SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

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

                 FOR THE TRANSITION PERIOD FROM ______ TO _____

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

                        COMMISSION FILE NUMBER 000-551030

                                 OccuLogix, Inc.
             (Exact name of Registrant as specified in its charter)

                  DELAWARE                                 59 343 4771
      (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                  Identification No.)

                     2600 Skymark Avenue, Unit 9, Suite 201
                          Mississauga, Ontario L4W 5B2
                    (Address of principal executive offices)
                                 (905) 602-0887
              (Registrant's telephone number, including area code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         COMMON STOCK, $0.001 PAR VALUE
                                (Title of Class)


          Indicate  by check  mark  whether  the  Registrant:  (1) has filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for 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. Yes [X] No [ ]

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

         Indicate by check mark whether the Registrant is an  accelerated  filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

<PAGE>

         The  aggregate  market  value  of  the  voting  common  stock  held  by
non-affiliates  of  the  Registrant   (assuming  officers,   directors  and  10%
stockholders  are  affiliates),  based on the last sale  price for such stock on
June 30, 2004: Not applicable  because trading of the Registrant's  Common Stock
on the NASDAQ  National  Market did not  commence  until  December 9, 2004.  The
Registrant has no non-voting common stock.

         As of March 9, 2005,  there were 41,806,768  shares of the Registrant's
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of the  Registrant's  Proxy  Statement  for the  2005  Annual
Meeting  of  Stockholders  of the  Registrant  to be  held  June  24,  2005  are
incorporated by reference into Part III of this Form 10-K.

<PAGE>

                                     PART I

                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

         This Annual  Report on Form 10-K  contains  forward-looking  statements
relating  to future  events and our  future  performance  within the  meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange Act of 1934,  as amended.  In some cases,  you can identify
forward-looking  statements by terms such as "may", "will",  "should",  "could",
"would", "expects", "plans", "intends", "anticipates",  "believes", "estimates",
"projects", "predicts", "potential" and similar expressions intended to identify
forward-looking  statements.  These statements  involve known and unknown risks,
uncertainties  and other factors that may cause our actual results,  performance
or   achievements   to  be  materially   different  from  any  future   results,
performances,   time  frames  or  achievements   expressed  or  implied  by  the
forward-looking statements.

         Given these  risks,  uncertainties  and other  factors,  you should not
place undue reliance on these forward-looking statements.  Information regarding
market and industry statistics  contained in this Form 10-K is included based on
information  available to us that we believe is accurate.  It is generally based
on  academic  and other  publications  that are not  produced  for  purposes  of
securities offerings or economic analysis. We have not reviewed or included data
from all  sources  and  cannot  assure  you of the  accuracy  of the  market and
industry data we have included.

ITEM 1.  BUSINESS.

OVERVIEW

     We  are  an  ophthalmic   therapeutic   company  founded  to  commercialize
innovative   treatments  for  eye  diseases,   including   age-related   macular
degeneration,  or AMD. AMD is the leading cause of late onset visual  impairment
and legal  blindness in people over the age of 50 in the United States and other
Western industrialized  societies. We believe that Dry AMD, the most common form
of the disease, afflicts approximately 13.0 to 13.5 million people in the United
States,  representing  approximately  85% to 90% of all AMD cases.  Although the
exact cause of AMD is not known,  researchers  have  identified  several factors
that are associated with AMD,  including poor  microcirculation  and the gradual
build-up of cellular  waste  material in the retina.  We believe  that  improved
microcirculation increases the supply of oxygen and nutrients to the compromised
retina and  facilitates  the removal of cellular waste material from the retina.
We believe that a treatment  that  improves  microcirculation  in the retina can
help to enhance the metabolic  efficiency of the retina and the removal of waste
material  and thereby  aid in the  treatment  of Dry AMD. We believe  there is a
significant opportunity for such a treatment.

     Our product,  the RHEO(TM) System, is designed to improve  microcirculation
in the eye by filtering high molecular weight proteins and other  macromolecules
from the patient's plasma. The RHEO(TM) Therapy is used to perform Rheopheresis,
which we refer to under our trade name RHEO(TM) System.  Rheopheresis is a blood
filtration process that selectively  removes molecules from plasma. The RHEO(TM)
System consists of the OctoNova Pump and a disposable  treatment set, containing
two filters,  through which the patient's blood circulates.  We believe that the
RHEO(TM)  System is the only Dry AMD  treatment  to target what we believe to be
the  underlying  cause  of AMD  rather  than its  symptoms  and  that,  based on
preliminary data, appears to demonstrate  improved vision in some patients.  The
only currently  accepted treatment option for persons with advanced cases of Dry
AMD are  over-the-counter  vitamins,  antioxidants and zinc supplements that can
reduce  the  five-year  risk of  conversion  to Wet AMD,  the other  form of the
disease, by approximately 25%.

