at each stop so
that the operating room is ready for cataract surgery. Technicians are also
certified to scrub for cataract cases as requested by the surgeon and facility.
A typical service offering will include cataract equipment (a phaco emulsifier
with back-up, a surgical microscope), the IOL, surgical instruments and
supplies. Related services, including YAG capsulotomies and SLT lasers
treatments, are also offered.

     Cataract patients, the majority of whom are elderly, typically prefer to
receive treatment near their homes. MSS focuses on developing relationships
among local hospitals, referring optometrists and eye surgeons in small to
medium-sized markets where MSS's shared-access approach and mobile systems make
it economically feasible for optometrists and surgeons to provide cataract
surgical services which are "close to home."

     The MSS sales staff focuses on identifying small to medium-sized markets,
which usually do not have convenient access to the services of a cataract eye
surgeon. After identifying such a market, MSS's sales staff will contact the
local hospital and local optometrists to develop interest in "close to home"
cataract surgery services. When there is sufficient interest, the sales staff
brings the hospital and optometrists in contact with an eye surgeon who is
willing to provide services to that local market. By bringing these various
parties into contact, MSS seeks to increase demand for its mobile cataract
services and increase convenience for cataract patients.

DESCRIPTION OF AMBULATORY SURGICAL CENTER BUSINESS

     As of December 31, 2005, TLCVision had an ownership position in eight ASCs
that are currently operating and three ASCs that are in various stages of
development. The Company anticipates that it will acquire or build more ASCs
during 2006.

     ASCs provide outpatient surgery services in a less institutional, more
productive and cost-efficient setting than traditional surgical hospitals. The
two primary procedures performed in the ASCs are cataract extraction with IOL
implantation and YAG capsulotomies. However, the ASCs have the capability to
accommodate additional ophthalmic surgical procedures as well as additional
procedures such as podiatry and pain control.

DESCRIPTION OF OPTOMETRIC FRANCHISING BUSINESS

     Vision Source is a majority-owned subsidiary that provides marketing,
practice development and purchasing power to independently-owned and operated
optometric practices in the United States. As of December 31 2005, Vision Source
had 1,356 practices under franchise agreements across the United States, and in
exchange for providing services to its franchisees, it received franchise fees
equal to a predetermined percentage of gross practice billings. This business
supports the development of independent practices and complements the Company's
co-management model.


                                       11



SUPPORT PROGRAMS

     CLINICAL ADVISORY GROUP

     The Company's Clinical Advisory Group is comprised of refractive surgeons
and optometrists selected based upon clinical experience and previous
involvement with TLCVision. The Clinical Advisory Group acts as both a clinical
and business resource to the Company by providing an eye care professional's
perspective on market competition, proposed policies and operational strategies.
Additionally, the Clinical Advisory Group acts as a resource to the Company's
employees and affiliated doctors. The Clinical Advisory Group holds scheduled
meetings throughout the year and meets as necessary to consider clinical issues
as they arise.

     EMERGING TECHNOLOGIES

     The Company considers itself a leader in the provision of vision correction
technology. The Company's medical directors continually evaluate new vision
correction technologies and procedures to seek to ensure that affiliated doctors
have access to state-of-the-art technology to provide the highest level of care.
TLCVision's branded eye care centers in Canada are state-of-the-art facilities
that are used to examine and evaluate new technologies for TLCVision. The
Company's Clinical Advisory Group monitors emerging technologies and procedures
being developed by third party equipment and device manufacturers to address
whether these technologies may complement or improve our service offerings.

     EDUCATION

     The Company believes that ophthalmologists, optometrists and other eye care
professionals who endorse laser vision correction are a valuable resource in
increasing general awareness and acceptance of the procedures among potential
candidates and in promoting the Company as a service provider. The Company seeks
to be perceived by eye care professionals as the clinical leader in the field of
laser vision correction. One way in which it hopes to achieve this objective is
by participating in the education and training of eye care doctors in Canada and
the United States.

     The Company provides educational programs to doctors in all aspects of
clinical study, including programs in conjunction with several of the major
optometry schools in the United States. In addition, the Company has an
education and training relationship with the University of Waterloo, the only
English language optometry school in Canada.

     WEBSITE AND AVAILABLE INFORMATION

     TLCVision has linked its premium-priced branded eye care centers, network
doctors and potential patients through its website, www.tlcvision.com, which
provides a directory of affiliated eye care providers and contains questions and
answers about laser vision correction. Information on TLCVision's value-priced
centers is located at www.lasikselectvision.com. TLCVision's corporate website,
ww.tlcv.com, contains information for shareholders and investors.

     TLCVision makes available free of charge on or through its website
(http://www.tlcv.com) its Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and any amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934. The material is made available through the Company's website as soon as
reasonably practicable after the material is electronically filed with or
furnished to the Commission. All of TLCVision's filings may be read or copied at
the SEC's Public Reference Room at 100 F Street, NE, Washington D.C. 20549.
Information on the operation of the Public Reference Room can be obtained by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website
(http://www.sec.gov) that contains reports, proxy and information statements
regarding issuers that file electronically.

     The Company has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting officer.
This code of ethics and the Company's corporate governance policies are posted
on the Company's website. The Company intends to satisfy its disclosure
requirements regarding amendments to or waivers from its code of ethics by
posting such information on this website. The charters of the committees of the
Company's Board of Directors are available on the Company's website and are also
available in print free of charge.

EQUIPMENT AND CAPITAL FINANCING

     The Company utilizes the VISX, Alcon, Wavelight and Bausch & Lomb excimer
lasers for refractive surgery. See "Industry Background - Laser Vision
Correction."


                                       12



     Although there can be no assurance, the Company believes that based on the
number of existing manufacturers, the current inventory levels of those
manufacturers and the number of suitable, previously owned and, in the case of
U.S. centers, FDA-approved lasers available for sale in the market, the supply
of excimer lasers is more than adequate for the Company's future operations.

     A new excimer laser costs up to $300,000. However, the industry trend in
the sale of excimer lasers is moving away from a flat purchase price to the
alternative of charging the purchaser a per-procedure fee.

     As available technology improves and the FDA approves additional
procedures, the Company expects to upgrade the capabilities of its lasers. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

COMPETITION

     CONSUMER MARKET FOR VISION CORRECTION

     Within the consumer market, excimer laser procedures performed at the
Company's centers compete with other surgical and non- surgical treatments for
refractive disorders, including eyeglasses, contact lenses, other types of
refractive surgery and technologies currently available and under development
such as corneal rings, intraocular lenses and surgery with different types of
lasers. Although the Company believes that eyeglass and contact lens use will
continue to be the most popular form of vision correction in the foreseeable
future, as market acceptance for laser vision correction continues to increase,
competition within this market will grow. There can be no assurance that the
Company's management, operations and marketing plans are or will be successful
in meeting this competition. Further, there can be no assurance that the
Company's competitors' access to capital, financing or other resources or their
market presence will not give these competitors an advantage against the
Company. In addition, other surgical and non-surgical techniques to treat vision
disorders are currently in use and under development and may prove to be more
attractive to consumers than laser vision correction.

     MARKET FOR LASER VISION CORRECTION

     Within the consumer market for laser vision correction, the Company
continues to face increasing competition from other service providers. As market
acceptance for laser vision correction continues to increase, competition within
this market may grow. Laser vision correction providers are divided into three
major segments: corporate-owned centers; independent surgeon-owned centers; and
institution-owned centers. According to Market Scope, as of November 2005,
independent surgeon-owned centers accounted for the largest percentage of total
procedure volume in the industry with a 62% market share. Corporate-owned
centers accounted for 27% of total procedures performed. The remaining 11% of
laser vision correction procedures were performed at institution-owned centers,
such as hospitals or universities.

     Although many competitors continue to charge less for laser vision
correction than the Company's premium-priced centers and its affiliated doctors,
the Company believes that the important factors affecting competition in the
laser vision correction market are quality of service, surgeon skill and
reputation and price and that its competitiveness is enhanced by a strong
network of affiliated doctors. Suppliers of conventional vision correction
(eyeglasses and contact lenses), such as optometric chains, also compete with
the Company either by marketing alternatives to laser vision correction or by
purchasing excimer lasers and offering refractive surgery to their customers.
These service providers may have greater marketing and financial resources and
experience than the Company and may be able to offer laser vision correction at
lower rates. Competition has also increased in part due to the greater
availability and lower costs of excimer lasers.

     During 2005, the laser vision correction industry experienced modest
growth. As an elective procedure, laser vision correction surgery volumes were
constrained by economic conditions in North America. Rising oil prices and the
impact of hurricanes weakened the financial situation of many consumers, leaving
them with less disposable income. In addition, it became evident that the market
is segmenting into two distinct groups of patients who have laser vision
correction: (1) value-priced segment and (2) premium-priced segment. Industry
trends and research indicate that the value-priced segment is larger and growing
faster than the premium-priced segment. TLCVision is introducing a new brand to
address this consumer segment, while maintaining its successful premium-priced
brand.

     TLCVision competes in fragmented geographic markets. The Company's
principal corporate competitors include LCA-Vision Inc. and Lasik Vision
Institute, Inc. See "Item 1 - Business - Overview."


                                       13



GOVERNMENT REGULATION

     EXCIMER LASER REGULATION

     UNITED STATES

     Medical devices, such as the excimer lasers used in the Company's U.S.
centers, are subject to stringent regulation by the FDA and cannot be marketed
for commercial use in the United States until the FDA grants pre-market approval
("PMA") for the device. To obtain a PMA for a medical device, excimer laser
manufacturers must file a PMA application that includes clinical data and the
results of pre-clinical and other testing sufficient to show that there is a
reasonable assurance of safety and effectiveness of their excimer lasers. Human
clinical trials must be conducted pursuant to Investigational Device Exemptions
issued by the FDA in order to generate data necessary to support a PMA. See
"Item 1 - Business - Industry Background - Laser Vision Correction."

     The FDA is not authorized to regulate the practice of medicine, and
ophthalmologists, including those affiliated with TLCVision eye care centers,
may perform the LASIK procedure, using lasers with a PMA for PRK only (off-label
use) in an exercise of professional judgment in connection with the practice of
medicine.

     The use of an excimer laser to treat both eyes on the same day (bilateral
treatment) has not been approved by the FDA. The FDA has stated that it
considers the use of the excimer laser for bilateral treatment to be a practice
of medicine decision, which the FDA is not authorized to regulate.
Ophthalmologists, including those affiliated with the Company's branded eye care
centers, widely perform bilateral treatment in an exercise of professional
judgment in connection with the practice of medicine. There can be no assurance
that the FDA will not seek to challenge this practice in the future.

     Any excimer laser manufacturer which obtains PMA approval for use of its
excimer lasers will continue to be subject to regulation by the FDA. Although
the FDA does not specifically regulate surgeons' use of excimer lasers, the FDA
actively enforces regulations prohibiting marketing of products for non-approved
uses and conducts periodic inspections of manufacturers to determine compliance
with Quality System Regulations.

     Failure to comply with applicable FDA requirements could subject the
Company, its affiliated doctors or laser manufacturers to enforcement action,
including product seizure, recalls, withdrawal of approvals and civil and
criminal penalties, any one or more of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, failure to comply with regulatory requirements or any adverse
regulatory action, including a reversal of the FDA's current position that the
"off-label" use of excimer lasers by doctors outside the FDA-approved guidelines
is a practice of medicine decision, which the FDA is not authorized to regulate,
could result in a limitation on or prohibition of the Company's use of excimer
lasers, which in turn could have a material adverse effect on the Company's
business, financial condition and results of operations.

     The marketing and promotion of laser vision correction in the United States
are subject to regulation by the FDA and the Federal Trade Commission ("FTC").
The FDA and FTC have released a joint communique on the requirements for
marketing laser vision correction in compliance with the laws administered by
both agencies. The FTC staff also issued more detailed staff guidance on the
marketing and promotion of laser vision correction and has been monitoring
marketing activities in this area through a non-public inquiry to identify areas
that may require further FTC attention.

     CANADA

     The use of excimer lasers in Canada to perform refractive surgery is not
subject to regulatory approval, and excimer lasers have been used to treat
myopia since 1990 and hyperopia since 1996. The Health Protection Branch of
Health Canada ("HPB") regulates the sale of devices, including excimer lasers
used to perform procedures at the Company's Canadian eye care centers. Pursuant
to the regulations prescribed under the Canadian Food and Drugs Act, the HPB may
permit manufacturers or importers to sell a certain number of devices to perform
procedures provided the devices are used in compliance with specified
requirements for investigational testing. Permission to sell the device may be
suspended or cancelled where the HPB determines that its use endangers the
health of patients or users or where the regulations have been violated. Devices
may also be sold for use on a non-investigational basis where evidence available
in Canada to the manufacturer or importer substantiates the benefits and
performance characteristics claimed for the device. The Company believes that
the sale of the excimer lasers to its eye care centers, as well as their use at
the centers, complies with HPB requirements. There can be no assurance that
Canadian regulatory authorities will not impose restrictions, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.


                                       14



REGULATION OF OPTOMETRISTS AND OPHTHALMOLOGISTS

     UNITED STATES

     The health care industry in the United States is highly regulated. The
Company and its operations are subject to extensive federal, state and local
laws, rules and regulations, including those prohibiting corporations from
practicing medicine and optometry, prohibiting unlawful rebates and division of
fees, anti-kickback laws, fee-splitting laws, self-referral laws, laws limiting
the manner in which prospective patients may be solicited and professional
licensing rules. Approximately 42 states in which the Company currently does
business limit or prohibit corporations from practicing medicine and employing
or engaging physicians to practice medicine.

     The Company has reviewed these laws and regulations with its health care
counsel, and although there can be no assurance, the Company believes that its
operations currently comply with applicable laws in all material respects. Also,
the Company expects that doctors affiliated with TLCVision will comply with such
laws in all material respects, although it cannot ensure such compliance by its
affiliated doctors.

     Federal Law. A federal law (known as the "anti-kickback statute") prohibits
the offer, solicitation, payment or receipt of any remuneration which directly
or indirectly is intended to induce or is in return for the referral of patients
for or the ordering of items or services reimbursable by Medicare or any other
federally financed health care program. This statute also prohibits remuneration
intended to induce the purchasing of or arranging for or recommending the
purchase or order of any item, good, facility or service for which payment may
be made under federal health care programs. This statute has been applied to
otherwise legitimate investment interests if one purpose of the offer to invest
is to induce referrals from the investor. Safe harbor regulations provide
absolute protection from prosecution for certain categories of relationships
that meet all elements of an applicable safe harbor. However, relationships that
do not meet all elements of a safe harbor are not illegal per se, but must be
reviewed to determine the risk of fraud and abuse to any federal or state funded
health care system.

     Subject to certain exceptions, federal law also prohibits referrals for the
provision of Medicare or Medicaid-covered "designated health services" from a
physician to another entity with which the physician (or an immediate family
member) has a financial relationship (which includes ownership and compensation
arrangements). This law, known as the "Stark Law," applies only to referrals
made by a physician and does not apply outside of the Medicare and Medicaid
programs or to items or services that are not one of the 11 designated health
services.

     Laser vision correction is not reimbursable by Medicare, Medicaid or other
federal programs. As a result, neither the anti-kickback statute nor the Stark
Law applies to the Company's laser vision correction business, but the Company
may be subject to similar state laws that apply regardless of the type of
service or the manner of payment.

     Doctors affiliated with the Company's ambulatory surgery company, OR
Partners, Inc., the Company's mobile cataract services business, MSS, or the
Company's secondary care centers provide services that are reimbursable under
Medicare and Medicaid. Further, ophthalmologists and optometrists co-manage
Medicare and Medicaid patients who receive services at the Company's secondary
care centers. The co-management model is based, in part, upon the referral by an
optometrist for surgical services performed by an ophthalmologist and the
provision of pre- and post-operative services by the referring optometrist. The
Office of the Inspector General for the Department of Health and Human Services,
the government agency responsible for enforcing the anti-kickback statute, has
stated publicly that to the extent there is an agreement between optometrists
and ophthalmologists to refer back to each other, such an agreement could
constitute a violation of the anti-kickback statute. The Company believes,
however, that its co-management program does not violate the anti-kickback
statute, as patients are given the choice whether to return to the referring
optometrist or to stay with the ophthalmologist for post-operative care.
Nevertheless, there can be no guarantee that the Office of the Inspector General
will agree with the Company's analysis of the law. If the Company's
co-management program were challenged as violating the anti-kickback statute and
the Company were unsuccessful in defending against such a challenge, then civil
or criminal fines and penalties, including exclusion of the Company, the
ophthalmologists and the optometrists from the Medicare and Medicaid programs
may be imposed on the Company. The Company could also be required to revise the
structure of its co-management program or curtail its activities, any of which
could have a material adverse effect upon the Company's business, financial
condition and results of operations.

     The provision of services covered by the Medicare and Medicaid programs in
the Company's ambulatory surgery business, mobile cataract business and
secondary care centers also triggers potential application of the Stark Law. The
co-management model could establish a financial relationship, as defined in the
Stark Law, between the ophthalmologist and the optometrist. Similarly, to the
extent that the Company provides any designated health services, as defined in
the statute, the Stark Law could be triggered as a result of any of the several
financial relationships between the Company and ophthalmologists. Based on its
current interpretation of the Stark Law as set forth in the interim final rule
published in 2004, the Company believes that the referrals from ophthalmologists
and


                                       15



optometrists either will be for services which are not designated health care
services as defined in the statute or will be covered by an exception to the
Stark Law. There can be no assurance, however, that the government will agree
with the Company's position or that there will not be changes in the
government's interpretation of the Stark Law including an expansion of the
services that constitute "designated health services." In such case, the Company
may be subject to civil penalties as well as administrative exclusion and would
likely be required to revise the structure of its legal arrangements or curtail
its activities, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

     The Administrative Simplification provisions of the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA") were enacted to (a) improve
the efficiency and effectiveness of the healthcare system by standardizing the
exchange of electronic information for certain administrative and financial
transactions and (b) protect the confidentiality and security of health
information. HIPAA directed the U.S. Department of Health and Human Services to
promulgate a set of interlocking regulations to implement the goals of HIPAA.
The regulations apply to "covered entities" which include health plans,
healthcare clearinghouses and healthcare providers who transmit patient health
information ("PHI") in electronic form in connection with certain administrative
and billing transactions. These regulations can be divided into the following:

     -    Privacy Regulations designed to protect and enhance the rights of
          patients by providing patient access to their PHI and controlling the
          use of their PHI;

     -    Security Regulations designed to protect electronic health information
          by mandating certain physical, technical and administrative
          safeguards;

     -    Electronic Transactions and Code Sets Regulations designed to
          standardize electronic data interchange in the health care industry;

     -    Standard Unique Employer Identifier Regulations designed to
          standardize employer identification numbers used in certain electronic
          transactions; and

     -    Standard Unique Health Identifier for Health Care Providers
          Regulations designed to standardize the identification of health care
          providers used in electronic transactions.

     While the regulations are all in final form, the compliance date for each
set of regulations varies. Compliance with the Privacy Regulations was required
by April 14, 2003 (except for "small" health plans) and compliance with the
Electronic Transaction and Code Sets Regulations was required by October 16,
2003. Compliance with the Standard Unique Employer Identifier Regulations was
required by July 30, 2004; compliance with the Security Regulations by April 21,
2005; and compliance with the Standard Unique Health Identifier for Health Care
Providers Regulations by May 23, 2005.

     The Company has instituted policies and procedures designed to comply with
the Privacy Regulations at various centers throughout the Company. Because the
Company is self-insured and meets the definition of "small" health plan, the
Company's health plan had until April 14, 2004 to comply with the Privacy
Regulations. The Company's plan sponsor has taken steps to institute new
policies and procedures to comply with the Privacy Regulations. The Company has
implemented employee training programs explaining how the regulations apply to
their job role. The Company has implemented programs to ensure compliance with
the other HIPAA regulations by the applicable compliance dates.

     State Law. In addition to the requirements described above, the regulatory
requirements that the Company must satisfy to conduct its business will vary
from state to state, and accordingly, the manner of operation by the Company and
the degree of control over the delivery of refractive surgery by the Company may
differ among the states.

     A number of states have enacted laws which prohibit what is known as the
corporate practice of medicine. These laws are designed to prevent interference
in the medical decision-making process by anyone who is not a licensed
physician. Many states have similar restrictions in connection with the practice
of optometry. Application of the corporate practice of medicine prohibition
varies from state to state. Therefore, while some states may allow a business
corporation to exercise significant management responsibilities over the
day-to-day operation of a medical or optometric practice, other states may
restrict or prohibit such activities. The Company believes that it has
structured its relationship with eye care doctors in connection with the
operation of eye care centers as well as in connection with its secondary care
centers so that they conform to applicable corporate practice of medicine
restrictions in all material respects. Nevertheless, there can be no assurance
that, if challenged, those relationships may not be found to violate a
particular state corporate practice of medicine prohibition. Such a finding may
require the Company to revise the structure of its legal arrangements or


                                       16



curtail its activities, and this could have a material adverse effect on the
Company's business, financial condition, and results of operations.

     Many states prohibit a physician from sharing or "splitting" fees with
persons or entities not authorized to practice medicine. The Company's
co-management model for refractive procedures presumes that a patient will make
a single global payment to the laser center, which is a management entity acting
on behalf of the ophthalmologist and optometrist to collect fees on their
behalf. In turn, the ophthalmologist and optometrist pay facility and management
fees to the laser center out of the patient fees collected. While the Company
believes that these arrangements do not violate any of the prohibitions in any
material respects, there can be no assurance that one or more states will not
interpret this structure as violating the state fee-splitting prohibition,
thereby requiring the Company to change its procedures in connection with
billing and collecting for services. Violation of state fee-splitting
prohibitions may subject the ophthalmologists and optometrists to sanctions, and
may result in the Company incurring legal fees, as well as being subjected to
fines or other costs, and this could have a material adverse effect on the
Company's business, financial condition and results of operations.

     Just as in the case of the federal anti-kickback statute, while the Company
believes that it is conforming to applicable state anti-kickback statutes in all
material respects, there can be no assurance that each state will agree with the
Company's position and not challenge the Company. If the Company were
unsuccessful in defending against such a challenge, the result may be civil or
criminal fines or penalties for the Company as well as the ophthalmologists and
optometrists. Such a result would require the Company to revise the structure of
its legal arrangements or curtail its activities, and this could have a material
adverse effect on the Company's business, financial condition and results of
operations.

     Similarly, just as in the case of the federal Stark Law, while the Company
believes that it is operating in compliance with applicable state
anti-self-referral laws in all material respects, there can be no assurance that
each state will agree with the Company's position or that there will not be a
change in the state's interpretation or enforcement of its own law. In such
case, the Company may be subject to fines and penalties as well as other
administrative sanctions and would likely be required to revise the structure of
its legal arrangements or curtail its activities. This could have a material
adverse effect on the Company's business, financial condition and results of
operations

     CANADA

     Conflict of interest regulations in certain Canadian provinces prohibit
optometrists, ophthalmologists or corporations owned or controlled by them from
receiving benefits from suppliers of medical goods or services to whom the
optometrist or ophthalmologist refers his or her patients. In certain
circumstances, these regulations deem it a conflict of interest for an
ophthalmologist to order a diagnostic or therapeutic service to be performed by
a facility in which the ophthalmologist has any proprietary interest. This does
not include a proprietary interest in a publicly traded company and the company
is not owned or controlled by the ophthalmologist or a member of his/her family.
Certain of the Company's eye care centers in Canada are owned and managed by a
subsidiary in which affiliated doctors own a minority interest. The Company
expects that ophthalmologists and optometrists affiliated with TLCVision will
comply with the applicable regulations, although it cannot ensure such
compliance by doctors.

     The laws of certain Canadian provinces prohibit health care professionals
from splitting fees with non-health care professionals and prohibit non-licensed
entities (such as the Company) from practicing medicine or optometry and, in
certain circumstances, from employing physicians or optometrists directly. The
Company believes that its operations comply with such laws in all material
respects, and expects that doctors affiliated with TLCVision centers will comply
with such laws, although it cannot ensure such compliance by doctors.

     Optometrists and ophthalmologists are subject to varying degrees and types
of provincial regulation governing professional misconduct, including
restrictions relating to advertising, and in the case of optometrists, a
prohibition against exceeding the lawful scope of practice. In Canada, laser
vision correction is not within the permitted scope of practice of optometrists.
Accordingly, TLCVision does not allow optometrists to perform the procedure at
TLCVision centers in Canada.

     FACILITY LICENSURE AND CERTIFICATE OF NEED

     The Company believes that it has all licenses necessary to operate its
business. The Company may be required to obtain licenses from the state
Departments of Health, or a division thereof, in the various states in which it
opens eye care centers. There can be no assurance that the Company will be able
to obtain facility licenses in all states which may require facility licensure.

     Some states require the permission of the Department of Health or a
division thereof, such as a Health Planning Commission, in the form of a
Certificate of Need ("CON") prior to the construction or modification of an
ambulatory care facility, such as a laser


                                       17



center, or the purchase of certain medical equipment in excess of an amount set
by the state. There can be no assurance that the Company will be able to acquire
a CON in all states where a CON is required.

     The Company is not aware of any Canadian health regulations which impose
facility-licensing requirements on the operation of eye care centers.

     RISK OF NON-COMPLIANCE

     Many of these laws and regulations governing the health care industry are
ambiguous in nature and have not been definitively interpreted by courts and
regulatory authorities. Moreover, state and local laws vary from jurisdiction to
jurisdiction. Accordingly, the Company may not always be able to predict clearly
how such laws and regulations will be interpreted or applied by courts and
regulatory authorities and some of the Company's activities could be challenged.
In addition, there can be no assurance that the regulatory environment in which
the Company operates will not change significantly in the future. Numerous
legislative proposals have been introduced in Congress and in various state
legislatures over the past several years that would, if enacted, effect major
reforms of the U.S. health care system. The Company cannot predict whether any
of these proposals will be adopted and, if adopted, what impact such legislation
would have on the Company's business. The Company has reviewed existing laws and
regulations with its health care counsel, and although there can be no
assurance, the Company believes that its operations currently comply with
applicable laws in all material respects. Also, TLCVision expects that
affiliated doctors will comply with such laws in all material respects, although
it cannot assure such compliance by doctors. The Company could be required to
revise the structure of its legal arrangements or the structure of its fees,
incur substantial legal fees, fines or other costs, or curtail certain of its
business activities, reducing the potential profit to the Company of some of its
legal arrangements, any of which may have a material adverse effect on the
Company's business, financial condition and results of operations.

     NASDAQ QUORUM EXEMPTION

     The exemption that the Company had received from the Nasdaq National Market
System with respect to compliance with Rule 4350(f) of the Nasdaq corporate
governance rules was no longer available after July, 2005. Therefore, the
Company's shareholders amended the by-laws so that a quorum for any meeting of
shareholders shall be not less than 33 1/3% of the outstanding shares of voting
common stock.

INTELLECTUAL PROPERTY

     The Company and its subsidiaries own over 30 trademarks and service marks
that are subjects of U.S. federal and/or Canadian registrations or pending
applications for registration. In addition, the Company owns a U.S. patent
directed to certain aspects of the Laser Vision Centers Roll-On/Roll-Off system,
which will expire in November 2016. It also owns a U.S. patent directed to a
treatment of a potential side effect of laser vision correction generally known
as "central islands," that will expire in May, 2014. The Company owns two
pending patent applications directed to certain methods of administering a
member-provider organization. The Company's service marks, patents and other
intellectual property may offer the Company a competitive advantage in the
marketplace and could be important to the success of the Company. One or all of
the patents, trademarks, service marks or registrations therefore may be
challenged, invalidated or circumvented in the future. The Company's pending
patent applications are subject to examination by the U.S. Patent and Trademark
Office and may not result in an issued patent.

     The medical device industry, including the ophthalmic laser sector, has
been characterized by substantial litigation in the United States and Canada
regarding patents and proprietary rights. There are a number of patents
concerning methods and apparatus for performing corneal procedures with excimer
lasers. Although the Company currently leases or purchases excimer lasers and
other technology from the manufacturers, in the event that the use of an excimer
laser or other procedure performed at any of the Company's refractive or
secondary care centers is deemed to infringe a patent or other proprietary
right, the Company may be prohibited from using the equipment or performing the
procedure that is the subject of the patent dispute or may be required to obtain
a royalty-bearing license, which may not be available on favorable terms, if at
all. The costs associated with any such licensing arrangements may be
substantial and could include ongoing royalty payments. In the event that a
license is not available, the Company may be required to seek the use of
products that do not infringe the patent.

EMPLOYEES

     Including part-time employees, the Company had approximately 1,100
employees as of December 31, 2005. The Company's growth has been highly
dependent upon the skills of its key technical and management personnel both in
its corporate offices and in its eye care centers, some of whom would be
difficult to replace. There can be no assurance that the Company can retain such
personnel or that it can attract or retain other highly qualified personnel in
the future. No employee of the Company is represented by a collective


                                       18



bargaining agreement, nor has the Company experienced a work stoppage. The
Company considers its relations with its employees to be good. See "Item 1 -
Business - Risk Factors - Dependence on Key Personnel."

ITEM 1A. RISK FACTORS

     The following are certain risk factors that could affect our business,
financial results and results of operations. These risk factors should be
considered in connection with evaluating the forward-looking statements
contained in this Annual Report on Form 10-K because these factors could cause
the actual results and conditions to differ materially from those projected in
forward-looking statements. The risks that we have highlighted here are not the
only ones that we face. If any of the risks actually occur, our business,
financial condition or results of operations could be negatively affected. In
that case, the trading price of our stock could decline, and our stockholders
may lose all or part of their investment.

     WE HAVE REPORTED ACCUMULATED DEFICITS; OUR FUTURE PROFITABILITY IS
UNCERTAIN.

     We reported a net loss of $9.4 million for the year ended December 31,
2003. As of December 31, 2005, we reported an accumulated deficit of $244.2
million. Even though we reported net income of $6.9 million and $43.7 million
for the years ended December 31, 2005 and 2004, respectively, we may not be able
to sustain profitability. Our profitability will depend on a number of factors,
including:

     -    demand for our services;

     -    our ability to control costs;

     -    our ability to execute our strategy and effectively integrate acquired
          businesses and assets;

     -    our ability to obtain adequate insurance against malpractice claims
          and reduce the number of claims;

     -    economic conditions in the markets in which we compete, including the
          availability of discretionary income;

     -    concerns about the safety and effectiveness of laser vision
          correction;

     -    competitive factors;

     -    regulatory developments;

     -    our ability to retain and attract qualified personnel; and

     -    doctors' ability to obtain adequate insurance against malpractice
          claims at reasonable rates.

