TLC LASER CENTER INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MAY 31, 2000
COMMISSION FILE NUMBER: 0-29302

TLC LASER EYE CENTERS INC.
--------------------------
(Exact name of registrant as specified in its charter)

Ontario, Canada 980151150
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

5600 Explorer Drive, Suite 301
Mississauga, Ontario L4W 4Y2
(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

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 (Section 229.405 of this chapter) 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. |_|

As of July 31, 2000, the aggregate market value of the registrant's Common
Shares held by non-affiliates of the registrant was approximately
$193,691,819.80 million.

As of July 31, 2000, there were 37,204,432 of the registrant's Common
Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Definitive Proxy Statement for the Company's 2000 annual shareholder's
meeting (incorporated in Part III to the extent provided in Items 10, 11, 12,
and 13).

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 can 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 the "Risk Factors" section of Item 1 "Business" 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. Unless the context indicates or requires otherwise, references in
this Form 10-K to the "Company" or "TLC" shall mean TLC Laser Eye Centers Inc.
and its subsidiaries. The Company's fiscal year ends on May 31. Therefore,
references in this Form 10-K to a particular fiscal year shall mean the 12
months ended on May 31 in that year. 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 Laser Eye Centers Inc. ("TLC" or the "Company") is the largest
provider of laser vision correction services in North America. TLC owns and
manages refractive centers which, together with TLC's network of over 12,500
optometrists and ophthalmologists, provide laser vision correction of common
refractive vision disorders such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. TLC, which commenced operations in September
1993, currently has 62 refractive centers in 29 states and provinces throughout
the United States and Canada. The Company has eight (8) centers currently in
various stages of development, which it plans to open within the next 12 months.

TLC is pursuing a strategy designed to expand its position as the leader
in the North American market for laser vision correction services. The major
focus of the Company's expansion strategy is the United States, where the
Company continues to position itself to take advantage of the growing market for
laser vision correction. TLC continues to implement its strategy by: (i)
continuing to develop local doctor relationships through its co-management
model; (ii) increase market penetration through internal development and
strategic acquisitions of refractive centers; and (iii) developing and managing
the TLC brand and growing the business through several marketing initiatives
such as the Corporate Advantage program and the internet.

Industry Background

Refractive Disorders

The primary function of the human eye is to focus light. The eye works
much like a camera; light rays enter the eye through the cornea, which provides
most of the focusing power. Light then travels through the lens where it is
fine-tuned to focus properly on the retina. The retina, located at the back of
the eye, acts like the film in the camera, changing light into electric impulses
that are carried by the optic nerve to the brain. To see clearly, light must be
focused precisely on the retina. Refractive disorders, such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism, result from an
inability of the cornea and the lens to focus images on the retina properly. The
amount of refraction required to properly focus images depends on the curvature
of the cornea and the size of the eye. If the curvature is not correct, the
cornea cannot properly focus the light passing through it onto the retina, and
the viewer will see a blurred image.

Surgical Procedures

Refractive disorders have historically been treated primarily by
eyeglasses or contact lenses. Increasingly, they are being treated by surgical
techniques, the most common of which in the United States, prior to the excimer
laser being approved for sale for laser vision correction, was Radial Keratotomy
("RK"). RK is a surgical procedure first performed in the 1970s, that corrects
myopia by altering the shape of the cornea. This is accomplished by placing
incisions in a "radial" pattern along the outer portion of the cornea using a
hand-held diamond-tipped blade. These very fine incisions are designed to help
flatten the curvature of the cornea, thereby allowing light rays entering the
eye to properly focus on the retina. The incisions penetrate 90% of the depth of
the cornea. Because RK involves incisions into the corneal tissue, it may weaken
the structure of the cornea, which can have adverse consequences following
traumatic injury. RK also produces incisional scarring, and may cause
fluctuation of vision and progressive farsightedness. Industry sources estimate
that in 1994 over 200,000 RK procedures were performed in the United States. A
variation of RK, Astigmatic Keratotomy, is used to correct astigmatism.

Laser Vision Correction

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 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 correct vision disorders by changing the curvature of the cornea.
There are currently two procedures

that use the excimer laser to correct vision disorders: Photorefractive
Keratectomy ("PRK") and Laser In-Situ Keratomileusis ("LASIK"). In the case of
both PRK and LASIK, prior to the procedure, the doctor makes an assessment of
the exact correction required and programs the excimer laser. 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. Both PRK
and LASIK are performed on an outpatient basis without general anesthesia, using
only topical anesthetic eye drops. An eyelid holder is inserted to prevent
blinking while the eye drops eliminate the reflex to blink. The patient reclines
in a chair, his or her eye focused on a fixation target, and the surgeon
positions the patient's cornea for the procedure. The surgeon uses a foot pedal
to apply the excimer laser beam, which emits a rapid succession of excimer laser
pulses. 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 15 to 90
seconds.

In order to market an excimer laser for commercial sale in the United
States, the manufacturer must obtain pre-market approval from the United States
Food and Drug Administration (the "FDA"). The initial PMA approval for the sale
of the Summit Autonomous, Inc. ("Summit/Autonomous") laser for the treatment of
myopia was granted by the FDA in 1995. The FDA has granted subsequent approvals
for the sale of the VISX Incorporated ("VISX") excimer laser for the treatment
of myopia, astigmatism and hyperopia, for the sale of the Summit/Autonomous
excimer laser for the treatment of astigmatism, and for the sale of the Nidek
Incorporated ("Nidek") excimer laser for treatment of myopia. LaserSight
Incorporated ("LaserSight") recently received pre-market approval for LaserSight
to sell LaserSight's excimer laser in the United States. In Canada, neither the
sale nor the use of excimer lasers to perform refractive surgery is currently
subject to regulatory approval, and excimer lasers have been used to treat
myopia since 1990 and to treat hyperopia since 1996. The Company expects that
future sales of any new excimer laser models in Canada may require the approval
of the Health Protection Branch of Health Canada ("HPB").

The FDA has approved the Summit/Autonomous, VISX and LaserSight excimer
lasers for PRK procedures and the Summit/Autonomous and VISX excimer lasers for
LASIK procedures. LASIK came into commercial use in Canada in 1994 and, while to
date the LaserSight excimer laser has not been approved in the United States for
LASIK procedures, surgeons in the United States have performed LASIK since 1996
using their discretion as a practice of medicine matter. FDA regulations require
the laser to be approved, not the procedure. The FDA has stated that it
considers the decision by doctors to use the excimer laser for LASIK to be a
practice of medicine decision, which the FDA is not authorized to regulate.
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 not
specifically approved by the FDA if that doctor determines that it is in the
best interest of the patient. In addition, on August 3, 1998, the FDA approved
the commercial sale and use of another excimer laser for LASIK procedures. The
rights to commercially produce and distribute this laser are owned by
LaserSight, which recently received pre-market approval from the FDA for its
sale in the United States. Currently, the majority of laser vision correction
procedures being performed in the United States and Canada are LASIK. See "Item
1 - Business -- Potential Side Effects and Long Term Results of Laser Vision
Correction" and "--Government Regulation- Regulation of Health Care Industry -
United States - U.S. Food and Drug Administration."

Photorefractive Keratectomy

With PRK, no scalpels are used and no incisions are made. The surgeon
prepares the eye by gently removing the surface layer of the cornea called the
epithelium. The surgeon then applies the excimer laser beam, reshaping the
curvature of the cornea. Deeper cell layers remain virtually untouched. Since a
layer typically about as slender as a human hair is removed, the cornea
maintains its original strength. A contact lens bandage is then placed on the
eye to protect it. Following PRK, a patient typically experiences blurred vision
and discomfort until the epithelium heals. A patient usually experiences a
substantial improvement in clarity of vision within a few days following PRK,
normally seeing well enough to drive a car within one to two weeks. However, it
generally takes one month, but may take up to six months, for the full benefit
of PRK to be realized.

PRK has been used commercially since 1988 and industry sources estimate
that to date over one million PRK procedures have been performed worldwide.
Clinical trials conducted by Summit/Autonomous prior to receiving FDA approval
for the sale of its excimer laser showed that one year after the PRK procedure,
approximately 81% of the patients could see 20/20 or better and approximately
99% could see 20/40 or better (the minimum level required to drive without
corrective lenses in most states). Clinical data submitted to the FDA by
Summit/Autonomous has shown that patient satisfaction is very high with over 95%
indicating they would enthusiastically recommend PRK to a friend. In addition, a
study published in the February, 1998 issue of Ophthalmology reported the
results of 83 patients in the United Kingdom who underwent PRK for myopia of up
to 7 diopters in 1989. The study found that the patients experienced stable
vision and the majority of patients experienced no side effects. No
complications were observed such as cataracts, retinal detachment or long term,
elevated intraocular pressure and no patients developed an infection.

Laser In-Situ Keratomileusis

LASIK came into commercial use in Canada in 1994 and in the United States
in 1996. In LASIK, an automated microsurgical instrument called a microkeratome
is used to create a thin corneal flap which remains hinged to the eye. The
corneal flap is 160 to 180 microns thick, about 30% of the corneal thickness.
Patients do not feel or see the cutting of the corneal flap, which takes only a
few seconds. The corneal flap is then laid back and excimer laser pulses are
applied to the inner stromal layers of the cornea to treat the eye with the
patient's prescription. The corneal flap is then closed and the flap and
interface rinsed. Once the procedure is completed, most surgeons wait two to
three minutes to ensure the corneal flap has fully re-adhered. At this point,
patients can blink normally and the corneal flap remains secured in position by
the natural suction within the cornea. Since the surface layer of the cornea
remains intact with LASIK, no bandage contact lens is required and the patient
experiences virtually no discomfort. LASIK has the advantage of more rapid
recovery than PRK, with most typical patients seeing well enough to drive a car
the next day and healing completely within one to three months. Currently, the
majority of laser vision correction procedures in the United States and Canada
are LASIK.

More than 90% of the excimer laser procedures currently performed at the
Company's refractive centers are LASIK. The Company's medical directors believe
LASIK generally allows for more precise correction than PRK for higher levels of
myopia and hyperopia (with or without astigmatism), greater predictability of
results and decreased probability of regression.

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, an industry
source estimates that approximately 50% of the United States population or 145
million people suffer from some form of refractive disorder requiring vision
correction including myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism.

Industry sources also estimate that 105,000 laser vision correction
procedures were performed in the United States in 1996, 215,000 were performed
in 1997, 480,000 were performed in 1998 and 700,000 were performed in 1999. It
is forecasted by industry sources that more than 1.2 million laser vision
correction procedures will be performed during 2000. If, each year, only two
percent of the population requiring vision correction in the United States
(estimated to be three million people) had laser vision correction performed on
both eyes, then, based on Company's current prices, the U.S. market would be
more than $12 billion annually. The Company believes that its profitability and
growth will depend upon broad acceptance of laser vision correction in the
United States and, to a lesser extent, Canada and competition. There can be no
assurance that laser vision correction will be more widely accepted by
ophthalmologists, optometrists 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 by government insurers or other
third party payors and, therefore, must be paid for 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 nonsurgical methods for vision correction. Any
future reported adverse events or other unfavorable publicity involving patient
outcomes from laser vision correction could also adversely affect its acceptance
whether or not the procedures are performed at TLC refractive centers. Market
acceptance could also be affected by regulatory developments and by the ability
of the Company and other participants in the laser vision correction market to
train a broad population of ophthalmologists in performing the procedure.
Acceptance of laser vision correction by ophthalmologists could also be affected
by the cost of excimer laser systems. The failure of laser vision correction to
achieve broad market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations.

TLC Laser Eye Centers Inc.

The Company owns and manages eyecare centers throughout North America and,
together with its network of over 12,500 eyecare doctors, specializes in laser
vision correction services to correct common refractive vision disorders such as
myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. The
Company is the largest provider of laser vision correction services in North
America.

TLC began operations in September 1993 when it opened a refractive center
in Windsor, Ontario. TLC currently has 62 refractive centers in 29 states and
provinces throughout the United States and Canada. Two refractive centers were
opened in fiscal 1995, two centers were opened in fiscal 1996, 22 refractive
centers were opened or acquired in fiscal 1997 (one of which has been closed),
19 refractive centers were opened or acquired in fiscal 1998 and six refractive
centers were opened or acquired in fiscal 1999. In fiscal 2000, TLC has opened
or acquired seven refractive centers and closed two refractive centers. The
Company has 8 refractive centers currently in development.

More than 90% of the excimer laser procedures currently performed at the
Company's refractive centers are LASIK. The Company's medical directors believe
LASIK generally allows for more precise correction than PRK for higher levels of
myopia and hyperopia (with or without astigmatism), greater predictability of
results and decreased probability of regression. TLC considers itself a clinical
leader in the field of vision correction procedures. TLC's medical directors
continually evaluate new vision correction technologies and procedures to ensure
that patients at TLC's refractive centers are receiving high quality vision
care.

TLC was 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 amalgamated under the laws of Ontario with
certain wholly-owned subsidiaries. TLC, by Articles of Amendment filed November
5, 1999, changed the name of the Company to TLC Laser Eye Centers Inc.

Expansion Plans

Overview

TLC is pursuing a strategy designed to expand its position as the leader
in the North American market for laser vision correction. The major focus of the
Company's expansion strategy is the United States, where the Company continues
to position itself to take advantage of the growing market for laser vision
correction. The Company has a three-part strategy: (i) continued development of
local doctor relationships through its co-management model; (ii) increased
market penetration through internal development and strategic acquisitions of
refractive centers; and (iii) increased market penetration through innovative
marketing programs.

Co-Management Model

The Company has developed and implemented a co-management model under
which it not only establishes and operates refractive 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. The primary care doctors assess candidates for laser vision
correction and provide pre- and post-operative care, including an initial eye
examination and a minimum of six follow-up visits. The co-management model
permits the refractive center doctor to focus on providing laser vision
correction procedures while the primary care doctor provides pre- and
post-operative care. In addition, each TLC center has an optometrist on staff
who works to support and expand the 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."

TLC believes that its relationship with its more than 12,500 affiliated
optometrists and ophthalmologists represents an important competitive strength.
The Company believes that its affiliated doctor network, which includes
approximately 25% of the licensed practicing optometrists in the United States,
is the largest such network in the laser vision correction field.

TLC believes that a primary care doctor's relationship with TLC and the
doctor's acceptance of laser vision correction helps build 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 a minimum of six
follow-up visits. In most cases, the primary care doctor's potential revenue
loss from sales of contact lenses and eyeglasses is more than offset by
professional fees both from laser vision correction pre- and post-operative care
and examinations required under the Company's "Lifetime Commitment" program.

TLC's "Lifetime Commitment" program, established in mid-1997, entitles
patients within a certain range of correction to have additional procedures at
no cost at any time during their lifetime for further correction, if necessary.
To remain eligible for the program, patients are required to have an annual eye
exam with a TLC affiliated doctor. The purpose of the program is to respond to a
patient's concern that his or her eyes might change over time, requiring another
procedure. In addition, the program responds to the doctors' concern that
patients may not return for their annual eye exam once their eyes are corrected.
The Company believes that this program has been well-received by both patients
and doctors.

Increased Market Penetration and Strategic Acquisitions

The second component of TLC's strategy is the expansion of its business
through the internal development and acquisition of refractive centers. The
major focus of the Company's expansion strategy is the United States, where the
Company continues to position itself to take advantage of the growing market for
laser vision correction.

TLC plans to expand its business in three ways:

o by increasing the procedure volumes and efficiency of existing
centers;

o by opening new centers; and

o by acquiring other refractive centers and businesses that operate
refractive centers and increasing their procedure volumes and
efficiency.

The Company implements the same business model and marketing programs in
developing new centers and in improving existing or acquired centers. TLC seeks
to increase the volume of procedures performed at each refractive center by
training the network doctors to advise patients about laser vision correction
and by developing local marketing plans for each center. The Company's
management and administrative software and systems are intended to increase the
efficiency of TLC's refractive centers, permitting a higher volume of procedures
to be performed without significant additional fixed costs.

TLC's senior executive team regularly examines acquisition and development
opportunities in the refractive market. The Company is in discussions with
several leading practitioners and has identified many opportunities in the
United States to form strategic relationships with additional practitioners. In
opening a new center or acquiring an existing center or business that operates
refractive centers, TLC generally requires three criteria to be met. First, the
potential TLC center must be supported by a core group of local doctors,
traditionally more than 50 doctors. Second, there must be one or two highly
skilled surgeons who are trained in laser vision correction, are supported by
the local network doctors and subscribe to the co-management model. Finally, the
center must be expected to provide TLC with a satisfactory return on investment.
Wherever possible, TLC will seek to establish its position as the leader in
laser vision correction in an area or region and then seek to expand in areas
contiguous to its existing centers. See "Item 1 - Business - Risk Factors --
Risk of Inability to Execute Acquisition Strategy; Management of Growth."

Marketing Programs

The third component of TLC's strategy is to increase the volume of
procedures performed at its centers and increase its market penetration through
innovative marketing programs. TLC believes that as market acceptance for laser
vision correction continues to increase, competition among providers will grow
and candidates for laser vision correction will increasingly select a provider
based on factors other than solely the advice of a doctor. TLC believes that the
selection decision for laser vision correction will more often be determined by
brand recognition in the future. TLC believes it is developing a strong
reputation and brand recognition. The Company has been dedicating greater
resources towards enhancing its marketing programs directed both at network
doctors and the public, to increase TLC's brand recognition.

TLC believes it will enhance its brand recognition through the endorsement
of TLC by such well-known personalities as Tiger Woods and Se Ri Pak.

TLC has also developed innovative marketing programs directed primarily at
large employers and third party providers to provide laser vision correction to
their covered lives. Participating employers may partially subsidize the cost of
an employee's laser vision correction at a TLC refractive center and the
procedure may be provided at a discounted price. TLC has more than 1,600
participating employers which include such corporations as Office Depot, Inc.,
Ernst & Young LLP and Duracell Batteries (Canada) and more than 70 million in
third party covered lives. See "Item 1 - Business -Risk Factors -- Risk of
Inability to Execute Acquisition Strategy; Management of Growth."

Description of Refractive Centers

A typical TLC refractive center has between three and five thousand square
feet of space and is located in an office building. Although the legal and
payment structures can vary from state to state depending upon local law and
market conditions, TLC generally receives revenues in the form of management and
facility fees paid by doctors who use the center to perform laser vision
correction procedures and administrative fees for billing and collection
services from doctors who co-manage patients treated at the centers. Every TLC
center has a director, who is an optometrist and oversees the clinical aspects
of the center and builds and supports the network of affiliated optometrists and
ophthalmologists. Each center also has a business manager, a receptionist,
ophthalmic technicians and patient consultants (who answer patients' questions).
The number of staff depends on the activity level of the center. Most TLC
centers also have a professional relations coordinator who works with the
clinical director to support the doctor network and market TLC's services. One
senior staff person is designated as the executive director of the center and
prepares the annual strategic plan and supervises the day-to-day operations of
the center. See Item 2 for a list of TLC refractive centers.