    We are currently  conducting a pivotal  clinical  trial,  called MIRA-1,  or
Multicenter  Investigation  of Rheopheresis  for AMD,  which, if successful,  is
expected to support our application to the U.S. Food and Drug Administration, or
FDA, to obtain approval to market the RHEO(TM) System in the United States.  The
MIRA-1  protocols  require us to obtain a minimum of 150 complete  clinical data


                                       1
<PAGE>

sets.  To that end,  we had  enrolled  a total of 185  patients  in MIRA-1 as of
December 31, 2004. This completed the enrollment phase of MIRA-1,  exceeding our
goal of enrolling 180 subjects by December 31, 2004. We have collected  complete
12-month  post-treatment data sets for 87 of these patients. Of the remaining 98
patients,  82 are in the process of treatment or follow-up  and the treatment of
16  patients  did not  result in  complete  data  sets.  We intend to derive the
required  150  complete  12-month  post-treatment  data sets  from our  enrolled
subjects.  As of December 31, 2004,  we had also  submitted to the FDA the first
three of four modules of the Pre-market  Approval  Application,  or PMA, filing,
the non-clinical  portion. We intend to submit the fourth module, which consists
of the follow-up clinical data, in two components. We expect that we will submit
the first component  following  completion of our six-month data on at least 150
data sets,  including  the 12-month data sets for all patients for whom they are
available;  and that we will submit the second component following completion of
our 12-month data on at least 150 data sets.

     The non-clinical  portion of the PMA consists of technical data relating to
components of the RHEO(TM) System. In late 2001, with the permission of the FDA,
we  submitted  an interim  analysis of 36  complete  data sets from the first 43
patients  enrolled.  The  remaining  seven  patients did not complete all of the
required follow-up and thus their results do not qualify as a complete data set.
Of the 36 data sets analyzed, 11 were from placebo patients. Fifty-eight percent
of, or 11 of 19, patients in the MIRA-1 interim  analysis  entering the clinical
trial with worse than legal driving  vision,  which is defined as best corrected
visual  acuity,  or BCVA,  of worse than  20/40,  improved to meet or exceed the
requirements  to regain a driver's  license.  However,  since MIRA-1 is a double
masked, placebo-controlled study, we do not know the degree of such improvement,
and we do not and will not have updated  patient results until we have completed
the clinical portion of the MIRA-1 study.

     As we cannot begin  commercialization in the United States until we receive
FDA approval,  we do not expect to generate  revenues in the United States until
late 2006, at the earliest. However, in anticipation of commercialization in the
United States,  we are  establishing  a plan to educate  members of the eye care
community about RHEO(TM) Therapy.  We are currently  identifying  multi-facility
health  care  service  providers  including  hospitals,   dialysis  clinics  and
ambulatory surgery centers,  as well as private practices,  which we believe may
be interested in providing RHEO(TM) Therapy in their facilities. We believe that
one of these potential providers may be TLC Vision Corporation or TLC Vision, an
eye care  services  company,  which we believe  has  relationships  with a large
number of optometrists and ophthalmologists in the United States.

     In 2003,  we received  Health  Canada  approval for the  components  of the
RHEO(TM) System.  The approval allows us to market the RHEO(TM) System in Canada
for use in the  treatment of patients  suffering  from  dysproteinemia  due, for
example, to abnormal plasma viscosity and/or macular disease. Upon receiving our
approval,  we began limited  commercialization  of the RHEO(TM)  System  through
sales of  OctoNova  pumps and  disposable  treatment  sets to three  clinics  in
Canada.  In  September  2004,  we signed an  agreement  with a private  Canadian
company   called  Rheo   Therapeutics   Inc.,   which  has  agreed  to  purchase
approximately  8,000  treatment  sets and 20 OctoNova  pumps by the end of 2005,
with an option to purchase up to an additional 2,000 treatment sets,  subject to
availability.  We  believe  that  Rheo  Therapeutics  plans to open a number  of
commercial  treatment  centers in various  Canadian  cities  where the  RHEO(TM)
Therapy will be performed.  Dr. Jeffrey Machat, who is an investor in and one of
the directors of Rheo Therapeutics,  was a co-founder and former director of TLC
Vision.

     We  have  exclusive  rights  to  commercialize   the  RHEO(TM)  System  for
ophthalmic uses in North America and the Caribbean. In order to sell or export a
medical device in the European community,  a Conformite Europeene or CE Mark, is
required.  Although  Rheopheresis  for the selective  removal of molecules  from
plasma  received  CE Mark  approval  in  1998,  we do not  have  the  rights  to
commercialize the RHEO(TM) System in Europe.