     In addition, our subsidiary OccuLogix expects to report significant net
losses for the next several years. We will be required to report the financial
results of OccuLogix on a consolidated basis as long as we have a controlling
financial interest.

     CHANGES IN GENERAL ECONOMIC CONDITIONS MAY CAUSE FLUCTUATIONS IN OUR
     REVENUES AND PROFITABILITY.

     The cost of laser vision correction procedures is typically not reimbursed
by health care insurance companies or other third-party payors. Accordingly, our
operating results may vary based upon the impact of changes in economic
conditions on the disposable income of consumers interested in laser vision
correction. A significant decrease in consumer disposable income in a weakening
economy may result in decreased procedure levels and revenues. In addition,
weakening economic conditions may result in an increase in the number of our
customers, who experience financial distress or declare bankruptcy, which may
negatively impact our accounts receivable collection experience.

     THE MARKET FOR LASER VISION CORRECTION IS INTENSELY COMPETITIVE AND
     COMPETITION MAY INCREASE.

     Some of our competitors or companies that may choose to enter the industry
in the future, including laser manufacturers themselves, may have substantially
greater financial, technical, managerial, marketing and/or other resources and
experience than us and may compete more effectively than we are able to compete.
We compete with hospitals, individual ophthalmologists, other corporate laser
centers and manufacturers of excimer laser equipment in offering laser vision
correction services and access to excimer lasers. Our principal corporate
competitors include LCA-Vision Inc. and Lasik Vision Institute, Inc.

     Competition in the market for laser vision correction could increase as
excimer laser surgery becomes more commonplace and the number of
ophthalmologists performing the procedure increases. In addition, competition
would increase if state or provincial laws were amended to permit optometrists,
in addition to ophthalmologists, to perform laser vision correction. We will
compete on the basis of quality of service, surgeon skill and reputation and
price. If more providers offer laser vision correction in a given geographic
market, the price charged for such procedures may decrease. Competitors have
offered laser vision correction at prices considerably


                                       19



lower than our prices. The laser vision correction industry has been
significantly affected by reductions in the price for laser vision correction,
including the failure of many businesses that provided laser vision correction.
Market conditions may compel us to lower prices in our centers to remain
competitive and any reduction in our prices may not be offset by an increase in
our procedure volume or decreases in our costs. A decrease in either the fees or
procedures performed at our eye care centers or in the number of procedures
performed at our centers could cause our revenues to decline and our business
and financial condition to weaken.

     Laser vision correction competes with other surgical and non-surgical means
of correcting refractive disorders, including eyeglasses, contact lenses, other
types of refractive surgery and other technologies currently available and under
development, such as intraocular lenses and surgery with different types of
lasers. Our management, operations and marketing plans may not be successful in
meeting this competition. Certain competitive optometry chains and other
suppliers of eyeglasses and contact lenses may have substantially greater
financial, technical, managerial, marketing and other resources and experience
than we have and may promote alternatives to laser vision correction or purchase
laser systems and offer laser vision correction to their customers.

     If the price of excimer laser systems decreases, additional competition
could develop. The price for excimer laser systems could decrease for a number
of reasons, including technological innovation and increased competition among
laser manufacturers. Further reductions in the price of excimer lasers could
reduce demand for our laser access services by making it economically more
attractive for eye surgeons to buy excimer lasers rather than utilize our
services.

     Most affiliated surgeons performing laser vision correction at our centers
and our significant employees have agreed to restrictions on competing with us,
or soliciting patients or employees associated with their facilities; however,
these non-competition agreements may not be enforceable.

     THE MARKET ACCEPTANCE OF LASER VISION CORRECTION IS UNCERTAIN.

     We believe that the profitability and growth of our company will depend
upon broad acceptance of laser vision correction in the United States and, to a
lesser extent, Canada. We may have difficulty generating revenue and growing our
business if laser vision correction does not become more widely accepted by the
general population as an alternative to existing methods of treating refractive
vision disorders. Laser vision correction may not become more widely accepted
due to a number of factors, including:

     -    its cost, particularly since laser vision correction typically is not
          covered by government or private insurers;

     -    general resistance to surgery;

     -    the fact that effective and less expensive alternative methods of
          correcting refractive vision disorders are widely available;

     -    the lack of long-term follow-up data;

     -    the possibility of unknown side effects; and

     -    reported adverse events or other unfavorable publicity involving
          patient outcomes from laser vision correction.

     CONCERNS ABOUT POTENTIAL SIDE EFFECTS AND LONG-TERM RESULTS OF LASER VISION
     CORRECTION MAY NEGATIVELY IMPACT MARKET ACCEPTANCE OF LASER VISION
     CORRECTION AND PREVENT US FROM GROWING OUR BUSINESS.

     Concerns have been raised with respect to the predictability and stability
of results and potential complications or side effects of laser vision
correction. Any complications or side effects of laser vision correction may
call into question the safety and effectiveness of laser vision correction,
which in turn may damage the likelihood of market acceptance of laser vision
correction. Complications or side effects of laser vision correction could lead
to product liability, malpractice or other claims against us. Also,
complications or side effects could jeopardize the approval by the U.S. Food and
Drug Administration of the excimer laser for sale for laser vision correction.
Although results of a study showed that the majority of patients experienced no
serious side effects seven years after laser vision correction using PRK,
complications may be identified in further long-term follow-up studies of PRK.
There are no long-term studies on the side effects of LASIK, the procedure more
often performed in recent years. However, a study of patients five years after
LASIK reported the majority of patients had a high overall satisfaction of the
procedure.

     There is no independent industry source for data on side effects or
complications from laser vision correction. In addition, we do not track side
effects. Some of the possible side effects of laser vision correction are:

     -    foreign body sensation,

     -    pain or discomfort,

     -    sensitivity to bright lights,

     -    blurred vision,


                                       20



     -    dryness or tearing,

     -    fluctuation in vision,

     -    night glare,

     -    poor or reduced visual quality,

     -    overcorrection or undercorrection,

     -    regression, and

     -    corneal flap or corneal healing complications.

     We believe that the percentage of patients who experience serious side
effects as a result of laser vision correction at our centers is likely less
than 1%. However, there is no study to support this belief.

     Laser vision correction may also involve the removal of "Bowman's
membrane," an intermediate layer between the outer corneal layer and the middle
corneal layer of the eye. Although several studies have demonstrated no
significant adverse reactions to excimer laser removal of Bowman's membrane, the
long-term effect of the removal of Bowman's membrane on patients is unclear.

     WE MAY BE UNABLE TO ENTER INTO OR MAINTAIN AGREEMENTS WITH DOCTORS OR OTHER
     HEALTH CARE PROVIDERS ON SATISFACTORY TERMS.

     We will have difficulty generating revenue if we are unable to enter into
or maintain agreements with doctors or other health care providers on
satisfactory terms. Most states prohibit us from practicing medicine, employing
doctors to practice medicine on our behalf or employing optometrists to render
optometric services on our behalf. In most states we may only own and manage
centers and enter into affiliations with doctors and other health care
providers. Also, affiliated doctors have provided a significant source of
patients for our premium-priced centers and that is expected to continue. Our
value-priced centers will rely on direct-to-consumer advertising as a source of
patients. Accordingly, the success of our business depends upon our ability to
enter into agreements on acceptable terms with a sufficient number of health
care providers, including institutions and eye care doctors to render or arrange
surgical and other professional services at facilities we own or manage.

     QUARTERLY FLUCTUATIONS IN OPERATING RESULTS MAKE FINANCIAL FORECASTING
     DIFFICULT.

     We may experience future quarterly losses, which may exceed prior quarterly
losses. Our expense levels will be based, in part, on our expectations as to
future revenues. If actual revenue levels were below expectations, our operating
results would deteriorate. Historically, our quarterly results of operations
have varied, and future results may continue to fluctuate significantly from
quarter to quarter. Accordingly, quarter-to-quarter comparisons of our operating
results may not be meaningful and should not be relied upon as indications of
our future performance or annual operating results. Quarterly results will
depend on numerous factors, including economic conditions in our geographic
markets, market acceptance of our services, seasonal factors and other factors
described in this Form 10-K.

     THE MARKET PRICE OF OUR COMMON SHARES MAY BE VOLATILE.

     Historically, the market price of our common shares has been volatile. For
example, the market price of our common shares decreased from a high of $53.50
to a low of $0.79 between July 1999 and March 2003, then increased to $13.13 by
April 2004. As of March 10, 2006, the last sale price of our common shares was
$6.84. Our common shares will likely be volatile in the future due to industry
developments and business-specific factors such as:

     -    our ability to effectively penetrate the laser vision correction
          market;

     -    the impact of OccuLogix on results of operations;

     -    perception of the potential for rheopheresis for dry age-related
          macular degeneration;

     -    our ability to execute our business strategy;

     -    new technological innovations and products;

     -    changes in government regulations;

     -    adverse regulatory action;

     -    public concerns about the safety and effectiveness of laser vision
          correction;

     -    loss of key management;

     -    announcements of non-routine events such as acquisitions or
          litigation;

     -    variations in our financial results;

     -    fluctuations in competitors' stock prices;


                                       21


     -    the issuance of new or changed stock market analyst reports and
          recommendations concerning our common shares or competitors' stock;

     -    changes in earnings estimates by securities analysts;

     -    our ability to meet analysts' projections;

     -    changes in the market for medical services; or

     -    general economic, political and market conditions.

     In addition, in recent years the prices and trading volumes of publicly
traded shares, particularly those of companies in health care related markets,
have been volatile. This volatility has substantially affected the market prices
of many companies' securities for reasons frequently unrelated or
disproportionate to their operating performance. Following the terrorist attacks
in the United States in September 2001, stock markets experienced volatility and
stock prices declined, in some cases substantially. Continued volatility may
reduce the market price of our common shares.

     WE MAY BE UNABLE TO EXECUTE OUR BUSINESS STRATEGY.

     Our business strategy is to be a diversified eye care services company,
leveraging our relationships with over 13,000 ophthalmologists and optometrists
throughout North America to 1) grow the core refractive business while 2)
continuing to expand the non-refractive business segment.

     If we do not successfully execute this strategy or if the strategy is not
effective, we may be unable to maintain or grow our revenues and profitability.

     WE MAY MAKE INVESTMENTS THAT MAY NOT BE PROFITABLE.

     We make investments that are intended to support our strategic business
purposes. These investments are generally made in companies in the laser vision
correction business or other eye care services. If we are unable to successfully
manage our current and future investments, including ASC investments, or if
these investments are not profitable or do not generate the expected returns,
then future operating results may be adversely impacted.

     OUR GROWTH STRATEGY DEPENDS ON OUR ABILITY TO OPEN NEW CENTERS OR TO MAKE
     ACQUISITIONS OR ENTER INTO AFFILIATION ARRANGEMENTS.

     The success of our growth strategy will be dependent on increasing the
number of procedures at our eye care centers and/or increasing the number of eye
care centers through internal development or acquisitions and entering into
affiliation arrangements with local eye care professionals in markets not large
enough to justify a corporate center.

     The addition of new centers will present challenges to us, including the
integration of new operations, technologies and personnel. The addition of new
centers also presents special risks, including:

     -    unanticipated liabilities and contingencies;

     -    diversion of management attention; and

     -    possible adverse effects on operating results resulting from:

          -    possible future goodwill impairment;

          -    increased interest costs;

          -    the issuance of additional securities; and

          -    increased costs resulting from difficulties related to the
               integration of the acquired businesses.

     Our ability to achieve growth through acquisitions will depend on a number
of factors, including:

     -    the availability of attractive acquisition opportunities;

     -    the availability of capital to complete acquisitions;

     -    the availability of working capital to fund the operations of acquired
          businesses; and

     -    the effect of existing and emerging competition on operations.

     We may not be able to successfully identify suitable acquisition
candidates, complete acquisitions on acceptable terms, if at all, or
successfully integrate acquired businesses into our operations. Our past and
possible future acquisitions may not achieve adequate levels of revenue,
profitability or productivity or may not otherwise perform as expected.


                                       22



     WE MAY BE UNABLE TO SUCCESSFULLY IMPLEMENT AND INTEGRATE NEW OPERATIONS AND
     FACILITIES.

     Our success depends on our ability to manage our existing operations and
facilities and to expand our businesses consistent with our business strategy.
In the past, we have grown rapidly in the United States. Our future growth and
expansion will increase our management's responsibilities and demands on
operating information technologies and financial systems and resources. Our
business and financial results are dependent upon a number of factors, including
our ability to:

     -    implement upgraded operations, information technologies and financial
          systems, procedures and controls;

     -    hire and train new staff and managerial personnel;

     -    adapt or amend our business structure to comply with present or future
          legal requirements affecting our arrangements with doctors, including
          state prohibitions on fee-splitting, corporate practice of optometry
          and medicine and referrals to facilities in which doctors have a
          financial interest;

     -    obtain regulatory approvals, where necessary, and comply with
          licensing requirements applicable to doctors and facilities operated,
          and services offered, by doctors;

     -    successfully integrate acquisitions into our existing business model;
          and

     -    successfully develop new LASIK Select centers and achieve growth and
          profitability goals of those centers.

     Our failure or inability to successfully implement these and other factors
may adversely affect the quality and profitability of our business operations.

     WE DEPEND ON KEY PERSONNEL WHOSE LOSS COULD ADVERSELY AFFECT OUR BUSINESS.

     Our success and growth depends in part on the active participation of key
medical and management personnel, including Mr. Elias Vamvakas, Chairman of the
Board of Directors, and Mr. James Wachtman, Chief Executive Officer. We maintain
key person insurance for each of Mr. Vamvakas, Mr. Wachtman and several key
ophthalmologists. Despite having this insurance in place, the loss of any one of
these key individuals could adversely affect the quality, profitability and
growth prospects of our business operations.

     We have employment or similar agreements with the above individuals and
other key personnel. The terms of these agreements include, in some cases,
entitlements to substantial severance payments in the event of termination of
employment by either us or the employee.

     WE MAY BE SUBJECT TO MALPRACTICE AND OTHER SIMILAR CLAIMS AND MAY BE UNABLE
     TO OBTAIN OR MAINTAIN ADEQUATE INSURANCE AGAINST THESE CLAIMS.

     The provision of medical services at our centers entails an inherent risk
of potential malpractice and other similar claims. Beginning October 1, 2002,
all of our U.S. professional malpractice insurance had a $250,000 deductible per
claim. Patients at our centers execute informed consent statements prior to any
procedure performed by doctors at our centers, but these consents may not
provide adequate liability protection. Although we do not engage in the practice
of medicine or have responsibility for compliance with regulatory and other
requirements directly applicable to doctors and doctor groups, claims, suits or
complaints relating to services provided at our centers may be asserted against
us in the future, and the assertion or outcome of these claims could result in
higher administrative and legal expenses, including settlement costs or
litigation damages.

     We currently maintain malpractice insurance coverage and accruals that we
believe is adequate both as to risks and amounts covered. In addition, we
require the doctors who provide medical services at our centers to maintain
comprehensive professional liability insurance and most of these doctors have
agreed to indemnify us against certain malpractice and other claims. Our
insurance coverage, however, may not be adequate to satisfy claims, insurance
maintained by the doctors may not protect us and such indemnification may not be
enforceable or, if enforced, may not be sufficient. Our inability to obtain
adequate insurance or an increase in the future cost of insurance to us and the
doctors who provide medical services at the centers may have a material adverse
effect on our business and financial results.

     The excimer laser system uses hazardous gases which if not properly
contained could result in injury. We may not have adequate insurance for any
liabilities arising from injuries caused by the excimer laser system or
hazardous gases. While we believe that any claims alleging defects in our
excimer laser systems would usually be covered by the manufacturers' product
liability insurance, the manufacturers of our excimer laser systems may not
continue to carry adequate product liability insurance.


                                       23



     WE MAY FACE CLAIMS FOR FEDERAL, STATE AND LOCAL TAXES.

     We operate in 48 states and two Canadian provinces and are subject to
various federal, state and local income, payroll, unemployment, property,
franchise, capital, sales and use tax on our operations, payroll, assets and
services. We endeavor to comply with all such applicable tax regulations, many
of which are subject to different interpretations, and have hired outside tax
advisors who assist in the process. Many states and other taxing authorities
have been interpreting laws and regulations more aggressively to the detriment
of taxpayers. We believe that we have adequate provisions and accruals in our
financial statements for tax liabilities, although we cannot predict the outcome
of future tax assessments.

     Tax authorities in two states have contacted us and issued proposed sales
tax adjustments in the aggregate amount of approximately $0.7 million for
various periods through 2005 on the basis that certain of our business
arrangements constitute at least a partially taxable transaction rather than an
exempt service. Our discussions with these two state tax authorities are
ongoing. If it is determined that any sales tax is owed, we believe that, under
applicable laws and our contracts with our customers, each customer is
ultimately responsible for the payment of any applicable sales and use taxes in
respect of our services. However, we may be unable to collect any such amounts
from our customers, and in such event we would remain responsible for payment.
We cannot yet predict the outcome of these outstanding assessments or any other
assessments or similar actions which may be undertaken by other state tax
authorities. We have evaluated and implemented a comprehensive sales tax
reporting system. We believe that we have adequate provisions in our financial
statements with respect to these matters.

     COMPLIANCE WITH INDUSTRY REGULATIONS IS COSTLY AND BURDENSOME.

     Our operations are subject to extensive federal, state and local laws,
rules and regulations. Our efforts to comply with these laws, rules and
regulations may impose significant costs, and failure to comply with these laws,
rules and regulations may result in fines or other charges being imposed on us.
We have incurred significant costs, and expect to incur additional costs in
connection with compliance with the provisions of the Sarbanes-Oxley Act of
2002. Our failure to comply with the provisions of Sarbanes-Oxley, including
provision relating to internal financial controls, could have a material adverse
effect on us.

     Many state laws limit or prohibit corporations from practicing medicine and
optometry, and many federal and state laws extensively regulate the solicitation
of prospective patients, the structure of our fees and our contractual
arrangements with hospitals, surgery centers, ophthalmologists and optometrists,
among others. Some states also impose licensing requirements. Although we have
tried to structure our business and contractual relationships in compliance with
these laws in all material respects, if any aspect of our operations were found
to violate applicable laws, we could be subject to significant fines or other
penalties, required to cease operations in a particular jurisdiction, prevented
from commencing operations in a particular state or otherwise be required to
revise the structure of our business or legal arrangements. Many of these laws
and regulations are ambiguous, have not been definitively interpreted by courts
or regulatory authorities and vary from jurisdiction to jurisdiction.
Accordingly, we may not be able to predict how these laws and regulations will
be interpreted or applied by courts and regulatory authorities, and some of our
activities could be challenged.

     Numerous legislative proposals to reform the U.S. health care system have
been introduced in Congress and in various state legislatures over the past
several years. We cannot predict whether any of these proposals will be adopted
and, if adopted, what impact this legislation would have on our business. To
respond to any such changes, we could be required to revise the structure of our
legal arrangements or the structure of our fees, incur substantial legal fees,
fines or other costs, or curtail some of our business activities, reducing the
potential profit of some of our arrangements.

     State medical boards and state boards of optometry generally set limits on
the activities of ophthalmologists and optometrists. In some instances, issues
have been raised as to whether participation in a co-management program violates
some of these limits. If a state authority were to find that our co-management
program did not comply with state licensing laws, we would be required to revise
the structure of our legal arrangements or curtail our operations, and
affiliated doctors might terminate their relationships with us.

     Federal and state civil and criminal statutes impose penalties, including
substantial civil and criminal fines and imprisonment, on health care providers
and persons who provide services to health care providers, including management
businesses such as ours, for fraudulently or wrongfully billing government or
other insurers. In addition, the federal law prohibiting false Medicare/Medicaid
billings allows a private person to bring a civil action in the name of the U.S.
government for violations of its provisions and obtain a portion of the damages
if the action is successful. We believe that we are in material compliance with
these billing laws, but our business could be adversely affected if governmental
authorities were to scrutinize or challenge our activities or private parties
were to assert a false claim or action against us in the name of the U.S.
government.


                                       24



     Although we believe that we have obtained the necessary licenses or
certificates of need in states where such licenses are required and that we are
not required to obtain any licenses in other states, some of the state
regulations governing the need for such licenses are unclear, and there is no
applicable precedent or regulatory guidance to help resolve these issues. A
state regulatory authority could determine that we are operating a center
inappropriately without a required license or certificate of need, which could
subject us to significant fines or other penalties, result in us being required
to cease operations in a state or otherwise jeopardize our business and
financial results. If we expand to a new geographic market, we may be unable to
obtain any new license required in that jurisdiction.

     COMPLIANCE WITH ADDITIONAL HEALTH CARE REGULATIONS IN CANADA IS COSTLY AND
     BURDENSOME.

     Some Canadian provinces have adopted conflict of interest regulations that
prohibit optometrists, ophthalmologists or corporations they own or control from
receiving benefits from suppliers of medical goods or services to whom they
refer patients. The laws of some Canadian provinces also prohibit health care
professionals from splitting fees with non-health care professionals and
prohibit non-licensed entities such as us from practicing medicine or optometry
and from directly employing physicians or optometrists. We believe that we are
in material compliance with these requirements, but a review of our operations
by Canadian regulators or changes in the interpretation or enforcement of
existing Canadian legal requirements or the adoption of new requirements could
require us to incur significant costs to comply with laws and regulations in the
future or require us to change the structure of our arrangements with doctors.

     COMPLIANCE WITH U.S. FOOD AND DRUG ADMINISTRATION REGULATIONS REGARDING THE
     USE OF EXCIMER LASER SYSTEMS FOR LASER VISION CORRECTION IS COSTLY AND
     BURDENSOME.

     To date, the FDA has approved excimer laser systems manufactured by some
manufacturers for sale for the treatment of nearsightedness, farsightedness and
astigmatism up to stated levels of correction. Failure to comply with applicable
FDA requirements with respect to the use of the excimer laser could subject us,
our affiliated doctors or laser manufacturers to enforcement action, including
product seizure, recalls, withdrawal of approvals and civil and criminal
penalties.

     The FDA has adopted guidelines in connection with the approval of excimer
laser systems for laser vision correction. The FDA, however, has also stated
that decisions by doctors and patients to proceed outside the FDA-approved
guidelines are a practice of medicine decision, which the FDA is not authorized
to regulate. Failure to comply with FDA requirements or any adverse FDA action,
including a reversal of its interpretation with respect to the practice of
medicine, could result in a limitation on or prohibition of our use of excimer
lasers.

     Discovery of problems, violations of current laws or future legislative or
administrative action in the United States or elsewhere may adversely affect the
laser manufacturers' ability to obtain regulatory approval of laser equipment.
Furthermore, the failure of other excimer laser manufacturers to comply with
applicable federal, state or foreign regulatory requirements, or any adverse
action against or involving such manufacturers, could limit the supply of
excimer lasers, substantially increase the cost of excimer lasers, limit the
number of patients that can be treated at our centers and limit our ability to
use excimer lasers.

     Most of our eye care centers and access sites in the United States use VISX
and/or Alcon Laboratories Inc. excimer lasers. If VISX, Alcon or other excimer
laser manufacturers fail to comply with applicable federal, state or foreign
regulatory requirements, or if any adverse regulatory action is taken against or
involves such manufacturers, the supply of lasers could be limited and the cost
of excimer lasers could increase.

     The Roll-On/Roll-Off laser system consists of an excimer laser mounted on a
motorized, air suspension platform and transported in a specially modified
truck. We believe that use of this transport system does not require FDA
approval; the FDA has taken no position in regard to such approval. The FDA
could, however, take the position that excimer lasers are not approved for use
in this transport system. Such a view by the FDA could lead to an enforcement
action against us, which could impede our ability to maintain or increase our
volume of excimer laser surgeries. This could have a material adverse effect on
our business and financial results. Similarly, we believe that FDA approval is
not required for our mobile use of microkeratomes or the cataract equipment
transported by our mobile cataract operations. The FDA, however, could take a
contrary position that could result in an enforcement action.

     DISPUTES WITH RESPECT TO INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR
     BUSINESS.

     There has been substantial litigation in the United States and Canada
regarding the patents on ophthalmic lasers. Although we currently lease or
purchase excimer lasers and other technology from the manufacturers, if the use
of an excimer laser or other procedure performed at any of our centers is deemed
to infringe a patent or other proprietary right, we may be prohibited from using
the equipment or performing the procedure that is the subject of the patent
dispute or may be required to obtain a royalty-bearing


                                       25



license, which may involve substantial costs, including ongoing royalty
payments. If a license is not available on acceptable terms, we may be required
to seek the use of products which do not infringe the patent.

     We have also secured patents for portions of the equipment we use to
transport our mobile lasers. Our patents and other proprietary technology are
important to our success. These patents could be challenged, invalidated or
circumvented in the future. Litigation regarding intellectual property is common
and our patents may not adequately protect our intellectual property. Defending
and prosecuting intellectual property proceedings is costly and involves
substantial commitments of management time. If we fail to successfully defend
our rights with respect to our intellectual property, we may be required to pay
damages and cease using our equipment to transport mobile lasers, which may have
a material adverse effect on our business.

     WE MAY NOT HAVE THE CAPITAL RESOURCES NECESSARY IN ORDER TO KEEP UP WITH
     RAPID TECHNOLOGICAL CHANGES.

     Modern medical technology changes rapidly. New or enhanced technologies and
therapies may be developed with better performance or lower costs than the laser
vision correction currently provided at our centers. We may not have the capital
resources to upgrade our excimer laser equipment, acquire new or enhanced
medical devices or adopt new or enhanced procedures at the time that any
advanced technology or therapy is introduced.

     THE ABILITY OF OUR SHAREHOLDERS TO EFFECT CHANGES IN CONTROL OF OUR COMPANY
     IS LIMITED.

     We have a shareholder rights plan which enables the Board of Directors to
delay a change in control of our company. This could discourage a third party
from attempting to acquire control of our company, even if an attempt would be
beneficial to the interests of the shareholders. In addition, since we are a
Canadian corporation, investments in our company may be subject to the
provisions of the Investment Canada Act. In general, this act provides a system
for the notification to the Investment Canada agency of acquisitions of Canadian
businesses by non-Canadian investors and for the review by the Investment Canada
agency of acquisitions that meet thresholds specified in the act. To the extent
that a non-Canadian person or company attempted to acquire 33% or more of our
outstanding common stock, the threshold for a presumption of control, the
transaction could be reviewable by the Investment Canada agency. The Investment
Canada Act also applies to a change of control effected by a sale of all or
substantially all of the assets of our company. These factors and others could
have the effect of delaying, deferring or preventing a change of control of our
company supported by shareholders but opposed by our Board of Directors.

     AS THE MAJORITY OWNER OF OCCULOGIX, IT MAY BE NECESSARY FOR US TO FUND
     ADDITIONAL CAPITAL REQUIREMENTS.

     OccuLogix reported approximately $41.3 million of cash and short-term
investments as of December 31, 2005, largely as a result of its initial public
offering in December 2004. Although it expects the current cash and short-term
investments to be adequate to support its operations for at least the next 12
months, OccuLogix anticipates that the funding requirements for its activities
will continue to increase substantially, primarily due to its efforts to achieve
FDA approval for and to commercialize the RHEO(TM) System. OccuLogix may need to
seek additional funds in the future, and it may be necessary for us to fund
OccuLogix's additional capital requirements as the majority shareholder in order
to avoid dilution of the value of our ownership.

     THERE IS NO GUARANTEE THAT OCCULOGIX WILL BE SUCCESSFUL IN OBTAINING FDA
     APPROVAL OR COMMERCIALIZING THE RHEO(TM) SYSTEM.

     On February 3, 2006, OccuLogix announced that, based on a preliminary
analysis of the data from MIRA-1 (a pivotal clinical trial), MIRA-1 did not meet
its primary efficacy endpoint as it did not demonstrate a statistically
significant difference in the mean change of Best Spectacle-Corrected Visual
Acuity applying the Early Treatment Diabetic Retinopathy Scale, or ETDRS BCVA,
between the treated and placebo groups in MIRA-1 at 12 months post-baseline. As
expected, the treated group demonstrated a positive result. An anomalous
response of the control group is the principal reason why the primary efficacy
endpoint was not met. There were subgroups that did demonstrate statistical
significance in their mean change of ETDRS BCVA versus control. OccuLogix is in
the process of analyzing further the study data.

     The MIRA-1 protocol required OccuLogix to obtain a minimum of 150 complete
clinical data sets. To that end, OccuLogix had enrolled a total of 185 patients
in MIRA-1 as of December 31, 2004. On November 17, 2005, OccuLogix announced
that it had collected complete 12-month post-treatment data sets for 169 of
these patients. As of December 31, 2004, OccuLogix had also submitted to the FDA
the first three of four modules of the Pre-market Approval Application, or PMA,
filing, the non-clinical portion. The non-clinical portion of the PMA consisted
of technical data relating to components of the RHEO(TM) System. Although
OccuLogix had intended to submit the fourth module, which consists of the
follow-up clinical data, in two components, following discussions


                                       26



with the FDA, it subsequently elected to file only one PMA clinical module
following completion of the 12-month data on at least 150 data sets.

     Subsequent to the February 3, 2006 announcement, OccuLogix completed an
in-depth analysis of the MIRA-1 study data identifying subjects that were
included in the intent-to-treat, or ITT, population but who deviated from the
MIRA-1 protocol as well as those patients who had documented losses or gains in
vision for reasons not related to retinal disease such as cataracts. Those
subjects in the ITT population who met the protocol requirements, and who did
not exhibit ophthalmic changes unrelated to retinal disease, comprised the
modified per-protocol population.