TLC has developed sophisticated management and administrative software and
systems that are designed to permit refractive centers to provide high levels of
patient care. The software permits any TLC center to provide a potential
candidate with current information on affiliated doctors throughout North
America, to direct a candidate to the closest refractive center, to permit
tracking of calls and procedures, to coordinate patient and doctor scheduling
and to produce financial and outcome reporting and analysis. The software has
been installed in all of the Company's refractive centers as of the end of
fiscal 2000. TLC has also introduced a new on-line consumer consultation site on
TLC's website. This consumer consultation site allows consumers to book their
consultation with TLC online.

The Company's average cost to open a refractive center in the United
States has been $1.3 million. It is intended that the cost to open new centers
will be funded through equipment financing which the Company currently has
available to it and funds available for general corporate purposes. See "Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations." Generally, the Company expects that a TLC refractive center will
become profitable after it has completed approximately 18 months of operation.

The Company currently owns and manages 55 refractive centers in the United
States and seven refractive centers in Canada. Each refractive center has a
minimum of one excimer laser with many of the centers having two or more lasers.
In the United States, the majority of the Company's excimer lasers are
manufactured by VISX Incorporated ("VISX") with a growing number manufactured by
Summit/Autonomous and LaserSight. In Canada, the majority of the Company's
excimer lasers are manufactured by Chiron Vision Corporation (owned by Bausch &
Lomb Inc.) ("Chiron").

Pricing

At TLC refractive centers, Canadian residents are typically charged
approximately C$1,000 to C$3,300 per eye for LASIK and United States residents
are typically charged approximately $1,550 to $2,200 per eye for LASIK. In
addition, patients will also be charged an average of $400 for pre- and
post-operative care by their primary care eye doctor. For procedures performed
in Canada, the Company is not required to pay any license fees for the use of
the excimer lasers, and therefore, the cost of performing the procedure is
lower. See "Item 1 - Business - Risk Factors - Procedure Fees". Although
competitors in certain markets 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
brand recognition and that its competitiveness is enhanced by a strong network
of affiliated doctors. See "Item 1 - Business - Risk Factors - Competition."

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. These procedures are not covered by most HMOs or
third party payors under managed care contracts or by other insurers.

Procedure Fees

In the United States, TLC is typically required to pay a per procedure
royalty fee to the manufacturer of the excimer laser which is used for the
procedure. The majority of the excimer lasers used by TLC in the United States
are manufactured by VISX. The royalty fee for laser vision correction on VISX's
excimer laser and on Summit/Autonomous' excimer laser is currently $110 per eye.
There can be no assurance that payments made by the Company to a manufacturer of
an excimer laser in the United States will preclude a patent dispute with
another manufacturer of an excimer laser or a patentholder with respect to
technology or activities purported to be covered by the relevant patents or the
Company's equipment or method will not infringe patents held by other parties.
See "Item 1 - Business - Risk Factors - Intellectual Property/Proprietary
Technology."

Description of Secondary Care Centers

The Company has a controlling investment in two (2) secondary care
entities in the United States. See "Item 2 - Properties" for a list of TLC
secondary care centers. A secondary care center is equipped for doctors to
provide advanced levels of eye care, which may include eye surgery, for the
treatment of disorders such as glaucoma, cataracts and retinal disorders.
Generally, a secondary care center does not provide primary eye care, such as
eye examinations, or dispense eyewear or contact lenses. Sources of revenue for
secondary care centers are direct payments by patients as well as reimbursement
or payment by third party payors, including Medicare and Medicaid.

TLC has restructured its investment in secondary care centers and does not
intend to make any future investments in, or provide additional management
services to, secondary care centers. This restructuring resulted from the growth
in TLC's network of affiliated optometrists and ophthalmologists and the
increasing acceptance of laser vision correction procedures.

Ownership of Refractive Centers

The majority of TLC's refractive centers are operated by wholly-owned
subsidiaries of the Company. TLC intends to maintain majority voting control and
control of the board of directors of all subsidiaries owning refractive centers.

Sales and Marketing

While TLC 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. To that end, the Company aggressively markets
to both doctors and the public.

A large part of the Company's marketing resources is devoted to joint
marketing programs with affiliated doctors, the goal of which is to build their
practices. The Company provides doctors with brochures, videos, posters and
other materials which help them educate their patients about laser vision
correction. Those doctors who wish to market directly to their patients or the
public receive support from the Company in the development of marketing
programs. Each refractive center has a relationship with a corporate marketing
staff person who assists the center in developing marketing/public relations
plans unique to the needs of that center.

The Company believes that the most effective way to market to doctors is
to be perceived as the leading provider of quality eye care. To this end, the
Company strives to be the clinical leader, educates doctors on laser vision and
refractive correction and remains current with new procedures and techniques.
See "Item 1 - Business - Strategic 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.

TLC believes that as market acceptance for laser vision correction
continues to increase, competition among service providers will grow and
candidates for laser vision correction will increasingly select a provider based
on factors other than solely the advice of a doctor. TLC believes that the
selection decision for laser vision correction will more often be determined by
brand recognition in the future, and TLC believes it is developing a strong
reputation and brand recognition. The Company has historically provided a
limited amount of marketing directly to members of the public through radio and
print advertisements, videos, brochures and seminars. In fiscal 2000, TLC
dedicated greater resources towards enhancing its marketing programs directed at
network doctors and the public, to increase TLC's brand recognition. TLC has
also developed innovative marketing programs such as the Corporate Advantage
program to expand TLC's position as the leader in the North American market for
laser vision correction services.

Surgeon Contracts

In each area where TLC operates, TLC forms a network of eye doctors
(mostly optometrists) who perform the pre-operative and post-operative care for
patients who have laser vision correction. Those doctors then "co-manage" their
patients with TLC surgeons, which means 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, co-management
doctors have the option of charging the patient directly for their services or
having TLC collect the fees, which amount to approximately 20% of the total
procedure fee, on their behalf.

Most surgeons performing laser vision correction procedures at TLC
refractive centers do so under one of three types of standard agreements (which
have been 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 refractive center within a specified area.
See "Item 1 - Business -Competition." However, although surgeons performing
laser vision correction at the Company's refractive centers have agreed to
certain restrictions on competing with, or soliciting doctors associated with,
the Company, there can be no assurance that such agreements will be enforceable.
See "Item 3 - Legal Proceedings."

Surgeons must meet the credentialing requirements of the FDA and the TLC
refractive center in which they perform procedures and must complete training
provided by the Company unless the Company is otherwise satisfied that the
surgeon has been properly trained. 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. See "Item 1 - Business - Risk Factors - Potential Liability and
Insurance."

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 refractive centers and secondary care centers and
affiliating with other health care providers. Affiliated doctors provide a
significant source of patients for the Company. 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, ophthalmologists and optometrists, 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 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.

Strategic Ancillary Businesses and Support Programs

TLC is pursuing other businesses with the primary objective of supporting
its laser vision correction business and the secondary objective of capitalizing
on its management and marketing skills.

Website

TLC has linked its refractive centers, network doctors and potential
patients through its Web site www.tlcvision.com which provides a directory of
TLC eye care providers, contains questions and answers about laser vision
correction and provides co-management information for local optometrists and
ophthalmologists. This website is designed to support TLC's network of
affiliated doctors. TLC intends also to link its refractive centers and network
doctors with third party suppliers through eyeVantage.com, Inc., its e-commerce
subsidiary. See "Item 1 - Strategic Ancillary Businesses and Support Programs -
Other Businesses."

Other Businesses

eyeVantage.com, a subsidiary of TLC, is a provider of e-business services
for eye care professionals. eyeVantage.com intends to leverage its strategic
industry relationships and management expertise to provide the eye care industry
a comprehensive, information-rich, online marketplace to purchase eye care
products, office supplies and services from industry vendors.

Pure Laser Hair Removal & Treatment Clinics Inc. ("Pure"), a subsidiary of
TLC, offers a variety of aesthetic services and treatments including hair
removal and skin care. Pure has one center in Ontario, three centers in Illinois
and three centers in Michigan.

Aspen Healthcare Inc. ("Aspen"), a subsidiary of TLC, is a health care
consulting, development and management firm specializing in ambulatory surgery
center joint-venture development, management and ownership. Aspen offers
experienced management services to both surgery centers and hospitals. Aspen
also consults, plans, designs, develops, implements and operates surgery centers
nationwide.

Vision Source is a wholly owned subsidiary that provides marketing,
management and buying power to independently owned and operated optemetric
franchises in the United States. This business supports the development of
independent practices and complements the Company's co-management model.

Support Programs

National Medical Board

The Company's National Medical Board is comprised of refractive surgeons,
selected based upon clinical experience and previous involvement with TLC, that
represent the geographic centers in which TLC currently manages a refractive
center. The Medical Board, established in March 1998, is responsible for
developing protocols and procedures that are recommended for doctors using TLC's
refractive centers. The Medical Board has scheduled meetings quarterly
throughout the year and meets as necessary to consider clinical issues as they
arise. The Board also serves as a quality assurance peer group to ensure that
TLC's refractive centers provide high quality vision care.

Emerging Technologies

The Company considers itself a clinical leader in vision correction
procedures. The Company's medical directors evaluate new vision correction
technologies and procedures to ensure that TLC refractive centers provide the
highest level of care. TLC's refractive centers in Windsor and Toronto, Ontario
are state of the art facilities that are used to examine and evaluate new
technologies for TLC refractive centers.

National Advisory Council

The Company's Advisory Council is comprised of doctors that represent the
geographic centers in which TLC currently manages or intends to manage a
refractive center. By providing regional representation, the Advisory Council
serves as a channel of communication to local doctors. The Advisory Council
advises the Company from time to time on a broad range of clinical and strategic
issues, and its feedback is incorporated into the Company's strategic
development.

Training

The Company conducts a comprehensive training program under the
supervision of Dr. Jeffery Machat or Dr. Stephen Slade. Dr. Machat and Dr. Slade
are the Co-National Medical Directors of TLC, and both are prominent
ophthalmologists and experts in the field of laser vision correction. Both have
been working with excimer lasers since 1990 and have lectured and trained
surgeons in North America, South America, Europe, South Africa, Australia and
Asia. The Company believes that Dr. Slade was the first surgeon to perform LASIK
in the United States and Dr. Machat was the first surgeon to perform LASIK in
Canada. In addition, Dr. Machat and Dr. Slade are qualified by Chiron to certify
surgeons to perform LASIK procedures using Chiron excimer lasers.

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 ophthalmologists and
optometrists in Canada and the United States.

Through the TLC Continuing Education Foundation, established in November
1994, the Company provides educational programs to doctors in all aspects of
clinical study, primarily in conjunction with several of the major optometry
schools in the United States. In addition, TLC has an education and training
relationship with the University of Waterloo, the only English language
optometry school in Canada.

Equipment and Capital Financing

Until recently, the only manufacturers with FDA approvals for their
excimer lasers were Summit/Autonomous and VISX. Accordingly, in the United
States, most of TLC's refractive centers are equipped with VISX excimer lasers.
In Canada, excimer lasers manufactured by Chiron, LaserSight and
Summit/Autonomous are now being used. Recently, other manufacturers of excimer
lasers have applied for or received FDA approval for sale of their excimer
lasers.

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
United States 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 and expansion plans.

A new excimer laser costs approximately $250,000. 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. Excimer lasers
require periodic servicing, generally after 300 procedures. As manufacturers'
warranties expire, the Company typically enters into service contracts with
manufacturers.

As available technology improves and additional procedures are approved by
the FDA, 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 under development such as corneal
implants and intraocular implants, 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 variety of 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 will grow. The market for laser vision correction is divided into
three major segments: corporate owned centers; surgeon owned centers; and
institution owned centers. In the United States, for the fourth quarter of
calendar 1999, the corporate owned segment which refers to companies, such as
TLC, that own or operate refractive centers, accounted for the largest
percentage of total procedure value with a 48% market share according to an
industry source. The surgeon owned centers, which refer to ophthalmologists who
have a laser and perform laser vision correction procedures, accounted for 41.6%
of total procedures performed. The remaining 10.4% of laser vision correction
procedures were performed at institution owned centers, such as hospitals or
universities.

Although some competitors charge less for laser vision correction than TLC
and its affiliated doctors, the Company believes that the important factors
affecting competition in the laser vision correction market are quality of
service, reputation, brand recognition along with price and that competitiveness
is enhanced by a strong network of affiliated doctors. Suppliers of conventional
vision correction (eyeglasses and contact lenses), such as optometric chains,
may 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.

TLC competes in fragmented geographic markets. The Company's principal
corporate competitors include Laser Vision Centers, Inc., LCA-Vision Inc., Clear
Vision Laser Centers, Ltd., Aris Vision Institute, LASIK Vision Corporation and
ICON Laser Eye Centers, Inc. In each geographical market, TLC's primary
competitors will often be local ophthalmologists or institutions.

Government Regulation

Excimer Laser Regulation

United States

Medical devices, such as the excimer lasers used in the Company's United
States centers, are subject to stringent regulation by the FDA and cannot be
marketed for commercial sale 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.

In the United States, Summit/Autonomous, VISX, Nidek and LaserSight have
obtained a PMA for their respective excimer lasers to treat varying degrees of
myopia. In addition, Summit/Autonomous and VISX have obtained a PMA for their
respective excimer lasers to treat varying degrees of astigmatism, and VISX has
also obtained a PMA for its excimer laser to treat hyperopia. Currently, Chiron
is in clinical trials or has filed an application seeking FDA approval of their
excimer lasers.

The VISX excimer laser is currently approved to treat nearsightedness of
up to -12 diopters with astigmatism of up to -4 diopters and farsightedness of
up to +6 diopters. To date, this is the widest range of indications for any
FDA-approved excimer laser. The excimer lasers manufactured by
Summit/Autonomous, LaserSight and Nidek have received FDA approval for more
limited ranges of indications.

To date, the FDA has approved the Summit/Autonomous and VISX excimer
lasers for PRK and LASIK procedures. By comparison, the LaserSight and Nidek
excimer lasers have applied only to the PRK procedure, and not for the LASIK
procedure. The FDA, however, is not authorized to regulate the practice of
medicine, and ophthalmologists, including those affiliated with TLC refractive
centers, widely perform the LASIK procedure in an exercise of professional
judgment in connection with the practice of medicine. In August 1998, the FDA
granted Photomed Inc. ("Photomed") approval with respect to a single excimer
laser for the treatment of myopia and astigmatism using the LASIK procedure.
Photomed has assigned the rights to manufacture and commercially distribute its
excimer laser system to LaserSight, and LaserSight completed the process of
obtaining FDA approval for the manufacture and commercial distribution of this
laser system for the treatment of myopia and astigmatism using the LASIK
procedure.

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 TLC refractive 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-indicated uses and conducts periodic inspections of manufacturers to
determine compliance with good manufacturing practice 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 is 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 refractive centers.
Pursuant to the regulations prescribed under the 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 canceled where the HPB determines that its use endangers the health
of patients or users or where the regulations have not been complied with.
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 refractive centers, and 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.

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.

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 TLC centers will comply with
such laws in all material respects, although it cannot ensure such compliance by
doctors.

Federal Law. A federal law (known as the "anti-kickback statute")
prohibits the offer, solicitation, payment or receipt of any remuneration which
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. In
addition, a recent law broadens the government's anti-fraud and abuse
enforcement responsibilities to include all health care delivery systems
regardless of payor.

Subject to certain exceptions, federal law also prohibits a physician from
ordering or prescribing certain designated health services or items if the
service or item is reimbursable by Medicare or Medicaid and is provided by an
entity with which the physician has a financial relationship (including
investment interests and compensation arrangements). This law, known as the
"Stark Law," does not restrict a physician from ordering an item or service not
reimbursable by Medicare or Medicaid or an item or service that does not fall
within the categories designated in the law.

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 refractive centers but the Company is subject to
similar state laws.

Doctors at 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, 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 not successful in defending against such a challenge, then the
result may be civil or criminal fines and penalties, including exclusion of the
Company, the ophthalmologists, and the optometrists from the Medicare and
Medicaid programs, or the requirement that the Company 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 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 proposed regulations published in January 1998, the Company
believes that the referrals from ophthalmologists and 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. 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 operation.

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 from 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 physicians and optometrists in connection with
the operation of refractive 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 curtail
its activities, and this may 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. TLC'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 their patient fees collected. While the Company believes
that such arrangements do not violate any such 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 with 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 would not challenge the Company. If
the Company were not successful 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, 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 the
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. 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. Certain of the
Company's refractive centers in Canada are owned and managed by a subsidiary in
which affiliated doctors own a minority interest.

TLC expects that ophthalmologists and optometrists affiliated with TLC 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 TLC 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, TLC does not allow optometrists to perform the procedure at TLC
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 TLC centers. While there can be no assurance that the Company will be able
to obtain facility licenses in all states which may require facility licensure,
the Company has no reason to believe that in such states, it will be not able to
obtain such a license without unreasonable expense or delay.

Some states require the permission of the State 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 center, or the purchase of certain
medical equipment in excess of an amount set by the state. While 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 has no reason to believe that in those states that
require a CON, it will not be able to do so.

The Company is not aware of any Canadian health regulations which impose
licensing requirements on the operation of refractive 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, TLC expects that doctors
affiliated with TLC centers will comply with such laws in all material respects,
although it cannot ensure 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.

Intellectual Property

The name "TLC The Laser Center" is a registered United States service mark
of the Company and a registered trade-mark in Canada. The Company also has
applied for registration of its logo and slogan "See the Best", "TLC Laser Eye
Centers" and "Experience You Can Trust." In addition, the Company owns a patent
in the United States on the treatment of a potential side effect of laser vision
correction generally known as "central islands." The patent expires in May 2014.
The Company's service marks, patent and other intellectual property may offer
the Company a competitive advantage in the marketplace and could be important to
the success of the Company. There can be no assurance that one or all of the
registrations of the service marks will not be challenged, invalidated or
circumvented in the future.

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. 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 acceptable 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 which do not infringe the patent. The
unavailability of such products may cause the Company to cease operations in the
United States or Canada or delay the Company's expansion into the United States.
If the Company is prohibited from performing laser vision correction at any of
its laser centers, the Company's business, financial condition and results of
operations will be materially adversely affected.

Employees

As of July 31, 2000, the Company had more than 1,034 employees, as
compared to more than 745 employees a year ago. The Company's progress to date
has been highly dependent upon the skills of its key technical and management
personnel both in its corporate offices and in its refractive 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 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."

Risk Factors

Limited Operating History and Losses from Operations; Uncertainty of Future
Profitability

The Company had net losses of $10.3 million, $4.6 million and $5.9 million
for fiscal 1998, 1999 and 2000, respectively. As of May 31, 2000, the Company
had an accumulated deficit of $42.4 million. The Company's ability to achieve or
maintain profitability will depend in part on its ability to increase demand for
its services and control costs, its ability to execute its expansion strategy
and effectively integrate acquired businesses and assets, economic conditions in
the Company's markets, competitive factors and regulatory developments.
Accordingly, the extent of future profits, if any, and the time required to
achieve sustained profitability is uncertain. Moreover, the level of such
profitability cannot be predicted and may vary significantly from quarter to
quarter. See "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Uncertainty of Market Acceptance

The Company believes that its profitability and growth will depend upon
broad acceptance of laser vision correction in the United States and, to a
lesser extent, Canada. There can be no assurance that laser vision correction
will be more widely accepted by ophthalmologists, optometrists 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
by government insurers or other third party payors and, therefore, must be paid
for 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 nonsurgical methods
for vision correction. Any future reported adverse events or other unfavorable
publicity involving patient outcomes from laser vision correction could also
adversely affect its acceptance whether or not the publicized procedures are
performed at TLC refractive centers. Market acceptance could also be affected by
regulatory developments and by the ability of the Company and other participants
in the laser vision correction market to train a broad population of
ophthalmologists in performing the procedure. Acceptance of laser vision
correction by ophthalmologists could also be affected by the cost of excimer
laser systems. The failure of laser vision correction to achieve broad market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Item 1 - Business - The
Refractive Market".