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<PAGE>

OUR HISTORY AND MAJOR RELATIONSHIPS

     Shortly after our  inception,  we began  commercialization  of  therapeutic
apheresis  by  opening a  therapeutic  apheresis  center in  Florida.  This site
generated  revenues of $900,200 and $1,277,800 for the years ended June 30, 1999
and 1998,  respectively.  The  therapeutic  apheresis  center was closed in 1999
pursuant  to  a  directive   issued  by  the  FDA.   After   obtaining   an  FDA
investigational  device exemption,  we initiated a pivotal clinical trial called
MIRA-1 to support an  application to the FDA for approval to market the RHEO(TM)
System, and have conducted this trial since 1999.

  Relationship with TLC Vision

     TLC Vision  beneficially owns approximately 51.4% of our outstanding common
stock,  or 48.2% on a fully  diluted  basis.  Elias  Vamvakas,  the Chairman and
former CEO of TLC Vision,  became our  Chairman in 2003 and is now also our CEO.
In  addition,  two of our other  directors,  Thomas N.  Davidson  and Richard L.
Lindstrom,  are also directors of TLC Vision.  These three directors  constitute
the majority of our board.  Mr.  Vamvakas  beneficially  owns  3,384,989  common
shares  of  TLC  Vision,   representing   approximately  5.1%  of  TLC  Vision's
outstanding  shares.  As of December 31, 2004, Mr. Davidson  beneficially  owned
64,827 common shares of TLC Vision and Dr. Lindstrom  beneficially  owned 63,500
common shares of TLC Vision.

     On December 8 2004,  we purchased  TLC Vision's 50% interest in  OccuLogix,
L.P. in exchange  for which we issued  19,070,234  shares of our common stock to
TLC  Vision.  This  resulted  in  OccuLogix,   L.P.  becoming  our  wholly-owned
subsidiary.  Accordingly,  100% of the results of the OccuLogix, L.P. operations
are  included  in the  consolidated  financial  statements  since that date.  We
believe that our value resides  solely in  OccuLogix,  L.P. to which we licensed
all of the  distribution  and  marketing  rights  for the  RHEO(TM)  System  for
ophthalmic indications to which we are entitled.  Prior to the acquisition,  our
only profit  stream has come from our share of  OccuLogix,  L.P.  earnings.  Our
acquisition  of TLC Vision's 50%  ownership  interest in  OccuLogix,  L.P.  will
transfer the earnings potential for sales of the RHEO(TM) System entirely to us.

     As part of the  formation  of  OccuLogix,  L.P.  in July 2002,  we licensed
certain patent rights,  trademark rights and know-how rights to OccuLogix,  L.P.
We also provided OccuLogix,  L.P. with licenses to our in-house software as well
as  sublicensing  software  that we have  licensed  from TLC Vision.  TLC Vision
agreed to provide OccuLogix,  L.P., upon request, with $200,000 in funding at an
annual  interest rate equal to the Bank of America prime rate of interest on the
date the loan is made, plus two percent. As at December 8, 2004, Occulogix, L.P.
had not requested for funding from TLC Vision.

     Occulogix,  L.P.'s  primary  customer was RHEO Clinic Inc., a subsidiary of
TLC Vision,  for which  Occulogix,  L.P.  has  reported  revenues  of  $401,236,
$459,730  and $0  for  the  years  ended  December  31,  2004,  2003  and  2002,
respectively.  RHEO Clinic uses the RHEO(TM) System to treat patients, for which
it charges its customers  (the  patients) a  per-treatment  fee. RHEO Clinic has
advised  us  that  the  OctoNova  pumps  purchased  from  Occulogix,   L.P.  are
capitalized as fixed assets to be  depreciated  over a period of five years on a
straight line basis and the treatment  sets are disposed of after each treatment
and expensed as a cost of sale.  Rheo Clinic has further  advised us that all of
its revenues,  in Canadian dollars, of $595,275,  $836,696 and nil for the years
ended December 31, 2004, 2003 and 2002, respectively,  are derived from sales to
unrelated  third parties.  The revenues  reported from RHEO Clinic are unaudited
and have not been independently verified by us. However, management believes the
amounts to be accurate.  We do not expect going forward that RHEO Clinic will be
a significant source of revenue.

     Dr. Jeffrey Machat, a co-founder of TLC Vision, served as a director of TLC
Vision from 1993 to 1999.  From 1993 to 2001, Dr. Machat served as a Co-National
Medical Director of TLC Vision.  Dr. Machat is an independent  contractor to TLC
Vision York Mills  Centre and pays the Centre a  per-procedure  facility fee for
using the Centre to perform LASIK on his patients.  Based on public filings,  we
believe  that Dr.  Machat is a  shareholder  of TLC Vision but does not own more


                                       3
<PAGE>

than 5% of the shares of TLC Vision.  We have been advised that Dr.  Machat is a
co-founder,  shareholder,  one  of  its  three  directors  and  serves  as  Rheo
Therapeutics'  National Medical  Director.  We have been advised that Dr. Machat
owns  25% of the  shares  of Rheo  Therapeutics.  We  have  recently  signed  an
agreement to provide the RHEO(TM) System in Canada to Rheo Therapeutics.