     In the modified per-protocol analysis, eyes treated with RHEO(TM) Therapy
demonstrated a mean vision gain of 0.8 lines of ETDRS BCVA at 12 months
post-baseline, compared to a mean vision loss of 0.1 lines of ETDRS BCVA in the
eyes of the placebo group. The result was statistically significant (repeated
measure p value = 0.0147). The following table presents a summary of the ETDRS
BCVA changes observed 12 months post-baseline in the modified per-protocol
analysis of MIRA-1:



                                          Treatment Group   Placebo Group
                                               (n=69)           (n=46)
                                          ---------------   -------------
                                                      
Vision improvement greater or equal to:
1 line                                         46.4%            19.6%
2 lines                                        27.5%             8.7%
3 lines                                         8.7%             2.2%
Vision loss greater or equal to:
1 line                                         11.6%            23.9%
2 lines                                         5.8%             6.5%
3 lines                                         2.9%             2.2%


     Within the modified per-protocol population with pre-treatment vision worse
than 20/40, 50.0% of RHEO(TM) Therapy-treated eyes improved, after treatment, to
20/40 or better and would be able to qualify for a driver's license 12 months
post-baseline, compared to 20.0% of placebo eyes.

     OccuLogix will be re-evaluating its PMA submission strategy. The
per-protocol population analysis comprises 115 complete data sets, while
OccuLogix had been required to obtain a minimum of 150 complete data sets.
OccuLogix is planning to meet with representatives of the FDA in the second
quarter of 2006 in order to discuss the impact on the PMA submission strategy of
the MIRA-1 study results and the fact of the per-protocol population being fewer
than 150. It is more likely than not that OccuLogix will be required to conduct
a follow-up clinical trial of the RHEO(TM) System. However, until OccuLogix has
discussions with the FDA, it will not know if a follow-up clinical trial will be
necessary and, if one is necessary, what its nature, size, scope or duration
will be.

     OccuLogix cannot begin commercialization in the United States until it
receives FDA approval. Until OccuLogix has discussions with the FDA, it will not
be able to anticipate when, if ever, it will receive FDA approval. Accordingly,
at this time, OccuLogix does not know when it can expect to begin to generate
revenues in the United States.

     Prior to the announcement on February 3, 2006 of the preliminary analysis
of the data from MIRA-1, in anticipation of commercialization in the United
States, OccuLogix was establishing a plan to educate members of the eye care
community about RHEO(TM) Therapy. It was in the process of identifying
multi-facility health care service providers, including hospitals, dialysis
clinics and ambulatory surgery centers, as well as private practices, which it
believes may be interested in providing RHEO(TM) Therapy in their facilities.
One of these potential providers may be TLCVision due to our relationships with
a large number of optometrists and ophthalmologists in the United States.
Pending the outcome of its discussions with the FDA and the determination of the
parameters of any follow-up clinical trial of the RHEO(TM) System, OccuLogix has
suspended, for the time being, all of its activities that were being conducted
in anticipation of commercialization in the United States.

     In 2003, OccuLogix received Health Canada approval for the components of
the RHEO(TM) System. The approval allows OccuLogix to market the RHEO(TM) System
in Canada for use in the treatment of patients suffering from dysproteinemia
due, for example, to abnormal plasma viscosity and/or macular disease. Upon
receiving the approval, OccuLogix began limited commercialization of the
RHEO(TM) System through sales of OctoNova pumps and disposable treatment sets to
three clinics in Canada. In September 2004, OccuLogix signed an agreement with a
private Canadian company called Rheo Therapeutics Inc. (now Veris Health
Services Inc.) ("Veris"), a provider of RHEO(TM) Therapy, which agreed to
purchase approximately 8,000 treatment sets and 20 OctoNova pumps by the end of
2005, with an option to purchase up to an additional 2,000 treatment sets,
subject to availability. However, due to delays in its plans to open a number of
commercial treatment centers in various Canadian cities where RHEO(TM)


                                       27



Therapy would be performed, Veris no longer required the contracted-for number
of treatment sets for such period. OccuLogix agreed to keep the original pricing
for a reduced number of treatment sets. In December 2005, by letter agreement,
OccuLogix agreed to the volume and other terms for the purchase and sale of
treatment sets and pumps for the period ending February 28, 2006. OccuLogix
intends to negotiate with Veris purchase orders for the future. Dr. Jeffery
Machat, who is an investor in and one of the directors of Veris, was a
co-founder and former director of our Company.

     In summary, OccuLogix's primary activities to date have included
commercialization of the RHEO(TM) System in Canada, working to obtain FDA
regulatory approval for the RHEO(TM) System and building an operating
infrastructure to support potential U.S. sales following approval by the FDA.
Pending the outcome of OccuLogix's discussions with the FDA regarding the full
analysis of the MIRA-1 study data, it is reasonably likely that the focus of its
primary activities will shift.

     OUR STOCK PRICE AND REPORTED RESULTS MAY BE IMPACTED BY THE OPERATING
     RESULTS OF OCCULOGIX.

     As a significant shareholder of OccuLogix, our stock price may be affected
by changes in the price of OccuLogix's common stock. We are unable to predict
how fluctuations in OccuLogix's stock price will affect our own stock price.
Because we have a controlling financial interest in OccuLogix, the results of
operations of this entity are consolidated into the operating results of our
other businesses. OccuLogix expects to continue to report significant operating
losses for the next several years. Because of the numerous risks and
uncertainties associated with developing and commercializing new medical
therapies, including obtaining FDA approval, OccuLogix is unable to predict the
extent of any future losses or when it will become profitable, if ever. Because
we are a significant shareholder of OccuLogix, our operating results and stock
price may be negatively impacted by the operating results of OccuLogix. In the
event that we were to reduce our ownership interest to the level where
consolidation was not required, our operating results would still be impacted by
OccuLogix to the extent of our ownership, via earnings from equity investments.

     As noted previously, on February 3, 2006, OccuLogix announced that the
preliminary analysis of the data from MIRA-1 indicated that MIRA-1 did not
demonstrate a statistically significant mean change of BCVA. As a result, the
share price of OccuLogix's stock as traded on the NASDAQ National Market System
decreased from $12.75 on February 2, 2006 to close at $4.10 on February 3, 2006.
The 10-day average price of the stock immediately following the announcement was
$3.65 and reflected a decrease in the market capitalization of OccuLogix from
$536.6 million on February 2, 2006 to $153.6 million based on the 10-day average
share price after the announcement. The resulting decrease in the share price
was identified as an indicator of impairment leading to an analysis of
OccuLogix's intangible assets and goodwill and resulting in OccuLogix reporting
an impairment charge to goodwill of $147.5 million. Because we accounted for the
OccuLogix reorganization at historical cost, we eliminate OccuLogix's goodwill
balance in consolidation (see Note 1).

     OccuLogix believes that the announcement made it unlikely that it would be
able to collect on amounts outstanding from its sole customer, Veris, resulting
in a provision for bad debts of $0.5 million related to revenue reported prior
to December 2005. OccuLogix did not recognize $0.5 million of revenue related to
goods shipped in December 2005, based on collectibility not being reasonably
assured. OccuLogix also fully expensed the $0.2 million advance that it had paid
to Veris in connection with clinical trial services to be provided by Veris for
one of OccuLogix's clinical trials. OccuLogix also evaluated its ending
inventory balance as of December 31, 2005 on the basis that Veris may not be
able to increase its commercial activities in Canada in line with initial
expectations. Accordingly, OccuLogix set up a provision for obsolescence of $2.0
million for filter sets that are unlikely to be utilized prior to their
expiration dates. As a result of the above entries, our reported pre-tax
earnings for the quarter and year ended December 31, 2005 were reduced by $1.6
million.

     Additional adjustments to asset values may be required as OccuLogix
continues its evaluation and operations, and those adjustments may be material.
Those adjustments could impact our stock price as well as our results to the
extent of our ownership percentage in OccuLogix.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.


                                       28



ITEM 2. PROPERTIES

     The Company's 82 centers are located in leased premises throughout the
United States and Canada. The leases are negotiated on market terms and
typically have terms of five to ten years. TLCVision's International
Headquarters are located in Mississauga, Ontario, Canada. TLCVision's U.S.
Corporate Office is located in approximately 20,500 square feet of leased office
space in St. Louis, Missouri under a lease that will expire in 2006. The Company
entered into a ten-year lease for new U.S. corporate office space in St. Louis,
Missouri that begins in mid-2006. TLCVision also maintains approximately 7,000
square feet of office/warehouse space in Bloomington, Minnesota for its mobile
cataract operations. The Bloomington facility lease expires in 2009.

     The terms of the Company's leases provide for total aggregate monthly lease
obligations of approximately $0.6 million in 2006.

ITEM 3. LEGAL PROCEEDINGS

     The Company is involved in various claims and legal actions in the ordinary
course of its business, which may or may not be covered by insurance. These
matters include, without limitation, professional liability, employee-related
matters and inquiries and investigations by governmental agencies. While the
ultimate results of such matters cannot be predicted with certainty, the Company
believes that the resolution of these matters will not have a material adverse
effect on its consolidated financial position or results of operations.

     Except as set forth above, there have been no other material legal
proceedings outstanding.

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

     No matters were submitted to a vote of security holders during the quarter
ended December 31, 2005.


                                       29



                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

     The Common Shares are listed on the Toronto Stock Exchange under the symbol
"TLC" and on the NASDAQ National Market under the symbol "TLCV." The following
table sets forth, for the periods indicated, the high and low closing prices per
Common Share of the Common Shares on the Toronto Stock Exchange and the Nasdaq
National Market:



                                             THE
                                           TORONTO            NASDAQ
                                            STOCK            NATIONAL
                                           EXCHANGE           MARKET
                                      -----------------   --------------
                                        HIGH      LOW      HIGH     LOW
                                      -------   -------   ------   -----
                                                       
Fiscal 2004
First Quarter March 31, 2004.......   C$15.38   C$ 8.32   $11.75   $6.50
Second Quarter June 30, 2004.......     17.50     13.42    12.82    9.81
Third Quarter September 30, 2004...     15.55     10.37    11.92    7.95
Fourth Quarter December 31, 2004...     14.90     10.36    12.24    8.48
Fiscal 2005
First Quarter March 31, 2005.......   C$12.54   C$10.60   $10.26   $8.87
Second Quarter June 30, 2005.......     11.46      9.80     9.42    8.16
Third Quarter September 30, 2005...     12.14      7.85     9.86    6.77
Fourth Quarter December 31, 2005...      7.99      6.90     6.87    5.89


     As of March 6, 2006, there were approximately 774 record holders of the
Common Shares.

     The Company has never declared or paid cash dividends on the Common Shares.
It is the current policy of the Board of Directors of the Company to retain
earnings to finance growth and development of its business, and therefore, the
Company does not anticipate paying cash dividends on its Common Shares in the
near future. In addition, the Company's ability to pay dividends is currently
restricted pursuant to the Company's line of credit facility.

SHARE REPURCHASE PLAN

     The following table provides information about purchases by the Company
during the fourth quarter ended December 31, 2005 of equity securities that are
registered by the Company pursuant to Section 12 of the Exchange Act:

                   Issuer Purchases of TLCVision Common Stock



                                                       Total Number of Shares
                                                        Purchased as Part of    Maximum Number of Shares that May
                    Total Number of    Average Price     Publicly Announced         Yet Be Purchased Under the
     Period        Shares Purchased   Paid per Share        Programs (1)                   Programs (1)
     ------        ----------------   --------------   ----------------------   ---------------------------------
                                                                    
As of 09/30/2005       1,829,800          $8.0334             1,829,800                      170,200
10/01/2005-
   10/31/2005            170,200           6.8641               170,200                           --
                       ---------          -------             ---------                      -------
Total                  2,000,000          $7.9339             2,000,000                           --
                       ---------          -------             ---------                      -------


(1)  On December 20, 2004, the Company announced a stock repurchase program,
     pursuant to which up to 2.0 million shares of its common stock may be
     repurchased. During 2005, the Company repurchased and retired 2.0 million
     common shares for $15.9 million completing its previously announced 2.0
     million share repurchase program.


                                       30


EQUITY COMPENSATION PLAN INFORMATION

     The following table provides information as of December 31, 2005, regarding
compensation plans under which equity securities of TLCVision are authorized for
issuance (shares in thousands).



                                                                                                  Number of securities
                                                                                                remaining available for
                                                     Number of securities    Weighted-average    future issuances under
                                                       to be issued upon    exercise price of     equity compensation
                                                          exercise of          outstanding          plans (excluding
                                                     outstanding options,   options, warrants   securities reflected in
                                                      warrants and rights       and rights            column (a))
Plan category                                                 (a)                  (b)                    (c)
- -------------                                        --------------------   -----------------   -----------------------
                                                                                       
Equity compensation plans approved by security
   holders........................................           3,536               $5.53(1)                1,031
Equity compensation plans not approved by
   security holders...............................              --                  --                      --
                                                             -----               -----                   -----
Total.............................................           3,536               $5.53(1)                1,031
                                                             =====               =====                   =====


(1)  Represents the weighted-average exercise price of outstanding options,
     warrants and rights denominated in U.S. dollars. The weighted-average
     exercise price of outstanding options, warrants and rights denominated in
     Canadian dollars was C$5.26.

See Note 14 to the audited consolidated financial statements for more
information regarding the material features of the Company's outstanding
options, warrants and rights.

On November 8, 2005, the Company completed the purchase of TruVision, Inc., a
managed care contractor to health plan members and large corporations. In
connection with the transaction, the Company issued as consideration to one
former shareholder of TruVision an aggregate of 3,913 common shares having an
approximate dollar value of $24,000. The issuance of common shares was
structured as a private placement under Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 of Regulation D promulgated thereunder.

ITEM 6. SELECTED FINANCIAL DATA

     The following tables set forth selected historical consolidated financial
data of TLCVision for the fiscal years ended December 31, 2005, 2004 and 2003,
twelve months ended December 31, 2002, seven-month transitional period ended
December 31, 2002 and the fiscal years ended May 31, 2002 and 2001, which have
been derived from the consolidated financial statements of the Company included
elsewhere in this Form 10-K and the consolidated financial statements of the
Company included in the Company's December 31, 2002 Transition Report on Form
10-K, May 31, 2002 and 2001 Annual Reports on Form 10-K and the unaudited
twelve-month period ended December 31, 2002. The following table should be read
in conjunction with the Company's financial statements, the related notes
thereto and the information contained in "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations."


                                       31





                                                    YEAR ENDED         SEVEN-MONTH      TWELVE                YEAR ENDED
                                                      MAY 31,         PERIOD ENDED   MONTHS ENDED            DECEMBER 31,
                                               --------------------   DECEMBER 31,   DECEMBER 31,   ------------------------------
                                                2001(2)    2002(3)       2002(4)        2002(5)      2003(6)    2004(7)    2005(8)
                                               --------   ---------   ------------   ------------   --------   --------   --------
                                                                                    UNAUDITED
                                                                                                     
(U.S. dollars, in thousands except per
share amounts, shares and operating data)
STATEMENT OF OPERATIONS DATA
Net revenues ...............................   $174,006   $ 134,751     $100,154      $ 164,605     $200,918   $247,247   $260,025
Cost of revenues ...........................    110,016      97,789       80,825        125,163      148,543    170,738    180,725
   Gross profit ............................     63,990      36,962       19,329         39,442       52,375     76,509     79,300
General and administrative .................     44,464      36,382       25,567         38,158       27,001     26,866     36,497
Income (loss) before cumulative effect of
   accounting change .......................    (37,773)   (146,675)     (43,343)      (144,731)      (9,399)    43,708      6,885
Income (loss) per share before cumulative
   effect of accounting change, diluted ....   $  (1.00)  $   (3.74)    $  (0.68)     $   (2.68)    $  (0.15)  $   0.61   $   0.10
Weighted average number of Common
   Shares outstanding, diluted .............     37,779      39,215       63,407         54,077       64,413     71,088     71,380

OPERATING DATA (unaudited)
Number of eye care centers at end
   of period ...............................         59          80           84             84           76         73         81
Number of access service sites(1)
   Refractive ..............................         --         336          304            304          270        327        316
   Cataract ................................         --         280          274            274          359        371        563
Number of laser vision correction
   procedures:
   Centers .................................    122,800      95,000       49,700         95,000      100,500    115,700    119,100
   Access ..................................         --          --       43,200         47,000       75,600     80,700     71,800
   Mobile cataract .........................         --          --       23,300         24,800       40,700     43,700     49,000
Total procedures ...........................    122,800      95,000      116,200        166,800      216,800    240,100    239,900




                                                MAY 31,     MAY 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                 2001        2002         2002           2003           2004           2005
                                               --------   ---------   ------------   ------------   ------------   ------------
                                                                                                 
BALANCE SHEET DATA
Cash and cash equivalents ..................   $ 47,987   $  45,074    $  34,231      $  21,580      $  33,435      $  31,729
Working capital ............................     42,366      23,378       12,523         10,868        131,195         66,896
Total assets ...............................    238,438     245,515      196,056        190,748        305,241        301,043
Long-term debt, excluding current portion ..      8,313      14,643       15,760         19,242          9,991         12,665

STOCKHOLDERS' EQUITY
Common stock ...............................    276,277     387,701      388,769        397,878        458,959        450,703
Option and warrant equity ..................        532      11,755       11,035          8,143          2,872          1,861
Accumulated deficit ........................    (80,161)   (242,010)    (285,353)      (294,752)      (251,044)      (244,159)
Accumulated other comprehensive loss .......     (9,542)         --           --             --             --             --
Total stockholders' equity .................    187,106     155,014      111,828        111,269        210,787        208,405


(1)  An access service site has provided services in the preceding 90 days.

(2)  In fiscal 2001, the selected financial data of the Company included a
     restructuring charge of $19.1 million.

(3)  In fiscal 2002, the selected financial data of the Company included:

     (a)  a charge of $81.7 million for impairment of intangibles;

     (b)  a write down of $26.1 million in the fair value of investments and
          long-term receivables;

     (c)  a restructuring charge of $8.8 million; and

     (d)  a reduction of $2.6 million in the carrying value of fixed assets.

(4)  In the seven months ended December 31, 2002, the selected financial data of
     the Company included:

     (a)  a charge of $22.1 million for impairment of intangibles;

     (b)  a write down of $2.1 million in the fair value of investments and
          long-term receivables;

     (c)  other income of $6.8 million for settlement of a class action lawsuit
          with laser manufacturers;

     (d)  a restructuring charge of $4.7 million; and

     (e)  a reduction of $1.0 million in the carrying value of fixed assets.

(5)  In the twelve-month period ended December 31, 2002, the selected financial
     data of the Company included:

     (a)  a charge of $103.9 million for impairment of intangibles;

     (b)  a write down of $7.1 million in the fair value of investments and
          long-term receivables;

     (c)  other income of $6.8 million for settlement of a class action lawsuit
          with laser manufacturers;

     (d)  a restructuring charge of $11.2 million; and

     (e)  a reduction of $1.5 million in the carrying value of fixed assets.

(6)  In fiscal 2003, the selected financial data of the Company included an
     adjustment to the fair value of long-term receivables of $0.2 million.

(7)  In fiscal 2004, the selected financial data of the Company included:

     (a)  an adjustment to the fair value of long-term receivables of $1.2
          million;

     (b)  other income of $25.8 million from the gain on sale of OccuLogix
          stock; and

     (c)  an executive severance charge of $2.6 million.

(8)  In fiscal 2005, the selected financial data of the Company included:

     (a)  a write-down of $1.1 million in the fair value of intangibles and
          an adjustment to the fair value of long-term liabilities of $0.2
          million;

     (b)  OccuLogix inventory and accounts receivable write-downs of $1.6
          million, after minority interests; and

     (c)  a $1.2 million correction of an error related to 2004 income taxes
          as described in footnote 15 to the consolidated financial statements.

                                       32





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

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the consolidated
financial statements and the related notes thereto, which are included in Item 8
of this Form 10-K. The following discussion is based upon the Company's results
under U.S. generally accepted accounting principles. Unless otherwise specified,
all dollar amounts are U.S. dollars.

OVERVIEW

     TLC Vision Corporation is a diversified eye care services company dedicated
to improving lives through better vision by providing eye doctors with the tools
and technologies they need to deliver high quality patient care. The majority of
the Company's revenues come from laser refractive surgery, which involves using
an excimer laser to treat common refractive vision disorders such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. The Company's
business models include arrangements ranging from owning and operating fixed
site centers to providing access to lasers through fixed site and mobile service
relationships. In addition to refractive surgery, the Company is diversified
into other eye care businesses. Through its MSS subsidiary, the Company
furnishes hospitals and other facilities with mobile or fixed site access to
cataract surgery equipment, supplies and technicians. The Company is continuing
to expand MSS into other mobile diagnostic services, such as glaucoma screening.
Through its ambulatory surgery center (ASC) subsidiaries, TLCVision develops,
manages and has equity participation in single- and multi-specialty ASCs. The
Company also owns a 51% majority interest in Vision Source, which provides
franchise opportunities to independent optometrists. The Company is also a 51%
majority owner of OccuLogix, which focuses on the treatment of a specific eye
disease known as dry age-related macular degeneration, via rheopheresis, a
process for filtering blood. OccuLogix, is also a reporting company with the
Commission, and its stock is publicly traded on the Nasdaq National Market and
the Toronto Stock Exchange.

     The Company recognizes revenues at the time procedures are performed or
services are rendered. Revenues include amounts charged to patients for
procedures performed at laser centers, amounts charged to physicians for laser
access and service fees, and management fees from managing refractive and
secondary care practices. Under the terms of management service agreements, the
Company provides non-clinical services, which include facilities, staffing,
equipment lease and maintenance, marketing and administrative services to
refractive and secondary care practices in return for management fees. For third
party payor programs and corporations with arrangements with TLCVision, the
Company's management fee and the fee charged by the surgeon are both discounted
in proportion to the discount afforded to these organizations. While the Company
does not direct the manner in which the surgeons practice medicine, the Company
does direct the day-to-day non-clinical operations of the centers. The
management service agreements typically are for an extended period of time,
ranging from five to 15 years. Management fees are equal to the net revenue of
the physician practice, less amounts retained by the physician groups.

     Included in costs of revenue are the laser fees payable to laser
manufacturers for royalties, doctors' compensation, use and maintenance of the
lasers, variable expenses for consumables and facility fees, as well as center
costs associated with personnel, facilities and depreciation of center assets.

     Selling, general and administrative expenses include expenses that are not
directly related to the provision of laser correction services or cataract
services.

     The Company serves surgeons who performed over 279,200 procedures,
including refractive and cataract procedures, at the Company's centers or using
the Company's equipment during the year ended December 31, 2005. In the twelve
months ended December 31, 2005, the Company's refractive procedure volume
decreased to 190,900 compared to 196,400 in the twelve months ended December 31,
2004, a decrease of 5,500 procedures or 3%. Being an elective procedure, laser
vision correction volumes will fluctuate due to changes in economic and stock
market conditions, unemployment rates, consumer confidence and political
uncertainty. Demand for laser vision correction also is affected by perceived
safety and effectiveness concerns given the lack of long-term follow-up data.


                                       33



DEVELOPMENTS DURING FISCAL 2005

     ACQUISITIONS AND DIVESTITURES

     On July 11, 2005, the Company acquired substantially all the assets of
Kremer Laser Eye ("Kremer"). Kremer operates three refractive centers and one
ambulatory surgery center all of which are located in the northeastern part of
the United States. For over 20 years, Kremer has been an integrated eye care
company providing refractive, cataract and glaucoma surgery services. The
acquisition of Kremer expands the Company's presence in both the refractive and
ASC businesses in one of the largest populated markets in the United States. The
purchase price for the acquired assets was $29.7 million. In addition, the
Company assumed certain liabilities and incurred transaction costs of $1.1
million. Simultaneously with this transaction, the Company sold an 18% interest
in Kremer to a group of doctors associated with Kremer for $5.3 million. As a
result, the Company maintains an 82% ownership interest in Kremer.

     On December 1, 2005, the Company acquired a 49% interest in Liberty Eye
Surgical Center, LLC ("Liberty") for $6.2 million in cash. Liberty is an
ambulatory surgery center located in Philadelphia, Pennsylvania that primarily
provides cataract surgery services.

     On November 8, 2005, the Company acquired TruVision, Inc. ("TruVision") for
$17.4 million in cash and 3,913 shares of company common stock valued at
approximately $24,000 coupled with a three-year earn out. TruVision is a managed
care contractor to health plan members and large corporations across 44 states.
TruVision's services enable insurance health plans and large corporations to
offer LASIK vision surgery to their members at a reduced price.

     On July 1, 2005, the Company acquired a 100% interest in Millennium Laser
Eye ("Millennium") for $6.1 million in cash plus the assumption of certain
liabilities. Millennium provides refractive services in Washington, D.C.

     On March 1, 2005, the Company sold its interest in Aspen Healthcare, Inc.
("Aspen") to National Surgical Centers, Inc. and recorded a gain of $0.3
million, which is included in other operating expenses.

CRITICAL ACCOUNTING POLICIES

     IMPAIRMENT OF GOODWILL

     The Company accounts for its goodwill in accordance with Statement of
Financial Accounting Standards ("SFAS") 142, which requires the Company to test
goodwill for impairment annually and whenever events occur or circumstances
change that would more likely than not reduce the fair value of the reporting
unit below its carrying value. SFAS 142 requires the Company to determine the
fair value of its reporting units. Because quoted market prices do not exist for
the Company's reporting units, the Company uses the present value of expected
future cash flows to estimate fair value. Management must make significant
estimates and assumptions about future conditions to estimate future cash flows.
If these estimates or their related assumptions change in the future, including
general economic and competitive conditions, the Company may be required to
record impairment charges related to these assets.

     IMPAIRMENT OF LONG-LIVED ASSETS

     The Company accounts for its long-lived assets in accordance with SFAS 144,
which requires the Company to assess the recoverability of these assets when
events or changes in circumstances indicate that the carrying amount of the
long-lived asset (group) might not be recoverable. If impairment indicators
exist, the Company determines whether the projected undiscounted cash flows will
be sufficient to cover the carrying value of such assets. This requires the
Company to make significant judgments about the expected future cash flows of
the asset group. The future cash flows are dependent on many factors including
general and economic conditions and are subject to change. A change in these
assumptions could result in material charges to income.

     RECOVERABILITY OF DEFERRED TAX ASSETS

     The Company has generated deferred tax assets and liabilities due to
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the income tax bases of such assets and
liabilities. Valuation allowances are recorded to reduce deferred tax assets to
the amount expected to be realized. In assessing the adequacy of the valuation
allowances, the Company considers the scheduled reversal of deferred tax
liabilities, future taxable income and prudent and feasible tax planning
strategies. At December 31, 2005, the Company had valuation allowances of $75.6
million to fully offset deferred tax assets of $75.6 million. The valuation
allowance was based on the uncertainty of the realizability of certain deferred
tax assets. In the event the Company determines it is more likely than not it
will be able to use a deferred tax asset in the future in excess of its net
carrying value, the valuation allowance would be reduced, thereby increasing net
income, reducing goodwill or increasing equity in the period such determination
was made.


                                       34



     ACCRUAL OF MEDICAL MALPRACTICE CLAIMS

     The nature of the Company's business is such that it is subject to medical
malpractice lawsuits. To mitigate a portion of this risk, the Company maintains
insurance in the United States for individual malpractice claims with a
deductible of $250,000 per claim and a total annual aggregate deductible of $15
million. Management and the Company's insurance carrier review malpractice
lawsuits for purposes of establishing ultimate loss estimates. The Company has
recorded reserves to cover the estimated costs of the deductible for both
reported and unreported medical malpractice claims incurred. The estimates are
based on the average monthly claims expense and the estimated average time lag
between the performance of a procedure and notification of a claim. If the
number of claims or the cost of settled claims is higher than the Company's
historical experience or if the actual time lag varies from the estimated time
lag, the Company may need to record significant additional expense.

RISK FACTORS

     See "Item 1A - Risk Factors."

YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31, 2004

     Total revenues for the year ended December 31, 2005 were $260.0 million, an
increase of $12.8 million or 5% over revenues of $247.2 million for the year
ended December 31, 2004. Approximately 72% of total revenues for the year ended
December 31, 2005 were derived from refractive services compared to 74% during
the year ended December 31, 2004.

     Revenues from the refractive segment for the year ended December 31, 2005
were $186.6 million, an increase of $4.2 million or 2% over revenues of $182.4
million for the year ended December 31, 2004. The increase in refractive
revenues was due largely to higher average pricing and procedures from centers
that were acquired during 2005 partially offset by lower procedure volume.
Refractive procedures for the year ended December 31, 2005 were approximately
190,900, a decrease of 5,500 or 3% from refractive procedures of 196,400 for the
year ended December 31, 2004. Procedures for Laser Eye Care of California
("LECC"), a 30% owned subsidiary, were included in both periods, and account for
18,100 procedures for the year ended December 31, 2005, an increase of 1,400
procedures over the year ended December 31, 2004.

     Revenues from centers for the year ended December 31, 2005 were $150.2
million, an increase of $8.4 million or 6% over revenues of $141.8 million for
the year ended December 31, 2004. The increase in centers revenues was due to a
3,300 or 3% increase in centers procedures and higher average pricing.

     Revenues from access services for the year ended December 31, 2005 were
$36.5 million, a decrease of $4.2 million or 10% from revenues of $40.7 million
for the year ended December 31, 2004. The decrease in access revenues was
primarily due to a 8,800 or 11% decrease in access procedures partially offset
by higher average pricing.

     Revenues from other healthcare services for the year ended December 31,
2005 were $73.4 million, an increase of $8.6 million or 13% over revenues of
$64.8 million for the year ended December 31, 2004. The increase in other
healthcare services revenue primarily resulted from internal growth of existing
businesses and contributions from ASC and mobile cataract businesses acquired
within the past year. Approximately 28% of the total revenues for the year ended
December 31, 2005 were derived from other healthcare services compared to 26%
during the year ended December 31, 2004.

     The cost of refractive revenues for the year ended December 31, 2005 was
$133.5 million, an increase of $3.2 million or 2% over the cost of refractive
revenues of $130.3 million for the year ended December 31, 2004. This increase
was primarily attributable to a higher percentage of refractive procedures
coming from centers, which have a higher per procedure cost than access
procedures. The increase is also due to higher costs associated with higher
priced procedures, primarily Custom LASIK and Intralase partially offset by a
decrease in total refractive procedures. Gross margins for the refractive
business as a whole remained consistent at 29% for the years ended December 31,
2005 and 2004.

     The cost of revenues from centers for the year ended December 31, 2005 was
$106.5 million, an increase of $5.1 million or 5% over the cost of revenues of
$101.4 million for the year ended December 31, 2004. This increase primarily
resulted from higher procedure volume and higher costs associated with higher
priced procedures. Gross margins from centers were 29% for the year ended
December 31, 2005, increasing less than 1% from gross margins for the year ended
December 31, 2004.