Dependence on Affiliated Doctors

Many 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 centers and affiliating with other health care providers.
Affiliated doctors provide a significant source of patients for the Company.
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, ophthalmologists and optometrists, 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 agreements with optometrists and ophthalmologists 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 optometrists and ophthalmologists will have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Item 1 - Business - Surgeon Contracts".

Competition

Laser vision correction is subject to intense competition. The Company
competes with other entities, including hospitals, individual ophthalmologists,
other laser centers and certain manufacturers of excimer laser equipment, in
offering laser vision correction. The Company's refractive centers compete on
the basis of quality of service, reputation, brand recognition and price. There
can be no assurance that competitors with substantially greater financial,
technical, managerial, marketing and other resources and experience than the
Company will not compete more effectively than the Company. If more providers
offer laser vision correction in a given geographic market, the price charged
for such procedures may decrease. Competitors have, from time to time, in some
markets, offered laser vision correction at prices considerably lower than TLC's
prices. At TLC centers, Canadian residents are typically charged C$1,000 to
C$3,300 per eye for LASIK procedures and United States residents are typically
charged from $1,550 to $2,200 per eye for LASIK procedures, in addition to a
charge of approximately $400 by the patient's primary care eye doctor for pre-
and post-operative care, while competitors in some markets have from time to
time advertised LASIK procedures for as low as C$500 per eye. Market conditions
may compel the Company to lower its prices to remain competitive in some
markets. There can be no assurance that any reduction in prices charged will be
compensated for by an increase in procedure volume or decreases in the Company's
costs. A decrease in either the fees for procedures performed at TLC's
refractive centers or in the number of procedures performed at TLC's centers
could have a material adverse effect on the Company's business, financial
condition and results of operations.

In addition, laser vision correction competes with other surgical and
non-surgical treatments for refractive disorders, including eyeglasses, contact
lenses, other types of refractive surgery, corneal rings, intraocular lenses and
other technologies currently under development. Suppliers of conventional vision
correction alternatives (eyeglasses and contact lenses), such as optometry
chains, with substantially greater financial, technical, managerial, marketing
and other resources and experience than the Company may compete with the Company
by promoting alternatives to laser vision correction or by purchasing laser
systems and offering laser vision correction to their customers. There can be no
assurance that the Company's management, operations and marketing plans are or
will be successful in meeting this variety of 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.

Competition has increased in part due to the greater availability and
lower cost of excimer lasers. Further competition could develop if a significant
decrease in the price of excimer laser systems were to occur, because the high
price of excimer laser systems currently is a barrier to entry for many
potential competitors, particularly individual ophthalmologists and
ophthalmologists participating in group practices. A price decrease could occur
for a number of reasons, including increased competition among laser
manufacturers. Competition in the market for laser vision correction could
increase if state laws were amended to permit optometrists (in addition to
ophthalmologists) to perform laser vision correction.

In addition, although surgeons performing laser vision correction at the
Company's refractive centers and certain other employees have agreed to certain
restrictions on competing with, or soliciting doctors associated with, the
Company, there can be no assurance that such agreements will be enforceable. See
"Item 3- Legal Proceedings."

Quarterly Fluctuations in Operating Results

Results of operations have varied and may continue to fluctuate
significantly from quarter to quarter and will depend on numerous factors,
including: (i) market acceptance of the Company's services; (ii) seasonal
factors (historically, the Company's second quarter results have reflected fewer
procedures due to the deferred scheduling of elective procedures during the
summer); (iii) the purchase or upgrade of lasers and other equipment; (iv)
economic conditions in the geographic areas in which the Company operates; (v)
the timing of new enhancements by the Company, its suppliers and its
competitors; (vi) the opening, closing or expansion of centers; (vii) regulatory
matters; (viii) litigation; (ix) acquisitions; (x) competition; (xi)
fluctuations in currency exchange rates (a portion of the Company's operations
are conducted in Canadian dollars) and (xii) other extraordinary events. There
can be no assurance that the growth in revenues achieved by the Company in prior
quarters will continue or that revenues or net income in any particular quarter
will not be lower, or losses greater, than those of the preceding quarters,
including comparable quarters of prior fiscal years. The Company's expense
levels are based, in part, on its expectations as to future revenues. If revenue
levels are below expectations, operating results are likely to be adversely
affected. In light of the foregoing, quarter-to-quarter comparisons of the
Company's operating results are not necessarily meaningful and should not be
relied upon as indications of likely future performance or annual operating
results. Reductions in revenues or net income between quarters or the failure of
the Company to achieve expected quarterly earnings per share could have a
material adverse effect on the market price of the Common Shares.

Potential Side Effects and Long-Term Results of Laser Vision Correction

Concerns with respect to the safety and efficacy of laser vision
correction include predictability and stability of results and potential
complications or side effects, including but not limited to the following:
post-operative pain; corneal haze during healing (an increase in
light-scattering properties of the cornea); glare/halos (disturbed night
vision); decrease in contrast sensitivity (reduced visual quality of sharpness);
temporary increases in intraocular pressure in reaction to post-procedure
medication; modest fluctuations in astigmatism and modest decreases in best
corrected vision (i.e., with eyeglasses); loss of fixation during the procedure;
unintended over- or under-correction; instability, reversion or regression of
effect; corneal scars (blemishing

marks left on the cornea); corneal ulcers (inflammatory lesions resulting in
loss of corneal tissue); and corneal healing disorders (compromised or weakened
immune system or connective tissue disease which causes poor healing). Laser
vision correction may involve the removal of "Bowman's layer," an intermediate
layer between the epithelium (outer corneal layer) and the stroma (middle
corneal layer). Although several studies conducted to date have demonstrated no
significant adverse reactions to excimer laser removal of Bowman's layer, it is
unclear what effect this may have on the patient. Although recently released
results of a study showed that the majority of patients experienced no serious
side effects six years after laser vision correction using the PRK procedure,
there can be no assurance that complications will not be identified in further
long-term follow-up studies. Any such complications or side effects may call
into question the safety and effectiveness of laser vision correction, which in
turn may negatively affect the approval by the FDA of the excimer laser for sale
for laser vision correction and the market acceptance of such procedures and
lead to product liability, malpractice or other claims against the Company. Any
such occurrence could have a material adverse effect on the Company's business,
financial condition and results of operations.

Potential Liability and Insurance

The provision of medical services entails an inherent risk of potential
malpractice and other similar claims. Although patients at the Company's centers
execute informed consent statements prior to any procedure performed by doctors
at the Company's centers, there can be no assurance that such consents will
provide adequate liability protection. In addition, although the Company does
not engage in the practice of medicine or have responsibility for compliance
with certain regulatory and other requirements directly applicable to doctors
and doctor groups, there can be no assurance that claims, suits or complaints
relating to services provided at the Company's centers will not be asserted
against the Company in the future. The Company currently maintains malpractice
insurance coverage that it believes is adequate both as to risks and amounts, in
the amount of C$50,000,000 for each occurrence and in the aggregate annually for
all refractive centers in Canada and the United States. Such insurance extends
to professional liability claims that may be asserted against employees of the
Company that work on site at the centers. In addition, the doctors who provide
medical services at the Company's centers are required to maintain comprehensive
professional liability insurance, although there can be no assurance that any
such insurance will be adequate to satisfy claims or that insurance maintained
by the doctors will protect the Company.

The availability and cost of professional liability insurance has been
affected by various factors, many of which are beyond the control of the
Company. An increase in the future cost of such insurance to the Company and the
doctors who provide medical services at the centers may have a material adverse
effect on the Company's business, financial condition and results of operations.
Successful malpractice or other claims asserted against any of the doctors who
provide medical services or the Company that exceed applicable policy limits or
are not covered by policy terms could have a material adverse effect on the
Company's business, financial condition and results of operations. Although the
doctors providing medical services at the centers are required to carry
malpractice insurance and while most have agreed to indemnify the Company
against certain malpractice and other claims, there can be no assurance that
such indemnification is enforceable or, if enforced, that it will be sufficient.

The excimer laser system utilizes certain poisonous gases which if not
properly contained could result in bodily injury. Any such occurrence could
result in a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the use of excimer laser
systems may give rise to claims by patients, doctors, technicians or others
against the Company resulting from laser-related injuries, which may not become
evident for a number of years. While the Company believes that any claims
alleging defects in its excimer laser systems would be covered by the
manufacturers' product liability insurance, there can be no assurance that the
Company's excimer laser manufacturers will continue to carry product liability
insurance or that any such insurance will be adequate to protect the Company.
The Company may not have adequate insurance for any liabilities arising from
injuries caused by poisonous gases or laser equipment.

There can be no assurance that adequate insurance will continue to be
available, either at existing or increased levels of coverage on commercially
reasonable terms, if at all, for the Company's existing and future operations
and centers, or that the Company's existing insurance will be adequate to cover
any future claims that may be made. The unavailability of adequate insurance at
acceptable rates could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, even if a claim
against the Company is covered by insurance, the cost of defending the action
and/or the assessment of damages in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Item 1 - Business - Competition."

Management of Growth

The Company's success will depend on its ability to expand and manage its
operations and facilities. The Company's focus of expansion remains the United
States. The Company's growth and expansion has resulted in and may continue to
result in new and increased responsibilities for management and additional
demands on management, operating and financial systems and resources. In
particular, the Company will need to successfully hire, train and retain
management for each of its refractive centers. There can be no assurance that
the Company will be able to hire, train or retain qualified managers. The
Company's ability to continue to expand in the United States is dependent upon
factors such as its ability to: (i) implement new, expanded or upgraded
operations and financial systems, procedures and controls; (ii) hire and train
new staff and managerial personnel; (iii) expand the Company's infrastructure;
(iv) adapt or amend the Company's structure to comply with present or future
legal requirements affecting the Company's arrangements with doctors, including
state prohibitions on fee-splitting, corporate practice of medicine and
referrals to facilities in which doctors have a financial interest; and (v)
obtain regulatory approvals and Certificates of Need, where necessary, and
comply with licensing requirements applicable to doctors and facilities
operated, and services offered, by doctors. Any failure or inability to
successfully implement these and other factors may have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to successfully
integrate and manage the refractive centers it opens or acquires or achieve the
economies of scale and/or the patient base required to achieve profitability in
the refractive centers. If the Company's management is unable to successfully
implement its growth strategy or manage growth effectively, the Company's
business, financial condition and results of operations could be materially
adversely affected.

Inability to Execute Growth Strategy

The Company's growth strategy is dependent on increasing the number of
procedures at existing refractive centers and increasing the number of TLC
refractive centers through strategic acquisitions. The addition of new centers
can be expected to present challenges to management, including the integration
of new operations, technologies and personnel, and special risks, including
unanticipated liabilities and contingencies, diversion of management attention
and possible adverse effects on operating results resulting from increased
goodwill amortization, increased interest costs, the issuance of additional
securities and increased costs resulting from difficulties related to the
integration of the acquired businesses. The future ability of the Company to
achieve growth through acquisitions will depend on a number of factors,
including the availability of attractive acquisition opportunities, the
availability of funds needed to complete acquisitions, the availability of
working capital needed to fund the operations of acquired businesses and the
effect of existing and emerging competition on operations. There can be no
assurance that the Company will be able to successfully identify suitable
acquisition candidates, complete acquisitions on acceptable terms, if at all, or
successfully integrate acquired businesses into its operations. The Company's
past and possible future acquisitions may not achieve adequate levels of
revenue, profitability or productivity or may not otherwise perform as expected.

If the Company seeks to issue Common Shares to finance acquisitions, a
decline in the price of the Common Shares may result in the Company being
required to issue a greater number of Common Shares which could have a material
adverse effect on the Company's ability to complete acquisitions and could
result in increased dilution to existing shareholders.

There can be no assurance that the Company will have adequate resources to
finance acquisitions. If the Company does not have adequate resources, its
growth could be limited, and its existing operations impaired, unless it is able
to obtain additional capital through subsequent equity or debt financings. There
can be no assurance that the Company will be able to obtain such financing or
that, if available, such financing will be on terms acceptable to the Company.
As a result, there can be no assurance that the Company will be able to
implement its expansion strategy successfully. Failure by the Company to
successfully implement its acquisition strategy and integrate and operate the
acquired businesses efficiently would have a material adverse effect on the
Company's business, financial condition and results of operations.

Future Capital Requirements; Uncertainty of Additional Funding

It is not possible to predict with certainty the timing or the amount of
future capital requirements. However, the Company may require significant
additional funding to expand in the future. Such additional funding may be
raised through additional public or private equity or debt financings or other
sources and may, if obtained by way of subsequent equity financing, result in
dilution to the holders of the Common Shares. The Company believes that its
existing cash balances and funds expected to be generated from operations and
available credit facilities should be sufficient to fund its anticipated level
of operations and its current expansion and acquisition plans for the next 18
months. There can be no assurance that the Company's operations, expansion plans
or capital requirements will not change in a manner that would

consume available resources more rapidly than anticipated, or that substantial
additional funding will not be required before the Company can achieve and
maintain profitable operations. The Company's capital needs depend on many
factors, including the rate and cost of acquisitions of businesses, equipment
and other assets, the rate of opening new centers or expanding existing centers,
market acceptance of laser vision correction and actions by competitors.
Further, additional funding may not be available on terms satisfactory to the
Company, if at all. If adequate funds are not available, the Company may be
required to cut back or abandon its expansion plans and curtail operations
significantly, which would have a material adverse effect on the Company's
business, financial condition and results of operations.

Reimbursement

A decrease in the number of privately insured patients treated at the
Company's secondary care centers or a further reduction in reimbursement rates
or in payments to doctors could cause the revenues of such centers to decrease
and have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1 - Business - Description of
Secondary Care Centers".

Government Regulation and Supervision

Regulation of Health Care Industry

United States

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, and limiting the manner in which prospective patients may be solicited.
Further, contractual arrangements with hospitals, surgery centers,
ophthalmologists and optometrists, among others, are extensively regulated by
federal and state laws. Many of these laws and regulations 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
by regulators, competitors or others. In addition, there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. In response to new or revised laws, regulations or
interpretations, 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 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. Among the laws and regulations that affect the Company's
operations are anti-kickback laws, fee-splitting laws, corporate practice of
medicine restrictions, self-referral laws and professional licensing rules.

Anti-Kickback Statutes. In the United States, the federal anti-kickback statute
prohibits the knowing and willful solicitation, receipt, offer or payment of any
remuneration, whether direct or indirect, in return for or to induce the
referral of patients or the ordering or purchasing of items or services payable
in whole or in part under Medicare, Medicaid or other federal health care

programs. Certain federal courts have interpreted the anti-kickback statute
broadly and, in some cases, have interpreted the law to prohibit payments
intended to induce the referral of Medicare or Medicaid business, irrespective
of any other legitimate motives. Sanctions for violations of the anti-kickback
statute include criminal penalties, such as imprisonment or criminal fines of up
to $25,000 per violation, civil penalties of up to $50,000 per violation, and
exclusion from the Medicare or Medicaid programs and other federal programs. The
federal Office of the Inspector General, the agency responsible for the
interpretation and enforcement of the anti-kickback statute, has stated that if
ophthalmologists and optometrists engage in agreements to refer, they may be
violating the anti-kickback statute. The Inspector General also has taken the
position that the anti-kickback statute is implicated, even if non-Medicare or
Medicaid covered services are involved, if the arrangement has an impact on the
referral pattern for services covered by Medicare or Medicaid. Moreover, some
states have enacted statutes similar to the federal anti-kickback statute which
are applicable to referrals of patients regardless of payor source. Although the
Company has endeavored to structure its contractual relationships in compliance
with these laws, federal and/or state authorities could determine that
prohibitions contained in anti-kickback or similar statutes apply to the
Company's co-management strategy and to the Company's contractual relationship
with ophthalmologists in connection with the Company's secondary care center
holdings, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

Fee-Splitting. Many states in the United States prohibit professionals,
including ophthalmologists and optometrists, from paying a portion of a
professional fee to another individual (including another professional) unless
the individual is an employee or partner in the same professional practice.
Violation of a state's fee-splitting prohibition may result in civil or criminal
fines, as well as sanctions imposed against the professional through licensing
proceedings. Many states do not have any clear precedent or regulatory guidance
on what relationships constitute fee-splitting, particularly in the context of
providing management services for doctors. Although the Company has endeavored
to structure its contractual relationships in compliance with these laws in all
material respects, state authorities could find that fee-splitting prohibitions
are implicated in the Company's co-management programs or in the management
services agreements between doctors and the Company in connection with the
Company's refractive centers and secondary care centers. Such findings may
require the Company to revise the structure of its legal arrangements and this
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Corporate Practice of Medicine and Optometry. The laws of many states in the
United States prohibit business corporations, such as the Company, from
practicing medicine and employing or engaging physicians to practice medicine
and some states prohibit business corporations from practicing optometry or
employing or engaging optometrists to practice optometry. Such laws preclude
companies that are not owned entirely by eye care professionals from employing
eye care professionals, having control over clinical decision-making or engaging
in other activities that are deemed to constitute the practice of optometry or
ophthalmology. This prohibition is generally referred to as the prohibition
against the corporate practice of medicine or optometry. Violation of a state's
corporate practice of medicine or optometry prohibition may result in civil or
criminal fines, as well as sanctions imposed against the professional through
licensing proceedings. Although the Company has endeavored to structure its
contractual relationships in

compliance with these laws in all material respects, if any aspect of the
Company's operations were found to violate applicable state corporate practice
of medicine or optometry prohibitions, the Company would be required to revise
the structure of its legal arrangements which could have a material adverse
effect on the Company's business, financial condition and results of operations.

Self-Referral Laws. Under the United States federal self-referral law (the
"Stark Law") physicians (which, under the statute, includes optometrists) are
prohibited from referring their Medicare or Medicaid patients for the provision
of designated health services (including clinical laboratory, diagnostic imaging
and prosthetic devices) to any entity with which they or their immediate family
members have a financial relationship, unless the referral fits within one of
the specific exceptions in the statute or regulations. The penalties for
violating the Stark Law include denial of payment for the designated health
services performed, civil fines of up to $15,000 for each service provided
pursuant to a prohibited referral, a fine of up to $100,000 for participation in
a circumvention scheme, and possible exclusion from the Medicare and Medicaid
programs. Many of the Company's subsidiaries that operate refractive or
secondary care centers are partially owned by doctors affiliated with those
centers. Proposed regulations implementing the Stark Law were published in
January 1998. At this time it is unclear whether and to what extent services
provided by ophthalmologists and optometrists are affected under the law. While
the Company believes that its present arrangements will not be affected once
final regulations are published, there can be no assurance that the Stark Law
will not require the Company to revise the structure of its legal arrangements,
and this could have a material adverse effect on the Company's business,
financial condition and results of operations.