  Other Major Relationships

     In October 2003, our  stockholders  created a new company  called  Rheogenx
BioSciences  Corporation to further develop the use of the current components of
the  RHEO(TM)  System for  non-ophthalmic  uses.  At that time,  we licensed our
rights to the RHEO(TM) System and associated  intellectual  property to them for
these  non-ophthalmic uses, only to the extent that we have them or acquire them
in the future.  Under the terms of our license with  Rheogenx,  Rheogenx has the
right to use the RHEO(TM)  System patent rights,  know-how  rights and trademark
rights for  non-ophthalmic  uses in Canada,  the United  States and  Mexico.  In
exchange  for these  rights,  Rheogenx  compensates  us for the full cost of the
license,  including royalties and applicable license fees. The license agreement
may be terminated upon any breach of a material provision.

     The  components  of the RHEO(TM)  System were  developed by our  suppliers,
Diamed Med and Asahi Medical. In 2002, Apheresis Technologies,  which is managed
by John Cornish,  one of our stockholders,  our Vice President of Operations and
one of our directors from April 1997 to September 2004 was spun off from us.

     The  purpose  of the spin  off was to  allow  us to  focus on our  clinical
trials. This spin off was accomplished by our transferring all the assets we had
in  connection  with  our  plasma  filter  distribution  business  to  our  then
wholly-owned  subsidiary,  Apheresis  Technologies.  In  consideration  for  the
transfer of those assets,  Apheresis  Technologies agreed to pay us $25,000. The
full  amount  of this  consideration  was  applied  to  amounts  owing  by us to
Apheresis  Technologies.  Following this transfer,  we distributed  the stock we
owned in Apheresis Technologies to our stockholders,  such that the identity and
relative ownership of our stockholders and Apheresis Technologies'  stockholders
were the  same.  We did not  assume  any  liabilities  in  connection  with this
transfer.  Shortly after the spin off, we entered into a  distribution  services
agreement with Apheresis  Technologies  to provide us with  logistical  support,
including warehousing, order fulfillment, shipping and billing services. We have
the right to terminate this agreement at any time.

     In June 2003,  we entered into a  reimbursement  agreement  with  Apheresis
Technologies  whereby we reimburse  them for the  applicable  percentage of time
that their  employees  provide  services to us. One of these  employees  is John
Cornish,  our Vice  President  of  Operations.  While Mr.  Cornish is one of our
officers, he is not an employee. Although we do not pay a salary directly to Mr.
Cornish, we reimburse  Apheresis  Technologies for the proportion of the time he
spends on our  business.  Currently,  we reimburse  Apheresis  Technologies  for
approximately 80% of his salary of $100,000 per year and his benefits.

     Our primary activities include  commercialization of the RHEO(TM) System in
Canada,  working to obtain FDA regulatory  approval for the RHEO(TM) System, and
building an operating  infrastructure  to support potential U.S. sales following
approval by the FDA.

INDUSTRY

OVERVIEW OF THE HUMAN EYE

     The human eye is composed of focusing elements in the front, the cornea and
lens, and a  light-sensing  element in the back, the retina.  Light falls on the
photoreceptors  that are part of the retina  and is  converted  into  electrical
energy,  which travels via the optic nerve to the brain. The brain processes the
complex signals sent from the retina into vision.  The central 5% of the area of
the retina is the macula,  the region  responsible  for seeing color and for the
central vision necessary for activities  including  reading,  face  recognition,


                                       4
<PAGE>

watching television and driving.  Due to its extremely small size, any damage to
the  macula  can  result  in  significant  visual  impairment,  including  legal
blindness.  In the Western  World,  the major  diseases  that usually  result in
blindness in adults are those affecting the retina, including AMD.

                               [GRAPHIC OMITTED]

AGE-RELATED MACULAR DEGENERATION (AMD)

     AMD is a chronic,  progressive  disease of the macula  that  results in the
loss of central  vision.  The most common symptoms  include central  distortion,
loss of  contrast  sensitivity  and loss of color  vision,  none of which can be
corrected by refractive means,  including  glasses,  contact lenses or laser eye
surgery. Peripheral vision usually remains unaffected so that patients are often
forced to look to the side of objects to see them,  but are still  unable to see
detail.  AMD  typically  affects  people  initially  in  one  eye,  with  a high
probability  of  occurrence  in the second eye over time.  People with AMD often
have difficulty living independently and performing routine daily activities.