     The cost of revenues from access services for the year ended December 31,
2005 was $27.0 million, a decrease of $1.9 million or 7% over the cost of
revenues of $28.9 million for the year ended December 31, 2004. This decrease
primarily resulted from lower


                                       35



procedure volume partially offset by higher costs associated with higher priced
procedures. Gross margins from access services decreased to 26% for the year
ended December 31, 2005 from 29% during the year ended December 31, 2004. This
margin percentage decrease was primarily due to lower procedure volumes and
lower margins associated with higher priced procedures.

     The cost of revenues from other healthcare services for the year ended
December 31, 2005 was $47.3 million, an increase of $6.9 million or 17% over the
cost of revenues of $40.4 million for the year ended December 31, 2004. The
increase in cost of revenues was primarily related to incremental costs incurred
to generate the increased revenue of the other healthcare service business and
included an increase of $2.0 million related to a provision for OccuLogix's
inventory. Gross margins decreased to 36% from 38% due principally to the $2.0
million provision for OccuLogix's inventory.

     General and administrative expenses increased to $36.5 million for the year
ended December 31, 2005 from $26.9 million for the year ended December 31, 2004.
The $9.6 million or 36% increase included an $8.0 million increase as a result
of consolidating the results of operations of OccuLogix for 2005 (began
consolidating in December 2004). The remaining $1.6 million increase was
primarily due to increased costs associated with acquisitions made during the
year.

     Marketing and sales expenses increased to $21.7 million for the year ended
December 31, 2005 from $18.7 million for the year ended December 31, 2004. The
$3.0 million or 16% increase included a $0.5 million increase as a result of
consolidating the results of operations of OccuLogix for 2005 (began
consolidating in December 2004). The remaining $2.5 million increase was
primarily due to higher corporate marketing spending and increased costs
associated with acquisitions made during the year.

     Research and development, clinical and regulatory expenses increased to
$5.3 million for the year ended December 31, 2005 from $1.8 million for the year
ended December 31, 2004. The $3.5 million increase was due to increased costs
incurred by OccuLogix related to its efforts to complete the MIRA-1 clinical
trial.

     Amortization expenses decreased to $4.0 million for the year ended December
31, 2005 from $4.1 million for the year ended December 31, 2004. This decrease
was due to lower expenses from certain fully amortized intangible assets
partially offset by increases from intangibles acquired during the year ended
December 31, 2005.

     Other operating expenses, net decreased to $0.8 million for the year ended
December 31, 2005 from $0.9 million for the year ended December 31, 2004. For
the year ended December 31, 2005, other operating expenses, net primarily
included $1.0 million of center closing costs and $0.9 million of net
write-downs of the fair values of intangibles and long-term liabilities
partially offset by $0.4 million of miscellaneous income, a $0.3 million gain on
the sale of a subsidiary and a $0.3 million reimbursement received under a
previous research and development arrangement. For the year ended December 31,
2004, other operating expenses, net primarily included $2.6 million of severance
accruals for two officers under terms of employment contracts and $0.8 million
of losses on sales and disposals of fixed assets partially offset by a $1.2
million adjustment to the fair value of a long-term receivable and a $1.1
million gain on the sale of LECC.

     During the year ended December 31, 2004, the Company recorded a $25.8
million gain on the sale of 2.3 million shares of OccuLogix's common stock.
There was no such sale of OccuLogix's common stock during the year ended
December 31, 2005.

     Interest income increased to $4.3 million for the year ended December 31,
2005 from $2.0 million for the year ended December 31, 2004. This $2.3 million
increase included a $1.5 million increase as a result of consolidating the
operations of OccuLogix for 2005 (began consolidating in December 2004). The
remaining $0.8 million increase was due to an increase in the Company's cash and
cash equivalents and short-term investments balances as well as higher rates of
return.

     Interest expense decreased to $1.7 million for the year ended December 31,
2005 from $2.6 million for the year ended December 31, 2004. This $0.9 million
decrease was due to declining debt and capital lease obligations.

     Minority interest expense decreased to $1.3 million for the year ended
December 31, 2005 from $7.0 million for the year ended December 31, 2004. This
$5.7 million decrease included a $6.6 million decrease due to consolidating the
results of operations of OccuLogix for 2005 (began consolidating in December
2004) partially offset by a $0.9 million increase from the Company's other
business segments.

     Earnings from equity investments increased to $2.5 million for the year
ended December 31, 2005 from $2.1 million for the year ended December 31, 2004.
This $0.4 million increase was primarily due to a $0.7 million increase in
earnings from an ASC that was acquired in December 2004.

     Income tax expense increased to $7.9 million for the year ended December
31, 2005 from $0.6 million for the year ended


                                       36


     December 31, 2004. This $7.3 million increase was primarily a result of the
nature of the Company's net operating loss carryforwards that were utilized in
2005 compared to those utilized in 2004 and correcting a $1.2 million 2004
income tax expense understatement in 2005, as described in footnote 15 to the
consolidated financial statements. During 2005, the Company principally reversed
deferred tax valuation allowances to goodwill and equity compared to income tax
benefit in 2004. The income tax expense increase of $7.3 million is primarily a
non-cash increase.

     Net income for the year ended December 31, 2005 was $6.9 million or $0.10
per share compared to net income of $43.7 million or $0.61 per share for the
year ended December 31, 2004. This $36.8 million decrease reflected a $31.0
million decrease from the AMD segment, which included a gain of $25.8 million in
2004. Excluding the impact of the AMD segment, net income decreased to $14.7
million or $0.21 per share for the year ended December 31, 2005 from $20.5
million or $0.29 per share for the year ended December 31, 2004. As previously
noted, net income for 2005 included a primarily non-cash increase in income tax
expense of $7.3 million or $0.10 per share.

YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31, 2003

     As a result of adopting Financial Accounting Standards Board Interpretation
46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51" (FIN 46), the Company began consolidating the physician practices that are
managed but not owned by the Company on January 1, 2004. The consolidation
resulted in the Company recording an additional $16.2 million in center revenue
and $16.0 million in center cost of revenue during 2004 as the revenue earned
and expenses paid (primarily doctors' compensation) by the physician practices
are now included in the Company's results. The consolidation had no impact on
net income.

     Prior to the adoption, doctors' compensation and related revenue were not
reflected in the Company's statement of operations for the managed centers, but
were reflected in the Company's statement of operations for the owned centers.
The Company previously presented the revenues and cost of revenues of managed
centers and owned centers separately in the statements of operations due to
different profit margins. Beginning with the first quarter of 2004, the Company
presents all centers, managed and owned, together because both types of centers
now include doctors' compensation and the related revenue.

     The increase in center revenue attributed to the adoption of FIN 46 was
partially offset by the deconsolidation of LECC in connection with the sale of a
portion of the Company's interest in LECC. The results of operations for 2003
included $14.8 million in center revenues related to LECC whereas the results of
operations for 2004 include no center revenue for LECC because LECC was
accounted for using the equity method of accounting beginning January 1, 2004.

     Total revenues for the year ended December 31, 2004 were $247.2 million, an
increase of $46.3 million, or 23% over revenues of $200.9 million for the year
ended December 31, 2003. Approximately 74% of total revenues for the year ended
December 31, 2004 were derived from refractive services compared to 75% during
the year ended December 31, 2003.

     Revenues from the refractive segment for the year ended December 31, 2004
were $182.4 million, an increase of $31.0 million or 20% over revenues of $151.4
million for the year ended December 31, 2003. The increase in refractive
revenues was due largely to an increase in refractive procedures. Refractive
procedures for the year ended December 31, 2004 were approximately 196,400, an
increase of 20,300 or 12% over refractive procedures of 176,100 for the year
ended December 31, 2003. Procedures for LECC were included in both periods, and
account for 16,700 procedures for the year ended December 31, 2004, an increase
of 3,900 procedures over the year ended December 31, 2003. Refractive revenues
also increased as a result of a higher mix of procedures performed at the
Company's centers and higher average pricing.

     Revenues from centers for the year ended December 31, 2004 were $141.8
million, an increase of $26.5 million or 23% over revenues of $115.3 million for
the year ended December 31, 2003. The increase in centers revenues was partially
due to a 15,300 or 15% increase in centers procedures. Centers revenues also
increased as a result of higher average pricing and additional revenue as a
result of adopting FIN 46 partially offset by decreased revenue from
deconsolidating LECC.

     Revenues from access services for the year ended December 31, 2004 were
$40.7 million, an increase of $4.6 million or 13% over revenues of $36.1 million
for the year ended December 31, 2003. The increase in access revenues was
primarily due to a 5,100 or 7% increase in access procedures and an increase in
procedure mix to the higher priced transportable business.

     Revenues from other healthcare services for the year ended December 31,
2004 were $64.8 million, an increase of $15.3 million, or 31% over revenues of
$49.5 million for the year ended December 31, 2003. The increase in other
healthcare services revenue primarily resulted from internal growth of existing
businesses and contributions from ASC businesses acquired within the past year.
Approximately 27% of the total revenues for the year ended December 31, 2004
were derived from other healthcare services compared to 25% during the year
ended December 31, 2003.


                                       37



     The cost of refractive revenues for the year ended December 31, 2004 was
$130.3 million, an increase of $13.6 million, or 12%, over the cost of
refractive revenues of $116.7 million for the year ended December 31, 2003. This
increase was primarily attributable to increased procedure volume and higher
costs associated with Custom LASIK. Primarily as a result of higher procedure
volumes at centers, gross margins for the refractive business as a whole
increased to 29% for the year ended December 31, 2004 from 23% for the year
ended December 31, 2003.

     The cost of revenues from centers for the year ended December 31, 2004 was
$101.4 million, an increase of $10.1 million or 11% over the cost of revenues of
$91.3 million for the year ended December 31, 2003. This increase primarily
resulted from $5.5 million of additional costs related to increased procedure
volume and higher costs associated with Custom LASIK, and $16.0 million of costs
resulting from the Company's adoption of FIN 46 effective January 1, 2004. These
increases were partially offset by $11.4 million in cost of revenues for LECC
during the year ended December 31, 2003 (as compared to none during the year
ended December 31, 2004).

     Gross margins from centers increased to 28% for the year ended December 31,
2004 from 21% during the year ended December 31, 2003 as higher procedure
volumes led to strong incremental variable margin gains. This margin percentage
increase was diluted by the consolidation of the physician practices managed by
the Company due to the adoption of FIN 46. For comparison purposes, had the
Company consolidated the physician practices during 2003, the gross margin
percentage would have been 18% for the year ended December 31, 2003.

     The cost of revenues from access services for the year ended December 31,
2004 was $28.9 million, up $3.5 million or 14% over the cost of revenues of
$25.4 million for the year ended December 31, 2003. This increase primarily
resulted from higher procedure volume and higher costs associated with Custom
LASIK. Gross margins from access services decreased to 29% for the year ended
December 31, 2004 from 30% during the year ended December 31, 2003. This margin
percentage decrease was primarily due to pricing pressure from competitors and
higher costs associated with Custom LASIK.

     The cost of revenues from other healthcare services for the year ended
December 31, 2004 was $40.4 million, an increase of $8.6 million or 27% over the
cost of revenues of $31.8 million for the year ended December 31, 2003. The
increase in cost of revenues was primarily related to incremental costs incurred
to generate the increased revenue of the other healthcare service business.
Gross margins increased to 38% from 36% due principally to volume growth.

     General and administrative expenses decreased to $26.9 million for the year
ended December 31, 2004 from $27.0 million for the year ended December 31, 2003.
The $0.1 million decrease reflected the Company's success in increasing revenue
while controlling general and administrative expenses.

     Marketing and sales expenses decreased to $18.7 million for the year ended
December 31, 2004 from $18.8 million for the year ended December 31, 2003. The
$0.1 million decrease reflected the Company's success in increasing revenue
while controlling marketing expenses.

     Research and development, clinical and regulatory expenses increased to
$1.8 million for the year ended December 31, 2004 from $1.6 million for the year
ended December 31, 2003. Prior to consolidation of OccuLogix, the Company
incurred research and development expenses in 2004 and 2003 of $1.2 million and
$1.6 million, respectively, relating to investments made to fund research and
development efforts by OccuLogix to achieve FDA approval for medical treatments
related to dry age-related macular degeneration. Since the technology is in the
development stage and has not received FDA approval, the Company accounted for
this investment as a research and development arrangement whereby investments
were expensed as amounts were expended by OccuLogix. For the year ended December
31, 2004, the total expense of $1.8 million also included $0.6 million of costs
incurred by OccuLogix (after consolidation began in December, 2004) related to
its efforts to achieve FDA approval for medical treatments related to dry
age-related macular degeneration.

     Amortization expenses decreased to $4.1 million for the year ended December
31, 2004 from $6.7 million for the year ended December 31, 2003. This decrease
was largely due to the reduction in intangible assets (Practice Management
Agreements) resulting from the deconsolidation of LECC.

     Other operating expenses, net decreased to $0.9 million for the year ended
December 31, 2004 from $1.2 million for the year ended December 31, 2003. For
the year ended December 31, 2004, other operating expenses, net primarily
included $2.6 million of severance accruals for two officers under terms of
employment contracts and $0.8 million of losses on sales and disposals of fixed
assets partially offset by a $1.2 million adjustment to the fair value of a
long-term receivable and a $1.1 million gain on the sale of LECC. For the year
ended December 31, 2003, other operating expenses, net primarily included $2.0
million of center closing costs partially offset by $0.5 million of gains on
sales of fixed assets and a $0.2 million adjustment to the fair value of a
long-term


                                       38



receivable.

     During the year ended December 31, 2004, the Company recorded a $25.8
million gain on the sale of 2.3 million shares of OccuLogix's common stock.

     Interest income increased to $2.0 million for the year ended December 31,
2004 from $1.4 million for the year ended December 31, 2003. This $0.6 million
increase was due to an increase in the Company's cash and cash equivalents and
short-term investments balances as well as higher rates of return.

     Interest expense decreased to $2.6 million for the year ended December 31,
2004 from $2.7 million for the year ended December 31, 2003. This $0.1 million
decrease was due to declining debt and capital lease obligations.

     Minority interest expense increased to $7.0 million for the year ended
December 31, 2004 from $4.7 million for the year ended December 31, 2003. This
$2.3 million increase was a result of higher profits reported by the Company's
subsidiaries in which the Company has a shared interest with minority partners.

     Earnings from equity investments of $2.1 million for the year ended
December 31, 2004 resulted primarily from $1.3 million of earnings related to
the Company's minority ownership investment in LECC and $0.7 million of earnings
related to the Company's minority ownership investments in two separate
secondary care service providers.

     Income tax expense increased to $0.6 million for the year ended December
31, 2004 from $0.5 million for the year ended December 31, 2003. The $0.6
million tax expense primarily consisted of state taxes for certain states where
the Company expects to pay income taxes. The current year federal income tax
expense attributable to the Company and subsidiaries was offset by the partial
reversal of valuation allowances as the Company utilized a portion of its net
operating loss carryforwards in 2004.

     Net income for the year ended December 31, 2004 was $43.7 million, or $0.61
per share, compared to a net loss of $9.4 million, or $0.15 per share, for the
year ended December 31, 2003. The significant improvement in net income
primarily resulted from significant growth in both the refractive and other
healthcare services businesses and a gain on the sale of OccuLogix's common
stock. Excluding the impact of the AMD segment, net income increased to $20.5
million or $0.29 per share for the year ended December 31, 2004 from a net loss
of $7.3 million or $0.11 per share for the year ended December 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

     During the year ended December 31, 2005, the Company continued to focus its
activities primarily on increasing refractive, center and other healthcare
revenues and volumes through internal growth and acquisitions, controlling
operating costs and developing the infrastructure of OccuLogix. Cash and cash
equivalents, short-term investments and restricted cash were $70.9 million at
December 31, 2005 compared to $145.4 million at December 31, 2004. Working
capital at December 31, 2005 decreased to $66.9 million from $131.2 million at
December 31, 2004. Decreases in cash and working capital reflect the Company's
cash investments in several acquisitions and the commercialization of
OccuLogix's RHEO(TM) System during 2005.

     The Company's principal cash requirements have included normal operating
expenses, debt repayment, distributions to minority partners, capital
expenditures, share repurchases, acquisitions and investments, expenditures to
fund the development of OccuLogix's infrastructure, to complete clinical trials,
to accumulate inventory and to undertake other activities to commercialize the
RHEO(TM) System. Normal operating expenses include doctors' compensation,
procedure royalty fees, procedure medical supply expenses, travel and
entertainment, professional fees, insurance, rent, equipment maintenance, wages,
utilities and marketing.

     During the year ended December 31, 2005, the Company invested $8.3 million
in fixed assets and received vendor financing for $5.7 million of fixed assets,
primarily upgrades for excimer lasers and new equipment related to the growth of
the mobile cataract business.

     As new technologies emerge in the refractive market, the Company may need
to upgrade its equipment, including excimer lasers and flap-making technology.
The Company has access to vendor financing at fixed interest rates or on a per
procedure fee basis and expects to continue to have access to these financing
options for at least the next 12 months.

     As of December 31, 2005, the Company had contractual obligations relating
to long-term debt, capital lease obligations, operating leases for rental of
office space and equipment, marketing contracts, royalty obligations and the
purchase of additional ownership interest in an ASC requiring future minimum
payments aggregating to $60.7 million. Future minimum payments are as follows:


                                       39



                             PAYMENTS DUE BY PERIOD



                                               LESS                MORE
                                              THAN 1    1 TO 3     THAN
CONTRACTUAL OBLIGATIONS             TOTAL      YEAR     YEARS    3 YEARS
- -----------------------            -------   -------   -------   -------
                                                     
Long-term debt                     $17,933   $ 5,268   $ 6,013   $ 6,652
Capital lease obligations            7,952     3,697     3,632       623
Operating leases                    26,973     7,289    10,229     9,455
Marketing contracts                  6,000     2,000     4,000        --
Royalty obligations                  1,150       100       300       750
Purchase of additional ownership
   interest                            675       675        --        --
                                   -------   -------   -------   -------
Total                              $60,683   $19,029   $24,174   $17,480
                                   =======   =======   =======   =======


     On July 11, 2005, the Company acquired substantially all the assets of
Kremer. Kremer operates three refractive centers and one ambulatory surgery
center all of which are located in the northeastern part of the United States.
For over 20 years, Kremer has been an integrated eye care company providing
refractive, cataract and glaucoma surgery services. The acquisition of Kremer
expands the Company's presence in both the refractive and ASC businesses in one
of the largest populated markets in the United States. The purchase price for
the acquired assets was $29.7 million. In addition, the Company assumed certain
liabilities and incurred transaction costs of $1.1 million. Simultaneously with
this transaction, the Company sold an 18% interest in Kremer to a group of
doctors associated with Kremer for $5.3 million. As a result, the Company
maintains an 82% ownership interest in Kremer.

     On December 1, 2005, the Company acquired a 49% interest in Liberty for
$6.2 million in cash. Liberty is an ambulatory surgery center located in
Philadelphia, Pennsylvania that primarily provides cataract surgery services.

     On November 8, 2005, the Company acquired TruVision for $17.4 million in
cash and 3,913 shares of company common stock valued at approximately $24,000
coupled with a three-year earn out. TruVision is a managed care contractor to
health plan members and large corporations across 44 states. TruVision's
services enable insurance health plans and large corporations to offer LASIK
vision surgery to their members at a reduced price.

     On July 1, 2005, the Company acquired a 100% interest in Millennium for
$6.1 million in cash plus the assumption of certain liabilities. Millennium
provides refractive services in Washington, D.C.

     On March 1, 2005, the Company sold its interest in Aspen to National
Surgical Centers, Inc. and recorded a gain of $0.3 million, which is included in
other operating expenses.

     During 2005, the Company received $1.9 million in proceeds from the
exercise of non-qualified stock options to purchase 0.7 million common shares.

     In November 2003, the Company obtained a $15 million line of credit from GE
Healthcare Financial Services. This loan is secured by certain accounts
receivable and cash accounts in wholly-owned subsidiaries and a general lien on
most other U.S. assets. As of December 31, 2005, the Company did not have any
borrowings drawn under the line of credit and had an available unused line of
$15 million.

     The Company estimates that existing cash balances and short-term
investments, together with funds expected to be generated from operations and
credit facilities, will be sufficient to fund the Company's anticipated level of
operations and expansion plans for the next 12 to 18 months.

CASH FROM OPERATING ACTIVITIES

     Net cash provided by operating activities was $22.5 million for the year
ended December 31, 2005. The cash flows provided by operating activities during
the year ended December 31, 2005 were primarily due to net income of $6.9
million plus non-cash items including depreciation and amortization of $16.4
million, deferred taxes of $6.3 million, minority interest expense of $1.3
million and compensation expense of $1.4 million. These cash flows were offset
by an increase in net operating assets of $7.6 million and earnings from equity
investments of $2.5 million. The increase in net operating assets consisted of a
$3.0 million increase in accounts receivable due primarily to higher revenues, a
$1.9 million increase in prepaid expenses, inventory and other current assets
due primarily to increases in inventory at OccuLogix and a $2.8 million decrease
in accounts payable and accrued liabilities. Excluding


                                       40



the impact of the AMD segment, net cash provided by operating activities would
have been $41.6 million for the year ended December 31, 2005.

CASH FROM INVESTING ACTIVITIES

     Net cash provided by investing activities was $5.3 million for the year
ended December 31, 2005. Cash provided by investing activities during the year
ended December 31, 2005 included $129.8 million in proceeds from short-term
investments, $3.0 million in cash distributions received from equity
investments, $3.4 million in net cash associated with the sale of a subsidiary,
$1.8 million from the sale of fixed assets and $0.3 million from reimbursements
of investments in research and development arrangements. These cash flows were
offset by $57.1 million of purchases of short-term investments, $67.6 million
for acquisitions and equity investments and $8.3 million for the acquisition of
fixed assets. Excluding the impact of the AMD segment, net cash from investing
activities would have decreased by $10.7 million to a net cash used in investing
activities of $5.4 million. During the next 12 months, the Company plans to
continue to invest in other business acquisitions and capital expenditures
deemed advisable to further its business objectives.

CASH FROM FINANCING ACTIVITIES

     Net cash used in financing activities was $29.6 million for the year ended
December 31, 2005. Net cash used in financing activities during the year ended
December 31, 2005 was primarily due to $15.9 million for purchases of treasury
stock, $9.5 million for the repayment of certain notes payable and capitalized
lease obligations and $8.4 million distributed to minority interests resulting
from profits at certain of the Company's business units. These cash outflows
were offset by $2.0 million in proceeds from the exercise of stock options and
purchases of stock through the employee stock purchase plan and $2.0 million in
proceeds from debt financing. Excluding the impact of the AMD segment, net cash
used in financing activities would have been $29.9 million for the year ended
December 31, 2005. The Company anticipates that the availability to draw upon
the unused portion of the Company's $15 million line of credit, if necessary,
will be sufficient to fund additional financing needs in 2006.

NEW ACCOUNTING PRONOUNCEMENTS

     For a discussion on recent pronouncements, see Note 2, "Summary of
Significant Accounting Policies," in the accompanying audited consolidated
financial statements and notes thereto set forth in Item 8 of this Report.

RECENT DEVELOPMENTS

     On February 3, 2006, OccuLogix announced that it had completed a
preliminary analysis of the data from MIRA-1, its recently completed pivotal
(phase III) clinical trial using its RHEO(TM) System. The data indicated that
MIRA-1 did not demonstrate a statistically significant mean change of Best
Spectacle-Corrected Visual Acuity. As a result of this announcement, the share
price of OccuLogix stock as traded on the NASDAQ National Market System
decreased from $12.75 on February 2, 2006 to close at $4.10 on February 3, 2006.
The 10-day average price of the stock immediately following the announcement was
$3.65 and reflected a decrease in the market capitalization of OccuLogix from
$536.6 million on February 2, 2006 to $153.6 million based on the 10-day share
price average subsequent to the announcement. The resulting decrease in the
share price was identified as an indicator of impairment leading to an analysis
of OccuLogix's intangible assets and goodwill and resulting in OccuLogix
reporting an impairment charge to goodwill of $147.5 million. Because TLCVision
accounted for the OccuLogix reorganization at historical cost, it eliminates
OccuLogix's goodwill balance in consolidation (see Note 1).

     OccuLogix believes that the announcement made it unlikely that it would be
able to collect on amounts outstanding from its sole customer, Veris, resulting
in a provision for bad debts of $0.5 million related to revenue reported prior
to December 2005. OccuLogix did not recognize $0.5 million of revenue related to
goods shipped in December 2005, based on collectibility not being reasonably
assured. OccuLogix also fully expensed the $0.2 million advance that it had paid
to Veris in connection with clinical trial services to be provided by Veris for
one of OccuLogix's clinical trials. OccuLogix also evaluated its ending
inventory balance as of December 31, 2005 on the basis that Veris may not be
able to increase its commercial activities in Canada in line with initial
expectations. Accordingly, OccuLogix set up a provision for obsolescence of $2.0
million for filter sets that are unlikely to be utilized prior to their
expiration dates. As a result of the above entries, TLCVision's reported pre-tax
earnings for the quarter and year ended December 31, 2005 were reduced by $1.6
million.


                                       41



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the ordinary course of business, the Company is exposed to interest rate
risks and foreign currency risks, which the Company does not currently consider
to be material. These interest rate exposures primarily relate to having
short-term investments earning short-term interest rates and to having fixed
rate debt. The Company views its investment in foreign subsidiaries as long-term
commitments and does not hedge any translation exposure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

RESPONSIBILITY FOR FINANCIAL STATEMENTS

     The accompanying consolidated financial statements of TLC Vision
Corporation have been prepared by management in conformity with accounting
principles generally accepted in the United States. The significant accounting
policies have been set out in Note 2 to the financial statements. These
statements are presented on the accrual basis of accounting. Accordingly, a
precise determination of many assets and liabilities is dependent upon future
events. Therefore, estimates and approximations have been made using careful
judgment. Recognizing that the Company is responsible for both the integrity and
objectivity of the financial statements, management is satisfied that these
financial statements have been prepared within reasonable limits of materiality
under United States generally accepted accounting principles.

     During the year ended December 31, 2005, the Board of Directors had an
Audit Committee consisting of four non-management directors. The committee met
with management and the auditors to review any significant accounting, internal
control and auditing matters and to review and finalize the annual financial
statements of the Company along with the report of independent registered public
accounting firm prior to the submission of the financial statements to the Board
of Directors for final approval.

     The financial information throughout the text of this Annual Report is
consistent with the information presented in the financial statements.

     The Company's accounting procedures and related systems of internal control
are designed to provide reasonable assurance that its assets are safeguarded and
its financial records are reliable.


                                       42



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of TLC Vision Corporation

     We have audited the accompanying consolidated balance sheets of TLC Vision
Corporation as of December 31, 2005 and 2004, and the related consolidated
statements of operations, cash flows, and stockholders' equity for each of the
three years in the period ended December 31, 2005. Our audits also included the
financial statement schedule listed in the index at Item 15a. These financial
statements and schedule 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TLC Vision
Corporation at December 31, 2005 and 2004, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

     As discussed in Note 2 to the consolidated financial statements, on January
1, 2004, the Company adopted the provisions of FASB Interpretation No. 46.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of TLC
Vision Corporation's internal control over financial reporting as of December
31, 2005, based on criteria established in Internal Control -- Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 10, 2006, expressed an unqualified opinion
thereon.


St. Louis, Missouri                     /s/ ERNST & YOUNG LLP
March 10, 2006                          ---------------------------------------


                                       43


TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)



                                                                        YEAR ENDED DECEMBER 31,
                                                                    ------------------------------
                                                                      2005       2004       2003
                                                                    --------   --------   --------
                                                                                 
Revenues:
   Refractive:
      Centers ...................................................   $150,168   $141,782   $115,290
      Access ....................................................     36,453     40,659     36,140
   Other healthcare services ....................................     73,404     64,806     49,488
                                                                    --------   --------   --------
Total revenues ..................................................    260,025    247,247    200,918
                                                                    --------   --------   --------
Cost of revenues:
   Refractive:
      Centers ...................................................    106,476    101,440     91,283
      Access ....................................................     26,974     28,863     25,424
   Other healthcare services ....................................     47,275     40,435     31,836
                                                                    --------   --------   --------
Total cost of revenues ..........................................    180,725    170,738    148,543
                                                                    --------   --------   --------
   Gross profit .................................................     79,300     76,509     52,375
                                                                    --------   --------   --------

General and administrative ......................................     36,497     26,866     27,001
Marketing and sales .............................................     21,714     18,705     18,781
Research and development, clinical and regulatory ...............      5,250      1,825      1,598
Amortization of intangibles .....................................      4,039      4,098      6,685
Other expenses, net .............................................        769        940      1,165
                                                                    --------   --------   --------
                                                                      68,269     52,434     55,230
                                                                    --------   --------   --------
Operating income (loss) .........................................     11,031     24,075     (2,855)

Gain on sale of OccuLogix, Inc. stock ...........................         --     25,792         --
Interest income .................................................      4,280      1,954      1,380
Interest expense ................................................     (1,737)    (2,617)    (2,744)
Minority interests ..............................................     (1,343)    (6,953)    (4,672)
Earnings from equity investments ................................      2,545      2,057         --
                                                                    --------   --------   --------
Income (loss) before income taxes ...............................     14,776     44,308     (8,891)
Income tax expense ..............................................     (7,891)      (600)      (508)
                                                                    --------   --------   --------
Net income (loss) ...............................................   $  6,885   $ 43,708   $ (9,399)
                                                                    ========   ========   ========
Earnings (loss) per share - basic ...............................   $   0.10   $   0.64   $  (0.15)
                                                                    ========   ========   ========
Earnings (loss) per share - diluted .............................   $   0.10   $   0.61   $  (0.15)
                                                                    ========   ========   ========
Weighted-average number of common shares outstanding - basic ....     69,721     68,490     64,413
                                                                    ========   ========   ========
Weighted-average number of common shares outstanding - diluted ..     71,380     71,088     64,413
                                                                    ========   ========   ========


See notes to consolidated financial statements.