Many states in the United States also have laws similar to the Stark Law
prohibiting self-referrals. The services covered by such laws vary from state to
state. While the Company believes that its present arrangements are consistent
with applicable state law in all material respects, there can be no assurance
that state officials will not take the position that certain referrals are
prohibited under state law. Such findings could require the Company to revise
the structure of its legal arrangements, and this could have a material adverse
effect on the Company's business, financial condition, and results of
operations.

State Licensing Limitations. State medical boards and state boards of optometry
generally set the limits of the activities in which the professional may engage.
In some instances, issues have been raised as to whether participation in a
co-management program violates a physician's responsibility to provide adequate
care to the patient, constitutes an abandonment of the patient, or constitutes
conspiring to promote the unlicensed practice of medicine by an optometrist. The
conclusions of these regulatory bodies often are not consistent. The issue is
further complicated by the dual jurisdiction exercised by boards of medicine and
boards of optometry. While a board of medicine generally has no jurisdiction
over optometrists, it could hold an ophthalmologist culpable for conspiracy to
promote the unlicensed practice of medicine by an optometrist. Yet, in the same
state, the board of optometry may hold that the post-operative services rendered
by the optometrist are within the scope of the practice of optometry.
Participation in the Company's co-management program may place ophthalmologists
and optometrists at risk of violating state licensing laws. Such a finding could
require the Company to revise the structure of its legal arrangements and may
result in affiliated doctors terminating their relationships with the

Company, either of which could have a material adverse effect on the Company's
business, financial condition, and results of operations.

Other Anti-Fraud Provisions. There are also federal and state civil and criminal
statutes imposing penalties, including substantial civil and criminal fines and
imprisonment, on health care providers and those who provide services to such
providers (including management businesses such as the Company) which
fraudulently or wrongfully bill government or other third-party payors for
health care services. In addition, the federal law prohibiting false
Medicare/Medicaid billings allows a private person to bring a civil action in
the name of the United States government for violations of its provisions and
obtain a portion of the false claims recovery if the action is successful. The
Company believes that it and its affiliated doctors are in material compliance
with such laws, but there can be no assurance that the Company's activities will
not be challenged or scrutinized by governmental authorities or private parties
asserting a false claim action in the name of the United States government which
could have a material effect on the Company's business, financial condition and
results of operations.

Facility Licensure and Certificate of Need. 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 or acquires a center. The Company believes
that it has obtained the necessary licensure in states where licensure is
required and that it is not required to obtain licenses in other states.
However, some of the regulations governing the need for licensure are unclear
and there is no applicable precedent or regulatory guidance to cover certain
interpretive issues. Therefore, it is possible that a state regulatory authority
could determine that the Company is operating a center inappropriately without a
license, which could subject the Company to significant fines or other
penalties, result in the Company being required to cease operations in that
state or otherwise have a material adverse effect on the Company's business,
financial condition and results of operations. With respect to future expansion,
although there can be no assurance that the Company will be able to obtain any
required license, the Company has no reason to believe that, in those states
that require such facility licensure, it will be not able to obtain such a
license without unreasonable expense or delay.

Some states require the permission of the State 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, or the purchase of certain medical equipment in excess
of an amount set by the state. The Company believes that it has obtained the
necessary CONs in states where a CON is required and that it is not required to
obtain CONs in other states. However, some of the regulations governing the need
for CONs are unclear and there is no applicable precedent or regulatory guidance
to cover certain interpretative issues. Therefore, it is possible that a state
regulatory authority could determine that the Company is operating a center
inappropriately without a CON, which could have a material adverse effect on the
Company's business, financial condition and results of operations. While 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 has no reason to believe that in those
states that require a CON, it will not be able to do so.

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 addition, 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. Although the
Company is not aware of any Canadian health regulations which impose licensing
restrictions on the operation of its centers, there can be no assurance that
such restrictions will not be adopted. Changes in the interpretation or
enforcement of existing regulatory requirements or the adoption of new
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will not be required to incur significant costs to comply with laws
and regulations in the future or that laws and regulations will not have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, many of the Company's operations have not
been subject to review by regulators and there can be no assurance that a review
of the Company's operations or the operations of its affiliated doctors will not
result in a determination that could have a material adverse effect on the
Company's business, financial condition and results of operations.

United States Food and Drug Administration

In the United States, Summit/Autonomous, VISX, LaserSight and Nidek have
obtained FDA approval to market their respective excimer lasers for laser vision
correction. LaserSight recently received a PMA for its excimer laser. To date,
the FDA approvals granted for these excimer lasers have applied only to the PRK
procedure, and not for the LASIK procedure. The FDA, however, is not authorized
to regulate the practice of medicine, and ophthalmologists, including those
affiliated with TLC refractive centers, widely perform the LASIK procedure in an
exercise of professional judgment in connection with the practice of medicine.

Also, 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 TLC refractive centers, widely
perform bilateral treatment in an exercise of professional judgment in
connection with the practice of medicine.

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.

Most of the Company's refractive centers in the United States use VISX and
Summit/Autonomous excimer lasers. The failure of VISX, Summit/Autonomous or
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 lasers, substantially increase the cost
of excimer lasers, limit the number of patients that can be treated at the
Company's centers and limit the ability of the Company to use the lasers, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1 - Business - Governmental
Regulation."

Technological Change

Modern medical technology is characterized by extensive research and rapid
technological change. Newer or enhanced technologies may be developed with
better performance or lower cost than the excimer laser equipment currently used
by the Company. Medical companies, academic and research institutions and others
have developed and could develop new therapies, including new or enhanced
medical devices or surgical procedures for the conditions targeted by the
Company. The FDA approved for marketing intraocular lenses (i.e., implantable
contact lenses). Other vision correction alternatives, such as corneal rings,
are being developed. New and potential therapies could be more medically
effective and less expensive than the procedures performed at the Company's
refractive centers and could potentially render laser vision correction
obsolete, uneconomical or otherwise undesirable. In addition, competitors may
develop procedures that involve lower per procedure costs. There can be no
assurance that the Company will have the capital resources available to it to
upgrade its excimer laser equipment, acquire any such new or enhanced medical
devices or adopt such new or enhanced procedures at the time that any advanced
or more efficient technology or procedure is developed or introduced. The
inability of the Company to do so successfully could have a material adverse
effect on the Company's business, financial condition and results of operations.

Dependence on Key Personnel

The success of the Company is dependent in part on the services of certain
key medical and management personnel, including Dr. Machat and Mr. Vamvakas. The
experience of these individuals will be an important factor contributing to the
Company's continued success and growth. The loss of either of these individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Intellectual Property/Proprietary Technology

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. In the event that the use of an excimer laser or other procedure
performed at any of the Company's 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
acceptable 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 which do not infringe the
patent. The unavailability of such products may cause the Company to cease
operations in the United States or Canada or delay the Company's expansion. If
the Company is prohibited from performing laser vision correction at its
refractive centers, the Company's business, financial condition and results of
operations will be materially adversely affected. See "Item 1 - Business -
Intellectual Property/Proprietary Technology".

Potential Volatility of Stock Price

The market price of the Common Shares historically has been subject to
substantial price volatility. Such volatility can be expected to recur in the
future due to industry developments or business-specific factors such as the
Company's ability to effectively penetrate the laser vision correction market,
new technological innovations and products, changes in government regulations,
adverse regulatory action, public concerns with regard to the safety and
effectiveness of various medical procedures, any loss of key management,
announcements of extraordinary events such as litigation or acquisitions,
variations in the Company's financial results, fluctuations in the stock prices
of the Company's competitors, the issuance of new or changed stock market
analyst reports and recommendations concerning the Company or its competitors,
changes in earnings estimates by securities analysts, the Company's ability to
meet analysts' projections, as well as changes in the market for medical
services and general economic, political and market conditions or other
unforeseen factors. In addition, stock markets have experienced extreme price
and volume trading volatility in recent years. This volatility has had a
substantial effect on the market prices of securities of many companies for
reasons frequently unrelated or disproportionate to the operating performance of
the specific companies. These broad market fluctuations may adversely affect the
market price of the Common Shares.

ITEM 2. PROPERTIES

The Company's centers and the corporate office are located in leased
premises. The leases are negotiated on market terms and typically have a term of
five to ten years. See Note 12 to "Item 8 - Consolidated Financial Statements of
the Company." The following chart contains the location and acquisition or
opening date of each TLC refractive center, including BeaconEye Inc. centers.

Refractive Centers
United States Canada
------------- ------
Location Opened Location Opened Location Opened

California New York British Columbia
Brea(2) September 1996 Garden City May 1996 Vancouver August 1996
Fresno July 1999 New York January 1996 New Brunswick
Irvine(2) June 1997 White Plains April 1996 Moncton September 1997
Newport Beach(2) July 1999 Albany April 2000 Ontario
Ontario(2) July 1999 North Carolina London November 1994
Palm Desert March 2000 Charlotte June 1997 Toronto December 1994
Sacramento December 1999 Raleigh August 1997 Toronto May 1995
San Diego January 1998 Winston-Salem March 1997 Waterloo May 1999
Silicon Valley June 2000 Ohio Windsor September 1993
Torrance May 2000 Cleveland November 1997 Richmond Hill(4) September 1997
Colorado Columbus October 1998
Denver August 1996 Oklahoma
Denver (3) April 1996 Oklahoma City October 1996
Connecticut Tulsa October 1995
Fairfield September 1999 Pennsylvania
Florida Plymouth Meeting April 1996
Boca Raton January 1996 Pittsburgh June 1998
Fort Lauderdale January 1997 South Carolina
Tampa January 1997 Greenville June 1996
Georgia Charleston October 2000
Atlanta August 1996 Tennessee
Illinois Johnson City April 1997
Westchester March 1997 Texas
Indiana Austin June 1996
Indianapolis March 1996 Arlington June 1996
Maryland Houston August 1996
Annapolis July 1999 San Antonio June 1996
Baltimore June 1999 Virginia
Rockville January 1996 Fairfax April 1996
Massachusetts Washington
Waltham September 1997 Lynnwood July 1996
Michigan Wisconsin
Detroit November 1997 Green Bay April 1999
Kalamazoo April 1999 Madison October 1996
Lansing(1) May 1998 Milwaukee April 1999
Minnesota
Minnetonka June 2000
Missouri
St. Louis August 2000
Montana
Billings March 1997
Nevada
Las Vegas January 2000
New Jersey
Elmwood Park March 1996
Mount Laurel June 1997

(1) Also contains a secondary care center.
(2) TLC California center. On July 2, 1999, the Company acquired 50.1% of the
operating assets and liabilities of California LLC for cash consideration,
certain contributed certain operating assets and liabilities of its
California refractive centers and additional cash amounts.
(3) Center closed July, 2000.
(4) Center closed February 2000.

The Company owns and manages two secondary care practices, one of which
maintains five satellite locations, located within the State of Michigan.(1)

The Company also leases office space for two corporate offices. The
International Headquarters is located in Mississauga, Ontario in Canada, and the
U.S. Corporate Office is located in Bethesda, Maryland. The Company shall cease
to lease office space for the International Headquarters located in Mississauga
in the Company's second quarter of fiscal 2001. The Company shall be relocating
the International Headquarters to the Company's new office building, which it
shall own and operate, in Mississauga, Ontario.

ITEM 3. LEGAL PROCEEDINGS

Not Applicable

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

Not Applicable

- ----------

(1) The Company also maintains other investment interests in two other secondary
care practices located in Oklahoma and Washington. The secondary practice in
Oklahoma has two satellite locations while the secondary care practice in
Washington has seven satellite locations.

PART II

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

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 2000

First Quarter C$78.80 C$37.65 $53.50 $25.50

Second Quarter 47.50 23.75 31.82 16.16

Third Quarter 27.65 16.60 18.75 11.00

Fourth Quarter 22.50 9.50 15.44 6.50

Fiscal 1999

First Quarter C$27.50 C$16.95 $18.875 $10.375

Second Quarter 30.00 16.90 20.00 10.625

Third Quarter 34.25 27.30 22.375 18.078

Fourth Quarter 72.50 30.30 49.50 19.875

Record Holders

As of July 31, 2000, there were approximately 412 record holders of the Common
Shares.

Dividends

The Company has never declared or paid cash dividends on the Common Shares. It
is the 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.

ITEM 6. SELECTED FINANCIAL DATA

Set forth in the following pages are selected historical consolidated
financial data as of and for each of the fiscal years in the five-year period
ended May 31, 2000, which have been derived from and should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Form 10-K. See note 1 to the
Consolidated Financial Statements.

Year Ended May 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----

Income Statement Data

Amounts under U.S.
GAAP(1)

Net revenues(3) 6,426 20,112 59,122 146,910 201,223

Expenses

Operating and doctor compensation 6,912 21,074 54,763 115,289 183,485

Interest and other 675 752 1,434 2,245 (4.492)

Depreciation and amortization 601 3,463 9,460 14,934 21,688

Start-up and development expenses 1,584 4,292 3,267 3,606 0

Restructuring charges -- -- -- 12,924 0

Loss before income taxes and
non-controlling interest (3,346) (9,469) (9,802) (2,088) 542

Income Taxes 17 (105) (1,071) (2020) (3,454)

Non-controlling interest -- -- 593 (448) (3,006)

Net loss for the period -
U.S. GAAP (3,329) (9,574) (10,280) (4,556) (5,918)

Loss per share -
U.S. GAAP (0.26) (0.47) (0.37) (0.13) (0.16)

Weighted average number
of Common Shares outstanding
(in thousands) 12,797 20,617 28,035 34,090 37,178

Year Ended May 31,
------------------
Operating Data 1996 1997 1998 1999 2000
---- ---- ---- ---- ----

Number of refractive centers (at end of period) 5 27 45 55 62
Number of secondary care centers (at end of period) 4 7 15 14 5
Number of laser vision correction procedures 3,685 11,026(4) 35,859(5) 90,600 134,000

As of May 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----

Balance Sheet Data
Cash and cash equivalents 2,844 13,230 1,895 125,598 78,531
Working capital 1,656 8,055 53,153 146,884 59,481
Total assets 16,819 73,746 164,212 295,675 289,364
Total debt, excluding current portion 3,104 10,935 17,911 11,030 6,728
Shareholders' equity
Capital Stock 13,494 63,522 143,554 269,454 269,953
Warrants -- -- -- -- 532
Deficit (2,568) (12,141) (22,421) (31,267) (42,388)
Accumulated other comprehensive income (loss) -- -- 407 5,936 (4,451)
9,556 51,381 121,540 244,123 223,646

(1) In the financial information provided, the Company has reported in U.S.
GAAP. In prior years' Form 10-K submissions and quarterly Form 10-Q
submissions, the Company has reported in Canadian GAAP.

(2) Certain comparative figures have been reclassified to conform to the
presentation for fiscal 2000.

(3) Includes primarily those revenues pertaining to the operation of
refractive centers, the management of refractive and secondary care
centers and the Company's other non-refractive businesses.

(4) Includes procedures performed at centers previously owned by 20/20 Laser
Eye Centers Inc. ("20/20") starting March 1997. 20/20 was acquired by TLC
on February 10, 1997.

(5) Includes procedures performed at centers previously owned by BeaconEye
Inc. ("Beacon"). Beacon was acquired by TLC on April 16, 1998.

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 United States GAAP. The Company is reporting in U.S. dollars. Unless
otherwise specified, all dollar amounts are U.S. dollars. See Note 1 to the
Consolidated Financial Statements of the Company.

Overview

TLC is the largest provider of laser vision correction services in North
America. TLC owns and manages refractive centers which, together with TLC's
network of over 12,500 optometrists and opthamologists, provide laser vision
correction of common refractive disorders such as myopia (nearsightednesss),
hyperopia (farsightedness) and astigmatism. Laser vision correction is an
outpatient procedure which, is designed to change the curvature of the cornea to
reduce or eliminate a patient's reliance on eyeglasses or contact lenses. TLC,
which commenced operations in 1993, currently has 62 refractive centers in 29
states and provinces throughout the United States and Canada. Surgeons performed
over 134,000 procedures at the Company's centers during fiscal 2000.

The Company recognizes revenues at the time services are rendered. Net
revenues include only those revenues pertaining to owned laser centers and
management fees from managing refractive and secondary care practices. Under the
terms of the practice management agreements, the Company provides management and
administrative services to refractive and secondary care practices in return for
management fees. Management services revenue is equal to the net revenue of the
physician practice, less amounts retained by the physician groups.

Operating expenses include all fixed and variable expenses relating to the
operation of the Company's businesses. The principal components of operating
expenses are marketing costs, wages, surgeon's fees, laser royalty fees and
facility leasing costs.

The Company continues to pursue a growth strategy in its core refractive
laser surgery business, which accounts for more than 94% of net revenues. It is
expected that in addition to same center growth, the Company anticipates eight
(8) new centers will be built or acquired during the coming year to increase
procedure volume and position the Company for continued growth. The Company's
growth and future profitability are affected by the extent to which laser vision
correction becomes more widely accepted in North American markets.

2000 Refractive Other 2000 Total
------------------------------------------------------

Revenues and physician costs:
Net revenues 190,233 10,990 201,223
Doctor compensation 17,333 2 17,335
------------------------------------------------------
Net revenue after doctor compensation 172,900 10,988 183,888
------------------------------------------------------
Expenses
Operating 153,673 12,477 166,150
Depreciation of capital assets and assets under lease 12,886 1,406 14,292
Amortization of intangibles 6,363 1.033 7,396
Interest and other (4,574) 82 (4,492)
------------------------------------------------------
168,348 14,998 183,346
------------------------------------------------------
Income (loss) from operations $ 4,552 $ (4,010) $ 542
Income taxes (3,141) (313) (3,454)
Non-controlling interest (2,443) (563) (3,006)
------------------------------------------------------
Net income (loss) $ (1,032) $ (4,886) $ (5,918)
======================================================

Total assets $ 250,279 $ 39,085 $ 289,364
======================================================
Total capital and intangible expenditures $ 65,941 $ 8,477 $ 74,418
======================================================

1999 Refractive Secondary Care Other 1999 Total
------------------------------------------------------

Revenues and physician costs:
Net revenues 132,428 11,389 3,093 146,910
Doctor compensation 12,824 -- -- 12,824
------------------------------------------------------
Net revenue after doctor compensation $ 119,604 $ 11,389 $ 3,093 $ 134,086
======================================================
Expenses
Operating 89,875 8,972 3,618 102,465
Interest and other 2,343 (125) 27 2,245
Depreciation of capital assets and assets under lease 9,804 986 262 11,052
Amortization of intangibles 2,546 1,201 135 3,882
Start-up and development expenses -- -- 3,606 3,606
Restructuring charges -- 10,298 2,626 12,924
------------------------------------------------------
104,568 21,332 10,274 136,174
------------------------------------------------------
Income (loss) from operations $ 15,036 $ (9,943) (7,181) $ (2,088)
Income taxes (1,820) -- (200) (2,020)
Non-controlling interest (800) (376) 728 (448)
------------------------------------------------------
Net income (loss) $ 12,416 $ (10,319) $ (6,653) $ (4,556)
======================================================

Total assets $ 274,846 $ 16,678 $ 4,151 $ 295,675
======================================================
Total capital and intangible expenditures $ 25,803 $ 7,707 $ 2,026 $ 35,536
======================================================

Results of Operations

Year Ended May 31, 2000 compared to Year ended May 31, 1999

Net revenues for fiscal 2000 were $201.2 million, which is a 37% increase
over last year's $146.9 million. More than 94% of total net revenues were
derived from refractive surgery as compared to 90% in fiscal 1999.