     We believe that approximately 15 million people in the United States suffer
from AMD.  According to a ten-year study published in  Ophthalmology  in October
2002, the prevalence of AMD among a selected sample of U.S. residents  increased
sharply  with age,  from 28.2% among people 65 to 74 years of age to 46.2% among
people 75 years and older. A study by Duke University published in 2003 reported
that the prevalence of AMD among a selected sample of U.S. residents aged 65 and
older was 27% in 1999. According to the U.S. Census Bureau, the number of people
in the  United  States  aged 50 or  older is  approximately  80  million  and is


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<PAGE>

expected to increase by approximately  40% over the next two decades.  We expect
that this increase in the number of elderly  people will result in a significant
increase in the number of cases of AMD in the United States.

     AMD  occurs in two forms -- a  non-exudative  "dry"  form and an  exudative
"wet" form.

     DRY AMD.  Dry AMD is the most common form of the  disease.  We believe that
Dry AMD affects  approximately 13.0 to 13.5 million people in the United States,
or  approximately  85% to 90% of all AMD cases.  Dry AMD is  characterized  by a
gradual decrease of visual acuity, by pigment abnormalities on the macula and by
the build-up of protein and lipid  deposits,  called  drusen.  This  build-up of
macromolecules  affects the  microcirculation in the eye. Research suggests that
the  retinal  cells,  overwhelmed  by the lack of oxygen and  nutrients  and the
build-up  of  debris,  enter into a  dysfunctional  state of  dormancy.  Without
treatment,  the retinal cells  ultimately die and do not regenerate,  leading to
irreversible vision loss either through the progression of Dry AMD or conversion
to Wet AMD.  Patients with Dry AMD are  classified at the time of diagnosis into
four categories of worsening severity.  The higher the category, the greater the
risk of progression, or conversion, to Wet AMD within five years.

     The following table contains the principal characteristics of each category
as described by the Age Related Eye Disease Report, or AREDS Report, No. 8:

                       RISK OF WET AMD

<TABLE>
<CAPTION>
  CATEGORY            IN FIVE YEARS                       KEY CHARACTERISTICS
--------------       ----------------    ------------------------------------------------------
<S>                  <C>                 <C>
Category 1           No Risk             o   no pigment changes and less than five small drusen
                                         o   BCVA(1) better than 20/32 in each eye
                                         o   neither eye with Wet AMD
Category 2           Low Risk            o   any combination of multiple small drusen, one
                                             isolated
                     (Less than 2%)          intermediate drusen or mild pigment abnormalities
                                             in one or both eyes
                                         o   BCVA better than 20/32 in each eye
                                         o   neither eye with Wet AMD
Category 3(2)        Moderate Risk       o   any combination of at least one large drusen,
                                             extensive
                     (18%)                   intermediate drusen or geographic atrophy not
                                             involving the central macula
                                         o   neither eye with Wet AMD
                                         o   BCVA better than 20/32 in at least one eye
Category             4(2) High Risk      o   one eye with no  signs of Wet AMD (More
                                             than 42%)
                                         o   other eye with either Wet AMD or BCVA worse
                                             than 20/32 due to Dry AMD.
</TABLE>

----------
(1) BCVA means best corrected visual acuity.
(2) Categories 3 and 4 are commonly referred to as "Advanced Dry AMD".


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<PAGE>

     WET AMD. We believe that Wet AMD affects  approximately  1.5 to 2.0 million
people in the United States,  representing approximately 10% to 15% of all cases
of AMD in the United States. Wet AMD occurs when new blood vessels grow into the
macular tissues of the eye. This abnormal blood vessel growth generally is known
as  neovascularization.  These new blood  vessels  tend to be fragile  and often
bleed,  leaking fluid into the macula,  resulting in loss of vision.  Untreated,
this  blood  vessel  growth  and  leakage  can lead to  scarring,  atrophy  and,
eventually,  macular cell death.  Wet AMD patients  experience  vision loss more
rapidly than Dry AMD patients,  usually within months of diagnosis. If treatment
is  not  received  in  this  small  window  of  time,   the  damage  is  usually
irreversible.  As a  result,  the  number  of  people  who have Wet AMD that are
considered "potentially treatable",  or hoping for significant,  positive visual
outcomes,  will stay  relatively  small  each year as  opposed  to the number of
people who have Dry AMD.