                                       44



TLC VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)



                                                                    DECEMBER 31,
                                                               ---------------------
                                                                  2005        2004
                                                               ---------   ---------
                                                                     
ASSETS
Current assets:
   Cash and cash equivalents................................   $  31,729   $  33,435
   Short-term investments...................................      38,213     111,015
   Accounts receivable......................................      20,583      17,443
   Prepaid expenses, inventory and other....................      17,123      13,821
                                                               ---------   ---------
   Total current assets.....................................     107,648     175,714

Restricted cash.............................................         975         932
Investments and other assets................................      19,838      10,482
Goodwill....................................................      99,402      53,774
Other intangible assets.....................................      24,021      18,140
Fixed assets................................................      49,159      46,199
                                                               ---------   ---------
Total assets................................................   $ 301,043   $ 305,241
                                                               =========   =========
LIABILITIES
Current liabilities:
   Accounts payable.........................................   $  11,031   $   8,716
   Accrued liabilities......................................      24,453      27,139
   Current maturities of long-term debt.....................       5,268       8,664
                                                               ---------   ---------
   Total current liabilities................................      40,752      44,519

Other long-term liabilities.................................       3,427       2,722
Long-term debt, less current maturities.....................      12,665       9,991
Minority interests..........................................      35,794      37,222
                                                               ---------   ---------
Total liabilities                                                 92,638      94,454

STOCKHOLDERS' EQUITY
Common stock, no par value; unlimited number authorized.....     450,703     458,959
Option and warrant equity...................................       1,861       2,872
Accumulated deficit.........................................    (244,159)   (251,044)
                                                               ---------   ---------
Total stockholders' equity..................................     208,405     210,787
                                                               ---------   ---------
Total liabilities and stockholders' equity..................   $ 301,043   $ 305,241
                                                               =========   =========


See notes to consolidated financial statements.

Approved on behalf of the Board:


/s/ JAMES C. WACHTMAN                   /s/ WARREN S. RUSTAND
- -------------------------------------   ----------------------------------------
James C. Wachtman, Director             Warren S. Rustand, Director


                                       45




TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)



                                                                            YEAR ENDED DECEMBER 31,
                                                                        -------------------------------
                                                                          2005        2004       2003
                                                                        --------   ---------   --------
                                                                                      
OPERATING ACTIVITIES
Net income (loss) ...................................................   $  6,885   $  43,708   $ (9,399)
Adjustments to reconcile net income (loss) to net cash from operating
   activities:
   Depreciation and amortization ....................................     16,353      17,681     22,593
   Write-offs (reimbursements) of investments in research and
      development arrangements ......................................       (300)        849      1,598
   Deferred taxes ...................................................      6,301          --         --
   Minority interests ...............................................      1,343       6,953      4,672
   Gain on sale of OccuLogix, Inc. stock ............................         --     (25,792)        --
   Gain on sales of subsidiaries ....................................       (319)     (1,143)        --
   Earnings from equity investments .................................     (2,545)     (2,057)        --
   Loss (gain) on sales and disposals of fixed assets ...............        (92)        839       (484)
   Non-cash compensation expense ....................................      1,438         484        125
   Adjustments to the fair values of intangibles, long-term
      receivables and long-term liabilities .........................        888      (1,206)      (206)
   Other ............................................................        182          --        677
   Changes in operating assets and liabilities, net of acquisitions
      and dispositions:
      Accounts receivable ...........................................     (2,956)     (1,449)      (489)
      Prepaid expenses, inventory and other current assets ..........     (1,891)     (1,801)      (964)
      Accounts payable and accrued liabilities ......................     (2,761)     (1,706)   (13,831)
                                                                        --------   ---------   --------
Cash from operating activities ......................................     22,526      35,360      4,292
                                                                        --------   ---------   --------
INVESTING ACTIVITIES
Purchases of fixed assets ...........................................     (8,321)     (5,191)    (4,433)
Proceeds from sales of fixed assets .................................      1,779       1,565        578
Proceeds from divestitures of investments and subsidiaries, net .....      3,430         729        221
Proceeds from sale of OccuLogix, Inc. stock, net ....................         --      25,792         --
Distributions and loan payments received from equity investments ....      3,039       2,518         --
Reimbursements from (investments in) research and development
   arrangements .....................................................        300        (849)    (1,598)
Acquisitions and equity investments .................................    (67,573)    (10,067)    (8,015)
Proceeds from sales of short-term investments .......................    129,750       8,353     15,709
Purchases of short-term investments .................................    (57,095)   (111,055)   (21,050)
Other ...............................................................         13          60       (229)
                                                                        --------   ---------   --------
Cash from investing activities ......................................      5,322     (88,145)   (18,817)
                                                                        --------   ---------   --------
FINANCING ACTIVITIES
Restricted cash movement ............................................        (43)        444      2,599
Proceeds from debt financing ........................................      1,992          --      3,450
Principal payments of debt financing and capital leases .............     (9,504)    (13,669)    (8,018)
Distributions to minority interests .................................     (8,440)     (7,216)    (4,901)
Purchases of treasury stock .........................................    (15,868)         --         --
Proceeds from issuances of OccuLogix, Inc. stock, net and cash
   acquired upon consolidation ......................................        329      59,850         --
Proceeds from issuances of common stock .............................      1,980      25,231      8,744
                                                                        --------   ---------   --------
Cash from financing activities ......................................    (29,554)     64,640      1,874
                                                                        --------   ---------   --------
Net increase (decrease) in cash and cash equivalents during the
   period ...........................................................     (1,706)     11,855    (12,651)
Cash and cash equivalents, beginning of period ......................     33,435      21,580     34,231
                                                                        --------   ---------   --------
Cash and cash equivalents, end of period ............................   $ 31,729   $  33,435   $ 21,580
                                                                        ========   =========   ========


See notes to consolidated financial statements.


                                       46


TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)



                                                               OPTION
                                             COMMON STOCK       AND'      TREASURY STOCK
                                          -----------------   WARRANT   -----------------   ACCUMULATED
                                          SHARES    AMOUNT     EQUITY   SHARES    AMOUNT      DEFICIT       TOTAL
                                          ------   --------   -------   ------   --------   -----------   --------
                                                                                     
Balance December 31, 2002..............   64,794    388,769    11,035     (779)    (2,623)    (285,353)    111,828
Shares issued as part of the
   employee share purchase plan........       56        223                196        191                      414
Exercise of stock options..............    2,102      8,330                                                  8,330
Options expired or exercised...........               2,892    (2,892)                                          --
Retirement of treasury stock...........     (583)    (2,432)               583      2,432                       --
Shares issued as part of acquisition...      100         96                                                     96
Escrow shares returned to the Company..     (713)
Net loss and comprehensive loss........                                                         (9,399)     (9,399)
                                          ------   --------   -------   ------   --------    ---------    --------
Balance December 31, 2003..............   65,756    397,878     8,143       --         --     (294,752)    111,269
Shares issued as part of the
   employee share purchase plan and
   401(k) plan.........................      131        532                                                    532
Exercise of stock options..............    4,199     29,496    (4,797)                                      24,699
Options expired or forfeited...........                 582      (582)                                          --
Variable stock option expense..........                           108                                          108
Value of shares issued upon meeting
   certain earnings criteria...........                 389                                                    389
Issuance of subsidiary stock...........              30,082                                                 30,082
Net income.............................                                                         43,708      43,708
                                          ------   --------   -------   ------   --------    ---------    --------
Balance December 31, 2004..............   70,086   $458,959   $ 2,872       --   $     --    $(251,044)    210,787
Shares issued as part of the
   employee share purchase plan and
   401(k) plan.........................       63        486                                                    486
Exercise of stock options..............      709      2,935    (1,003)                                       1,932
Options expired or forfeited...........                   8        (8)                                          --
Escrow shares returned to the Company..     (171)                                                               --
Purchases of treasury stock............                                 (2,000)   (15,868)                 (15,868)
Retirement of treasury stock...........   (2,000)   (15,868)             2,000     15,868                       --
Value of shares issued upon meeting
   certain earnings criteria...........                 181                                                    181
Shares issued as part of acquisition...        4         24                                                     24
Reversal of deferred tax asset
   valuation allowance for excess
   stock-based compensation tax
   deductions..........................               3,116                                                  3,116
Stock based compensation...............                 600                                                    600
Changes in OccuLogix, Inc.'s
   stockholders' equity................                 262                                                    262
Net income.............................                                                          6,885       6,885
                                          ------   --------   -------   ------   --------    ---------    --------
Balance December 31, 2005..............   68,691   $450,703   $ 1,861       --   $     --    $(244,159)   $208,405
                                          ======   ========   =======   ======   ========    =========    ========


See notes to consolidated financial statements.


                                       47



TLC VISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands, except per share amounts)

1.   NATURE OF OPERATIONS

     TLC Vision Corporation and its subsidiaries ("TLCVision" or the "Company")
is a diversified healthcare service company focused on working with eye doctors
to help them provide high quality patient care primarily in the eye care
segment. The majority of the Company's revenues come from refractive surgery,
which involves using an excimer laser to treat common refractive vision
disorders such as myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism. The Company's business models include arrangements ranging from
owning and operating fixed site centers to providing access to lasers through
fixed site and mobile service relationships. In addition to refractive surgery,
the Company is diversified into other eye care businesses. Through its MSS
subsidiary, the Company furnishes hospitals and independent surgeons with mobile
or fixed site access to cataract surgery equipment and services. Through its OR
Partners and Michigan subsidiaries, TLCVision develops, manages and has equity
participation in single-specialty eye care ambulatory surgery centers and
multi-specialty ambulatory surgery centers. The Company also owns a 51% majority
interest in Vision Source, which provides franchise opportunities to independent
optometrists. In 2002, the Company formed a joint venture with OccuLogix, Inc.
(formerly Vascular Sciences Corporation) to create OccuLogix, L.P., a
partnership focused on the treatment of a specific eye disease known as dry
age-related macular degeneration ("AMD"), via rheopheresis, a process for
filtering blood.

     On December 8, 2004, the Company exchanged its 50% interest in OccuLogix
L.P. for a 50% interest in OccuLogix, Inc. In connection therewith, the Company
converted its Series B preferred stock and convertible grid debentures into
common shares of OccuLogix, Inc. After the exchange and conversion, the Company
owned 65.8% of the outstanding common shares of OccuLogix, Inc. ("OccuLogix").
As a result of the exchange, OccuLogix L.P. became a wholly-owned subsidiary of
OccuLogix. The Company accounted for the exchange at historical cost.
Immediately after the exchange, OccuLogix completed an initial public offering
("IPO") whereby OccuLogix sold 5.6 million shares of its common stock at $12 per
share. Because the IPO price exceeded the per share carrying amount of the
Company's investment in OccuLogix, the Company's equity ownership in OccuLogix
after the IPO exceeded its equity ownership before the IPO by $30.1 million. In
accordance with Staff Accounting Bulletin No. 84, the Company accounted for the
excess as an equity transaction. In connection with the IPO, TLCVision sold 2.3
million shares of its OccuLogix common stock at $12 per share and recorded a
gain of $25.8 million. At December 31, 2005, the Company owns 21.5 million
shares or 51% of OccuLogix's common stock. The Company has included the results
of operations of OccuLogix in its consolidated statement of operations since
December 8, 2004.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.

Cash and Cash Equivalents

     Cash and cash equivalents include highly liquid short-term investments with
original maturities of 90 days or less.

Short-Term Investments

     As of December 31, 2005 and 2004, short-term investments primarily include
auction rate securities, which are available to support the Company's current
operations. These investments are classified as available-for-sale securities
and are recorded at fair value with unrealized gains or losses reported in other
comprehensive income. Due to the short time period between the reset dates of
the interest rates, there are no unrealized gains or losses associated with
these securities. All of the auction rate securities have contractual maturities
of more than five years.

Investments

     The Company has certain investments in equity securities. Investments are
accounted for using the equity method if the Company has significant influence,
but not control, over an investee. All other equity investments, in which the
Company does not have the ability to exercise significant influence, are
accounted for under the cost method. Under the cost method of accounting,
investments that do not have a quoted market price (non marketable equity
securities) are carried at cost and are adjusted only for other than


                                       48



temporary declines in fair value and additional investment activity. For
investments in public companies (marketable equity securities), the Company
classifies its investments as available-for-sale and, accordingly, records these
investments at fair value with unrealized gains and losses included in
accumulated other comprehensive loss, unless a decline in fair value is
determined to be other than temporary, in which case the unrealized loss is
recognized in earnings.

Fixed Assets

     Fixed assets are recorded at cost or the present value of future minimum
lease payments for assets under capital lease. The costs of additions,
improvements and major replacements are capitalized, while maintenance and
repairs are expensed as incurred. Depreciation is provided at rates intended to
represent the assets productive lives as follows:

Buildings                         - straight-line over 40 years
Computer equipment and software   - straight-line over three to four years
Furniture, fixtures and equipment - 25% declining balance
Laser equipment                   - 25% declining balance
Leasehold improvements            - straight-line over the initial term of the
                                    lease
Medical equipment                 - 25% declining balance
Vehicles and other                - 25% declining balance

     The Company's MSS subsidiary records depreciation on its equipment and
vehicles (with a net book value of $6.0 million and $5.3 million at December 31,
2005 and 2004, respectively) on a straight-line basis over the estimated useful
lives (three to ten years) of the equipment.

Goodwill

     The Company tests for impairment at least annually and more frequently if
changes in circumstances or events indicate that it is more likely than not that
impairment has occurred. The Company's annual impairment test date is November
30.

Other Intangible Assets

     Other intangible assets consist primarily of practice management agreements
("PMAs"), deferred contract rights, and tradenames. PMAs represent the cost of
obtaining the exclusive right to manage eye care centers and secondary care
centers in affiliation with the related physician group during the term of the
respective agreements. Deferred contract rights represent the value of contracts
with affiliated doctors to provide basic access and service. Tradenames
represent the value associated with the name of an entity that was acquired by
the Company. All identifiable intangibles with a finite life are amortized using
the straight-line method over the respective estimated useful lives.

Long-Lived Assets

     The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of the asset group may not be
recoverable.

Medical Malpractice Accruals

     To mitigate a portion of the risk associated with medical malpractice
lawsuits, the Company maintains insurance for individual malpractice claims with
a deductible of $250,000 per claim and a total annual aggregate deductible of
$15 million. The Company and its insurance carrier review malpractice lawsuits
for purposes of establishing ultimate loss estimates. The Company records
reserves to cover the estimated costs of the deductible for both reported and
unreported medical malpractice claims incurred. The estimates are based on the
average monthly claims expense and the estimated average time lag between the
performance of a procedure and notification of a claim. If the number of claims
or the cost of settled claims is higher than the Company's historical experience
or if the actual time lag varies from the estimated time lag, the Company may
need to record significant additional expense.

Revenue Recognition

     The Company recognizes refractive revenues when the procedure is performed.
Revenue from centers represents the amount charged to patients for a laser
vision correction procedure, net of discounts, contractual adjustments in
certain regions and amounts collected as an agent of co-managing doctors.
Revenue from access services represents the amount charged to the
customer/surgeon for access to equipment and technical support based on use.


                                       49



     Contractual adjustments arise due to the terms of reimbursement and managed
care contracts in certain regions. Such adjustments represent the difference
between the charges at established rates and estimated recoverable amounts and
are recognized as a reduction of revenue in the period services are rendered.
Any differences between estimated contractual adjustments and actual final
settlements under reimbursement contracts are recognized as contractual
adjustments in the period final settlements are determined.

     The Company's other healthcare services revenues principally include
cataract equipment access and service fees on a per procedure basis, management
fees from cataract and secondary care practices and optometric franchising
services. Revenues from other healthcare services are recognized as the service
is rendered or when the procedure is performed.

Variable Interest Entities

     In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" (FIN 46). In December 2003, the FASB modified FIN
46 to make certain technical corrections and address certain implementation
issues that had arisen. FIN 46 provides a new framework for identifying VIEs and
determining when a company should include the assets, liabilities,
noncontrolling interests and results of activities of a VIE in its consolidated
financial statements. In general, a VIE is any legal structure used to conduct
activities or hold assets that either (1) has an insufficient amount of equity
to carry out its principal activities without additional subordinated financial
support, (2) has a group of equity owners that are unable to make significant
individual decisions about its activities, or (3) has a group of equity owners
that do not have the obligation to absorb losses or the right to receive returns
generated by its operations. FIN 46 requires a VIE to be consolidated if a party
with an ownership, contractual or other financial interest in the VIE (a
variable interest holder) is obligated to absorb a majority of the risk of loss
from the VIE's activities, is entitled to receive a majority of the VIE's
residual returns (if no party absorbs a majority of the VIE's losses), or both.
A variable interest holder that consolidates the VIE is called the primary
beneficiary. Upon consolidation, the primary beneficiary generally must
initially record all of the VIE's assets, liabilities and noncontrolling
interests at fair value and subsequently account for the VIE as if it were
consolidated based on majority voting interest.

     FIN 46 was effective immediately for VIEs created after January 31, 2003.
The provisions of FIN 46, as revised, were adopted as of January 1, 2004, for
the Company's interests in all VIEs. Prior to the adoption of FIN 46, the
Company did not consolidate physician practices that were managed but not owned
by the Company. These managed physician practices were determined to be variable
interest entities for which the Company is the primary beneficiary. As a result,
the physician practices have been consolidated as of January 1, 2004. The
adoption of FIN 46 resulted in an increase in revenues and cost of revenues for
the managed refractive centers, however the adoption had no material impact on
total assets, gross profit or operating income and no impact on net income.
Prior periods were not restated. The following pro forma amounts reflect the
effect of FIN 46 assuming it was applied retroactively:



                                                 YEAR ENDED DECEMBER 31,
                                       ------------------------------------------
                                         2005       2004             2003
                                       --------   --------   --------------------
                                        Actual     Actual     Actual    Pro forma
                                       --------   --------   --------   ---------
                                                            
Revenues:
   Refractive:
      Centers ......................   $150,168   $141,782   $115,290    $131,736
      Access .......................     36,453     40,659     36,140      36,140
   Other healthcare services .......     73,404     64,806     49,488      49,488
                                       --------   --------   --------    --------
Total revenues .....................    260,025    247,247    200,918     217,364
                                       --------   --------   --------    --------
Cost of revenues:
   Refractive:
      Centers ......................    106,476    101,440     91,283     107,569
      Access .......................     26,974     28,863     25,424      25,424
   Other healthcare services .......     47,275     40,435     31,836      31,836
                                       --------   --------   --------    --------
Total cost of revenues .............    180,725    170,738    148,543     164,829
                                       --------   --------   --------    --------
Gross profit .......................   $ 79,300   $ 76,509   $ 52,375    $ 52,535
                                       ========   ========   ========    ========
General and administrative .........   $ 36,506   $ 26,866   $ 27,001    $ 27,161
                                       ========   ========   ========    ========
Net income (loss) ..................   $  6,885   $ 43,708   $ (9,399)   $ (9,399)
                                       ========   ========   ========    ========
Basic earnings (loss) per share ....   $   0.10   $   0.64   $  (0.15)   $  (0.15)
                                       ========   ========   ========    ========
Diluted earnings (loss) per share ..   $   0.10   $   0.61   $  (0.15)   $  (0.15)
                                       ========   ========   ========    ========



                                       50


     As a result of the elimination of the distinction between owned and managed
centers upon the adoption of FIN 46, their revenue and costs are no longer
identified separately on the Company's consolidated statements of operations.

Cost of Revenues

     Included in cost of revenues are the laser fees payable to laser
manufacturers for royalties, use and maintenance of the lasers, variable
expenses for consumables, financing costs, facility fees as well as center costs
associated with personnel and facilities amortization.

Marketing

     Marketing costs are expensed as incurred.

Income Taxes

     The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the difference
between the income tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes at the applicable enacted statutory tax
rates. Deferred tax assets are reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.

Accounting for Stock-Based Compensation

     The Company accounts for stock-based compensation under the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and its related interpretations. Accordingly, the Company records
expense over the vesting period in an amount equal to the intrinsic value of the
award on the grant date. In 2004, the Company recorded $0.1 million of variable
stock option expense for options repriced in 2002. The following table
illustrates the pro forma net income (loss) and earnings (loss) per share as if
the fair value-based method as set forth under Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," applied
to all awards:



                                                           YEAR ENDED DECEMBER 31,
                                                        ----------------------------
                                                          2005      2004      2003
                                                        -------   -------   --------
                                                                   
Net income (loss), as reported ......................   $ 6,885   $43,708   $ (9,399)
Add stock-based employee compensation cost
   included in reported net income (loss) ...........        --       108         --
Add OccuLogix's stock-based employee
   compensation cost included in reported net
   income (loss), net of minority interests .........        29        --         --
Less stock-based employee compensation cost
   determined under fair value based method for
   all awards, net of related tax effects ...........    (3,140)   (1,245)    (1,121)
Less OccuLogix's stock-based employee compensation
   cost determined under fair value based method
   for all awards, net of minority interests ........    (3,348)       --         --
                                                        -------   -------   --------
Pro forma net income (loss) .........................   $   426   $42,571   $(10,520)
                                                        =======   =======   ========
Pro forma earnings (loss) per share - basic .........   $  0.01   $  0.62   $  (0.16)
                                                        =======   =======   ========
Pro forma earnings (loss) per share - diluted .......   $  0.01   $  0.60   $  (0.16)
                                                        =======   =======   ========


     In December 2005, the Company's Board of Directors approved the accelerated
vesting of all unvested and "out-of-the-money" stock options with an exercise
price per share of $8.75 or higher. In accordance with SFAS No. 123, the Company
recognized the remaining balance of unrecognized compensation cost for the
effected options at the time of modification in the pro forma disclosures.

     For purposes of pro forma disclosures, the estimated fair value of
stock-based compensation cost is amortized using the attribution method under
FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option Award Plans."


                                       51



Foreign Currency Exchange

     The functional currency of the Company's Canadian operations is the U.S.
dollar. The assets and liabilities of the Company's Canadian operations are
maintained in Canadian dollars and remeasured into U.S. dollars at exchange
rates prevailing at the consolidated balance sheet date for monetary items and
at exchange rates prevailing at the transaction dates for nonmonetary items.
Revenues and expenses are remeasured into U.S. dollars at average exchange rates
prevailing during the year with the exception of depreciation and amortization,
which are translated at historical exchange rates. Exchange gains and losses are
included in net income (loss).

Earnings (Loss) Per Share

     Basic earnings (loss) per share is determined by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the potential
dilution that could occur if options to issue common stock were exercised. In
periods in which the inclusion of such instruments is anti-dilutive, the effect
of such securities is not given consideration. Average common shares outstanding
during 2003 were reduced by 712,500 common shares to exclude the effect of
outstanding common shares in escrow related to a previous acquisition.

Contingent Consideration

     When the Company enters into agreements that provide for contingent
consideration based on the certain predefined targets being met, an analysis is
made to determine whether the contingent consideration represents an additional
purchase price obligation or is deemed to be compensation expense. The
accounting treatment if the consideration is determined to be an additional
purchase price payment is to increase the value assigned to the net assets
acquired. Where the contingent consideration is deemed to be compensation, the
expense is reflected as an operating expense in the periods that the service is
rendered.

Use of Estimates

     The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates. These
estimates are reviewed periodically, and as adjustments become necessary, they
are reported in income in the period in which they become known.

Reclassifications

     Certain amounts in 2004 and 2003 have been reclassified to conform with
current period classifications including (a) reclassifying $5.3 million and $4.7
million, respectively, of certain labor costs from "General and administrative"
to "Marketing and sales" as these costs relate to the marketing and selling
efforts of the Company; and (b) reclassifying $5.1 million and $5.2 million,
respectively, of surgeon fees from "Centers revenues" to "Centers cost of
revenues."

Recent Pronouncements

     On December 16, 2004, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("Statement
123(R)"), which is a revision of FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123"). Statement 123(R) supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and amends FASB
Statement No. 95, "Statement of Cash Flows." Generally, the approach in
Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values. Under Statement 123(R), pro forma disclosure is no longer
permitted.

     On April 14, 2005, the Commission announced that the effective date of
Statement 123(R) will be suspended until January 1, 2006, for calendar year
companies. Statement 123(R) permits companies to adopt its requirements using
either a "modified prospective" method, or a "modified retrospective" method.
Under the "modified prospective" method, compensation cost is recognized in the
financial statements beginning with the effective date, based on the
requirements of Statement 123(R) for all share-based payments granted after that
date, and based on the requirements of Statement 123 for all unvested awards
granted prior to the effective date of Statement 123(R). Under the "modified
retrospective" method, the requirements are the same as under the "modified
prospective" method, but also permits entities to restate financial statements
of previous periods based on pro forma disclosures made in accordance with
Statement 123.


                                       52



     The Company currently utilizes the Black-Scholes option pricing model to
measure the fair value of stock options granted to employees. While Statement
123(R) permits entities to continue to use such a model, the standard also
permits the use of a "lattice" model. The Company will utilize the Black-Scholes
option pricing model upon the adoption of Statement 123(R).

     The Company will adopt Statement 123(R) effective January 1, 2006 and will
use the modified prospective method. In addition, the Company expects that the
adoption of Statement 123(R) will have a material impact on its results of
operations. However, uncertainties, including future stock-based compensation
strategy, stock price volatility, estimated forfeitures and employee stock
option exercise behavior, make it difficult to determine whether the stock-based
compensation expense that the Company will incur in future periods will be
similar to the Statement 123 pro forma expense disclosed elsewhere within Note
2. In addition, the amount of stock-based compensation expense to be incurred in
future periods will be reduced by the acceleration of certain unvested stock
options in fiscal 2005 as disclosed in Note 14.

3.   ACQUISITIONS

     On July 11, 2005, the Company acquired substantially all the assets of
Kremer Laser Eye ("Kremer"). Kremer operates three refractive centers and one
ambulatory surgery center all of which are located in the northeastern part of
the United States. For over 20 years, Kremer has been an integrated eye care
company providing refractive, cataract and glaucoma surgery services. The
acquisition of Kremer expands the Company's presence in both the refractive and
ASC businesses in one of the largest populated markets in the United States.

     The purchase price for the acquired assets was $29.7 million. In addition,
the Company assumed certain liabilities and incurred transaction costs of $1.1
million. Simultaneously with this transaction, the Company sold an 18% interest
in Kremer to a group of doctors associated with Kremer for $5.3 million. As a
result, the Company maintains an 82% ownership interest in Kremer. The results
of operations of Kremer have been included in the Company's consolidated
statements of operations since July 11, 2005.

     Under the purchase method of accounting, the purchase price is allocated to
Kremer's net tangible and intangible assets based upon their estimated fair
value as of the date of the acquisition. The following reflects the assets and
liabilities acquired by the Company in the Kremer acquisition:

                               
Current assets ................   $   978
Investments and other assets ..        54
Goodwill ......................    24,639
Other intangible assets .......     5,060
Fixed assets ..................     1,343
                                  -------
Total assets acquired .........    32,074
                                  =======

Current liabilities ...........       828
Long-term liabilities .........       405
                                  -------
Total liabilities assumed .....     1,233
                                  -------
Net assets acquired ...........   $30,841
                                  =======



     The Company engaged an independent appraiser to assist in the valuation of
acquired intangible assets. Intangible assets consist of $4.8 million of a
"Tradename" asset which will be amortized over 20 years and $0.2 million of a
"Non-Compete Contract" asset which will be amortized over eight years. The
Company believes that substantially all of the goodwill will be deductible for
tax purposes.

     The following table represents the Company's unaudited pro forma
consolidated results of operations as if the acquisition of Kremer had occurred
at the beginning of each period presented. Such results have been prepared by
adjusting the historical TLCVision results to include Kremer results of
operations. The pro forma results do not include any cost savings that may
result from the combination of TLCVision and Kremer operations. The pro forma
results may not necessarily reflect the consolidated operations that would have
existed had the acquisition been completed at the beginning of such periods nor
are they necessarily indicative of future results.


                                       53





                                             YEAR ENDED DECEMBER 31,
                                         ------------------------------
                                           2005       2004       2003
                                         --------   --------   --------
                                                      
Total revenues .......................   $270,585   $266,570   $216,023
                                         ========   ========   ========
Net income (loss) ....................   $  8,581   $ 47,163   $ (6,910)
                                         ========   ========   ========
Earnings (loss) per share - basic ....   $   0.12   $   0.69   $  (0.11)
                                         ========   ========   ========
Earnings (loss) per share - diluted ..   $   0.12   $   0.66   $  (0.11)
                                         ========   ========   ========


     On December 1, 2005, the Company acquired a 49% interest in Liberty Eye
Surgical Center, LLC ("Liberty") for $6.2 million in cash. Liberty is an
ambulatory surgery center located in Philadelphia, Pennsylvania that primarily
provides cataract surgery services.

     On November 8, 2005, the Company acquired TruVision for $17.4 million in
cash and 3,913 shares of company common stock valued at approximately $24,000
coupled with a three-year earn out. TruVision is a managed care contractor to
health plan members and large corporations across 44 states. TruVision's
services enable insurance health plans and large corporations to offer LASIK
vision surgery to their members at a reduced price. The purchase price
allocation is preliminary because the Company is in the process of evaluating a
purchase adjustment based on total net assets of TruVision as defined in the
agreement.

     On July 1, 2005, the Company acquired a 100% interest in Millennium Laser
Eye ("Millennium") for $6.1 million in cash plus the assumption of certain
liabilities. Millennium provides refractive surgery services in the Washington,
D.C. area.

     On March 1, 2005, the Company sold its interest in Aspen Healthcare, Inc.
to National Surgical Centers, Inc. and recorded a gain of $0.3 million, which is
included in other operating expenses.

     On January 1, 2004, the Company settled a lawsuit brought by Thomas S.
Tooma, M.D. and TST Acquisitions, LLC ("TST") in October 2002. Under the terms
of the settlement, the Company sold approximately 24% of Laser Eye Care of
California ("LECC") and 30% of its California access business to TST for $2.3
million. The Company continues to hold a 30% ownership in LECC, and a 70%
ownership in the California access business. The Company recorded a $1.1 million
gain on the sale of these business interests which is included in other
operating expenses. Effective January 1, 2004, the Company deconsolidated LECC
and began reporting its interest in LECC under the equity method of accounting
because it no longer owns a controlling interest in the entity.

     The Company's strategy includes periodic acquisitions of or investments in
entities that operate in the refractive, cataract or eye care markets. During
2005, 2004 and 2003, the Company paid a total of approximately $13 million, $10
million and $8 million, respectively, to acquire or invest in several other
entities, none of which were individually greater than $5 million.