Net revenues from refractive centers for fiscal 2000 were $190.2 million,
which is 44% higher than last year's $132.4 million. More than 134,000
procedures were performed in fiscal 2000 compared to 90,600 procedures in fiscal
1999. The increasing revenues reflect growth in the number of procedures at
existing sites due to the acceptance of the procedure in the marketplace, as
well as the development of new centers and the acquisition of centers. The
Company maintains its vision to be a premium provider of laser vision correction
services in an industry that faces significant pricing pressures.

Net revenues from non-refractive activities were $11.0 million in fiscal
2000 in comparison to $14.5 million in fiscal 1999.

Operating expenses and doctor compensation increased to $183.5 million in
fiscal 2000 from $115.3 million in fiscal 1999. This increase is a result
of: (i) increased variable expenses associated with the increase in the number
of laser vision correction procedures performed at existing refractive centers,
(ii) increased fixed and variable costs from the addition of new refractive
centers, (iii) higher marketing costs, (iv) costs associated with the Corporate
Advantage Program and third party payor programs, (v) increased corporate costs
which support the higher level of business activity, and (vi) costs of
developing eyeVantage.com Inc. Operating expenses and doctor compensation as a
percentage of net revenues were 91% of net revenues in fiscal 2000 as compared
to 79% of net revenues in fiscal 1999. This increase reflects the impact of the
Company's marketing programs, as well as the development of the Corporate
Advantage program, which are aimed at enhancing the Company's reputation and
brand recognition. However, the increased costs of marketing and Corporate
Advantage program have not been fully offset by a higher average number of
procedures being performed at TLC centers. In addition, increased infrastructure
costs (i.e. people, information systems and marketing) were incurred to support
the continued growth of the Company.

Interest (revenue)/expense and other expenses reflect interest revenue
from a strong cash position resulting from positive cashflow from operations and
the result of a successful public offering in the fourth quarter of fiscal 1999.
Improved financial terms have resulted in decreased interest expense on
long-term debt and capital leases on equipment have decreased from fiscal 2000
in comparison to fiscal 1999.

The increase in depreciation and amortization expense is largely a result
of new centers and the additional depreciation and amortization associated with
the Company's acquisitions

during fiscal 1999 and 2000. Goodwill and intangibles are amortized on a
straight-line basis over the term of the applicable agreement to a maximum of
fifteen years.

Start up and development costs in fiscal 1999 were incurred by Partner
Provider Health Inc. ("PPH") for the development of a managed care business
specializing in eye care. The Company sold PPH in May of 1999. The Company did
not incur these expenses in fiscal 2000 and does not expect to incur these costs
in the future.

Income tax expense increased to $3.5 million in fiscal 2000 from $2.0
million in fiscal 1999. This increase is a result of the Company having utilized
most of its tax losses from prior periods and the impact of the tax liabilities
associated with the Company's partners in profitable subsidiaries.

The loss for fiscal 2000 was $5.9 million or $0.16 per share, compared to
a loss of $4.6 million or $0.13 cents per share for fiscal 1999. This loss
reflects the Company's continued investment in staff, information systems and
marketing, which was not fully offset by increased procedure volumes. The
improved performance in secondary care operations and the disposal of the
managed health care business were offset by losses in the eye care e-commerce
subsidiary.

Year Ended May 31, 1999 compared to Year ended May 31, 1998

Net revenues for fiscal 1999 were $146.9 million, which was a 148%
increase over $59.1 million in fiscal 1998. More than 90% of total net revenues
in fiscal 1999, were derived from refractive surgery as compared to 86 % in
fiscal 1998 demonstrating the increasing significance of the Company's core
business. This trend will continue as the Company divested itself of a
significant portion of its secondary care operation.

Net revenues from refractive centers for fiscal 1999 were $132.4
million, which is 159% higher than net revenues from refractive centers of $51.1
million in fiscal 1998. More than 90,600 procedures were performed in fiscal
1999 compared to 35,800 procedures in fiscal 1998. The increasing revenues
reflects strong growth in the number of procedures at existing sites, the
development of new centers and the acquisition of centers from competitors.

Net revenues from secondary care centers increased to $11.4 million in
fiscal 1999 from $6.6 million in fiscal 1998. The acquisition of TLC Michigan in
February 1998 accounted for the revenue growth.

Operating expenses and doctor compensation increased to $115.3 million in
fiscal 1999 from $54.8 million in fiscal 1998. This increase is a
result of: (i) increased variable expenses associated with the increase in the
number of laser vision correction procedures performed at existing refractive
centers, (ii) increased fixed and variable costs from the addition of new
refractive centers, and (iii) higher corporate costs which were necessary to
support the higher level of business activity. Operating expenses and doctor
compensation as a percentage of net revenues were 79% of net revenues in fiscal
1999 as compared to 93% of net revenues in fiscal 1998. This decrease was
attributed to the higher average number of procedures being performed at all
centers.

Interest expense and other expenses of $2.2 million in fiscal 1999
includes higher interest expenses on long term debt and capital leases on
equipment that were held for the entire fiscal year which is largely a result of
the Beacon acquisition. In fiscal 1998 the interest expense reflects only a part
year of interest obligations as a significant portion of equipment was acquired
during fiscal 1998.

Depreciation and amortization expense increased from $9.5 million in
fiscal 1998 to $14.9 million in fiscal 1999. This is a result of a full year's
depreciation expense on 45 centers during the fiscal 1999 versus 27 centers the
previous year. In addition amortization of intangibles increased from $3.4
million in 1998 to $3.9 million in fiscal 1999 resulting primarily from the full
year amortization of the 20/20 and Beacon acquisition goodwill. Goodwill is
amortized on a straight-line basis over fifteen years.

Start up and development expenses were costs incurred to develop the eye
care specialty managed care business. During fiscal 1999 start up and
development costs were incurred by PPH for the development of the managed care
business. PPH was sold because financial expectations were not met and because
the doctor network support was not developing as planned.

Restructuring charges of $10.3 million were incurred to reflect the
disposal of TLC Northwest Eye, which was TLC's largest secondary care operation.
TLC continues to own interest in the fixed assets of TLC Northwest Eye and
expects to earn a small management fee for the use of those assets. The sale of
PPH in fiscal 1999 resulted in an additional charge of $2.6 million, resulting
in grand total restructuring charge of $12.9 million.

Income tax expense increased to $2.0 million in fiscal 1999 from $1.1
million in fiscal 1998. This increase reflects the impact of increased
profitability in entities not consolidated for tax purposes.

The loss for fiscal 1999 was $4.6 million or $0.13 per share, compared to
a loss of $10.3 million or $0.37 cents per share for fiscal 1998. The reduction
in the loss is a result of the much higher procedure volume in the refractive
business in fiscal 1999.

Liquidity and Capital Resources

During fiscal 2000 the Company executed its expansion plan by acquiring
the business assets located at the practices of several doctors in order to
solidify its presence in several key markets. These acquisitions and the
development of new centers were the largest uses of cash during the year. Cash,
cash equivalents and short-term investments were $78.5 million at May 31, 2000
as compared to $151.8 million at May 31, 1999.

Cash provided from operating activities was $23.0 million for fiscal 2000
as compared to $22.1 million for fiscal 1999. The increase in depreciation and
amortization charges are a result of the opening of new centers and the
acquisition of the business assets of certain doctors' practices. The Company
continues to develop or acquire new refractive centers, which has resulted in
the increase of $26.2 million in its investment in capital assets. In addition,
the

Company made investments of $35.1 million for the acquisition of business assets
of several doctors.

The Company continued to make other strategic industry investments both on
the new technology and service side of the industry. The most significant
investment was $10 million in LaserSight, a manufacturer of excimer lasers and
other refractive surgery technology. The Company also used cash to make
scheduled debt repayments of $7 million and make capital investments in
eyeVantage.com, its e-commerce, internet subsidiary, of $5.9 million.

During the course of the year under the terms of its announced normal
course issuer bid the Company repurchased outstanding shares for $10.4 million.
The terms of the bid allow the Company to buy up to 5% of its outstanding shares
during the twelve (12) month period.

The Company continues to invest in assets to develop and expand its
refractive procedure capacity in anticipation of continued growth, through the
development of new centers and acquisition of refractive practices. At the
current time TLC has approximately eight (8) centers under development.

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

Forward-Looking Information:

This annual report 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 can be identified by the use
of forward looking terminology, such as "may", "will", "expect", "anticipate",
"estimate", "predict", "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 numerous factors,
including the timing of acquisitions and expansion opportunities, any of which
could cause actual results to vary materially from current results or TLC's
anticipated future results. See the Company's reports filed with the Toronto
Stock Exchange and the U.S. Securities and Exchange Commission from time to time
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. TLC assumes no obligation to update the information
contained in this annual report.

Outlook

Market

Based upon the growth of the laser vision correction market over the past
several years, it has been forecasted by industry sources that more than
1,200,000 laser vision correction procedures will be performed during the year
2000.

If, each year, only two percent of the laser vision correction population in the
United States, had laser vision correction performed on both eyes, then based on
the Company's current prices, the U.S. market would be more than $12 billion
annually.

The continuing growth of the laser vision correction industry is dependent
upon the increasing acceptance of the procedure in the marketplace. There can be
no assurance that laser vision correction will continue to be widely accepted by
ophthalmologists, optometrists or the general population as an alternative to
existing methods of treating refractive disorders.

Business Development Strategy

TLC will continue to work with local optometrists to expand the
co-management model, which has been a successful strategy for the Company and
the optometric community over the last few years. The Company believes that its
affiliated doctor network, which includes approximately 12,500 optometrists and
ophthalmologists, is the largest such network in the laser vision correction
industry. The Company will continue to increase its market penetration through
opening new facilities and acquiring the business assets of existing practices.
TLC's senior executive team regularly examines acquisition and development
opportunities in the refractive market and has identified opportunities in the
United States to form strategic relationships with leading practitioners.
Finally the Company continues to develop and review its various strategic
initiatives to ensure an acceptable return on expenditures.

As the market acceptance of laser vision correction continues to increase,
TLC believes competition among service providers will grow and candidates for
laser vision correction will increasingly select a provider based on factors
other than solely the advice of a doctor. While in recent quarters growth has
slowed, the Company believes brand recognition will be a key factor for provider
selection, and, consequently, TLC is developing a strong reputation and brand
recognition. TLC has dedicated greater resources towards enhancing its marketing
programs directed at network doctors and the public to increase TLC's brand
recognition. TLC believes it will enhance its brand recognition through the
endorsement of TLC by such well-known personalities as Tiger Woods and Se Ri
Pak. The Company continues to undertake joint marketing programs with affiliated
doctors. The Company's marketing materials educate the public on laser vision
correction as well as promote TLC's position as a clinical leader in providing
laser vision services.

TLC has also developed innovative marketing programs including the
"Corporate Advantage" program, which is directed at vision plans, large
employers, and employee associations to provide TLC with preferred access to
large employee groups. Employers participating in this program may subsidize the
cost of an employee's refractive surgery at a TLC center and the procedure may
be provided at a discounted price. The cost to the employer of the subsidy may
be offset by reductions in the ongoing cost of providing eyeglasses or other
conventional vision correction. In addition many employees consider the
availability of laser vision correction as a significant enhancement to an
employer's benefit plan.

TLC has further developed marketing programs directed at third party
providers. These third party providers include such organizations and businesses
as, insurance companies and other related entities. The third party
providers that have affiliated with TLC represent over

70 million lives through both corporate and individual members. These providers
complement the Corporate Advantage program by enabling TLC to directly market
to these individuals exclusively and to provide them with opportunity to have
laser vision correction at the Company's centers at a preferred rate.

Competition

Laser vision correction is subject to intense competition and the Company
competes with other entities, including hospitals, individual ophthalmologists
and other laser centers. In addition, laser vision correction competes with
other surgical and non-surgical treatments for refractive disorders, including
eyeglasses, contact lenses, corneal rings, intra ocular lenses and other
technologies currently under development. The Company believes that as the
market acceptance for laser vision correction continues to increase, brand
recognition will be an increasingly key factor for provider selection.
Consequently, the Company is developing a strong reputation and brand
recognition.

TLC faces competition in many of its markets and the Company's refractive
centers compete on the basis of quality of service, reputation, brand
recognition as well as price. TLC's brand recognition and strong reputation for
high level of service and quality of care allows TLC to command a higher price.
Although some competitors charge less for laser vision correction, the Company
strives to be the premium provider in the laser vision correction industry and
will not compete solely on price. However, market conditions may compel the
Company to lower its prices to remain competitive in some markets. In addition,
further competition could develop if a significant decrease in the price of
excimer laser systems were to occur, because the high price of such equipment is
currently a barrier to entry for many potential competitors, particularly
individual ophthalmologists.

Other Business Segments

TLC has continued to support its e-commerce internet subsidiary,
eyeVantage.com in its efforts to become the leading supplier of e-commerce
services designed specifically for the eye care industry. eyeVantage.com is
designed to link the Company's refractive centers and affiliated
ophthalmologists and optometrists with third party suppliers of goods and
services. eyeVantage.com has made several acquisitions designed to enhance its
position in the market place. The Company continues to evaluate the potential
of this subsidiary and other opportunities.

Stock Price Fluctuation

The stock prices of emerging high technology stocks are subject to
significant fluctuations. The stock price may be affected by a number of factors
including but not limited to lower than expected growth in procedure volume,
lower pricing, and higher costs associated with the high growth and market
expansion. In addition, if revenues or earnings in any quarter fail to

meet the investment community's expectations, there could be an immediate
adverse impact on the Company's stock price.

New Accounting Pronouncements

Under SEC Staff Accounting Bulletin 74, the Company is required to disclose
certain information related to new accounting standards, which have not yet been
adopted due to delayed effective dates.

The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 137, "Deferral
of Effective Date for SFAS No. 133" which are effective for fiscal years
beginning after June 15, 2000.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101. SAB No. 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements and is effective for the Company's fourth
quarter in fiscal 2001.

In March 2000, The Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation-an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequences
of various modifications to the terms of previously fixed stock options or
awards; and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
in FIN 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000.

Management has not yet determined the impact on the consolidated financial
position or results of operations of the Company of these new standards.

ITEM 7A. MARKET RISK

Not Applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

RESPONSIBILITY FOR FINANCIAL STATEMENTS

The accompanying consolidated financial statements of TLC Laser Eye
Centers Inc. have been prepared by management in conformity with accounting
principles generally accepted in the United States consistently applied. The
most significant of these accounting policies have been set out in Note 1 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.

The Board of Directors has appointed an Audit Committee consisting of
three outside directors. The committee meets during the year to review with
management and the auditors any significant accounting, internal control and
auditing matters and to review and finalize the annual financial statements of
the Company along with the independent auditors' report 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.

External Auditors

The auditors' opinion is based upon an independent and objective
examination of the Company's financial results for the year, conducted in
accordance with generally accepted auditing standards. This examination
encompasses an understanding and evaluation by the auditors of the Company's
accounting systems as well as the obtaining of a sound understanding of the
Company's business. The external auditors conduct appropriate tests of the
Company's transactions and obtain sufficient audit evidence in order to provide
them with reasonable assurance that the financial statements are presented
fairly in conformity with accounting principles generally accepted in United
States, thus enabling them to issue their report to the United States
shareholders.

Ernst & Young LLP, Chartered Accountants, having been appointed by the
shareholders to serve as the Company's external auditors for fiscal 2000, have
examined the consolidated financial statements of the Company for the years
ended May 31, 2000, 1999, and 1998 and have reported thereon in their July 7,
2000 report.

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of TLC Laser Eye Centers Inc.

We have audited the accompanying consolidated balance sheets of TLC Laser Eye
Centers Inc. (formerly TLC The Laser Center Inc.) as of May 31, 2000 and 1999
and the related consolidated statements of loss, stockholders' equity and cash
flows for the years ended May 31, 2000, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TLC Laser Eye
Centers Inc. as of May 31, 2000 and 1999 and the results of its operations and
its cash flows for the years ended May 31, 2000, 1999 and 1998 in conformity
with accounting principles generally accepted in the United States.

On July 7, 2000, we reported separately to the Board of Directors and
Stockholders of TLC Laser Eye Centers Inc. on financial statements for the same
periods, prepared in accordance with accounting principles generally accepted in
Canada.