TREATMENT ALTERNATIVES FOR WET AND DRY AMD

  WET AMD

     There is currently no cure for Wet AMD.  However,  retinal  specialists may
treat the  symptoms in an attempt to reduce  blood  vessel  growth and  leakage,
using one of very few approved  therapies  currently  available -- thermal laser
treatment,  photodynamic  therapy and drug  therapies.  In  addition,  there are
currently more than 30 therapies  being evaluated in U.S.  clinical  studies for
the  treatment of Wet AMD.  These  treatments  may slow the  progression  of the
disease, but do not prevent the reoccurrence of abnormal blood vessel growth and
do not restore lost vision.

     o    THERMAL  LASER  TREATMENT  AND  PHOTODYNAMIC  THERAPY.  Thermal  laser
          treatment of Wet AMD entails the use of a high-energy laser to destroy
          the abnormal blood vessels that are growing and leaking in the macula.
          This is a  surgical  procedure  involving  a medical  device  that was
          approved   more  than  two  decades  ago  by  the  FDA.   Because  the
          laser-treated portions of the retina are irreversibly destroyed due to
          collateral damage from intense heat, thermal laser treatment generally
          is now used only for the minority of Wet AMD patients  whose  abnormal
          blood vessel  growth and vessel  leakage occur away from the center of
          the macula. A more targeted approach,  photodynamic therapy,  involves
          the use of a light-activated drug named Visudyne,  which was developed
          by QLT,  Inc.  This therapy  involves a two-step  process in which the
          drug is administered systemically by intravenous infusion, after which
          a dose of low energy light is delivered to the target site to activate
          the drug and destroy the newly-grown abnormal blood vessels.

     o    DRUG  THERAPIES.  Rather than  attempting  to destroy  abnormal  blood
          vessels,  many  drug  therapies  are  designed  to slow  or  stop  the
          proliferation of abnormal blood vessels before they can further damage
          the retina.  Current ongoing drug therapies in clinical trials for Wet
          AMD,  which  have been  developed  by Eyetech  Pharmaceuticals,  Inc.,
          Genentech,  Inc.  and Genaera  Corporation,  are believed to block the
          effect of vascular  endothelial  growth factor, a natural protein that
          stimulates the production and growth of blood vessels, using different
          mechanisms of action. Alcon Laboratories, Inc.'s Retaane is a modified
          steroid  targeting  enzymes  produced by  stimulated  blood vessels by
          blocking the effects of multiple growth factors.


                                       7
<PAGE>

  DRY AMD

     Dry AMD is not a well-understood  disease and there is no medical consensus
regarding  its  underlying  cause.  As a result,  there have been few  resources
devoted to  developing a therapy for Dry AMD.  However,  there is some  research
that  suggests  a vascular  component  to the  disease.  This  "vascular  model"
suggests  that Dry AMD results from a disorder of the vascular  microcirculation
in the retina which leads to a reduction  in the amount of oxygen and  nutrients
that reach the retina.  This disorder also results in the accumulation of debris
between  the  cellular  layers of the retina  and the  subsequent  formation  of
drusen. In addition,  new studies have shown that AMD progression may be related
to the  presence of elevated  blood  levels of certain  macromolecules.  Current
research has identified a number of high molecular  weight blood components that
may have a detrimental effect on normal cellular functions and microcirculation.

     There  is  currently  no  FDA-approved  therapy  for  Dry  AMD.  Dry AMD is
diagnosed and monitored by a primary eye care doctor,  such as an optometrist or
ophthalmologist,  through a routine  retinal  exam.  The AREDS  Report  provides
evidence  that  vitamin,  antioxidant  and  zinc  supplements  only  reduce  the
five-year  risk of  conversion  into  Wet AMD by up to 25%  for  Category  3 and
Category 4 Dry AMD cases.  Regardless of the supplement treatments,  Dry AMD may
ultimately lead to irreversible vision loss, whether or not it converts into Wet
AMD.

POTENTIAL CAUSES OF AMD

     The precise cause of AMD is not known. However, researchers have identified
certain factors that are associated with AMD:

     o    REDUCED  METABOLIC  EFFICIENCY  OF RETINA.  The macula must be able to
          function at an extremely high rate of metabolic  efficiency to provide
          sharp vision.  The macula,  therefore,  has an unusually high nutrient
          and oxygen requirement.  Intact cell transport mechanisms are required
          to supply the  necessary  nutrients  and oxygen.  In addition to blood
          vessels in the retina,  the macula  receives  its blood  supply from a
          tiny  meshwork  of blood  vessels,  called  the  choroid,  which  lies
          underneath the retina.  The blood supply in this network  decreases in
          older  people  but  even  more so in some  AMD  patients.  It has been
          proposed that the  decreased  blood flow in the retina of AMD patients
          reduces  the  metabolism  in  the  retina   resulting  in  significant
          degradation of visual function.

     o    POOR WASTE MATERIAL  DISPOSAL.  Conversion of light in the retina into
          electrical  energy is a  photochemical  process which produces a large
          quantity of cellular waste materials.  Some  researchers  believe that
          life-long environmental, oxidative and chemical stresses progressively
          injure eye tissues,  making it more  difficult to clear away the waste
          material generated by the vision-producing cells. This may explain why
          waste  products  like  drusen  are often  seen in the  retinas  of AMD
          patients and why their  presence is associated  with an increased risk
          of progressive vision loss.