4.   RESTRICTED CASH

     The Company had $1.0 million and $0.9 million of restricted cash as of
December 31, 2005 and 2004, respectively, to guarantee outstanding bank letters
of credit for leases and litigation.

5.   ACCOUNTS RECEIVABLE

     Accounts receivable, net of allowances, consist of the following:



                                  DECEMBER 31,
                               -----------------
                                 2005      2004
                               -------   -------
                                   
Refractive .................   $ 9,597   $ 7,031
Other healthcare services ..    10,986    10,412
                               -------   -------
                               $20,583   $17,443
                               =======   =======


     Other healthcare services accounts receivable primarily represent amounts
due from hospitals and other facilities for cataract equipment and service
access fees and outstanding fees for network marketing and management services.

     The Company is exposed to credit risk on accounts receivable from its
customers. In order to reduce its credit risk, the Company has adopted credit
policies, which include the review of credit limits. As of December 31, 2005 and
2004 the Company had reserves for doubtful accounts and contractual allowances
of $4.2 million and $2.3 million, respectively. The Company does not have a
significant exposure to any individual customer.


                                       54



6.   INVESTMENTS AND OTHER ASSETS

     Investments and other assets consist of the following:



                                         DECEMBER 31,
                                      -----------------
                                        2005      2004
                                      -------   -------
                                          
Equity method investments .........   $15,321   $ 7,219
Cost method investment ............     1,041        --
Marketable equity securities ......        --         3
Non marketable equity securities ..       534       534
Long-term receivables and other ...     2,942     2,726
                                      -------   -------
                                      $19,838   $10,482
                                      =======   =======


     Equity method investments primarily include the Company's 30% interest in
LECC, 49% interest in Liberty, 49% interest in Eastern Oregon Regional Surgery
Center, LLC, 25% interest in Summit Ambulatory Surgical Center LLP and 25%
interest in TLC Northwest Ohio LLC.

     Long-term receivables and other include notes from and advances to service
providers and other companies and deposits. Prior to 2003, the Company reserved
$1.9 million against a $2.3 million long-term receivable from a secondary care
service provider of which the Company owns approximately 25% of the outstanding
common shares. The Company determined that the ability of this secondary care
service provider to repay this note was in doubt due to the deteriorating
financial condition of the investee. During 2003 and 2004, the secondary care
provider was profitable, improved its financial strength and consistently made
all payments to the Company when due. As a result, the Company reevaluated the
collectibility of this note receivable during 2003 and 2004 and recorded
adjustments to reverse the reserve of $0.7 and $1.2 million, respectively, which
are included in other operating expenses, net. In December 2004, the Company
loaned additional funds to the secondary care service provider to fund expansion
of the business by retiring the $1.9 million balance of the original loan and
replacing it with a $2.8 million loan, payable over 5 years at a 6% interest
rate. As of December 31, 2005, the outstanding loan balance was $1.9 million.

     Prior to 2003, the Company entered into a joint venture with the
predecessor of OccuLogix for the purpose of pursuing commercial applications of
technologies owned or licensed by OccuLogix applicable to the evaluation,
diagnosis, monitoring and treatment of dry age related macular degeneration.
Prior to the reorganization and IPO of OccuLogix (see Note 1), the Company
accounted for its investment as a research and development arrangement since the
technology is in the development stage and has not received FDA approval. Prior
to 2003, the Company purchased $3.0 million in Series B preferred stock and
expensed it as a research and development arrangement. During 2003, the Company
agreed to advance up to an additional $6.0 million to OccuLogix pursuant to a
secured convertible grid debenture. The first $3.5 million advanced pursuant to
such debenture was convertible into common shares of OccuLogix. OccuLogix also
granted an option to the Company to acquire an amount of common shares equal to
the undrawn portion of the debenture at any point in time. In 2003, the Company
expensed $1.6 million to research and development related to payments made to
OccuLogix during the year. Of this amount, $1.3 million reduced the value of the
$6.0 million obligation to OccuLogix, and $0.3 million represented an additional
equity investment in Common Stock and therefore did not reduce the amount of the
remaining obligation. In 2004, the Company advanced $2.2 million to OccuLogix,
satisfying the $3.5 million obligation that was converted into shares of
OccuLogix. Of this amount, the Company advanced $1.2 million to OccuLogix in the
first three quarters of 2004 and expensed it as research and development. The
remaining advance to OccuLogix of $1.0 million in the fourth quarter of 2004 was
recorded as an investment because it was not used by OccuLogix for operating
purposes, but rather was available at December 31, 2004 for future needs. Due to
the IPO of OccuLogix, the Company was not required to fund any additional
amounts.

7.   GOODWILL

     The Company's net goodwill amount by reporting segment is as follows:



                                                                      MOBILE     OPTOMETRIC
                                                        REFRACTIVE   CATARACT   FRANCHISING    OTHER     TOTAL
                                                        ----------   --------   -----------   -------   -------
                                                                                         
December 31, 2003 ...................................    $24,229      $4,153       $6,105     $14,342   $48,829
Deconsolidated due to partial sale of LECC ..........       (467)         --           --          --      (467)
Acquired during the period ..........................        181         306           --       4,925     5,412
                                                         -------      ------       ------     -------   -------
December 31, 2004 ...................................     23,943       4,459        6,105      19,267    53,774
Sale of subsidiary ..................................         --          --           --      (2,471)   (2,471)
Reversal of deferred tax asset valuation allowance ..     (3,413)         --           --          --    (3,413)
Acquired during the period ..........................     45,250       5,348           --         914    51,512
                                                         -------      ------       ------     -------   -------
December 31, 2005 ...................................    $65,780      $9,807       $6,105     $17,710   $99,402
                                                         =======      ======       ======     =======   =======



                                       55



     The Company tests goodwill for impairment in the fourth quarter after the
annual forecasting process. After estimating the fair value of each reporting
unit using the present value of expected future cash flows, the Company
determined that no goodwill impairment charges should be recorded during the
years ended December 31, 2005, 2004 and 2003.

8.   OTHER INTANGIBLE ASSETS

     The Company's other intangible assets consist of practice management
agreements ("PMAs"), deferred contract rights, tradenames and other intangibles.
The Company has no indefinite-lived intangible assets. Amortization expense was
$4.0 million, $4.1 million and $6.7 million for the years ended December 31,
2005, 2004 and 2003, respectively.

     The remaining weighted average amortization period for PMAs is 5.3 years,
for deferred contract rights is 6.4 years, for tradenames is 19.3 years and for
other intangibles is 10.3 years as of December 31, 2005.

     Intangible assets subject to amortization consist of the following at
December 31:



                                              2005                      2004
                                    -----------------------   -----------------------
                                      GROSS                     GROSS
                                    CARRYING    ACCUMULATED   CARRYING    ACCUMULATED
                                     AMOUNT    AMORTIZATION    AMOUNT    AMORTIZATION
                                    --------   ------------   --------   ------------
                                                             
Practice management agreements ..    $23,015      $14,861      $33,329      $23,647
Deferred contract rights ........     11,081        6,243       13,854        6,024
Tradenames ......................      5,870          210          400           53
Other ...........................      5,733          364          386          105
                                     -------      -------      -------      -------
Total ...........................    $45,699      $21,678      $47,969      $29,829
                                     =======      =======      =======      =======


     The estimated amortization expense for the next five years as of December
31, 2005 is as follows:

       
2006 ..   $3,400
2007 ..    3,400
2008 ..    3,100
2009 ..    2,700
2010 ..    2,700



9.   FIXED ASSETS

     Fixed assets, including capital leased assets, consist of the following:



                                          DECEMBER 31,
                                      -------------------
                                        2005       2004
                                      --------   --------
                                           
Land and buildings .................  $ 12,014   $ 11,280
Computer equipment and software ....    13,336     13,014
Furniture, fixtures and equipment ..     9,126      9,476
Laser equipment ....................    34,429     32,137
Leasehold improvements .............    22,365     17,165
Medical equipment ..................    34,247     30,332
Vehicles and other .................     9,310      8,599
                                      --------   --------
                                       134,827    122,003
Less accumulated depreciation ......    85,668     75,804
                                      --------   --------
Net book value .....................  $ 49,159   $ 46,199
                                      ========   ========


     For the years ended December 31, 2005, 2004 and 2003, depreciation expense
was $12.3 million, $13.6 million and $15.9 million, respectively. Depreciation
expense includes depreciation of assets reported under capital leases.

     Certain fixed assets are pledged as collateral for certain long-term debt
and capital lease obligations.

10.  ACCRUED LIABILITIES

     Accrued liabilities included $7.6 million and $8.1 million of accrued wages
and related expenses as of December 31, 2005 and 2004, respectively.


                                       56



11.  LONG-TERM DEBT

     Long-term debt consists of:



                                                                            DECEMBER 31,
                                                                         -----------------
                                                                           2005      2004
                                                                         -------   -------
                                                                             
Interest at 3.11%, payable to vendor, paid off in 2005 ...............   $    --   $ 1,264
Interest imputed at 9%, due in four payments from March 2002
   through 2005, payable to affiliated doctor relating to
   practice acquisition, paid off in 2005 ............................        --     2,294
Interest imputed at 6.25%, due through October 2016, collateralized
   by building (C$7.2 million at December 31, 2005) ..................     6,056     6,138
Interest at various rates, due through 2012, collateralized
   by real estate and equipment ......................................     4,061     3,038
Capital lease obligations, payable through 2009, interest
   at various rates ..................................................     7,644     5,576
Other ................................................................       172       345
                                                                         -------   -------
                                                                          17,933    18,655
Less current portion .................................................     5,268     8,664
                                                                         -------   -------
                                                                         $12,665   $ 9,991
                                                                         =======   =======


     Principal maturities for each of the next five years and thereafter as of
December 31, 2005 are as follows:

             
2006 ........   $ 5,268
2007 ........     3,453
2008 ........     2,560
2009 ........     1,267
2010 ........       733
Thereafter ..     4,652
                -------
Total .......   $17,933
                =======



     In November 2003, the Company obtained a $15 million line of credit for
five years from GE Healthcare Financial Services (the "Agreement") for a $0.1
million commitment fee and $0.2 million in related legal and out-of-pocket
expenses. This loan is secured by certain accounts receivable and cash accounts
in wholly-owned subsidiaries and a general lien on most other U.S. assets. As of
December 31, 2005, the Company did not have any borrowings drawn under the line
of credit and had an available unused line of $15 million.

     The Agreement includes a subjective acceleration clause and a requirement
to maintain a "springing" lock-box, whereby remittances from the Company's
customers are forwarded to the Company's bank account and do not reduce the
outstanding debt until and unless the lender exercises the subjective
acceleration clause.

     Under the Agreement, the Company must maintain (1) consolidated cash of
$12.5 million or more, (2) a maximum total debt/EBITDA (Earnings Before Income
Taxes, Depreciation and Amortization) ratio no more than 1.5, (3) a fixed charge
coverage ratio (including option proceeds and excluding most non-cash charges)
of at least 1.1 and (4) obtain GE's approval for certain ineligible acquisitions
and unfunded capital additions greater than $2 million per year.

     Payments for capital lease obligations for each of the next five years and
thereafter as of December 31, 2005 are as follows:

                        
2006 ...................   $3,697
2007 ...................    2,493
2008 ...................    1,139
2009 ...................      623
2010 ...................       --
Thereafter .............       --
                           ------
Total ..................    7,952
Less interest portion ..      308
                           ------
                           $7,644
                           ======




                                       57




12.  OTHER EXPENSES, NET

     Other expenses, net includes the following operating items:



                                                               Year Ended December 31,
                                                              -------------------------
                                                               2005      2004     2003
                                                              ------   -------   ------
                                                                        
Other expenses (income):
   Loss (gain) on sales and disposals of fixed assets .....   $  (92)  $   839   $ (484)
   Adjustments to the fair values of intangibles, long-term
      receivables and long-term liabilities ...............      888    (1,206)    (206)
   Center closing costs ...................................    1,012       868    2,040
   Gain on sales of subsidiaries ..........................     (319)   (1,143)      --
   Reimbursements from previous research and development
      arrangements ........................................     (300)     (400)      --
   Severance accruals for two officers under terms of
      employment contracts ................................       --     2,557       --
   Miscellaneous income ...................................     (420)     (575)    (185)
                                                              ------   -------   ------
                                                              $  769   $   940   $1,165
                                                              ======   =======   ======


13.  EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share were $0.10, $0.64 and $(0.15), in 2005,
2004 and 2003, respectively. The per share amounts have been computed on the
basis of the weighted average number of shares outstanding.

     Because the Company incurred a net loss for 2003, the respective
calculation of diluted loss per share excludes the impact of all stock options
and warrants. The calculation of diluted earnings per share for 2005 and 2004
excludes the impact of 1.0 million and 0.9 million stock options and warrants,
respectively, because to include them would have been anti-dilutive. Diluted
earnings (loss) per share have been computed as follows:



                                                    Year Ended December 31,
                                                  ---------------------------
                                                    2005      2004      2003
                                                  -------   -------   -------
                                                             
Net income (loss)..............................   $ 6,885   $43,708   $(9,399)
Weighted-average shares outstanding - basic....    69,721    68,490    64,413
Stock options and warrants.....................     1,659     2,598        --
                                                  -------   -------   -------
Weighted-average shares outstanding - diluted..    71,380    71,088    64,413
Earnings (loss) per share - diluted............   $  0.10   $  0.61   $ (0.15)


14.  STOCKHOLDERS' EQUITY AND OPTIONS

     Options Outstanding

     As of December 31, 2005, the Company has issued stock options to employees,
directors and certain other individuals. Options granted have terms ranging from
five to ten years. Vesting provisions on options granted to date include options
that vest immediately, options that vest in equal amounts annually over the
first two years or four years of the option term and options that vest entirely
on the first anniversary of the grant date.

     In December 2005, the Company's Board of Directors approved the accelerated
vesting of all unvested and "out-of-the-money" stock options with an exercise
price per share of $8.75 or higher. As a result, approximately 662,000 stock
options vested immediately. The primary purpose of the modification was to avoid
recognizing an expense in future financial statements. This modification to the
stock option terms was accounted for under the provisions of APB No. 25 and its
related interpretations and did not result in the recognition of any
compensation cost.


                                       58



     As of December 31, 2005, the issued and outstanding options denominated in
Canadian dollars were at the following prices and terms:



                              OUTSTANDING
                  ----------------------------------        EXERCISABLE
                                WEIGHTED               --------------------
                                AVERAGE     WEIGHTED               WEIGHTED
                               REMAINING    AVERAGE                 AVERAGE
  PRICE RANGE     NUMBER OF   CONTRACTUAL   EXERCISE   NUMBER OF   EXERCISE
    (CDN $)        OPTIONS       LIFE        PRICE      OPTIONS      PRICE
- ---------------   ---------   -----------   --------   ---------   --------
                                                    
$ 1.43 - $ 3.87      297       1.4 years     C$ 3.07      179      C$ 3.37
$ 4.04 - $ 6.67       77       1.7 years        4.52       55         4.38
$ 7.58 - $ 9.80       60       3.5 years        7.90       35         7.81
$11.02 - $15.49       74       3.9 years       12.72       73        12.72
                     ---                     -------      ---      -------
                     508       2.1 years     C$ 5.26      342      C$ 5.98
                     ===                     =======      ===      =======


     As of December 31, 2005, the issued and outstanding options denominated in
U.S. dollars were at the following prices and terms:



                              OUTSTANDING
                  ----------------------------------        EXERCISABLE
                                WEIGHTED               --------------------
                                AVERAGE     WEIGHTED               WEIGHTED
                               REMAINING    AVERAGE                 AVERAGE
  PRICE RANGE     NUMBER OF   CONTRACTUAL   EXERCISE   NUMBER OF   EXERCISE
    (U.S.$)        OPTIONS       LIFE        PRICE      OPTIONS      PRICE
- ---------------   ---------   -----------   --------   ---------   --------
                                                    
 $0.90 - $ 2.62       888      2.0 years     $ 1.38        519      $ 1.54
 $3.02 - $ 5.25       719      2.5 years       4.14        711        4.14
 $6.03 - $ 8.19       541      3.3 years       6.22        302        6.20
 $8.79 - $11.64       880      3.9 years      10.42        878       10.42
                    -----                    ------      -----      ------
                    3,028      2.9 years     $ 5.53      2,410      $ 6.13
                    =====                    ======      =====      ======


     Approximately 1,031,000 options have been authorized for issuance but were
not granted as of December 31, 2005. A summary of option activity during the
last three years follows:



                                                   WEIGHTED         WEIGHTED
                                                    AVERAGE          AVERAGE
                                                EXERCISE PRICE   EXERCISE PRICE
                                      OPTIONS      PER SHARE        PER SHARE
                                      -------   --------------   --------------
                                                        
December 31, 2002..................     8,680      Cdn$ 7.80        US$ 5.10
   Granted.........................     1,721           3.30            2.82
   Exercised.......................    (2,102)          4.38            4.11
   Forfeited.......................      (313)          4.79            4.32
   Expired.........................      (443)         15.07            7.29
                                       ------      ---------        --------
December 31, 2003..................     7,543      Cdn$ 4.90        US$ 4.90
   Granted.........................     1,018          12.73           10.38
   Exercised.......................    (4,198)          7.49            5.90
   Forfeited.......................      (100)          3.89            6.16
   Expired.........................       (60)         16.35           10.84
                                       ------      ---------        --------
December 31, 2004..................     4,203      Cdn$ 5.04        US$ 5.08
   Granted.........................       176           8.53            7.52
   Exercised.......................      (709)          3.89            2.71
   Forfeited.......................      (112)         11.32            9.69
   Expired.........................       (22)          9.39            6.20
                                       ------      ---------        --------
December 31, 2005..................     3,536      Cdn$ 5.26        US$ 5.53
                                       ======      =========        ========
Exercisable at December 31, 2005...     2,752      Cdn$ 5.98        US$ 6.13
                                       ======      =========        ========


     In addition to the above stock options, OccuLogix may grant stock options
of its common stock to employees, directors and consultants under the terms of
the OccuLogix 2002 Stock Option Plan. Up to 4.5 million shares of OccuLogix's
common stock may be issued under the OccuLogix plan. OccuLogix has also issued
stock options outside of its 2002 Stock Option Plan. As of December 31, 2005,
OccuLogix employees, directors, consultants and other outsiders held options to
purchase 4.1 million shares of OccuLogix's common stock.

     Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS No. 123 and has been included in Note 2 to the
financial statements. The fair value of TLCVision's options granted was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: risk free interest rate of 3.99%,
2.84% and


                                       59



2.35% for 2005, 2004 and 2003, respectively; no dividends; volatility factors of
the expected market price of TLCVision's common shares of 0.75 for 2005, 2004
and 2003; and a weighted average expected option life of 2.5 years for 2005,
2004 and 2003. The fair market value of TLCVision's options granted during 2005
was $0.6 million (2004 - $4.9 million; 2003 - $2.2 million). The fair values of
OccuLogix's options granted in 2005 were estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 3.88%; dividend rate of 0%; volatility
factor of 0.73; and expected life of 2.4 years.

     The Black-Scholes option-pricing model was developed for use in estimating
fair value of traded options that have no vesting restrictions and are fully
transferable. Because the Company's employee stock options have characteristics
significantly different from those of traded options (deferred/partial vesting
and no trading during four "black-out" periods each year) and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the previous pro forma adjustments for SFAS No. 123 are
not necessarily a reliable single measure of the fair value of the Company's
employee stock options.

     Share Repurchases

     During 2005, the Company repurchased and retired 2.0 million common shares
for $15.9 million completing its previously announced 2.0 million share
repurchase program.

15.  INCOME TAXES

     During the fourth quarter of 2005, the Company initiated a review of the
availability of its U.S. net operating loss carryforwards. It was determined
that the availability of a significant portion of the carryforwards will be
limited due to Internal Revenue Code ("IRC") Section 382 limitations. The
Company intends to engage a tax service provider to perform a comprehensive IRC
Section 382 study to determine the specific limitations related to certain of
the net operating loss carryforwards, and that study is expected to be completed
during the second quarter of 2006. Based on its current analysis, the Company
has calculated a range of limitations such that $0 to $3.3 million of net
operating loss carryforwards would be available each year during the
carryforward period. The Company has determined that the best estimate of the
deferred tax asset related to certain acquired U.S. net operating loss
carryforwards is zero.

     As a result of the Company's determination that the availability of certain
of its U.S. net operating loss carryforwards is limited, the Company has
determined that it should have recorded $1.2 million of additional income tax
expense for the year ended December 31, 2004 due to the nature of the net
operating loss carryforwards that were utilized in that year for financial
reporting purposes. In 2004, the Company recognized approximately $1.2 million
of income tax benefit that should have been recorded as a reduction to goodwill.
Due to its immateriality to the operating results of 2004, the Company has
corrected the error in 2005. Therefore, income tax expense of $7.9 million for
the year ended December 31, 2005 includes $1.2 million of expense related to
2004. All of the $1.2 million expense was recorded in the fourth quarter of 2005
when the error was detected. During the first three quarters of 2005, the
Company recognized approximately $5.7 million of income tax benefit that should
have been recorded primarily as a reduction to goodwill and as an increase to
equity. The Company has restated the operating results of the first three
quarters of 2005 to properly reflect income taxes (see Note 22).


                                       60



     Significant components of the Company's deferred tax assets and liabilities
are as follows:



                                          DECEMBER 31,
                                      -------------------
                                        2005       2004
                                      --------   --------
                                           
Deferred tax asset:
   Net operating loss carryforwards   $ 37,264   $ 35,964
   Fixed assets ...................      1,685      2,108
   Intangibles ....................     11,934     14,163
   Investments ....................     11,715     10,689
   Accruals and other reserves ....      5,572      5,889
   Stock options ..................      4,192      5,566
   Tax credits ....................        228         15
   Other ..........................      3,017      4,237
                                      --------   --------
Total .............................     75,607     78,631
   Valuation allowance ............    (75,607)   (78,631)
                                      ========   ========
                                      $     --   $     --
                                      ========   ========


     As of December 31, 2005, the Company has net operating losses available for
carryforward for income tax purposes of approximately $99.0 million, which may
be available to reduce taxable income in future years. The Canadian and United
Kingdom carryforward losses can only be utilized by the source company. The
United Kingdom carryforward losses of $7.5 million relate to United Kingdom
operations that the Company is currently winding down. As such, the Company does
not expect to utilize these losses. The Canadian carryforward losses of $36.0
million expire between 2006 and 2014. The U.S. carryforward losses of $55.5
million expire between 2022 and 2024. The U.S. carryforward losses include
$41.2 million relating to OccuLogix, which can only be utilized to reduce
OccuLogix taxable income and may be subject to IRC Section 382 limitations.

     Of the total valuation allowance, approximately $6.1 million ($0.6 million
from OccuLogix) will be recorded directly to equity if and when that portion of
the deferred tax asset is realized and the associated valuation allowance is
reversed. During 2005, the Company reversed $3.1 million of the valuation
allowance directly to equity and $3.4 million directly to goodwill.

     The differences between the provision for income taxes and the amount
computed by applying the statutory Canadian income tax rate to income (loss)
before income taxes were as follows:



                                                                     YEAR ENDED DECEMBER 31,
                                                                  ----------------------------
                                                                    2005      2004       2003
                                                                  -------   --------   -------
                                                                              
Income tax expense (recovery) at the Canadian statutory rate of
   36.125% (2004 - 36.125%; 2003 - 35.1%) .....................   $5,338    $ 16,006   $(3,121)
Change in valuation allowance .................................     (267)    (16,337)    1,929
Expenses not deductible for income tax purposes ...............      285         300       150
Change in Canadian tax rates ..................................       --          31     1,042
State taxes ...................................................      506         450       423
Canadian income tax ...........................................      350         150        85
Rate differential on United States operations .................      445          --        --
Correction of 2004 federal and state income tax ...............    1,234          --        --
                                                                  ------    --------   -------
                                                                  $7,891    $    600   $   508
                                                                  ======    ========   =======


The provision for income taxes is as follows:



                                YEAR ENDED DECEMBER 31,
                                -----------------------
                                   2005    2004   2003
                                  ------   ----   ----
                                         
Current:
   Canada ...................     $  350   $150   $ 85
   United States - federal ..        228     --     58
   United States - state ....        475    450    175
   Other ....................        537     --    190
                                  ------   ----   ----
                                  $1,590   $600   $508
                                  ======   ====   ====
Deferred:
   United States - federal ..     $5,554   $ --   $ --
   United States - state ....        747     --     --
                                  ------   ----   ----
                                  $6,301   $ --   $ --
                                  ======   ====   ====



                                       61



     The Company has established accruals for certain tax contingencies for
exposures associated with tax deductions and return filing positions which may
be challenged. The tax contingency accruals are adjusted quarterly in light of
changing facts and circumstances, such as the progress of tax audits, case law
and statute of limitations. A number of years may elapse before a particular
matter is resolved. The Company believes its tax contingency accruals are
adequate to address known tax contingencies. Tax contingency accruals are
recorded in accrued liabilities in the balance sheets.

16.  COMMITMENTS AND CONTINGENCIES

Commitments

     The Company leases certain center facilities under operating leases with
terms generally of five to ten years. Certain leases contain rent escalation
clauses and free rent periods that are charged to rent expense on a
straight-line basis. The leases usually contain renewal clauses at the Company's
option at fair market value. As of December 31, 2005, the Company has
commitments relating to non-cancellable operating leases for rental of office
space and equipment, which require future minimum payments aggregating
approximately $27.0 million. Future minimum payments over the next five years
and thereafter are as follows:

             
2006 ........   $ 7,289
2007 ........     5,778
2008 ........     4,451
2009 ........     3,181
2010 ........     2,433
Thereafter ..     3,841
                -------
                $26,973
                =======



     As of December 31, 2005, the Company had commitments related to long-term
marketing contracts which require payments totaling $2.0 million in each of the
years ending December 31, 2006, 2007 and 2008.

Commitments and Contingencies Related to OccuLogix

     OccuLogix entered into agreements to obtain the exclusive license to
certain patents. OccuLogix is required to make royalty payments totaling 2.0% of
its product sales. In addition, OccuLogix is required to make minimum advance
royalty payments of $12,500 quarterly, which will be credited against future
royalty payments to be made in accordance with the agreements.

     Future minimum royalty payments under the OccuLogix agreements as at
December 31, 2005 are approximately as follows:

                        
2006 ...................   $  100
2007 ...................      100
2008 ...................      100
2009 ...................      100
2010 and thereafter ....      750
                           ------
                           $1,150
                           ======



     In 2005, OccuLogix placed a purchase order for inventory representing a
total commitment of $1.3 million. As of December 31, 2005, $1.0 million has been
purchased against that purchase order.

     In addition, OccuLogix has committed to purchase minimum quantities of
inventory beginning six months after FDA approval of the RHEO(TM) System.
Minimum purchase orders for the fourth year shall be determined immediately
after the term of the first year by mutual consent but shall not be less than
that of the previous year. This same method shall be used in subsequent years to
determine future minimum purchase quantities such that minimum purchase
quantities are always fixed for three years. Future minimum annual commitments
after FDA approval are approximately as follows:

                    
Year 1..............   $2,565
Year 2..............    4,275
Year 3..............    6,413




                                       62



Legal Contingencies

     The Company is subject to various claims and legal actions in the ordinary
course of its business, which may or may not be covered by insurance. These
matters include, without limitation, professional liability, employee-related
matters and inquiries and investigations by governmental agencies. While the
ultimate results of such matters cannot be predicted with certainty, the Company
believes that the resolution of these matters will not have a material adverse
effect on its consolidated financial position or results of operations.

Regulatory Tax Contingencies

     TLCVision operates in 48 states and two Canadian provinces and is subject
to various federal, state and local income, payroll, unemployment, property,
franchise, capital, sales and use tax on its operations, payroll, assets and
services. TLCVision endeavors to comply with all such applicable tax
regulations, many of which are subject to different interpretations, and has
hired outside tax advisors who assist in the process. Many states and other
taxing authorities have been interpreting laws and regulations more aggressively
to the detriment of taxpayers such as TLCVision and its customers. TLCVision
believes that it has adequate provisions and accruals in its financial
statements for tax liabilities, although it cannot predict the outcome of future
tax assessments.

     Tax authorities in two states have contacted TLCVision and issued proposed
sales tax adjustments in the aggregate amount of approximately $0.7 million for
various periods through 2005 on the basis that certain of TLCVision's business
arrangements constitute at least a partially taxable transaction rather than an
exempt service. TLCVision's discussions with these two state tax authorities are
ongoing. If it is determined that any sales tax is owed, TLCVision believes
that, under applicable laws and TLCVision's contracts with its customers, each
customer is ultimately responsible for the payment of any applicable sales and
use taxes in respect of TLCVision's services. However, TLCVision may be unable
to collect any such amounts from its customers, and in such event the Company
would remain responsible for payment. TLCVision cannot yet predict the outcome
of these outstanding assessments or any other assessments or similar actions
which may be undertaken by other state tax authorities. TLCVision has evaluated
and implemented a comprehensive sales tax reporting system. TLCVision believes
that it has adequate provisions in its financial statements with respect to
these matters.

17.  SEGMENT INFORMATION

     The Company has four reportable segments: refractive, mobile cataract,
optometric franchising and AMD. The refractive segment provides the majority of
the Company's revenue and is in the business of providing corrective laser
surgery specifically related to refractive disorders, such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. This segment is
comprised of laser centers and the fixed and mobile access business. The mobile
cataract segment provides surgery specifically for the treatment of cataracts.
The optometric franchising segment provides marketing, practice development and
purchasing power to independently-owned and operated optometric practices in the
United States. The AMD segment primarily includes the Company's majority
interest in OccuLogix. The AMD segment is pursuing commercial applications of
treatments of dry age related macular degeneration. Other includes an
accumulation of other healthcare business activities including the management of
cataract and secondary care centers that provide advanced levels of eye care.
None of the businesses in the other segment meet the quantitative criteria to be
disclosed separately as a reportable segment.

     The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operational components including paid procedures, net
revenues, fixed costs and income (loss) before income taxes.