Toronto, Canada, ERNST & YOUNG LLP

July 7, 2000 Chartered Accountants

TLC LASER EYE CENTERS INC.
(formerly TLC The Laser Center Inc.)
CONSOLIDATED STATEMENTS OF LOSS

(U.S. dollars, in thousands except per share amounts)

Years Ended May 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------

Net revenues
Refractive $ 190,233 $ 132,428 $ 51,079
Other 10,990 14,482 8,043
------------ ------------ ------------
Net revenues (Note 15) 201,223 146,910 59,122
------------ ------------ ------------
Expenses
Doctor compensation
Refractive 17,335 12,824 5,242
Operating 166,150 102,465 49,521
Interest and other (Note 12) (4,492) 2,245 1,434
Depreciation of capital assets and assets under
lease (Note 12) 14,292 11,052 6,103
Amortization of intangibles (Note 12) 7,396 3,882 3,357
Start-up and development expenses -- 3,606 3,267
Restructuring charges (Note 18) -- 12,924 --
------------ ------------ ------------
200,681 148,998 68,924
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND NON-CONTROLLING 542 (2,088) (9,802)
INTEREST
Income taxes (Note 13) (3,454) (2,020) (1,071)
Non-controlling interest (3,006) (448) 593
------------ ------------ ------------
NET LOSS FOR THE YEAR $ (5,918) $ (4,556) $ (10,280)
============ ============ ============
LOSS PER SHARE $ (0.16) $ (0.13) $ (0.37)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 37,178,253 34,090,316 28,034,741
============ ============ ============

TLC LASER EYE CENTERS INC.
(formerly TLC The Laser Center Inc.)
CONSOLIDATED BALANCE SHEETS

(U.S. dollars, in thousands)

As at May 31,
----------------------
2000 1999
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents (Notes 2 and 3) $ 78,531 $ 125,598
Short-term investments (Note 3) -- 26,212
Accounts receivable (Note 16) 15,527 15,359
Income taxes recoverable 4,734 --
Prepaid expenses and sundry assets 5,922 6,602
--------- ---------
Total current assets 104,714 173,771
Restricted cash (Note 2 and 3) 1,722 1,730
Investments and other assets (Note 4) 29,478 24,388
Intangibles (Note 5) 89,297 46,237
Fixed assets (Note 6) 53,431 38,993
Assets under capital lease (Note 7) 10,722 10,556
--------- ---------
Total assets $ 289,364 $ 295,675
========= =========

LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 21,467 $ 17,836
Accrued purchase obligations (note 17) 13,200 --
Accrued wage costs 2,974 1,676
Income taxes payable -- 477
Current portion of long-term debt (Note 8) 2,332 2,181
Current portion of obligations under capital lease (Note 9) 5,260 4,717
--------- ---------
Total current liabilities 45,233 26,887
Long-term debt (Note 8) 2,922 4,620
Obligations under capital leases (Note 9) 3,806 6,410
Deferred rent (Note 10) 915 959
Deferred tax liability -- 4,525
--------- ---------
Total liabilities 52,876 43,401
--------- ---------
Non-controlling interest 12,842 8,151
--------- ---------
Commitments and contingencies (Note 14)

STOCKHOLDERS' EQUITY
Capital stock:
Common stock, no par value; unlimited number authorized;
37,150 issued and outstanding (1999 - 37,362) (Note 11) 269,953 269,454
Warrants 532 --
Deficit (42,388) (31,267)
Accumulated other comprehensive income (loss) (4,451) 5,936
--------- ---------
Total stockholders' equity 223,646 244,123
--------- ---------
Total liabilities and stockholders' equity $ 289,364 $ 295,675
========= =========

Approved on behalf of the Board:

(Signed) ELIAS VAMVAKAS (Signed) HOWARD J. GOURWITZ
Elias Vamvakas, Director Howard J. Gourwitz, Director

TLC LASER EYE CENTERS INC.
(formerly TLC The Laser Center Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars, in thousands)

Years Ended May 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------

Operating activities
Net loss for the year $ (5,918) $ (4,556) $ (10,280)
Items not affecting cash
Depreciation and amortization 21,688 14,934 9,460
Write-off of goodwill 489 -- --
Loss (gain) on sale of fixed assets and
assets under lease 1,099 229 (287)
Deferred income taxes 1,320 1,204 --
Non-cash restructuring costs -- 11,167 --
Non-controlling interest 3,006 448 (593)
Other 780 252 22
Changes in non-cash operating items
Accounts receivable (15) (9,247) (6,964)
Prepaid expenses and sundry assets 1,047 (2,208) (2,129)
Accounts payable and accrued liabilities 4,153 10,350 (2,480)
Income taxes payable, net (4,574) (162) 647
Deferred rent and compensation (44) (275) (234)
--------- --------- ---------
Cash provided by (used in) operating activities 23,031 22,136 (12,838)
--------- --------- ---------
Financing activities
Restricted cash 8 356 463
Proceeds from debt financing 826 25 2,555
Principal payments of debt financing (2,635) (6,668) (1,242)
Term bank loan -- -- (43)
Principal payments of obligations under capital
leases (5,063) (3,302) (706)
Contributions from non-controlling interests 2,365 1,305 513
Distributions to non-controlling interests (1,569) (1,233) (101)
Payments related to the purchase and cancellation of
capital stock (10,365) (5,387) --
Proceeds from issuance of capital stock 2,384 129,607 63,615
--------- --------- ---------
Cash provided by (used in) financing activities (14,049) 114,703 65,054
--------- --------- ---------
Investing activities
Purchase of fixed assets and assets under lease (26,153) (17,843) (5,498)
Proceeds from sale of fixed assets and assets under
lease 185 -- 1,325
Proceeds from the sale of investments 227 -- --
Acquisitions and investments (56,496) (22,316) (6,075)
Short-term investments 26,212 (26,212) --
Other (24) (68) --
--------- --------- ---------
Cash used in investing activities (56,049) (66,439) (10,248)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (47,067) 70,400 41,968
during the year
Cash and cash equivalents, beginning of year 125,598 55,198 13,230
--------- --------- ---------
Cash and cash equivalents, end of year $ 78,531 $ 125,598 $ 55,198
========= ========= =========

(Note 19 - discusses non-cash transactions, which are not included in the
consolidated statements of cash flows)

TLC Laser Eye Centers Inc.
(formerly TLC The Laser Center Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(U.S. dollars, in thousands)

Common stock Warrants
------------ --------
Other
Accumulated
Number Number Comprehensive Comprehensive
of Shares Amount of Warrants Amount Income (Loss) Deficit Income Total
(000's) $ (000's) $ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------

Balance, May 31, 1997 25,189 53,858 1,818 9,664 (12,141) -- 51,381
Conversion of special warrants 1,818 9,664 (1,818) (9,664) 0
Additional special warrant
issue costs (40) (40)
Shares issued for acquisition 1,604 16,417 16,417
Exercise of agent's
compensation warrants
related to the IPO 138 447 447
Exercise of stock options 179 786 786
Public offering, net of issue
costs 4,740 62,422 62,422
Comprehensive income
Net income (10,280) (10,280) (10,280)
Other comprehensive income
Unrealized gains/losses
on available-
for-sale securities 407 407 407
-------
Comprehensive income (9,873)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1998 33,668 143,554 -- -- (22,421) 407 121,540
Shares issued for
acquisitions 50 837 837
Shares issued to acquire
other assets 50 728 728
Shares purchased for
cancellation (256) (1,095) (4,290) (5,385)
Exercise of stock options 773 3,073 3,073
Shares issued as remuneration 40 600 600
Shares issued as part of the
employee share purchase plan 47 750 750
Public offering, net of issue
costs 2,990 121,007 121,007
Comprehensive income
Net income (4,556) (4,556) (4,556)
Other comprehensive income
Unrealized gains/losses
on available-
for-sale securities 5,529 5,529 5,529
------
Comprehensive income 973
- ---------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 37,362 269,454 -- -- (31,267) 5,936 244,123
Warrants issued 100 532 532
Shares issued for acquisition 302 728 728
Value determined for shares
issued contingent on meeting
earnings criteria -- 1,397 1,397
Shares purchased for
cancellation (710) (5,162) (5,203) (10,365)
Exercise of stock options 87 1,314 1,314
Shares issued as remuneration 44 387 387
Shares issued as part of the
employee share
Purchase plan 65 1,696 1,696
Reversal of IPO costs, over
accrual -- 139 139
Comprehensive income
Net income (5,918) (5,918) (5,918)
Other comprehensive income
Unrealized gains/losses
on available-
for-sale securities (10,387) (10,387) (10,387)
-------
Comprehensive income (16,305)
- ---------------------------------------------------------------------------------------------------------------------------
Balance May 31, 2000 37,150 269,953 100 532 (42,388) (4,451) 223,646
===========================================================================================================================

TLC LASER EYE CENTERS INC.
(formerly TLC The Laser Center Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all amounts in U.S. dollars, except where noted and all tabular amounts in
thousands)

Nature of Operations

TLC Laser Eye Centers Inc. (formerly TLC The Laser Center Inc.) and its
subsidiaries (the "Company") develop and manage laser vision correction centers
in the United States and Canada. Each center provides excimer laser and other
clinical equipment and all related management and support services to physicians
and physician practices performing excimer laser procedures in the Company's
centers.

The Company currently owns and manages a secondary eye care business with
multiple centers in the state of Michigan. These centers provide all necessary
clinical equipment and infrastructure and provide all related management and
support services to physician practices treating a wide range of vision
disorders.

The Company faces a number of risks and uncertainties given the nature of
the industry in which it operates.

The Company's profitability is dependent upon broad acceptance in the
United States and Canada of laser vision correction as an alternative to
existing methods of treating refractive disorders. Broad market acceptance is
dependent on many factors including cost, the lack of long-term follow-up data
and the resulting concerns relating to safety and effectiveness, and future
regulatory developments.

The industry in which the Company operates is subject to extensive
federal, state and local laws, rules and regulations. Many of these laws and
regulations are ambiguous in nature and have not been definitively interpreted
by courts and regulatory authorities. Moreover, they 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 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.

Many states in the United States prohibit the Company from practicing
medicine or employing physicians to practice medicine on the Company's behalf.
Because the Company does not practice medicine, its activities are limited to
owning and managing refractive centers and secondary care centers and
affiliating with health care providers to render medical services at the
Company's centers. As a result, the Company is highly dependent on its
affiliated doctors.

The provision of medical services entails an inherent risk of potential
malpractice and other similar claims. Although the Company does not engage in
the practice of medicine, there can be no assurance that claims relating to
services provided at the Company's centers will not be asserted against the
Company. The Company currently maintains malpractice insurance that it believes
to be adequate both as to risks and amounts. In addition, the doctors providing
medical services at the Company's centers are required to maintain insurance.

The Company's revenues from managing secondary care centers are derived
from fees paid by or on behalf of patients to the practices affiliated with the
Company. The Company's profitability could be affected by government and private
third-party payors seeking to contain healthcare costs by reducing reimbursement
rates, lowering utilization rates and negotiating reduced payment schedules with
providers of vision care. The Company has restructured certain of its secondary
care investments, which has reduced the exposure of profits being affected by
government and private third-party payors.

1. Summary of Significant Accounting Policies

Basis of Presentation

These consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries, partnerships and other entities in
which the Company has more than a 50% ownership interest and exercises control.
The ownership interests of other parties in less than wholly-owned consolidated
subsidiaries, partnerships and other entities are presented as non-controlling
interests. All significant intercompany transactions and balances have been
eliminated on consolidation.

The Company does not have an ownership interest in, nor does it exercise
control over, the physician practices under its management. Accordingly, the
Company does not consolidate physician practices under its management.

Fixed Assets and Assets Under Capital Lease

Fixed assets and assets under capital lease are recorded at cost less
accumulated depreciation. Depreciation is provided at rates intended to write
off the assets over their productive lives as follows:

Computer equipment and software - straight-line over three years
Buildings - straight-line over forty years
Furniture, fixtures and equipment - 20% diminishing balance
Laser equipment - 20% diminishing balance
Leasehold improvements - straight-line over the initial
term of the lease
Medical equipment - 20% diminishing balance
Vehicles and other - 30% diminishing balance

Intangible Assets

Goodwill represents the excess of the purchase price over the fair value
of the identifiable net assets acquired, and is being amortized on a
straight-line basis over the term of the purchase agreement to a maximum of
fifteen years.

The practice management agreements represent the cost of obtaining the
exclusive right to manage refractive centers and secondary care centers in
affiliation with the related physician group during the term of the agreements.
Practice management agreements are amortized using the straight-line method over
the term of the related employment agreement, to a maximum of fifteen years.

Impairment of Long-lived Assets

SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" establishes accounting standards for the
impairment of long-lived assets. For fixed assets and certain intangibles, the
Company assesses the recoverability by determining whether the carrying value of
such assets can be recovered through projected undiscounted cash flows. If the
sum of expected future cash flows, undiscounted and without interest charges, is
less than net book value, the excess of the net book value over the estimated
fair value is charged to operations in the period in which such impairment is
determined by management.

Start-up and Development Expenses

Start-up and development expenses represent costs incurred to research and
develop potential businesses in North America, including salaries and benefits,
professional fees, advertising, promotion and travel, and costs incurred by
businesses during the period prior to commencement of commercial operations.
Start-up and development expenses are expensed as incurred. Technology and
web-site costs incurred for the development of commercial business to business
internet products have been capitalized and will be amortized when the products
are available to be offered for sale.

Revenues

The Company includes in income only those operating revenues pertaining to
owned laser centers and management fees earned from managing refractive and
secondary care practices. Under the terms of the practice management agreements,
the Company provides management, marketing and administrative services to
refractive and secondary care practices in return for management fees. Revenues
on laser refractive surgeries are recognized as services are performed.

Management service revenue is equal to the net revenue of the physician
practices, less amounts retained by the physician groups. Net revenue of the
physician practices is recorded by the physician groups at established rates
reduced by provision for doubtful accounts, contractual

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

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. 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. See note 13 for discussion of income taxes.

Cash equivalents

Cash equivalents include highly liquid short-term investments with
original maturities of 90 days or less. Cash equivalents, which consist
principally of corporate bonds, are classified as held-to-maturity securities
and are carried at amortized cost.

Short-term investments

Short-term investments, which consist principally of corporate bonds, are
classified as held-to-maturity securities and are carried at amortized cost.

Accounting for Stock-based Compensation

The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No 25, "Accounting
for Stock Issued to Employees" and makes the pro forma disclosures required by
SFAS No. 123, "Accounting for Stock-Based Compensation".

Marketing Costs

The Company expenses the marketing costs as incurred. Marketing expense
for the year ended May 31, 2000 was approximately $24,202,000 (1999 -
$8,911,000). Marketing expenses consist primarily of print, radio and television
media costs plus the associated production costs required to create the
marketing product.

Foreign Exchange

The unit of measure of the parent holding company is the U.S. dollar. The
Company's Canadian operations are considered integrated and are translated into
U.S. dollars using the temporal method. Accordingly, the assets and liabilities
of the Company's Canadian operations

are translated 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 non-monetary items. Income and expenses
are translated 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 loss
for the year.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.

New Accounting Standards

The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 137, "Deferral
of Effective Date for SFAS No. 133" which are effective for fiscal years
beginning after June 15, 2000.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101. SAB No. 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements and is effective for the Company's fourth
quarter in fiscal 2001.

In March 2000, The Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation-an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequences
of various modifications to the terms of previously fixed stock options or
awards; and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
in FIN 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000.

Management has not yet determined the impact on the consolidated financial
position or results of operations of the Company of these new standards.

2. Cash and Cash Equivalents

2000 1999
---------- ----------
Cash and cash equivalents $78,531 $125,598
========== ==========

The Company has a banking facility of approximately $845,000 (1999 - $927,000)
available for posting letters of guarantee, under terms whereby the Company must
maintain a similar minimum amount in its bank account. At May 31, 2000, $773,000
of this facility has been utilized (1999 - $678,000). In addition, the Company
has posted cash collateral deposits in respect of certain lease commitments,
which amount to $949,000 at May 31, 2000 (1999 - $1,052,000). These restricted
cash amounts have been excluded from cash and cash equivalents.

3. Marketable Securities

The Company's marketable securities by type of security, contractual maturity
and classification in the consolidated balance sheets are as follows:

2000 1999
$ $
- --------------------------------------------------------------------------------

Type of security
U.S. dollar corporate debt 60,653 141,994
U.S. dollar fixed deposit 14,460 2,619
Cdn. dollar fixed deposit 773 678
- --------------------------------------------------------------------------------
75,886 145,291
================================================================================

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

Contractual maturity
Maturing in one year or less 74,164 143,561
Maturing after one year through three years 1,722 1,730
- --------------------------------------------------------------------------------
75,886 145,291
================================================================================

Classification in the consolidated balance
sheets
Cash equivalents 74,164 117,440
Short-term investments -- 26,121
Restricted cash 1,722 1,730
- --------------------------------------------------------------------------------
75,886 145,291
================================================================================

4. Investments and Other Assets

2000 1999
------- -------
Portfolio investments (1) $23,444 $21,368
Long-term receivables (2) 4,904 1,115
Other 1,130 1,905
------- -------
$29,478 $24,388
======= =======

(1) On June 8, 1998 the Company made a portfolio investment of $8,000,000 in
cash through the purchase of 2,000,000 preference shares in LaserSight
Incorporated. These preference shares are convertible to LaserSight
Incorporated common shares at $4.00 per share. On March 24, 1999, the
Company made an additional $2,000,000 investment to purchase 500,000
common shares in LaserSight Incorporated. On January 28, 2000, the Company
made an additional $10,000,000 investment to purchase 1,015,873 common
shares of LaserSight Incorporated. LaserSight Incorporated is a publicly
traded United States manufacturer of excimer lasers, microkeratomes and
microkeratome blades with limited approval for its excimer laser. The
Company's fully diluted ownership interest in LaserSight Incorporated is
16.1%.

During fiscal 2000, the Company made a number of portfolio investments in
the amount of $7,188,000 in various companies related to the laser vision
correction industry to support the development of laser vision correction
technology.

(2) Long-term receivables include an amount from a related secondary care
practice. In fiscal 1999, a long-term receivable arose which was
non-interest bearing, unsecured and is to be repaid based on an escalating
percentage of the practice's revenue collected over the next five (5)
years.

During fiscal 2000, the Company advanced $1,435,000 to a related secondary
care practice in exchange for a five (5) year promissory note bearing a
fixed interest rate of 8%.

During fiscal 2000, the Company advanced $1,000,000 to an unrelated
refractive care services provider in exchange for a convertible
subordinated term note bearing interest at current LIBOR rates to mature
by July 1, 2002.

During fiscal 2000, the Company provided financing of $900,000 at 10% to
an unrelated refractive care service provider for lasers, payable over a
five (5) year period.

5. Intangibles

2000 1999
------- -------
Goodwill (net of amortization of $8,121,000 (1999 - $45,311 $35,810
$5,013,000))
Practice management agreements (net of amortization of
$5,969,000 (1999 - $1,626,000)) 43,986 10,427
------- -------
$89,297 $46,237
======= =======

6. Fixed Assets

2000 1999
------------------------ ------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
--------- ------------- -------- ------------

Land and buildings $ 4,042 $ 619 $ 1,634 $ 492
Computer equipment and
software 15,838 8,034 9,403 4,911
Furniture, fixtures
and equipment 8,230 3,310 6,278 2,522
Laser equipment 17,073 5,968 13,615 4,208
Leasehold improvements 26,078 9,510 18,117 5,952
Medical equipment 14,315 5,261 10,458 3,305
Vehicles and other 890 333 1,193 315
------- ------- ------- -------
Less accumulated depreciation 86,466 $33,035 60,698 $21,705
33,035 21,705
------- -------
Net book value $53,431 $38,993
======= =======

7. Assets under Capital Lease

2000 1999
------- -------
Computer equipment and software $ 164 $ 116
Furniture, fixtures and equipment 629 392
Laser equipment 15,507 13,691
Leasehold improvements -- 60
Medical equipment 2,616 2,398
------- -------
18,916 16,657
Less accumulated depreciation 8,194 6,101
------- -------
$10,722 $10,556
======= =======

8. Long-Term Debt

2000 1999
------ ------
Interest at 8%, due July 2000 to September 2001,
payable to affiliated physicians $ 155 $ 716
Interest ranging from 5.75% to 12% (1999 - 5.75%
to 12%), due April 2001 to March 2007,
collateralized by equipment 5,099 6,085
------ ------
5,254 6,801
Less current portion 2,332 2,181
------ ------
2,922 $4,620
====== ======

During fiscal 1999, the Company maintained participating loan agreements
providing for additional monthly payments on principal based on a percentage of
net revenues in excess of the minimum monthly payments. Such additional monthly
payments ceased once the lender received a specified implicit rate of return.
During fiscal 1999, the participating loan terms were amended to increase the
minimum monthly payments to a level based on the original specified implicit
rate of return and to eliminate the additional monthly payments based on a
percentage of revenue. In March 1999, the participating loans were fully repaid
in cash.