     We believe that a treatment  that improves  microcirculation  in the retina
can help to enhance the  metabolic  efficiency  of the retina and the removal of
waste  material and thereby aid in the treatment of Dry AMD. We believe there is
a significant market opportunity for such a treatment.

OUR SOLUTION

     The RHEO(TM)  System,  which consists of a pump and a disposable  treatment
set,  containing  two  filters,  is  designed to filter  high  molecular  weight
proteins  and  macromolecules  from the  patient's  plasma,  leading to improved
microcirculatory  function.  Researchers  involved in MIRA-1  believe that blood
filtered with the RHEO(TM)  System is able to flow more easily  through the tiny
capillaries  of the eye and that the resulting  improved  microcirculation  more


                                       8
<PAGE>

effectively   supplies  the  macular  cells  with  oxygen  and  nutrients  which
facilitates  removal of cellular waste materials.  RHEO(TM) System  represents a
fundamentally  new  approach to  treatment  of Dry AMD and offers the  following
potential benefits:

     o    ADDRESSES  A  LARGE  AMD  PATIENT   POPULATION  WITH  LIMITED  CURRENT
          TREATMENT  OPTIONS.  Current Wet AMD  treatments are effective only on
          patients  who are  newly-diagnosed  with Wet AMD,  of which  there are
          approximately  200,000  in  the  United  States  each  year.  RHEO(TM)
          Therapy,  however,  is a treatment for most patients in the Category 3
          and  Category 4 Dry AMD  populations,  which,  according  to the AREDS
          Report, represent approximately 54% of the total U.S. AMD patients, or
          currently  approximately  8 million  people.  RHEO(TM)  Therapy is not
          appropriate  for  everyone  in the  Category 3 and  Category 4 Dry AMD
          population. For example, RHEO(TM) Therapy would not be appropriate for
          potential  patients who may have existing  ailments that would make it
          unsafe for them to receive any blood transfusion type procedure.

     o    PRESERVES OR IMPROVES VISION OF DRY AMD PATIENTS.  Success in treating
          AMD is generally  measured by the ability to slow or halt  progression
          of the disease. We believe that RHEO(TM) Therapy is currently the only
          Dry  AMD  therapy  that,  based  on  preliminary   data,   appears  to
          demonstrate improved vision in some patients.  Furthermore, 58% of, or
          11 of 19,  patients  in  the  MIRA-1  interim  analysis  entering  the
          clinical trial with worse than legal driving  vision  improved to meet
          or exceed  the  requirements  to regain a driver's  license.  However,
          since our  MIRA-1  protocol  does not  require  us to follow  patients
          beyond 12 months,  we have no data which  would  allow us to  evaluate
          whether RHEO(TM) Therapy is effective on a long-term basis.

     o    PATIENT-FRIENDLY PROCEDURE.  RHEO(TM) Therapy is a form of therapeutic
          apheresis,  a procedure that  selectively  removes  molecules from the
          plasma.  Apheresis  has been used safely for more than twenty years in
          the  United  States  and Europe to treat  various  diseases  including
          leukemia,  rheumatoid arthritis, sickle cell disease and several other
          medical  conditions.  Although RHEO(TM) Therapy is a  patient-friendly
          procedure,  it is time  consuming,  with an initial course of RHEO(TM)
          Therapy requiring eight procedures over a 10- to 12-week period,  with
          each procedure lasting between two and four hours depending on patient
          weight  and  height.  Patients  recline  in a  comfortable  chair  and
          typically listen to music or otherwise relax during the procedure.  As
          with  any  medical   procedure,   there  are  potential  side  effects
          associated  with  RHEO(TM)  Therapy  ,  which  are all  temporary  and
          generally  mild,  including  drops in blood  pressure,  abnormal heart
          rate,  nausea,  chills  and  localized  bleeding,  swelling,  pain and
          numbness in the area of the arms where the needles are inserted.