                                       63


     The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different management and marketing strategies. The Company's
reportable segments were as follows:



                                                             MOBILE     OPTOMETRIC
        YEAR ENDED DECEMBER 31, 2005           REFRACTIVE   CATARACT   FRANCHISING      AMD      OTHER      TOTAL
        ----------------------------           ----------   --------   -----------   --------   -------   ---------
                                                                                        
Revenues ...................................    $186,620    $31,716      $17,471     $  1,841   $22,377   $260,025
Expenses:
   Operating ...............................     162,438     25,794       11,032       18,211    15,166    232,641
   Depreciation and amortization ...........      12,112      2,649           44          120     1,428     16,353
                                                --------    -------      -------     --------   -------   --------
                                                 174,550     28,443       11,076       18,331    16,594    248,994
                                                --------    -------      -------     --------   -------   --------
Income (loss) from operations ..............      12,070      3,273        6,395      (16,490)    5,783     11,031
Interest income (expense) ..................       2,693       (117)        (447)       1,593    (1,179)     2,543
Minority interests .........................      (2,371)        --       (2,914)       7,058    (3,116)    (1,343)
Earnings from equity investments ...........       1,473         --           --           --     1,072      2,545
                                                --------    -------      -------     --------   -------   --------
Income (loss) before income taxes ..........    $ 13,865    $ 3,156      $ 3,034     $ (7,839)  $ 2,560     14,776
                                                ========    =======     ========     ========   =======
Income taxes ...............................                                                                (7,891)
                                                                                                          --------
Net income .................................                                                              $  6,885
                                                                                                          ========
Total assets ...............................    $197,216    $19,890      $11,921     $ 46,271   $25,745   $301,043
                                                ========    =======      =======     ========   =======   ========
Additions to fixed assets and intangibles ..    $ 67,091    $ 9,734      $    66     $    218   $ 2,932   $ 80,041
                                                ========    =======      =======     ========   =======   ========




                                                             MOBILE     OPTOMETRIC
        YEAR ENDED DECEMBER 31, 2004           REFRACTIVE   CATARACT   FRANCHISING      AMD      OTHER      TOTAL
        ----------------------------           ----------   --------   -----------   --------   -------   ---------
                                                                                        
Revenues ...................................    $182,441    $27,040      $14,145     $   837    $22,784   $247,247
Expenses:
   Operating ...............................     155,587     22,325        8,868       3,787     14,924    205,491
   Depreciation and amortization ...........      13,695      2,614           41         104      1,227     17,681
                                                --------    -------      -------     -------    -------   --------
                                                 169,282     24,939        8,909       3,891     16,151    223,172
                                                --------    -------      -------     -------    -------   --------
Income (loss) from operations ..............      13,159      2,101        5,236      (3,054)     6,633     24,075
Gain on sale of OccuLogix, Inc. stock ......          --         --           --      25,792         --     25,792
Interest income (expense) ..................         757       (114)        (492)         51       (865)      (663)
Minority interests .........................      (1,863)        --       (2,323)        411     (3,178)    (6,953)
Earnings from equity investments ...........       1,575         --           --          --        482      2,057
                                                --------    -------      -------     -------    -------   --------
Income before income taxes .................    $ 13,628    $ 1,987      $ 2,421     $23,200    $ 3,072     44,308
                                                ========    =======      =======     =======    =======
Income taxes ...............................                                                                  (600)
                                                                                                          --------
Net income .................................                                                              $ 43,708
                                                                                                          ========
Total assets ...............................    $191,734    $15,716      $12,049     $61,440    $24,302   $305,241
                                                ========    =======      =======     =======    =======   ========
Additions to fixed assets and intangibles ..    $  4,071    $ 1,497      $    79     $   227    $ 7,307   $ 13,181
                                                ========    =======      =======     =======    =======   ========




                                                             MOBILE     OPTOMETRIC
        YEAR ENDED DECEMBER 31, 2003           REFRACTIVE   CATARACT   FRANCHISING      AMD      OTHER      TOTAL
        ----------------------------           ----------   --------   -----------   --------   -------   ---------
                                                                                        
Revenues ...................................    $151,430    $24,812      $10,301     $   622    $13,753   $200,918
Expenses:
   Operating ...............................     142,176     20,515        7,166       2,646      8,677    181,180
   Depreciation and amortization ...........      18,794      2,765           99          47        888     22,593
                                                --------    -------      -------     -------    -------   --------
                                                 160,970     23,280        7,265       2,693      9,565    203,773
                                                --------    -------      -------     -------    -------   --------
Income (loss) from operations ..............      (9,540)     1,532        3,036      (2,071)     4,188     (2,855)
Interest income (expense) ..................        (306)      (169)        (490)         --       (399)    (1,364)
Minority interests .........................      (1,709)        --       (1,061)         --     (1,902)    (4,672)
                                                --------    -------      -------     -------    -------   --------
Income (loss) before income taxes ..........    $(11,555)   $ 1,363      $ 1,485     $(2,071)   $ 1,887     (8,891)
                                                ========    =======      =======     =======    =======
Income taxes ...............................                                                                  (508)
                                                                                                          --------
Net loss ...................................                                                              $ (9,399)
                                                                                                          ========
Total assets ...............................    $140,796    $13,972      $10,207     $   490    $25,283   $190,748
                                                ========    =======      =======     =======    =======   ========
Additions to fixed assets and intangibles ..    $    707    $ 2,587      $   105     $   382    $ 4,537   $  8,318
                                                ========    =======      =======     =======    =======   ========



                                       64



The Company's geographic segments are as follows:



    YEAR  ENDED DECEMBER 31, 2005        CANADA   UNITED STATES     TOTAL
    -----------------------------       -------   -------------   --------
                                                         
Revenues ............................   $12,937      $247,088     $260,025
                                        =======      ========     ========
Total fixed assets and intangibles ..   $ 8,457      $164,125     $172,582
                                        =======      ========     ========




    YEAR  ENDED DECEMBER 31, 2004        CANADA   UNITED STATES     TOTAL
    -----------------------------       -------   -------------   --------
                                                         
Revenues ............................   $12,596      $234,651     $247,247
                                        =======      ========     ========
Total fixed assets and intangibles ..   $ 9,825      $108,288     $118,113
                                        =======      ========     ========




    YEAR  ENDED DECEMBER 31, 2003        CANADA   UNITED STATES     TOTAL
    -----------------------------       -------   -------------   --------
                                                         
Revenues ............................   $10,109      $190,809     $200,918
                                        =======      ========     ========
Total fixed assets and intangibles ..   $10,765      $117,914     $128,679
                                        =======      ========     ========


18.  FINANCIAL INSTRUMENTS

     The carrying values of cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximate their fair values because
of the short-term maturities of these instruments.

     The fair value of the Company's auction rate securities equals cost due to
the short time period between the reset dates for the interest rates. The
Company's held-to-maturity short-term investments are bank certificates of
deposit for which cost approximates fair market value.

     Given the large number of individual long-term debt instruments and capital
lease obligations held by the Company, it is not practicable to determine fair
value.

19.  SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash transactions:



                                                                      YEAR ENDED DECEMBER 31,
                                                                     -------------------------
                                                                       2005     2004     2003
                                                                     -------   ------   ------
                                                                               
Capital  lease obligations relating to equipment purchases .......   $ 5,667   $2,579   $8,493
Inventory contributed to OccuLogix ...............................       183       --       --
Option and warrant reduction .....................................     1,011    5,379    2,892
Value of shares issued upon meeting certain earnings criteria ....       181      389       --
Retirement of treasury stock .....................................    15,868       --    2,432
Treasury stock to employee benefit plan ..........................        --       --      191
Value of shares issued for acquisitions ..........................        24       --       96


Cash paid for the following:



                   YEAR ENDED DECEMBER 31,
                  ------------------------
                   2005     2004     2003
                  ------   ------   ------
                           
Interest ......   $1,426   $2,133   $2,618
                  ======   ======   ======
Income taxes ..   $1,187   $  835   $  533
                  ======   ======   ======


20.  RELATED PARTY TRANSACTIONS

     On March 1, 2001, a limited liability company wholly owned by TLCVision
acquired all of the non medical assets relating to the refractive practice of
Dr. Mark Whitten prior to Dr. Whitten becoming a director of TLCVision. The cost
of this acquisition was $20.0 million, with $10.0 million paid in cash on March
1, 2001 and the remaining $10.0 million payable in four equal non-interest
bearing installments on each of the first four anniversary dates of closing. Dr.
Whitten was a director of TLCVision from May 2002 to May 2003. At December 31,
2005, this note had been paid in full (See Note 11, "Long-Term Debt"). In
addition, TLCVision has entered into service agreements with companies that own
Dr. Whitten's refractive satellite operations located in Frederick, Maryland,
and Charlottesville, Virginia, under which TLCVision will provide such companies
with services in return for a fee. During the years ended December 31, 2005,
2004 and 2003, the Company received revenue from these service agreements of
$1.0 million, $0.9 million, and $0.7 million, respectively.


                                       65



     LaserVision, a subsidiary of TLCVision, had a limited partnership agreement
with Minnesota Eye Consultants for the operation of one of its Roll-On/Roll-Off
mobile systems. Dr. Richard Lindstrom, a director of TLCVision, is founder,
partner and attending surgeon of Minnesota Eye Consultants. LaserVision is the
general partner and owns 60% of the partnership. Minnesota Eye Consultants, P.A.
is a limited partner and owns 40% of the partnership. Under the terms of the
partnership agreement, LaserVision received a revenue-based management fee from
the partnership until this unit was retired in 2003. Subsequent to the
acquisition of LaserVision, the Company received $48,000 in management fees from
the partnership for the year ended December 31, 2003. Dr. Lindstrom also
receives compensation from TLCVision in his capacity as medical director of
TLCVision and as a consultant to MSS.

     The Company also has an agreement with Minnesota Eye Consultants to provide
laser access. The Company received revenue of $1.0 million, $1.4 million, and
$1.2 million as a result of the agreement for the years ended December 31, 2005,
2004, and 2003, respectively.

     In September 2004, OccuLogix signed a product purchase agreement with Veris
to sell 8,004 treatment sets over the period from October 2004 to December 2005,
a transaction valued at $6.0 million, after introductory rebates. However, due
to delays in opening its planned number of clinics throughout Canada, Veris will
no longer require the contracted number of treatment sets in the period.
OccuLogix has agreed to the original pricing for the reduced number of treatment
sets required in the period. Dr. Jeffery Machat, who is an investor in and one
of the directors of Veris, was a co-founder and former director of TLCVision. As
of December 31, 2005, OccuLogix had received a total of $1.8 million from Veris.
Included in amounts receivable as of December 31, 2005 is $1.0 million due from
Veris for the purchase of additional pumps and treatment sets. Based on
discussions with Veris, OccuLogix believes that Veris will not be able to meet
its financial obligations by March 31, 2006. Therefore, OccuLogix has recorded
an allowance for doubtful accounts of $1.0 million against the amount due from
Veris in the year ended December 31, 2005.

21.  SUBSEQUENT EVENTS

     On February 3, 2006, OccuLogix announced that it had completed a
preliminary analysis of the data from MIRA-1, its recently completed pivotal
(phase III) clinical trial using its RHEO(TM) System. The data indicated that
MIRA-1 did not demonstrate a statistically significant mean change of Best
Spectacle-Corrected Visual Acuity. As a result of this announcement, the share
price of OccuLogix stock as traded on the NASDAQ National Market System
decreased from $12.75 on February 2, 2006 to close at $4.10 on February 3, 2006.
The 10-day average price of the stock immediately following the announcement was
$3.65 and reflected a decrease in the market capitalization of OccuLogix from
$536.6 million on February 2, 2006 to $153.6 million based on the 10-day share
price average subsequent to the announcement. The resulting decrease in the
share price was identified as an indicator of impairment leading to an analysis
of OccuLogix's intangible assets and goodwill and resulting in OccuLogix
reporting an impairment charge to goodwill of $147.5 million. Because TLCVision
accounted for the OccuLogix reorganization at historical cost, it eliminates
OccuLogix's goodwill balance in consolidation (see Note 1).

     OccuLogix believes that the announcement made it unlikely that it would be
able to collect on amounts outstanding from its sole customer, Veris, resulting
in a provision for bad debts of $0.5 million related to revenue reported prior
to December 2005. OccuLogix did not recognize $0.5 million of revenue related to
goods shipped in December 2005, based on collectibility not being reasonably
assured. OccuLogix also fully expensed the $0.2 million advance that it had paid
to Veris in connection with clinical trial services to be provided by Veris for
one of OccuLogix's clinical trials. OccuLogix also evaluated its ending
inventory balance as of December 31, 2005 on the basis that Veris may not be
able to increase its commercial activities in Canada in line with initial
expectations. Accordingly, OccuLogix set up a provision for obsolescence of $2.0
million for filter sets that are unlikely to be utilized prior to their
expiration dates. As a result of the above entries, TLCVision's reported pre-tax
earnings for the quarter and year ended December 31, 2005 were reduced by $1.6
million.


                                       66



22.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     On March 16, 2006, the Company announced that it would restate its
consolidated financial statements for the first three quarters of 2005 to
correct its accounting for income taxes. During each of the first three quarters
of 2005, the Company reversed a portion of its deferred tax asset valuation
allowance as a reduction to income tax expense. Due to limitations on the
availability of certain portions of the Company's net operating loss
carryforwards, the Company has determined that the deferred tax asset valuation
allowance reversals in the first three quarters of 2005 should have been
recorded primarily to goodwill and equity. The adjustments to income tax expense
were $2.9 million, $1.9 million and $0.9 million for the three months ended
March 31, 2005, June 30, 2005 and September 30, 2005, respectively. The total
adjustment for the first three quarters of $5.7 million is primarily a non-cash
item. All data reflected in the 2005 consolidated financial statements,
including the related notes, have been restated to properly reflect income
taxes. Quarterly financial results (unaudited) for 2005, including the effect of
the restatement, are as follows:



                           THREE MONTHS ENDED            THREE MONTHS ENDED            THREE MONTHS ENDED
                             MARCH 31, 2005                JUNE 30, 2005               SEPTEMBER 30, 2005       THREE MONTHS
                      ---------------------------   ---------------------------   ---------------------------      ENDED
                      AS PREVIOUSLY                 AS PREVIOUSLY                 AS PREVIOUSLY                 DECEMBER 31,
                         REPORTED     AS RESTATED      REPORTED     AS RESTATED      REPORTED     AS RESTATED       2005
                      -------------   -----------   -------------   -----------   -------------   -----------   ------------
                                                                                           
Revenues                 $71,049        $71,049        $66,820        $66,820        $61,639        $61,639       $60,517
Gross profit              24,959         24,959         22,492         22,492         17,521         17,521        14,328
Net income (loss)          9,606          6,727          5,511          3,635          1,699            779        (4,256)
Basic income (loss)
   per share                0.14           0.10           0.08           0.05           0.02           0.01         (0.06)
Diluted income
   (loss) per share         0.13           0.09           0.08           0.05           0.02           0.01         (0.06)


For comparison purposes, the quarterly financial results (unaudited) for 2004
are as follows:



                                                        THREE MONTHS   THREE MONTHS
                       THREE MONTHS     THREE MONTHS       ENDED           ENDED
                           ENDED           ENDED       SEPTEMBER 30,   DECEMBER 31,
                      MARCH 31, 2004   JUNE 30, 2004        2004         2004 (1)
                      --------------   -------------   -------------   ------------
                                                           
Revenues                  $66,800         $65,879         $57,692         $56,876
Gross profit               21,713          22,307          17,609          14,880
Net income (loss)           8,052           6,239           3,322          26,095
Basic income (loss)
   per share                 0.12            0.09            0.05            0.38
Diluted income
  (loss) per share           0.12            0.09            0.05            0.36


(1)  Net income for the three months ended December 31, 2004 includes a gain on
     the sale of OccuLogix stock of $25.8 million.


                                       67



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

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

     As of the end of the period covered by the report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act). Based on that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective, in all material respects, to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.

     CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     During the quarter ended December 31, 2005, the Company implemented a
control within the reporting of income taxes process to evaluate IRC Section 382
limitations related to the availability of net operating loss carryforwards and
the impact on the Company's financial statements. This evaluation resulted in a
restatement of the 2005 quarterly financial information as well as a correction
in 2005 of 2004 income taxes as described in footnote 15 to the consolidated
financial statements and was considered to be a material weakness in internal
controls that was properly remediated prior to year-end. Except as described
above, there have been no other significant changes in the Company's internal
controls over financial reporting that occurred during the quarter ended
December 31, 2005, that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

        MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management of the Company is responsible for establishing and maintaining
effective internal control over financial reporting as defined in Rules
13a-15(f) under the Securities Exchange Act of 1934. The Company's internal
control over financial reporting is designed to provide reasonable assurance to
the Company's management and board of directors regarding the preparation and
fair presentation of published financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

     Management assessed the effectiveness of the Company's internal control
over financial reporting as of December 31, 2005. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Framework. Based on our assessment, we believe that, as of December 31, 2005,
the Company's internal control over financial reporting is effective based on
those criteria. However, management did not assess the effectiveness of the
internal controls of Kremer Laser Eye, which is included in the Company's 2005
consolidated financial statements and constituted $33.0 million and $25.9
million of assets and net assets, respectively, as of December 31, 2005 and $7.5
million and $0.8 million of revenues and net income, respectively, for the
period from July 11, 2005 through December 31, 2005. Management did not assess
the effectiveness of internal control over financial reporting at this entity
because the Company did not have control of the entity until July 11, 2005 and
therefore did not have time, in practice, to assess those controls.


                                       68



     Management's assessment of the effectiveness of internal control over
financial reporting as of December 31, 2005, has been audited by Ernst & Young
LLP, an independent registered public accounting firm who also audited the
Company's consolidated financial statements. Ernst & Young's attestation report
on management's assessment of the Company's internal control over financial
reporting is included elsewhere herein.


                                       69



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of TLC Vision Corporation

     We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that TLC
Vision Corporation maintained effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). TLC Vision
Corporation's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
company's internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     As indicated in the accompanying Management's Report on Internal Control
over Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of Kremer Laser Eye, which is included in the 2005
consolidated financial statements of TLC Vision Corporation and constituted
$33.0 million and $25.9 million of assets and net assets, respectively, as of
December 31, 2005 and $7.5 million and $0.8 million of revenues and net income,
respectively, for the year then ended. Our audit of internal control over
financial reporting of TLC Vision Corporation also did not include an evaluation
of the internal control over financial reporting of Kremer Laser Eye.

     In our opinion, management's assessment that TLC Vision Corporation
maintained effective internal control over financial reporting as of December
31, 2005, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, TLC Vision Corporation maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2005, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of TLC Vision Corporation as of December 31, 2005 and 2004, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 2005 of TLC
Vision Corporation and our report dated March 10, 2006 expressed an unqualified
opinion thereon.


St. Louis Missouri                      /s/ ERNST & YOUNG LLP
March 10, 2006                          ----------------------------------------


                                       70



ITEM 9B. OTHER INFORMATION

     Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item 10 is incorporated by reference to
the Company's definitive proxy statement to be filed within 120 days after the
end of the Company's fiscal year ended December 31, 2005.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item 11 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed within 120
days after the end of the Company's fiscal year ended December 31, 2005.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
     RELATED STOCKHOLDER MATTERS

     The information required by this Item 12 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed within 120
days after the end of the Company's fiscal year ended December 31, 2005.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item 13 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed within 120
days after the end of the Company's fiscal year ended December 31, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information required by this Item 14 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed within 120
days after the end of the Company's fiscal year ended December 31, 2005.

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  The following documents are filed as part of the report:

     (1)  Financial statements:

     Report of Independent Registered Public Accounting Firm.

     Consolidated Statements of Operations - Years Ended December 31, 2005, 2004
and 2003.

     Consolidated Balance Sheets as of December 31, 2005 and 2004.

     Consolidated Statements of Cash Flows - Years Ended December 31, 2005, 2004
and 2003.

     Consolidated Statements of Stockholders' Equity - Years Ended December 31,
2005, 2004 and 2003.

     Notes to Consolidated Financial Statements

     (2)  Financial statement schedules required to be filed by Item 8 and Item
          15(d) of Form 10-K.

     Schedule II - Valuation and Qualifying Accounts and Reserves


                                       71



     Except as provided below, all schedules for which provision is made in the
     applicable accounting regulations of the Commission either have been
     included in the consolidated financial statements or are not required under
     the related instructions, or are inapplicable and therefore have been
     omitted.

     (3)  Exhibits required by Item 601 of Regulation S-K and by Item 14(c).

     See Exhibit Index.

(b)  Exhibits required by Item 601 of Regulation S-K.

     See Exhibit Index.


                                       72


                                   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.

                                        TLC VISION CORPORATION


                                        By /s/ JAMES C. WACHTMAN
                                           -------------------------------------
                                           James C. Wachtman, Chief Executive
                                           Officer

     March 10, 2006

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.



          SIGNATURE                                   TITLE                            DATED
          ---------                                   -----                            -----
                                                                             


/s/ JAMES C WACHTMAN             Chief Executive Officer and Director              March 10, 2006
- ------------------------------
James C. Wachtman


/s/ STEVEN P. RASCHE             Chief Financial Officer and Treasurer             March 10, 2006
- ------------------------------
Steven P. Rasche


/s/ ELIAS VAMVAKAS               Chairman of the Board of Directors and Director   March 10, 2006
- ------------------------------
Elias Vamvakas


/s/ THOMAS N. DAVIDSON           Director                                          March 10, 2006
- ------------------------------
Thomas N. Davidson


/s/ WARREN S. RUSTAND            Director                                          March 10, 2006
- ------------------------------
Warren S. Rustand


/s/ RICHARD L. LINDSTROM, M.D.   Director                                          March 10, 2006
- ------------------------------
Richard L. Lindstrom, M.D.


/s/ TOBY S. WILT                 Director                                          March 10, 2006
- ------------------------------
Toby S. Wilt


/s/ MICHAEL D. DEPAOLIS          Director                                          March 10, 2006
- ------------------------------
Michael D. DePaolis



                                       73



SCHEDULE II

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



                                           BALANCE AT                           DEDUCTIONS-    BALANCE AT
                                            BEGINNING                          UNCOLLECTABLE       END
                                            OF PERIOD   PROVISION   OTHER(1)      AMOUNTS       OF PERIOD
                                           ----------   ---------   --------   -------------   ----------
                                                                   (IN THOUSANDS)
                                                                                
Fiscal 2003
Provision for contractual allowances and
   doubtful accounts receivable             $  2,428    $    207    $     --       $ (52)       $  2,583
Provision against investments and other
   assets                                      4,123          46        (651)         --           3,518
Deferred tax asset valuation allowance       120,902       1,929          --          --         122,831

Fiscal 2004
Provision for contractual allowances and
   doubtful accounts receivable             $  2,583    $    124    $     --       $(380)       $  2,327
Provision against investments and other
   assets                                      3,518          --      (1,206)         --           2,312
Deferred tax asset valuation allowance       122,831     (16,337)    (27,863)         --          78,631

Fiscal 2005
Provision for contractual allowances and
   doubtful accounts receivable             $  2,327    $  1,648    $    530       $(276)       $  4,229
Provision against investments and other
   assets                                      2,312           2          --          --           2,314
Deferred tax asset valuation allowance        78,631        (267)     (2,757)         --          75,607


Note (1): During fiscal 2003, the Company adjusted a portion of the provision
for contractual allowances and doubtful accounts due to improved financial
strength of the borrower, a secondary care service provider of which the Company
owns approximately 25% of the outstanding shares, and a consistent pattern of
timely payments that the borrower has made related to the note receivable held
by the Company. The Company reversed the remainder of the reserve in fiscal 2004
due to consistent payment history and continually improving financial strength
of the borrower. During 2004, additional deferred tax asset valuation allowance
of $16,094 related to the acquisition of deferred tax assets of OccuLogix for
which there was a valuation allowance. Additionally, $9,523 was the effect of
stock-based compensation and prior year return-to-provision adjustments. Also
included is a reduction of the deferred tax asset valuation allowance of $53,480
related to the write-down of deferred tax assets for net operating losses that
are not expected to be utilized. During 2005, the reduction of the deferred tax
asset valuation allowance of $2,757 related to the effect of stock-based
compensation, prior year return-to-provision adjustments and the change in
valuation allowance of OccuLogix.


                                       74



                                  EXHIBIT INDEX



EXHIBIT
  NO.                                  DESCRIPTION
- -------                                -----------
       
3.1       Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
          the Company's 10-K filed with the Commission on August 28, 1998)

3.2       Articles of Amendment (incorporated by reference to Exhibit 3.2 to the
          Company's 10-K filed with the Commission on August 29, 2000)

3.3       Articles of Continuance (incorporated by reference to Exhibit 3.6 to
          the Company's Registration Statement on Form S-4/A filed with the
          Commission on March 1, 2002 (file no. 333-71532))

3.4       Articles of Amendment (incorporated by reference to Exhibit 4.2 to the
          Company's Post Effective Amendment No. 1 on Form S-8 to the Company's
          Registration Statement on Form S-4 filed with the Commission on May
          14, 2002 (file no. 333-71532))

3.5       By-Laws of the Company (incorporated by reference to Exhibit 3.6 to
          the Company's Registration Statement on Form S-4/A filed with the
          Commission on March 1, 2002 (file no. 333-71532))

4.1       Shareholder Rights Plan Agreement dated March 4, 2005 between the
          Company and CIBC Mellon Trust Company (incorporated by reference to
          Exhibit A to the Company's Registration Statement on Form 8-A filed
          with the Commission on March 14, 2005 (file no. 000-29302))

10.1*     TLC Vision Corporation Amended and Restated Share Option Plan
          (incorporated by reference to Exhibit 4.2 to the Company's
          Registration Statement on Form S-8 filed with the Commission on June
          23, 2004 (file no. 333-116769))

10.2*     TLC Corporation 2004 Employee Share Purchase Plan (incorporated by
          reference to Exhibit 4.1 to the Company's Registration Statement on
          Form S-8 filed with the Commission on June 23, 2004 (file no.
          333-116769))

10.3*     Employment Agreement with Elias Vamvakas (incorporated by reference to
          Exhibit 10.1(e) to the Company's 10-K filed with the Commission on
          August 28, 1998)

10.4      Escrow Agreement with Elias Vamvakas and Jeffery J. Machat
          (incorporated by reference to Exhibit 10.1(f) to the Company's 10-K
          filed with the Commission on August 28, 1998)

10.5      Consulting Agreement with Excimer Management Corporation (incorporated
          by reference to Exhibit 10.1(g) to the Company's 10-K filed with the
          Commission on August 28, 1998)

10.6      Shareholder Agreement for Vision Corporation (incorporated by
          reference to Exhibit 10.1(l) to the Company's 10-K filed with the
          Commission on August 28, 1998)

10.7*     Employment Agreement with William Leonard (incorporated by reference
          to Exhibit 10.1(n) to the Company's 10-K filed with the Commission on
          August 29, 2000)

10.8*     Consulting Agreement with Warren Rustand (incorporated by Reference to
          Exhibit 10.10 to the Company's Amendment No. 2 registration Statement
          on Form S-4/A filed with the Commission on January 18, 2002 (file no.
          333-71532))

10.9*     Employment Agreement with Paul Frederick (incorporated by reference to
          Exhibit 10.10 to the Company's 10-K for the year ended May 31, 2002)

10.10*    Employment Agreement with James C. Wachtman dated May 15, 2002
          (incorporated by reference to Exhibit 10.13 to the Company's 10-K for
          the year ended May 31, 2002)

10.11*    Employment Agreement with Robert W. May dated May 15, 2002
          (incorporated by reference to Exhibit 10.14 to the Company's 10-K for
          the year ended May 31, 2002)

10.12*    Amendment to Employment Agreement with Robert W. May dated September
          30, 2003 (incorporated by reference to Exhibit 10.12 to the Company's
          10-K for the year ended December 31, 2003)

10.13*    Employment Agreement with B. Charles Bono dated May 15, 2002
          (incorporated by reference to Exhibit 10.15 to the Company's 10-K for
          the year ended May 31, 2002)

10.14*    Amendment to Employment Agreement with B. Charles Bono dated September
          30, 2003 (incorporated by reference to Exhibit 10.14 to the Company's
          10-K for the year ended December 31, 2003)

10.15*    Supplemental Employment Agreement with John J. Klobnak dated May 15,
          2002 (incorporated by reference to Exhibit 10.16 to the Company's 10-K
          for the year ended May 31, 2002)

10.16*    Severance Agreement with Elias Vamvakas dated October 25, 2004
          (incorporated by reference to Exhibit 10.16 to the Company's 10-K for
          the year ended December 31, 2004)



                                       75





EXHIBIT
  NO.                                  DESCRIPTION
- -------                                -----------
       
10.17*    Employment Agreement with Steve Rasche dated July 1, 2004
          (incorporated by reference to Exhibit 10.17 to the Company's 10-K for
          the year ended December 31, 2004)

10.18*    Employment Agreement with Brian Andrew dated December 31, 2004
          (incorporated by reference to Exhibit 10.18 to the Company's 10-K for
          the year ended December 31, 2004)

10.19     Asset Purchase Agreement By and Among TLC Vision (USA) Corporation,
          Eyes of the Future, P.C., and Frederic B. Kremer, M.D., dated as of
          July 11, 2005 (incorporated by reference to Exhibit 2.1 to the
          Company's 10-Q for the three and nine months ended September 30, 2005)

10.20     Asset Purchase Agreement By and Among TLC Vision (USA) Corporation,
          Frederic B. Kremer, M.D., P.C., and Frederic B. Kremer, M.D., dated as
          of July 11, 2005 (incorporated by reference to Exhibit 2.2 to the
          Company's 10-Q for the three and nine months ended September 30, 2005)

10.21     Agreement and Plan of Merger By and Among Truvision, Inc. and TLC
          Wildcard Corp. and TLC Vision Corporation and TLC Vision (USA)
          Corporation and Lindsay T. Atwood dated as of October 27, 2005
          (incorporated by reference to Exhibit 2.3 to the Company's 10-Q for
          the three and nine months ended September 30, 2005)

21        List of the Company's Subsidiaries

23        Consent of Independent Registered Public Accounting Firm

31.1      CEO's Certification required by Rule 13A-14(a) of the Securities
          Exchange Act of 1934.

31.2      CFO's Certification required by Rule 13A-14(a) of the Securities
          Exchange Act of 1934.

32.1      CEO's Certification of periodic financial report pursuant to Section
          906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350

32.2      CFO's Certification of periodic financial report pursuant to Section
          906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350

99        Reconciliation between Canadian and United States Generally Accepted
          Accounting Principles


*    Management contract or compensatory plan arrangement.