Aggregate minimum repayments of principal for each of the next five years
and thereafter are as follows:

2001 $2,332
2002 2,003
2003 472
2004 172
2005 85
Thereafter 190

9. Obligations under Capital Leases

The leases expire between 2000 and 2004 and include imputed interest at
rates ranging from 6% to 14%. The majority of capital leases are denominated in
U.S. dollars and represent leases for lasers and medical equipment. The
capitalized lease obligations represent the present value of future minimum
annual lease payments as follows:

2000 1999
------- -------
2000 $ -- $ 5,141
2001 5,472 4,429
2002 3,589 2,890
2003 1,316 816
2004 326 --
------- -------
10,703 13,276
Less interest portion 1,637 2,149
------- -------
9,066 11,127
Less current portion 5,260 4,717
------- -------
$ 3,806 $ 6,410
======= =======

10. Deferred Compensation and Rent

Deferred compensation represents a plan to compensate certain key
managerial executives and was included as part of the acquisition of 20/20 Laser
Centers, Inc. ("20/20"). The plan vested 100% on the earlier of February 15,
1999 or termination of employment, as defined. On May 31, 1998, $320,000 was
accrued on potential deferred compensation of $320,000. During fiscal 1999,
outstanding options were exercised resulting in the elimination of the
outstanding liability.

Deferred rent represents the benefit of operating lease inducements which
are being amortized on a straight-line basis over the related term of the lease.

11. Capital Stock

At May 31, 2000 the Company's capital stock position included Common Stock
and Warrants as reflected in the Consolidated Statements of Stockholders' Equity
and also offered options for corporate employees and certain other individuals.

a) Common Stock

i) In the 1997 acquisition of The Vision Source, Inc., the Company issued
421,804 common shares which were placed in escrow. 210,902 shares were
released from escrow within 15 months from the date of issue (see Note
17). Release of 210,902 of the remaining shares was subject to an earn-out
formula. These shares represent contingent purchase consideration and,
with the completion of the earn-out period these shares were released from
escrow and assigned a value of $6.645/share as per the contract resulting
in an increase to capital stock of $1,397,000. A final tranche of shares
valued at $4,056,000 representing 536,764 shares as per the terms of the
purchase agreement will be issued subsequent to fiscal 2000.

ii) On November 4, 1999, the Company announced that it intended to purchase up
to 1,870,000 of its common shares, representing approximately 5% of
37,453,188 common shares outstanding at that time. The purchases are to
take place from time to time, depending on market conditions, through the
facilities of the Nasdaq National Market and The Toronto Stock Exchange.
The Company commenced purchasing shares on November 8, 1999 and will
terminate purchasing by November 4, 2000, or by such earlier date as the
Company may determine. The prices which the Company will pay for any
common shares will be the market price of the shares at the time of
acquisition. Any common shares acquired by the Company will be cancelled.
At May 31, 2000, the Company had purchased and cancelled 710,000 common
shares at an average market price of U.S. $14.60 per share.

iii) During fiscal 1999, the Company introduced an employee share purchase plan
to facilitate the ownership of the Company's common shares by its
employees. Employee purchases are supplemented annually by an additional
25% contribution by the Company.

iv) On September 24, 1998, the Company exercised a contractual option to
purchase 116,771 common shares from the Goldstein Family Trust for
$1,264,411 in cash. The common shares were then cancelled and capital
stock was reduced using the average value of common shares as of November
30, 1998 of Cdn. $6.20 per share. The remaining allocation of the cash
paid for the shares was reflected as a reduction in deficit. In addition,
shares were retired in connection with a divestiture (Note 18).

b) Warrants

Effective January 1, 2000, the Company granted warrants to purchase
100,000 of the Company's common shares at an exercise price of $13.063 per
share, representing the average market price for the common shares during the
twenty trading days prior to the effective date of the grant of the warrants.
These warrants were granted to an employee benefits company in consideration for
establishing a business relationship. The warrants are non-transferable, have a
five (5) year term and vest over a period of three (3) years. This transaction
was exempt from registration under the Securities Act pursuant to Section 4(2)
as a transaction not involving a public offering. The fair value of the options
granted was estimated at the date of grant using the Black-Scholes option
pricing model with the following assumptions: risk free interest of 6.35%;
dividend yield of 0%; volatility factor of the expected market price of the
Company's common shares of .35 and an expected life of five (5) years.

c) Options

As of May 31, 2000, the Company has reserved 4,116,000 common shares for
issuance under its stock option plan for corporate employees and certain other
individuals. Options granted have terms ranging from five (5) to eight (8)
years. Vesting provisions on options granted to date include options that vested
immediately, options that vest in equal amounts annually over the first four (4)
years of the option term and options that vest entirely on the first anniversary
from the grant date. Those exercise prices, which are denominated in Canadian
dollars, for options outstanding as of May 31, 2000 range as follows:

Outstanding Exercisable
------------------------------ -----------------------------
Price Range Number of Weighted-Average Number of Weighted-Average
Options Price Options Price

CDN$2.50 - CDN$7.25 1,573,458 CDN$3.35 1,573,458 CDN$3.35
CDN$10.70- CDN$19.73 277,726 CDN$11.51 262,450 CDN$12.22
CDN$20.75 - CDN$30.66 626,231 CDN$26.39 249,545 CDN$22.98
CDN$32.18 - CDN$74.50 48,844 CDN$50.16 2,013 CDN$43.35

During the year, options denominated in U.S. dollars were issued and
outstanding with prices ranging as follows:

Outstanding Exercisable
------------------------------ -----------------------------
Price Range Number of Weighted-Average Number of Weighted-Average
(in US $) Options Price Options Price

$6.73 - $18.37 47,147 US$10.91 -- --
$18.63 - $23.50 455,601 US$19.04 60,806 US$19.55
$23.62 - $24.53 9,250 US$23.92 -- --
$27.38 - $38.62 10,875 US$30.54 1,781 US$30.82
$41.50 - $50.94 8,300 US$43.63 -- --

Weighted Weighted
Average Average
Strike Strike
Options Price Per Price Per
(000's) Share Share
------------ --------- ---------

May 31, 1997 1,969 CDN$3.73 US$2.56
Granted 518 11.79 8.09
Exercised (71) 6.12 4.20
----- --------- -------
May 31, 1998 2,416 CDN$5.39 US$3.70
Granted 783 26.71 17.65
Exercised (507) 7.21 4.77
----- --------- -------
May 31, 1999 2,692 CDN$11.12 US$7.54
Granted 453 $30.14 $20.62
Exercised (88) 10.71 7.26
----- --------- -------
May 31, 2000 3,057 CDN$13.95 US$9.49
====== ========= =======
Exercisable at May 31, 2000 2,150 CDN$7.53 US$5.08
====== ========= =======

During 1999, the Company issued 74,668 common shares with a weighted
average strike price of U.S. $4.87 pursuant to option agreements assumed in
connection with the 20/20 acquisition. At May 31, 1999, no further options
relating to these agreements are outstanding.

During 1999, the Company issued 191,337 common shares at U.S. $0.02665 per
share in connection with options granted to third parties for services rendered
to 20/20 that were assumed in connection with the 20/20 acquisition. At May 31,
1999, no further options relating to these agreements are outstanding.

SFAS No. 123, "Accounting for Stock-based Compensation", became effective
for the Company's 1997 fiscal year. The Company continues to account for its
outstanding fixed price stock options under Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees", which results in the recording
of no compensation expense in the Company's circumstances. Had compensation
expense for stock options granted been determined based upon fair value at the
grant date consistent with the methodology prescribed by SFAS No. 123, the pro
forma effects of fiscal 2000, 1999 and 1998 grants on the net loss and loss per
share amounts for the years ended May 31, 2000, 1999 and 1998 would have been as
follows:

2000 1999 1998
--------------------------------
Net loss under U.S. GAAP (5,918) (4,556) $(10,280)
Adjustments for SFAS 123 (3,761) (3,784) (1,195)
--------------------------------
Pro forma net loss under U.S. GAAP (9,679) (8,340) $(11,475)
--------------------------------
Pro forma loss per share under U.S. GAAP $ (0.26) $ (0.24) $ (0.41)
================================

The fair value of the 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 of 5.0% for fiscal 1998, 6.75% for fiscal 1999
and 7.5% for fiscal 2000; dividend yield of 0%; volatility factors of the
expected market price of the Company's common shares of 0.60 for fiscal 1998,
0.66 for fiscal 1999 and 0.71 for fiscal 2000; and a weighted average expected
option life of 2.5 years for fiscal 1998, 3.3 years for fiscal 1999 and 3.5
years for fiscal 2000. The fair market value of the options granted during the
fiscal year ended May 31, 2000 is $5,800,000 (1999 - $9,200,000; 1998 -
$2,100,000). The Black-Scholes option pricing model was developed for use in
estimating fair value of traded options which have no vesting restrictions and
are fully transferable. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the above pro forma adjustments
for SFAS 123 are not necessarily a reliable single measure of the fair value of
the Company's employee stock options.

12. Interest and Other and Depreciation and Amortization

2000 1999 1998
-------- -------- --------
Interest and other
Interest on long-term debt $ 498 $ 810 $ 1,200
Interest on obligations under capital lease 1,720 1,540 1,177
Interest and bank charges, net 453 1,992 586
Interest income (7,163) (2,097) (937)
Foreign exchange gains -- -- (592)
-------- -------- --------
$ (4,492) $ 2,245 $ 1,434
======== ======== ========
Depreciation and amortization
Fixed assets $ 11,880 $ 8,643 $ 4,394
Assets under capital lease 2,412 2,409 1,709
Goodwill 3,053 3,060 1,694
Practice management agreements 4,343 822 1,663
-------- -------- --------
$ 21,688 $ 14,934 $ 9,460
======== ======== ========

13. Income Taxes

Deferred income taxes consist of the following temporary differences:

2000 1999 1998
-------- -------- --------
Tax benefit of loss carryforwards
Pre-acquisition $ 9,538 $ 11,785 $ 22,132
Post-acquisition 6,453 6,094 4,446
Start-up costs 954 1,816 1,180
Intangibles 819 -- --
Comprehensive income 2,136 -- --
Other 2,296 1,556 --
Valuation allowance (16,346) (17,345) (19,912)
-------- -------- --------
$ 5,850 $ 3,906 $ 7,846
-------- -------- --------
Liabilities:
Practice management agreements $ 1,848 $ 1,771 $ 7,728
Capital assets $ 4,002 $ 2,135 $--
Comprehensive income -- 4,525 --
Other -- -- 118
-------- -------- --------
$ 5,850 $ 8,431 $ 7,846
======== ======== ========
-- $ 4,525 --
======== ======== ========

As at May 31, 2000, the Company has non-capital losses available for carry
forward for income tax purposes of approximately $40,362,000, which are
available to reduce taxable income of future years.

The Canadian losses can only be utilized by the source company whereas the
United States losses are utilized on a United States consolidated basis. The
Canadian losses of $10,895,000 expire as follows:

2001 $3,520
2002 2,980
2003 2,332
2004 1,506
2005 557

The United States losses of $29,467,000 expire between 2011 and 2013.
Included in the Canadian losses are $9,210,000 of losses and in the United
States losses are $14,437,000 losses from the acquisitions of 20/20 and
BeaconEye, of which the availability and timing of utilization may be
restricted.

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

2000 1999 1998
------- ------- -------

Income tax recovery based on the Canadian statutory
income tax rate of 44.6% (1999 - 44.6%) $ 241 $(1,070) $(3,896)
o Current year's losses not utilized 1,950 263 2,196
o Expenses not deductible for income tax purposes 1,675 4,203 2,339
o Adjustments of cash vs. accrual tax deductions
for U.S. income tax purposes 363 223 1,545
o Utilization of prior year's losses (1,675) (2,355) (1,225)
o Corporate Minimum Tax, Large Corporations Tax
and foreign tax 879 1,129 200
o LLC's taxable income allocated to non-TLC
members (192) (312) --
o Other 213 (61) (88)
------- ------- -------
Provision for income taxes $ 3,454 $ 2,020 $ 1,071
======= ======= =======

The provision for income taxes is as follows:

2000 1999 1998
------ ------ ------
Current:
Canada 322 $ 34 $ 940
United States - federal 2,541 1,441 --
United States - state 502 545 131
Other 89 -- --
------ ------ ------
$3,454 $2,020 $1,071
====== ====== ======

14. Commitments and Contingencies

As of May 31, 2000, the Company has entered into operating leases for
rental of office space and equipment, which require future minimum lease
payments aggregating $34,194,000. Future minimum lease payments in aggregate and
over the next five years are as follows:

2001 $8,537
2002 7,962
2003 7,403
2004 6,387
2005 3,905

As of May 31, 2000, the Company has entered into a one year maintenance
agreement with a major laser manufacturer for all of that manufacturer's lasers
which are currently in use by the Company, which require future minimum lease
payments aggregating $1,645,000. Future minimum maintenance payments do not
extend past the next 12 months.

As of May 31, 2000, the Company has entered into contracts for the
completion of freehold facilities and furnishings for center and office
facilities. Future minimum contracts valued at $5,900,000 will be payable within
the next 12 months.

One of the Company's subsidiaries, together with other investors, has
jointly and severally guaranteed the obligations of an equity investee. Total
liabilities of the equity investee under guarantee amount to approximately
$2,395,000 at May 31, 2000.

15. Segmented Information

The Company has two reportable segments: refractive, and other. The
refractive segment is the core focus of the Company which reflects the provision
of laser vision correction. The other segment includes an accumulation of
non-core business activities including the management of secondary care centers
which provide advanced levels of eyecare, activities involving the development
of eyeVantage.com as an internet based company and managed care (applicable only
in 1999 and prior). In prior periods, activity in the secondary care reflected a
larger portion of the business activity and was presented as a separate segment.
The disposal of the management of certain secondary care sites has reduced the
magnitude of activities from secondary care such that a separate segment for
secondary care is no longer meaningful.

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
revenue after doctors' fees, fixed costs and income (loss) before income taxes.

Intersegment sales and transfers are minimal and are measured as if the
sales or transfers were to third parties.

The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of the
business units were acquired or developed as a unit and management at the time
of acquisition was retained.

The Company's business segments are as follows:

2000 Refractive Other Total
-----------------------------------

Revenues and physician costs:
Net revenues $ 190,233 $ 10,990 $ 201,223
Doctor compensation 17,333 2 17,335
-----------------------------------
Net revenue after doctor compensation 172,900 10,988 183,888
-----------------------------------
Expenses:
Operating 153,673 12,477 166,150
Interest and other (4,574) 82 (4,492)
Depreciation of capital assets and assets
under lease 12,886 1,406 14,292
Amortization of intangibles 6,363 1,033 7,396
168,348 14,998 183,346
-----------------------------------
Income (loss) from operations 4,552 (4,010) 542
Income taxes (3,141) (313) (3,454)
Non-controlling interest (2,443) (563) (3,006)
-----------------------------------
Net loss $ (1,032) $ (4,886) $ (5,918)
===================================

Total assets $ 250,279 $ 39,085 $ 289,364
===================================
Total fixed and intangible expenditures $ 65,941 $ 8,477 $ 74,418
===================================

1999 Secondary
Refractive Care Other Total
------------------------------------------------

Revenues and physician costs:
Net revenues $ 132,428 $ 11,389 $ 3,093 $ 146,910
Doctor compensation 12,824 -- -- 12,824
------------------------------------------------
Net revenues after doctor compensation 119,604 11,389 3,093 134,086
------------------------------------------------
Expenses:
Operating 89,875 8,972 3,618 102,465
Interest and other 2,343 (125) 27 2,245
Depreciation of capital assets and assets
under lease 9,804 986 262 11,052
Amortization of intangibles 2,546 1,201 135 3,882
Restructuring charges (non-cash
portion - $11,167) -- 10,298 2,626 12,924
------------------------------------------------
104,568 21,332 10,274 136,174
------------------------------------------------
Income (loss) from operations 15,036 (9,943) (7,181) (2,088)
Income taxes (1,820) -- (200) (2,020)
Non-controlling interest (800) (376) 728 (448)
------------------------------------------------
Net income (loss) $ 12,416 $ (10,319) $ (6,653) $ (4,556)
================================================

Total assets $ 274,846 $ 16,678 $ 4,151 $ 295,675
================================================
Total fixed and intangible expenditures $ 25,803 $ 7,707 $ 2,026 $ 35,536
================================================

1998 Secondary
Refractive Care Other Total
------------------------------------------------

Revenues and physician costs:
Net revenues $ 51,079 $ 6,641 $ 1,402 $ 59,122
Doctor compensation 5,242 -- -- 5,242
------------------------------------------------
Net revenues after doctor compensation $ 45,837 $ 6,641 $ 1,402 $ 53,880
------------------------------------------------
Expenses:
Operating 41,620 6,294 1,607 49,521
Interest and other 1,158 87 189 1,434
Depreciation of capital assets and
assets under lease 4,367 1,607 129 6,103
Amortization of intangibles 2,740 578 39 3,357
------------------------------------------------
49,885 8,566 5,231 63,682
------------------------------------------------
Income (loss) from operations (4,048) (1,925) (3,829) (9,802)
Income taxes (994) (71) (6) (1,071)
Non-controlling interest 78 (116) 631 593
------------------------------------------------
Net loss $ (4,964) $ (2,112) $ (3,204) $ (10,280)
================================================

Total assets $ 136,994 $ 23,887 $ 2,599 $ 163,480
================================================
Total fixed and intangible expenditures $ 30,542 $ 12,626 $ 1,750 $ 44,918
================================================

The Company's geographic segments are as follows:

2000 United
Canada States Total
--------------------------------
Revenues and physician costs:
Net revenues $ 17,275 $183,948 $201,223
Doctor compensation 2,876 14,459 17,335
--------------------------------
Net revenue after doctor compensation $ 14,399 $169,489 $183,888
================================

Total fixed assets and intangibles $ 22,195 $131,255 $153,450
================================

1999 United
Canada States Total
--------------------------------
Revenues and physician costs:
Net revenues $ 16,247 $130,663 $146,910
Doctor compensation 2,583 10,241 12,824
--------------------------------
Net revenue after doctor compensation $ 13,664 $120,422 $134,086
================================

Total fixed assets and intangibles $ 18,895 $ 76,891 $ 95,786
================================

1998 United
Canada States Total
--------------------------------
Revenues and physician costs:
Net revenues $11,175 $47,947 $59,122
Doctor compensation 1,475 3,767 5,242
--------------------------------
Net revenue after doctor compensation $ 9,700 $44,180 $53,880
================================

Total fixed assets and intangibles $15,111 $74,309 $89,420
================================

16. Financial Instruments

Fair Value

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

Given the large number of individual long-term debt instruments and
capital lease obligations held by the Company, it is not practicable within
constraints of timeliness and cost to determine fair value. However, the Company
expects that if it were able to renegotiate such instruments at the current
market rates available to the Company, it would obtain more favorable terms
given the Company's growth and current financial position.

The fair values of the Company's short-term investments are based on
quotes from brokers. In fiscal 1999, the Company's short-term investment
portfolio consisted substantially of corporate bonds. The bonds were purchased
with the proceeds from the Company's May 1999 share offering. The bonds had
remaining terms to maturity not exceeding six months with a substantial majority
of the bonds having remaining terms to maturity of less than one month.

Portfolio investments consist of the Company's investment in the common
and preferred shares of LaserSight Incorporated and the common shares of three
other publicly traded companies (1999 - one). These investments are accounted
for at the lower of cost or market. The fair value of the Company's portfolio
investments, excluding the LaserSight Incorporated preferred shares, are based
on quotes from brokers. Fair value information for the LaserSight Incorporated
preferred shares is not readily determinable and therefore the preferred shares
have been included at their cost in the fair value information presented below:

2000 1999
------- -------
Short-term investments $ -- $26,212
Portfolio investments (cost: 2000 -
$27,895; 1999 - $10,907) $23,444 21,470

Risk Management

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 analysis of the financial position of its customers
and the regular review of credit limits. At May 31, 2000, the Company had
recorded an allowance for doubtful accounts of $2,849,000 (1999 - $1,479,000).
The Company does not have a significant exposure to any individual customer,
except for amounts due from those refractive and secondary eye practices which
it manages and which are collateralized by the practice's patient receivables.

Cash accounts at the Canadian banks are insured by the Canadian Depositary
Insurance Corporation for up to Cdn.$60,000. In the United States, the Federal
Depositary Insurance Corporation insures cash balances up to $100,000. As of May
31, 2000, bank deposits exceeded insured limits by $6,030,492 (1999 -
$6,572,530).

The Company operates in Canada and the United States and is therefore
exposed to market risks related to foreign currency fluctuations between these
currencies. As well, there is cash flow exposure to interest rate fluctuations
on debt carrying floating rates of interest.

17. Acquisitions

2000 Transactions

The following acquisitions have been accounted for by the purchase method
and the results of operations have been consolidated from the respective
purchase dates:

i. On June 30, 1999, the Company made a capital contribution of $1,002,000
representing a 50.1% interest in TLC USA LLC, the operating company, for
activities of a strategic alliance with a subsidiary of Kaiser Permanente
with the intention to initially own and operate three refractive centers
in California and to eventually develop additional centers in markets in
the United States where Kaiser Permanente has a significant presence.

ii. On July 8, 1999, the Company acquired 50.1% of the operating assets and
liabilities of Laser Eye Care of California LLC with an investment of
$11,200,000 in cash and certain operating assets and liabilities of the
Company's two California refractive centers. Additional amounts were
payable contingent upon achieving certain levels of profit. At December
31, 1999 at the completion of the earn out period, the required levels of
profit were met and an additional payment of $6,000,000 was made to
complete the transaction.

iii. On August 18, 1999, the Company acquired the laser vision correction
assets of Laser Vision Consultants of Albany, P.L.L.C. in exchange for
$1,000,000 cash and 30,000 common shares with a value of $728,000 which
will be released equally over three (3) years.

iv. On December 17, 1999, eyeVantage.com, Inc., an 83% owned subsidiary of the
Company, acquired the operating assets and liabilities of Eye Care
Consultants, Inc. in exchange for $750,000 in cash, the assumption of
$250,000 of liabilities and shares with a value of $3,000,000 in
eyeVantage.com, Inc. in the course of a public offering of eyeVantage.com
shares. The value of $3,000,000 is payable in cash as a result of the
public offering not being completed within the guidelines set by the
acquisition agreement. eyeVantage.com is currently in negotiations
regarding the payments of this obligation which is non-interest bearing
and is payable in eight (8) equal quarterly installments, the first of
which is due on June 30, 2000.

v. On December 31, 1999, the earn out period relating to the 1997 acquisition
of 100% of The Vision Source, Inc. was completed. 210,902 shares of the
Company with a value of $1,397,000 as determined by the acquisition
agreement were released from escrow to the sellers of The Vision Source,
Inc. An additional 536,764 shares valued at $4,056,000 will be issued to
the sellers of The Vision Source, Inc. to reflect the final calculation of
contingent amounts as determined by the earn out formula.

vi. On January 11, 2000, eyeVantage.com, Inc., an 83% subsidiary of the
Company acquired the operating assets and liabilities of Optical Options,
Inc. in exchange for shares with a value of $6,000,000 in eyeVantage.com,
Inc. in the course of a public offering of eyeVantage.com, Inc. shares.
Since the public offering was not completed within the guidelines set by
the acquisition agreement, the Company is required to issue two notes
payable to the sellers for $3,000,000 each, the first of which bears an
interest rate of 8% and is due on July 10, 2000 and the second notes which
carries bears an interest rate of 8% and is payable in eight (8) equal
quarterly installments, the first of which is due on August 1, 2000.

vii. On February 15, 2000, the Company acquired the membership interests of New
Jersey Practice Management LLC for $2,828,000 in cash and amounts
contingent upon future events. $600,000 is being held in escrow for a
period of one year subject to an adjustment

of the purchase price determined by completion of the earn out period and
calculation of a contingent amount. Contingent amounts are determined
based on fees received by the Company pursuant to an Administrative
Services Agreement.

viii. On March 31, 2000, the Company acquired certain assets of a physician's
practice located in the State of New York ("New York Practice") in
exchange for $11,860,000 in cash and common shares with a value of up to
$3,000,000 contingent upon future events. Contingent amounts are
determined based on fees received by the Company pursuant to an
Administrative Services Agreement.

ix. On May 8, 2000, the Company acquired an 80% membership interest in Laser
Eye Care of Torrance, LLC in exchange for $3,222,000 in cash through Laser
Eye Care of California, LLC, a 50.1% subsidiary of the Company.

The total consideration on acquisitions was allocated to net assets
acquired on the basis of their fair values as follows:

Laser Eye
Care of New York
California Practice Other Total
-------------------------------------------

Current assets (including cash of $1,137) $ 153 $ -- $ 1,102 $ 1,255
Capital assets 284 -- 564 848
Assets under lease 1,807 -- -- 1,807
Goodwill -- -- 15,588 15,588
Practice management agreements 16,852 12,006 7,802 36,660
Current liabilities (146) -- (913) (1,059)
Long-term debt -- -- (280) (280)
Obligations under capital leases (1,607) -- -- (1,607)
Non-controlling interest (868) -- (1,078) (1,946)
-------------------------------------------
$ 16,475 $ 12,006 $ 22,785 $ 51,266
-------------------------------------------

Funded by:
Issuance of common shares $ -- $ -- $ 2,125 $ 2,125
Contribution of cash 16,000 11,860 7,445 35,305
Notes payable -- -- 9,000 9,000
Common shares to be issued -- -- 4,056 4,056
Acquisition costs 475 146 159 780
-------------------------------------------
$ 16,475 $ 12,006 $ 22,785 $ 51,266
===========================================

1999 Transactions

The following acquisitions have been accounted for by the purchase method
and the results of operations have been consolidated from the respective
purchase dates:

i. On June 19, 1998, the Company made a 51% equity investment of $204,000 in
cash in AllSight, Inc., a refractive laser center in the Pittsburgh, PA
area.

ii. On July 1, 1998, TLC NorthWest Eye, Inc. a wholly-owned subsidiary of the
Company, acquired in two separate transactions the operating assets and
liabilities of the Figgs Eye Clinic in Yakima, Washington and the practice
of Robert C. Bockoven with three locations in Washington, in exchange for
cash and debt. Consideration was $750,000 for the Figgs Eye Clinic assets
and liabilities and $725,000 for the practice of Robert C. Bockoven.

iii. On September 1, 1998, the Company acquired the 10% minority interest of
Vision Institute of Canada in one of the Company's laser centers in
Toronto in exchange for $332,000 in cash and common shares with a value of
$332,000.

iv. On October 13, 1998, the Company acquired 90% of the operating assets and
liabilities of WaterTower Acquisition, Inc. in exchange for cash of
$625,000 and amounts contingent upon future events. No value will be
assigned to these contingent amounts until completion of the earn out
period and the outcome of the contingency is known. Contingent amounts are
calculated based on a percentage of excess income over a target amount for
the next three (3) years.

v. On November 30, 1998, the Company acquired 85% of the operating assets and
liabilities of Aspen HealthCare, Inc. for cash consideration of $3,800,000
and amounts contingent upon future events. No value will be assigned to
these contingent amounts until completion of the earn out period and the
outcome of the contingency is known. Contingent amounts are calculated
based on meeting certain annual net income targets over five (5) years.

vi. On January 5, 1999, the Company acquired 100% of the outstanding shares of
Baltimore Practice Management, LLC in exchange for cash of $6,060,000 and
an ownership interest in certain future refractive surgery centers. No
value will be assigned to the ownership interest; however, the
non-controlling interest percentage on future earnings attributable to
these new refractive surgery centers will be reflected accordingly upon
consolidation in the future.

vii. On March 1, 1999, the Company made a 51% capital contribution of $205,000
in cash in TLC The Laser Center (Green Bay/Milwaukee) LLC, which operates
a laser center in the Green Bay, Wisconsin area.

During the year, the Company completed transactions with doctor groups to
enhance the network of optometrists and ophthalmologists in exchange for common
shares with a value of $505,000. Miscellaneous acquisitions were completed in
exchange for cash of $1,407,000.

The total consideration on acquisitions was allocated to net assets
acquired on the basis of their fair values as follows:

Current assets (including cash of $2,428) $ 2,261
Capital assets 1,674
Goodwill 7,648
Practice management agreements 6,060
Current liabilities (621)
Long-term debt (1,221)
Non-controlling interest (476)
--------
$ 15,325
--------
Funded by:
Issuance of common shares $ 837
Issuance of debt 738
Contribution of cash 13,465
Acquisition costs 285
--------
$ 15,325
--------

1998 Transactions

BeaconEye Inc.

On April 16, 1998, the Company, through a take-over bid circular, acquired
97% of the common shares of BeaconEye Inc. ("BeaconEye") and the remaining 3%
was acquired by April 24, 1998. The acquisition was financed through the
issuance of 872,293 common shares.

The Company's investment in BeaconEye has been accounted for by the
purchase method and the results of operations have been consolidated from April
16, 1998.

The total cost of the acquisition was allocated to the net assets acquired
on the basis of their fair values as follows:

Current assets $ 1,200
Restricted cash 1,380
Capital assets and assets under capital lease 15,844
Goodwill 9,011
Current liabilities assumed (6,141)
Long-term debt and obligations under capital leases (5,037)
--------
$ 16,257
========
Funded by:
Issuance of common shares $ 11,692
Funding of BeaconEye obligations and restructuring costs
through April 16, 1998 4,483
Acquisition costs 82
--------
$ 16,257
========

Wisconsin

In the fourth quarter of 1998, the Company formed a new wholly-owned
subsidiary in the State of Wisconsin (the "subsidiary"). The subsidiary entered
into a practice management agreement with a local doctor group, and intends to
jointly develop a medical practice to be owned by the local doctor group and
managed by the subsidiary. In consideration for entering into the practice
management agreement, the Company issued the consideration described below which
was allocated to the net assets acquired as follows:

Practice management agreement $2,881
======

Funded by:
Issuance of common shares $2,581
Cash 300
------
$2,881
======

Michigan

On February 1, 1998, the Company entered into an agreement (the "Venture")
in the State of Michigan. The Venture, called TLC Michigan, LLC, is owned 50.1%
by the Company and 49.9% by a group of ophthalmologists. The Venture owns
secondary care centers throughout Michigan, and, through subsidiaries, a
refractive laser center and an 80% interest in a cosmetic laser center in the
Detroit area.

The Company's investment in the Venture has been accounted for by the
purchase method and the results of operations have been consolidated from
February 1, 1998.

The total cost of the acquisition was allocated to the net assets acquired
on the basis of their fair values as follows:

Current assets (including cash of $500,000) $ 552
Capital assets 567
Practice management agreement 6,403
Investments in subsidiaries 754
Note receivable 4,682
Other assets 146
Current liabilities including current portion of long-term debt (298)
Long-term debt (332)
Non-controlling interest (5,912)
-------
$ 6,562
=======
Funded by :
Issuance of common shares $ 626
Contribution of cash 500
Contribution of assets 754
Note payable to the Venture 4,682
-------
$ 6,562
=======

Under APB 16, the Company is required to disclose the following
information relating to its acquisitions:

If the operating assets and liabilities of Laser Eye Care of California
LLC had been acquired on June 1, 1998, the unaudited pro forma effects on the
consolidated statements of loss for the fiscal years ended May 31, 1999 and 2000
would have been additional revenues of $14,599,000 and $2,275,000 respectively
and additional losses of $923,000 in the fiscal year ended May 31, 1999 and a
reduction of losses of $65,000 in the fiscal years ended May 31, 2000.

The above unaudited pro forma information is presented for information
purposes only and may not be indicative of the results of operations as they
would have been if the acquisitions

had occurred on June 1, 1998, nor is it necessarily indicative of the results of
operations which may occur in the future. Anticipated efficiencies from the
combination have been excluded from the amounts included in the pro forma
information.

The pro forma information relating to the acquisitions that occurred
during fiscal 1998 are not presented as amounts do not significantly differ from
the reported results.

18. Divestitures and Restructuring Charges

In the last quarter of fiscal 1999, management made a decision to restructure
operations in connection with its managed care and secondary care businesses.
The following divestitures were completed in connection with this restructuring:

(a) On May 31, 1999, the Company sold certain assets of NorthWest Eye Inc. in
exchange for the assumption of certain liabilities by the purchaser. In
connection with the sale, the Company recorded a restructuring charge of
$10,300,000 relating to the write-off of intangibles and amounts due from
affiliated physician groups and decided not to continue with secondary
care at this location.

(b) On April 27, 1999, the Company sold the capital assets and intangibles of
TLC The Laser Center (Wisconsin Management) Inc. and TLC Wisconsin Eye
Surgery Center Inc. in exchange for 139,266 common shares of the Company.
These assets had a net book value of $4,047,000 and no gain or loss was
recorded in connection with the transaction. The shares received by the
Company upon disposition of these subsidiaries were cancelled, with
capital stock being reduced using the average value of common shares as at
April 27, 1999 of Cdn.$ 6.26.

(c) On May 19, 1999, the Company sold all of the assets of its managed care
subsidiary to the former management of the subsidiary. The Company
incurred a loss on the sale of $2.6 million.

19. Supplemental Cash Flow Information

Non-cash transactions:

2000 1999 1998
------- ------- ---------

Issue of warrants to be expensed over
three years $ 532 $ -- $ --
Capital stock issued as remuneration 387 600 --
Capital stock issued for acquisitions 2,125 837 16,417
Reversal of accrual for costs of IPO 139 -- --
Accrued purchase obligations 13,200 738 4,682
Capital lease obligations relating to
equipment purchases 1,366 645 2,196

Cash paid for the following:

2000 1999 1998
---- ---- ----

Interest $2,671 $4,342 $2,963
====== ====== ======

Income taxes $5,647 $ 978 $ 458
====== ====== ======

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Except as set forth below in this Item 10, 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 May 31, 2000.

Directors and Executive Officers

The following table indicates the names, ages and positions of the
Company's directors and executive officers. There is no family relationship
between any of the officers or directors.

Name Age Position with Company
- ---- --- ---------------------

Elias Vamvakas 42 Chief Executive Officer and Chairman of the
Board of Directors
Thomas G. O'Hare(1) 48 President
Dr. Jeffery J. Machat 38 Co-National Medical Director and Director
Madeline D. Walker 53 Chief Operating Officer
Rochelle Stenzler 46 President, International Development
Dr. David C. Eldridge 46 Executive Vice President, Clinical Affairs
Kathryn Hughes(2) 31 Vice President, Marketing
Peter Hetz 51 Vice President, Human Resources
Gary F. Jonas (6) 55 Executive Vice President, Strategic Growth
Peter J. Kastelic 43 Chief Financial Officer and Treasurer
Lloyd D. Fiorini 34 General Counsel and Secretary
William Leonard 35 Vice President, Operations
Henry Lynn 49 Executive Vice President, Information Systems
John F. Riegert 71 Director
James R. Connacher(3)(5) 63 Director
Howard J. Gourwitz (3)(4)(5) 52 Director
Warren S. Rustand(4)(5) 57 Director
Dr. William David Sullins, Jr.(3)(4)(5) 57 Director

(1) Commenced employment with Company on August 7, 2000.

(2) Employee resigned from Company on April 2000.

(3) Member of the Company's Compensation Committee.

(4) Member of the Company's Audit Committee.

(5) Member of the Company's Corporate Governance Committee.

(6) Employee resigned from Company on July 2000.

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 May 31, 2000.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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 May 31, 2000.

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 May 31, 2000.

PART IV

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

(1) The following consolidated financial statements of registrant and its
subsidiaries and report of independent auditors are included in Item 8 hereof.

Report of Independent Auditors.

Consolidated Statements of Income -- Years Ended May 31, 1998, 1999 and 2000.

Consolidated Balance Sheets as of May 31, 1999 and 2000.

Consolidated Statements of Deficit -- Years Ended May 31, 1998, 1999 and 2000.

Consolidated Statements of Changes in Financial Position -- Years Ended May 31,
1998, 1999 and 2000.

Notes to Consolidated Financial Statements

(2) Except as provided below, all schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange 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.

None

(3) The following exhibits are provided with this Form 10-K:

Exhibit
Number 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

3.3 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's 10-K filed with the Commission on August 28, 1998).

4.1 The Company is a party to several agreements defining the rights of
holders of long-term debt. No such instrument authorizes an amount
of securities in excess of 10 percent of the total assets of the
Company and its subsidiaries on a consolidated basis. On request,
the Company agrees to furnish a copy of each such instrument to the
Commission.

10.1 Material Contracts:

Certain Management Contracts, Compensatory Plans, Contracts
or Arrangements:

(c) TLC Amended and Restated Share Option Plan (incorporated by
reference to Exhibit 4(a) to the Company's Registration
Statement on Form S-8 filed with the Commission on December
31, 1997 (file no. 333-8162))
(d) TLC Share Purchase Plan (incorporated by reference to Exhibit
4(b) to the Company's Registration Statement on Form S-8 filed
with the Commission on December 31, 1997 (file no. 333-8162)).
(f) 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).
(g) 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).
(h) Employment Agreement with Gary F. Jonas (incorporated by
reference to Exhibit 10.1(h) to the Company's 10-K filed with
the Commission on August 28, 1998).
(l) 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).
(m) Employment Agreement with David Eldridge.
(n) Employment Agreement with William Leonard.
(o) Employment Agreement with Thomas O'Hare.

21.1 List of Registrant's Subsidiaries
23.1 Consent of Auditors

27 Financial Data Schedule

99(a) Canadian Management's Discussion and Analysis of Financial
Condition and Results of Operation

99(b) Canadian GAAP Financial Statements

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 LASER EYE CENTERS INC.

By: /s/ Elias Vamvakas
-------------------------------------
Elias Vamvakas
Chief Executive Officer
August 29, 2000

Pursuant to the requirement 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 dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Elias Vamvakas Chief Executive Officer
- -------------------------- and Chairman of the
Elias Vamvakas Board of Directors August 29, 2000

Chief Financial Officer
/s/ Peter J. Kastelic and Treasurer (Principal
- -------------------------- Financial and Accounting
Peter J. Kastelic Officer). August 29, 2000

/s/ Jeffery J. Machat
- ------------------------- Co-National Medical
Dr. Jeffery J. Machat Director and Director August 29, 2000

/s/ Howard J. Gourwitz
- -------------------------
Howard J. Gourwitz Director August 29, 2000

/s/ William David Sullins
- -------------------------
Dr. William David Sullins Director August 29, 2000

/s/ Warren S. Rustand
- -------------------------
Warren S. Rustand Director August 29, 2000

/s/ John F. Riegert
- -------------------------
John F. Riegert Director August 29, 2000

James R. Connacher
- -------------------------
James R. Connacher Director August 29, 2000