                                       76

EX-21

                                                                               .
                                                                               .
                                                                               .

                                                                      Exhibit 21

LISTING OF THE COMPANY'S SUBSIDIARIES



                                                        State/Province of
                                                          Incorporation/
Name                                                       Organization
- ----                                                    -----------------
                                                     
ADA Ambulatory Surgery Center LLC                       Delaware
American Eye Instruments, Inc.                          Oregon
California Refractive LLC                               Delaware
Coastal Vision Laser Eye Centers, LLC                   California
CUSA 2002 Investments, LLC                              Delaware
Dakota Dunes, LLC                                       Delaware
Del Val ASC, LLC                                        Delaware
Delaware Valley Vision Assoc. Group Practice, LLC       Pennsylvania
Eastern Oregon Regional Surgery Center, LLC             Oregon
Huntsville Center for Advanced Cataract Surgery LLC     Delaware
Laser Access of Indiana LLC                             Indiana
Laser Eye Care of California, LLC                       Delaware
Laser Eye Surgery, Inc.                                 Utah
Laser Vision Center of Edina LLC                        Minnesota
Laser Vision Centers, Inc.                              Delaware
Laservision (Europe) Limited                            United Kingdom
LaserVision Centers Limited                             United Kingdom
Laser Vision Limited                                    United Kingdom
Laservision Harley Street Limited                       United Kingdom
Liberty Eye Surgical Center, LLC                        Pennsylvania
Long Island Refractive LLC                              Delaware
LVCI California, LLC                                    Delaware
MSS, Inc.                                               Minnesota
New Mexico Refractive LLC                               New Mexico
New Vision Strategies LLC                               Kansas
Northwestern Laser Vision LLC                           Delaware
OccuLogix Holdings, Inc.                                Delaware
OccuLogix, Inc.                                         Delaware
OccuLogix LLC                                           Delaware
OccuLogix LP                                            Delaware
OccuLogix Management Inc.                               Delaware
Ogden Refractive LLC                                    Delaware
Opt, LLC                                                Utah
OR Partners, Inc.                                       Delaware
OR Providers, Inc.                                      Ohio
Oxford Eye Surgery Center, LP                           Mississippi
Permian Basin Surgical Care Center Ltd.                 Texas
Philadelphia Vision Associates Group Practice, LLC      Pennsylvania
Phoenix Eye Surgical Center                             Arizona
Providence Refractive LLC                               Delaware
Rockland Surgery Center LP                              Delaware
San Jose Refractive LLC                                 Delaware
Southeast Medical, Inc.                                 Louisiana
Southern Ophthalmics, Inc.                              South Carolina
Summit Ambulatory Surgical Center LLP                   Delaware
Surgical Services of Michigan, L.L.C.                   Michigan
Texoma Regional Surgery Center LLC                      Delaware
TLC Capital Corporation                                 Delaware
TLC Florida Eye Laser Center LLC                        Delaware
TLC Laser Eye Care of La Jolla LLC                      Delaware
TLC Laser Eye Care of Torrance LLC                      Delaware



                                       77



                                                     
TLC Laser Eye Centers (ATAC) LLC                        Delaware
TLC Laser Eye Centers (Piedmont/Atlanta) LLC            South Carolina
TLC Laser Eye Centers (Refractive I) Inc.               Delaware
TLC Management (Delaware Valley), LLC                   Delaware
TLC Management Services Inc.                            Delaware
TLC Michigan L.L.C.                                     Michigan
TLC Michigan Investments, LLC                           Michigan
TLC Midwest Eye Laser Center, Inc.                      Illinois
TLC Northwest Ohio LLC                                  Ohio
TLC Oklahoma Doctors L.L.C.                             Oklahoma
TLC Personnel Services LLC                              Michigan
TLC The Laser Center (Annapolis) Inc.                   Maryland
TLC The Laser Center (Baltimore Management) LLC         Maryland
TLC The Laser Center (Baltimore) Inc.                   Maryland
TLC The Laser Center (Boca Raton) Limited Partnership   Florida
TLC The Laser Center (Carolina) Inc.                    North Carolina
TLC The Laser Center (Connecticut) L.L.C.               Connecticut
TLC The Laser Center Detroit L.L.C.                     Michigan
TLC The Laser Center (Indiana) Inc.                     Indiana
TLC The Laser Center (Indiana) LLC                      Indiana
TLC The Laser Center (Institute) Inc.                   Delaware
TLC The Laser Center Kalamazoo L.L.C.                   Michigan
TLC The Laser Center Lansing L.L.C.                     Michigan
TLC The Laser Center (Moncton) Inc.                     Ontario
TLC The Laser Center (Northeast) Inc.                   Maryland
TLC The Laser Center (Northwest) Inc.                   Washington
TLC The Laser Center (Pittsburgh) L.L.C.                Pennsylvania
TLC The Laser Center (Tri-Cities) Inc.                  Tennessee
TLC The London Laser Center Inc.                        Ontario
TLC VC, LLC                                             Delaware
TLC Vision (USA) Corporation                            Delaware
TLC Vision Source, Inc.                                 Texas
TLC Whitten Laser Eye Associates LLC                    Delaware
TruVision, Inc.                                         Delaware
TruVision Contacts, Inc.                                Utah
TruVision Provider Online Services, Inc.                Utah
TruHearing, Inc.                                        Utah
Valley Laser Eye Center LLC                             North Dakota
Vision Corporation                                      Ontario
Vision Source LP                                        Texas
Vision Source Management LLC                            Texas
Vision Source Marketing, Inc.                           Texas
Wisconsin Refractive LLC                                Delaware




                                       78

EX-23

                                                                      Exhibit 23

            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 333-115910, Form S-8, No. 333-116769, Form S-8, No. 333-71532,
Form S-8, No. 333-55480, and Form S-8, No. 333-62907) of TLC Vision Corporation
of our reports dated March 10, 2006, with respect to the consolidated financial
statements and schedule of TLC Vision Corporation, TLC Vision Corporation
Management's assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting of
TLC Vision Corporation, included in the Annual Report (Form 10-K) for the year
ended December 31, 2005.


                                        /s/ Ernst & Young LLP
                                        ---------------------------------------

St. Louis, Missouri
March 15, 2006


                                       79

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

     I, James C. Wachtman, certify that:

     1. I have reviewed this annual report on Form 10-K of TLC Vision
Corporation;

     2. Based on my knowledge, this 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 periods covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;

     4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

     (b) Designed such internal control over financial reporting or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

                                        Date: March 10, 2006


                                        /s/ James C. Wachtman
                                        ----------------------------------------
                                        James C. Wachtman
                                        Chief Executive Officer


                                       80

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

     I, Steven P. Rasche, certify that:

     1. I have reviewed this annual report on Form 10-K of TLC Vision
Corporation;

     2. Based on my knowledge, this 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 periods covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;

     4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

     (b) Designed such internal control over financial reporting or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

                                        Date: March 10, 2006


                                        /s/ Steven P. Rasche
                                        ----------------------------------------
                                        Steven P. Rasche
                                        Chief Financial Officer


                                       81

EX-32.1

                                                                    EXHIBIT 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TLC Vision Corporation (the "Company")
on Form 10-K for the period ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, James C. Wachtman,
Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

                                        Date: March 10, 2006


                                        /s/ James C. Wachtman
                                        ----------------------------------------
                                        James C. Wachtman
                                        Chief Executive Officer


                                       82

EX-32.2

                                                                    EXHIBIT 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TLC Vision Corporation (the "Company")
on Form 10-K for the period ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Steven P. Rasche,
Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

                                        Date: March 10, 2006


                                        /s/ Steven P. Rasche
                                        ----------------------------------------
                                        Steven P. Rasche
                                        Chief Financial Officer


                                       83

EX-99

                                                                      EXHIBIT 99

RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES

TLC Vision Corporation (the "Company") prepares its consolidated financial
statements in accordance with United States ("U.S.") Generally Accepted
Accounting Principles ("GAAP"), which differ in certain respects from Canadian
GAAP. This reconciliation between Canadian and U.S. GAAP should be read in
conjunction with the consolidated financial statements as of December 31, 2005
and 2004 and for the years ended December 31, 2005, 2004 and 2003 and related
management's discussion and analysis prepared in accordance with U.S. GAAP and
filed with the Securities Exchange Commission and the Canadian securities
regulatory authorities.

a) Reconciliation from U.S. GAAP to Canadian GAAP

     Following is a reconciliation of net income (loss) from U.S. GAAP to
     Canadian GAAP:



                                                                                          YEAR ENDED DECEMBER 31,
                                                                                       ----------------------------
                                                                                         2005      2004      2003
                                                                                       -------   -------   --------
                                                                                                  
Net income (loss) per U.S. GAAP ....................................................   $ 6,885   $43,708   $ (9,399)
Amortization of Practice Management Agreements (1) .................................    (1,512)   (1,512)    (1,512)
Depreciation of fixed assets (2) ...................................................      (280)     (280)      (280)
Interest income on note receivable related to the sale-leaseback of building (3) ...        78        78         78
Variable accounting for stock options (4) ..........................................        29       108         --
Fair value accounting of stock options (4) .........................................    (6,488)   (1,245)        --
                                                                                       -------   -------   --------
Net income (loss) per Canadian GAAP ................................................   $(1,288)  $40,857   $(11,113)
                                                                                       =======   =======   ========
Net income (loss) per share for Canadian GAAP - basic ..............................   $ (0.02)  $  0.60   $  (0.17)
                                                                                       =======   =======   ========
Net income (loss) per share for Canadian GAAP - diluted ............................   $ (0.02)  $  0.57   $  (0.17)
                                                                                       =======   =======   ========


The most significant balance sheet differences between U.S. GAAP and Canadian
GAAP are as follows:



                                                                   DECEMBER 31,   DECEMBER 31,
                                                                       2005           2004
                                                                   ------------   ------------
                                                                            
Investments and Other Assets
Balance per U.S. GAAP ..........................................      $19,838        $10,482
Note receivable related to the sale-leaseback of building (2) ..          850            913
                                                                      -------        -------
Balance per Canadian GAAP ......................................      $20,688        $11,395
                                                                      =======        =======
Intangibles, Net
Balance per U.S. GAAP ..........................................      $24,021        $18,140
Difference in impairment write-off of intangibles (1) ..........        6,334          6,334
Amortization of Practice Management Agreements (1) .............       (5,418)        (3,906)
                                                                      -------        -------
Balance per Canadian GAAP ......................................      $24,937        $20,568
                                                                      =======        =======
Fixed Assets, Net
Balance per U.S. GAAP ..........................................      $49,159        $46,199
Adjustment for the sale-leaseback of building (2) ..............         (829)          (829)
Depreciation of fixed assets (2) ...............................       (1,258)          (978)
                                                                      -------        -------
Balance per Canadian GAAP ......................................      $47,072        $44,392
                                                                      =======        =======



                                       84






                                                                       DECEMBER 31,   DECEMBER 31,
                                                                           2005           2004
                                                                       ------------   ------------
                                                                                
Long-Term Debt, Less Current Maturities
Balance per U.S. GAAP ..............................................    $  12,665      $   9,991
Adjustment for note payable related to the sale-leaseback of
building (2) .......................................................          787            850
Cumulative interest payments received on note receivable related
to the sale-leaseback of building (3) ..............................         (309)          (224)
                                                                        ---------      ---------
Balance per Canadian GAAP ..........................................    $  13,143      $  10,617
                                                                        =========      =========

Contributed Surplus
Balance per U.S. GAAP ..............................................    $      --      $      --
Adjustment for change in accounting policy related to the fair
value accounting of stock options (4) ..............................       13,607         13,607
Adjustment for fair value accounting of stock options (4) ..........        7,733          1,245
                                                                        ---------      ---------
Balance per Canadian GAAP ..........................................    $  21,340      $  14,852
                                                                        =========      =========

Option and Warrant Equity
Balance per U.S. GAAP ..............................................    $   1,861      $   2,872
Adjustment to compensation expense for warrants and stock
options (4) ........................................................         (359)          (330)
                                                                        ---------      ---------
Balance per Canadian GAAP ..........................................    $   1,502      $   2,542
                                                                        =========      =========

Accumulated Deficit
Balance per U.S. GAAP ..............................................    $(244,159)     $(251,044)
Adjustment to the value of intangible Practice Management
Agreements (1) .....................................................          916          2,428
Adjustment for the sale-leaseback of building (2) ..................       (2,087)        (1,807)
Cumulative interest on note receivable related to the
sale-leaseback of building (3) .....................................          322            244
Adjustment to compensation expense for warrants and stock
options (4) ........................................................       (7,374)          (915)
Adjustment for change in accounting policy related to the fair
value of stock options (4) .........................................      (13,607)       (13,607)
                                                                        ---------      ---------
Balance per Canadian GAAP ..........................................    $(265,989)     $(264,701)
                                                                        =========      =========


(1)  During the year ended May 31, 2002, the Company reviewed its Practice
     Management Agreements ("PMA's") for impairment based on budgets prepared
     for future periods. The refractive industry had experienced reduced
     procedure volumes over the prior two years as a result of increased
     competition, customer confusion and a weakening North American economy.
     This reduction in procedures had occurred at practices the Company had
     purchased, and as a result revenues were lower than anticipated when
     initial purchase prices and resulting intangible values were determined.

     For U.S. GAAP purposes, the Company accounts for its intangible assets
     subject to amortization in accordance with Statement of Financial
     Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible
     Assets" ("SFAS 142"). SFAS 142 requires the impairment analysis first
     consider undiscounted cash flows in determining if an impairment exists. If
     an impairment is evident, a second calculation using a discounted cash flow
     method is utilized to determine the actual amount of the impairment. For
     U.S. GAAP purposes, the Company recorded an impairment charge of $31.0
     million for the year ended May 31, 2002 related to its PMA's.

     For Canadian GAAP purposes, the Company measured the initial impairment
     charge in accordance with the Canadian Institute of Chartered Accountant's
     ("CICA") Handbook Section 3060, "Capital Assets", the Canadian GAAP rules
     in existence during the


                                       85



     year ended May 31, 2002 ("CICA 3060"). CICA 3060 required an impairment
     charge to be recognized when the expected future undiscounted cash flows do
     not exceed the carrying value of such assets.

     As at May 31, 2002, this resulted in a $6.3 million difference in the
     write-down of the PMA's between U.S. and Canadian GAAP ($24.7 million).
     This difference in the initial measurement of the impairment further
     resulted in a difference to the amortization expense in subsequent periods,
     resulting in an additional $5.4 million of amortization expense for
     Canadian GAAP compared to U.S. GAAP through December 31, 2005.

     During 2003, the CICA issued CICA 3061, Property, Plant and Equipment which
     is consistent with U.S. GAAP, however retroactive adoption of this change
     was not required.

(2)  During the year ended May 31, 2002, the Company completed a sale-leaseback
     transaction. Total consideration received for the sale of the building and
     related land was $6.4 million, which was comprised of $5.4 million in cash
     and a $1.0 million 8.0% note receivable ("Note"). The Note has a seven-year
     term with the first of four annual payments of $63,000 starting on the
     third anniversary of the sale and a final payment of $0.7 million due on
     the seventh anniversary of the sale.

     For U.S. GAAP purposes, this transaction was accounted for in accordance
     with SFAS 98, "Accounting for Leases" ("SFAS 98"). SFAS 98 prohibits sale
     recognition on a sale-leaseback transaction when the sublease is considered
     to be minor and the only recourse to any future amounts owing from the
     other party is the leased asset. A sublease is considered to be minor when
     the present value of the sublease rent is less than 10% of the total fair
     market value. The Company accounted for the transaction as a financing
     transaction which requires sale proceeds to be recorded as a liability and
     for the Note to not be recognized. In addition, since the sale recognition
     is not accounted for, the carrying value of the asset is not adjusted for
     and the asset continues to be depreciated over the original depreciation
     period of 40 years. Lease payments, exclusive of an interest portion,
     decrease the liability while payments received on the Note increase the
     liability.

     For Canadian GAAP purposes, the sale-leaseback transaction was accounted
     for in accordance with Emerging Issues Committee No. 25, "Accounting for
     Sales with Leasebacks", which resulted in the Company recognizing a loss on
     the sale with a corresponding lease asset and lease obligation. The terms
     of the lease are considered capital in nature and accordingly the land and
     building are reflected as assets under capital lease with the discounted
     value of the lease payments recorded as an obligation under capital lease.
     The fair value of the assets under capital lease was less than its previous
     carrying value and accordingly a write down of approximately $0.8 million
     was reflected in the consolidated statement of operations for the year
     ended May 31, 2002.

     For U.S. GAAP purposes, depreciation expense reflects the higher net book
     value of the building depreciated over a 40-year expected life. For
     Canadian GAAP purposes, the building is depreciated over the 15-year life
     of the lease and the Note ($0.9 million as of December 31, 2005) is
     included in investments and other assets.

     As of December 31, 2005, as a result of the difference in the initial
     accounting treatment of the sale-leaseback transaction and subsequent
     differences in depreciation expense recorded, the net book value of the
     building is $2.1 million higher for U.S. GAAP. Investments and other assets
     is $0.9 million higher and notes payable is $0.5 million higher (of which
     $0.5 million is classified as long-term) for Canadian GAAP. For each of the
     years ended December 31, 2005, 2004 and 2003, depreciation expense is
     higher for U.S. GAAP by $280,000.

(3)  For each of the years ended December 31, 2005, 2004 and 2003, the Company
     reported $78,000 of interest income related to the Note on the
     sale-leaseback of the building as described above.

     As of December 31, 2005, $13,000 of interest income was not yet received,
     and the associated interest receivable was included in prepaids and other
     current assts for Canadian GAAP purposes. In the above U.S. GAAP to
     Canadian GAAP reconciliation, cumulative interest payments received of
     $309,000 are recorded as reductions to long-term debt in order to adjust
     the U.S. GAAP treatment of the payments, which increases the debt upon
     their receipt.

(4)  For U.S. GAAP purposes, the Company has adopted the disclosure requirements
     of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and
     as permitted under SFAS 123, applies Accounting Principles Board Opinion
     No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
     interpretations in accounting for its stock option plans. SFAS 123 requires
     disclosure of pro forma amounts to reflect the impact if the Company had
     elected to adopt the optional recognition provisions of SFAS 123 for its
     stock option plans and employee stock purchase plans.


                                       86



     For Canadian GAAP purposes, the Company accounts for its stock options in
     accordance with the provisions of CICA Section 3870, "Stock-Based
     Compensation and Other Stock-Based Payments," ("CICA 3870").

     CICA 3870, issued in December 2001, established standards for the
     recognition, measurement and disclosure of stock-based compensation, and
     other stock-based payments. Under the provisions of CICA 3870, prior to
     January 1, 2004, companies could either measure the compensation cost of
     equity instruments issued under employee compensation plans using a fair
     value-based method or could recognize compensation cost using another
     method, such as the intrinsic value-based method. However, if another
     method was applied, pro forma disclosure of net income or loss and earnings
     or loss per share was required in the financial statements as if the fair
     value-based method had been applied. Effective January 1, 2004, CICA 3870
     requires that all stock-based compensation be measured and expensed using a
     fair value-based methodology.

     Prior to January 1, 2004, the Company recognized employee stock-based
     compensation under the intrinsic value-based method and provided pro forma
     disclosure of net income or loss and earnings or loss per share as if the
     fair value-based method had been applied. Effective January 1, 2004, the
     Company adopted for Canadian GAAP purposes the fair value-based method for
     recognizing employee stock-based compensation on a retroactive basis to
     January 1, 1996, without restatement of prior periods. At January 1, 2004,
     the cumulative effect of the change in accounting policy on prior periods
     resulted in a charge to accumulated deficit of $13.6 million which
     represents the sum of the previously disclosed pro forma fair value
     adjustments with a corresponding increase to contributed surplus.

     For the years ended December 31, 2005 and 2004, the Company recorded for
     Canadian GAAP purposes stock-based compensation expense, net of minority
     interests, of $6.5 million and $1.2 million, respectively, which is
     included in general and administrative expenses. The fair values of
     TLCVision's options granted in 2005 and 2004 were estimated at the date of
     grant using the Black-Scholes option pricing model with the following
     weighted average assumptions: risk free interest rate of 3.99% and 2.84%,
     respectively; dividend rate of 0%; volatility factor of 0.75; and expected
     life of 2.5 years. The fair values of OccuLogix's options granted in 2005
     were estimated at the date of grant using the Black-Scholes option pricing
     model with the following weighted average assumptions: risk free interest
     rate of 3.88%; dividend rate of 0%; volatility factor of 0.73; and expected
     life of 2.4 years.

     TLCVision issued 0.2 million and 1.0 million stock options during 2005 and
     2004, respectively. OccuLogix issued 1.8 million stock options during 2005.

     No compensation expense determined under fair value-based method for stock
     options was included in the determination of net loss for the year ended
     December 31, 2003. For the year ended December 31, 2003, the following
     table presents the Company's pro forma net loss and net loss per share as
     if the fair value-based method of CICA 3870 had been applied for all stock
     options granted:



                                                                       YEAR ENDED
                                                                      DECEMBER 31,
                                                                           2003
                                                                      ------------
                                                                   
Net loss per Canadian GAAP ........................................     $(11,113)
Total pro forma stock-based compensation expense determined
under fair value-based method .....................................       (1,121)
                                                                        --------
Pro forma net loss ................................................     $(12,234)
                                                                        ========
BASIC AND DILUTED NET LOSS PER SHARE
As reported .......................................................     $  (0.17)
Pro forma .........................................................     $  (0.19)


     The fair value of the options granted in 2003 was estimated at the date of
     grant using the Black-Scholes option pricing model with the following
     weighted average assumptions: risk free interest rate of 2.35%; dividend
     rate of 0%; volatility factor of 0.75; and expected life of 2.5 years.

     During the year ended May 31, 2002, the Company allowed the holders of
     outstanding TLC Vision Corporation stock options with an exercise price
     greater than $8.688 (C$13.69) to elect to reduce the exercise price of
     their options to $8.688 (C$13.69), in some cases by surrendering existing
     options for a greater number of shares than the number of shares issuable
     on exercise of each repriced option. For U.S. GAAP purposes, such
     modification which results in a change in the exercise price of the
     underlying stock options is subject to APB 25's variable method of
     accounting for stock options. Variable accounting requires that differences
     between the price of the Company's common shares at the end of each
     reporting period and the modified exercise price be charged to income as
     compensation expense over the remaining vesting period of the outstanding
     options. For the year


                                       87



     ended December 31, 2004, the Company recognized, for U.S. GAAP purposes,
     additional stock compensation expense of $108,000 related to the modified
     stock options.

     CICA 3870 does not require the application of variable method of accounting
     for stock options.

b)   Management's Discussion and Analysis - Canadian Supplement

     Management's Discussion and Analysis - Canadian Supplement ("Canadian
     Supplement") in this document is based on consolidated financial statements
     of TLC Vision Corporation prepared in accordance with U.S. GAAP. The
     Canadian Supplement has been prepared by management to provide an analysis
     of the impact of material differences that differ from U.S. GAAP on net
     income and trending analysis of the consolidated statements of operations.

     YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

     Net loss for the year ended December 31, 2005 was $1.3 million or $0.02 per
     share compared to $40.9 million or $0.57 per share for the year ended
     December 31, 2004. The decrease in net income was primarily due to an
     increase in fair value stock option compensation expense, an increase in
     non-cash income tax expense and a significant decrease in net income from
     the AMD segment.

     Amortization expense was $5.6 million for the years ended December 31, 2005
     and 2004. Amortization expense included lower expenses from certain fully
     amortized intangible assets offset by increases from intangibles acquired
     during the year ended December 31, 2005.

     Net cash provided by operating activities was $22.5 million for the year
     ended December 31, 2005. The cash flows provided by operating activities
     during the year ended December 31, 2005 were primarily due to a net loss of
     $1.3 million plus non-cash items including depreciation and amortization of
     $18.1 million, deferred taxes of $6.3 million, minority interest expense of
     $1.3 million and compensation expense of $7.9 million. These cash flows
     were partially offset by an increase in net operating assets of $7.7
     million and earnings from equity investments of $2.5 million. The increase
     in net operating assets consisted of a $3.0 million increase in accounts
     receivable due primarily to higher revenues, a $2.0 million increase in
     prepaid expenses and a $2.8 million decrease in accounts payable and
     accrued liabilities.

     YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

     Net income for the year ended December 31, 2004 was $40.9 million or $0.57
     per share compared to a net loss of $11.1 million or $0.17 per share for
     the year ended December 31, 2003. The significant improvement in net income
     primarily resulted from significant growth in both the refractive and other
     healthcare services businesses and a gain on the sale of OccuLogix's common
     stock.

     Amortization expense decreased to $5.6 million for the year ended December
     31, 2004 from $8.2 million for the year ended December 31, 2003. The
     decrease was largely due to the reduction in Practice Management Agreements
     resulting from the deconsolidation of LECC.

     Net cash provided by operating activities was $35.4 million for the year
     ended December 31, 2004. The cash flows provided by operating activities
     during the year ended December 31, 2004 were primarily due to net income of
     $40.9 million plus non-cash items including depreciation and amortization
     of $19.5 million, minority interest expense of $7.0 million, the write-off
     of investments related to research and development arrangements of $0.8
     million, compensation expense of $1.6 million and the loss on sale of fixed
     assets of $0.8 million. These cash flows were offset by an increase in net
     operating assets of $5.0 million, a gain on sale of subsidiary stock of
     $25.8 million, earnings from equity investments of $2.1 million, an
     adjustment to the fair value of investments and long-term receivables of
     $1.2 million and a gain on sale of interest in subsidiary of $1.1 million.
     The increase in net operating assets consisted of a $1.5 million increase
     in accounts receivable due primarily to higher revenues, a $1.8 million
     increase in prepaid expenses and a $1.7 million decrease in accounts
     payable and accrued liabilities.

c)   For comparative purposes, the following tables illustrate previously filed
     financial statements in accordance with both Canadian GAAP and U.S. GAAP
     for the year ended December 31, 2003. Differences between Canadian GAAP and
     U.S. GAAP are described above.


                                       88



TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars except per share amounts)



                                                   YEAR ENDED
                                               DECEMBER 31, 2003
                                              -------------------
                                              CANADIAN     U.S.
                                                GAAP       GAAP
                                              --------   --------
                                                   
Revenues:
   Refractive:
      Centers .............................   $115,290   $115,290
      Access ..............................     36,140     36,140
   Other healthcare services ..............     49,488     49,488
                                              --------   --------
Total revenues ............................    200,918    200,918
                                              --------   --------

Cost of revenues:
   Refractive:
      Centers .............................     91,283     91,283
      Access ..............................     25,424     25,424
   Other healthcare services ..............     31,836     31,836
                                              --------   --------
Total cost of revenues ....................    148,543    148,543
                                              --------   --------
   Gross margin ...........................     52,375     52,375
                                              --------   --------

General and administrative ................     27,281     27,001
Marketing .................................     18,781     18,781
Research and development ..................      1,598      1,598
Amortization of intangibles ...............      8,197      6,685
Other expenses, net .......................      1,165      1,165
                                              --------   --------
                                                57,022     55,230
                                              --------   --------

Operating loss ............................     (4,647)    (2,855)
Interest income ...........................      1,458      1,380
Interest expense ..........................     (2,744)    (2,744)
Minority interests ........................     (4,672)    (4,672)
                                              --------   --------
Loss before income taxes ..................    (10,605)    (8,891)
Income tax expense ........................       (508)      (508)
                                              --------   --------
Net loss ..................................   $(11,113   $ (9,399)
                                              ========   ========

Net loss per share - basic and diluted ....   $  (0.17)  $  (0.15)
                                              ========   ========
Weighted average number of common shares
   outstanding - basic and diluted ........     64,413     64,413



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TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)



                                                                                    YEAR ENDED
                                                                                DECEMBER 31, 2003
                                                                               -------------------
                                                                               CANADIAN     U.S.
                                                                                 GAAP       GAAP
                                                                               --------   --------
                                                                                    
Net loss ...................................................................   $(11,113)  $ (9,399)
Adjustments to reconcile net loss to net cash from operating activities:
   Depreciation and amortization ...........................................     24,385     22,593
   Write-off of investment in research and development arrangement .........      1,598      1,598
   Minority interests ......................................................      4,672      4,672
   Loss (gain) on sales and disposals of fixed assets ......................       (484)      (484)
   Adjustments to the fair values of intangibles, long-term
      receivables and long-term liabilities ................................       (206)      (206)
   Non-cash compensation expense ...........................................        125        125
   Other ...................................................................        677        677
   Changes in operating assets and liabilities, net of acquisitions and
      dispositions:
      Accounts receivable ..................................................       (489)      (489)
      Prepaid expenses, inventory and other current assets .................     (1,042)      (964)
      Accounts payable and accrued liabilities .............................    (13,831)   (13,831)
                                                                               --------   --------
Cash from operating activities .............................................      4,292      4,292
                                                                               --------   --------

INVESTING ACTIVITIES
Purchases of fixed assets ..................................................     (4,433)    (4,433)
Proceeds from sale of fixed assets .........................................        578        578
Proceeds from divestitures of investments and subsidiaries, net ............        221        221
Investment in research and development arrangements ........................     (1,598)    (1,598)
Acquisitions and equity investments ........................................     (8,015)    (8,015)
Proceeds from short-term investments .......................................     15,709     15,709
Purchases of short-term investments ........................................    (21,050)   (21,050)
Other ......................................................................       (229)      (229)
                                                                               --------   --------
Cash from investing activities .............................................    (18,817)   (18,817)
                                                                               --------   --------

FINANCING ACTIVITIES
Restricted cash movement ...................................................      2,599      2,599
Principal payments of debt financing and capital leases ....................     (8,018)    (8,018)
Proceeds from debt financing ...............................................      3,450      3,450
Distributions to minority interests ........................................     (4,901)    (4,901)
Proceeds from the issuances of common stock ................................      8,744      8,744
                                                                               --------   --------
Cash from financing activities .............................................      1,874      1,874
                                                                               --------   --------

Net decrease in cash and cash equivalents during the period ................    (12,651)   (12,651)
Cash and cash equivalents, beginning of period .............................     34,231     34,231
                                                                               --------   --------
Cash and cash equivalents, end of period ...................................   $ 21,580   $ 21,580
                                                                               ========   ========



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