     o    LIMITED  BARRIERS TO ADOPTION  FOR EYE CARE  PROFESSIONALS  AND HEALTH
          CARE SERVICE  PROVIDERS.  We believe that the RHEO(TM) System requires
          lower capital expenditures and less physical space than equipment used
          in  many  other  procedures   performed  by  eye  care  professionals,
          including laser vision correction and cataract  surgery.  The RHEO(TM)
          System requires no special installation and minimal maintenance costs.
          We believe  that  RHEO(TM)  Therapy,  which can be  administered  by a
          nurse,  can be easily  integrated  into our  customers'  workflow  and
          offers an attractive source of additional revenues for both facilities
          and  providers.  However,  our  success is  dependent  upon  achieving
          widespread  acceptance of RHEO(TM) Therapy among  ophthalmologists and
          optometrists who may be reluctant to accept RHEO(TM) Therapy.

     o    COST-EFFECTIVE  PROCEDURE.  The initial course of RHEO(TM)  Therapy is
          initially  expected to cost between  $16,000 and  $25,600.  We believe
          that Medicare and third-party  payors will determine that the benefits
          of RHEO Thereapy(TM) will justify the cost of reimbursement.  However,
          should Medicare and third-party  payors decline to provide coverage of
          RHEO(TM)  Therapy or set broad  restrictions on patient coverage or on
          treatment settings in which RHEO(TM) Therapy is covered, our potential
          revenues  may be  significantly  limited,  particularly  if  potential


                                       9
<PAGE>

          patients  deem our  treatment  to be too  expensive.  Nonetheless,  we
          believe that to the extent that RHEO(TM)  Therapy is not reimbursed by
          the government or private  third-party  payors, some patients with the
          economic  means to do so will be willing to pay for  RHEO(TM)  Therapy
          themselves  in  order  to  avoid  the  consequences  of  uncorrectable
          impaired  vision,  including,  but not  limited to, the  inability  to
          drive.

OUR STRATEGY

     Our goal is to establish  RHEO(TM) Therapy as the leading treatment for Dry
AMD in North America. Key elements of our strategy include:

     o    CREATING A PLAN TO DEVELOP  MARKET  AWARENESS  OF RHEO(TM)  THERAPY BY
          EDUCATING EYE CARE PROFESSIONALS AND PATIENTS.  If RHEO(TM) Therapy is
          approved  by the FDA,  we  intend  to  increase  market  awareness  of
          RHEO(TM) Therapy by identifying and developing  relationships with key
          opinion  leaders  in  each  of the  eye  care  disciplines,  including
          ophthalmologists  and  optometrists.  We believe  that  these  opinion
          leaders, some of whom are investigators in MIRA-1, will help establish
          acceptance of RHEO(TM)  Therapy.  If and when the FDA grants  approval
          for the  RHEO(TM)  Therapy,  we intend  to  launch a public  relations
          campaign  targeted  directLY at patients and advocacy  groups to alert
          them of our treatment.  Members of our management team were leaders in
          creating  market  awareness  of laser  vision  correction  when it was
          introduced to the North American market in the 1990s and, in doing so,
          were  effective  in  creating  relationships  with a large  number  of
          optometrists and ophthalmologists in the United States.

     o    ESTABLISHING  THIRD-PARTY   REIMBURSEMENT  FOR  RHEO(TM)  THERAPY.  We
          believe that an insurance  billing  coDE  established  by the American
          Medical  Association  in January  2003  accurately  characterizes  the
          RHEO(TM) Therapy procedure. This code identifies therapeutic apheresis
          with extracorporeal  selective  adsorption or selective filtration and
          plasma reinfusion. The procedure for which this billing code currently
          applies is a category of low density lipids, or LDL, apheresis,  which
          partially  filters the "bad" cholesterol from the blood plasma. If and
          when the FDA grants marketing  clearance for the RHEO (TM) SystEM , we
          plan  on  seeking  a  Medicare  National  Coverage  Determination  for
          RHEO(TM) Therapy for specified patienTS with Dry AMD, with the goal of
          securing Medicare  coverage under the existing  procedure code for use
          in treatment of Dry AMD. Currently, Medicare covers and pays for other
          FDA-licensed  services  billed with this code only when performed in a
          hospital outpatient setting. A payment rate for FDA-licensed  services
          billed  with  this  code  when  performed  in  a  physician   Medicare
          office-based  setting has been  established by the Center for Medicare
          and  Medicaid  Services,  or CMS,  effective  on January  1, 2005.  If
          RHEO(TM)  TheraPY is cleared for  marketing  by the FDA and covered by
          Medicare  for  treatment  of Dry AMD,  we believe  that this  Medicare
          office-based  reimbursement  policy  will  similarly  apply  for  this
          procedure  and will  provide  a  significant  positive  impact  on our
          revenues.  We also plan to assist our  customers in securing  coverage
          and appropriate  reimbursement  for RHEO(TM) Therapy from Medicare and
          private  insurers  through  a  dedicatED  reimbursement  group and the
          provision of detailed supporting documentation.

     o    SECURING  RELATIONSHIPS  WITH KEY  MULTI-FACILITY  HEALTH CARE SERVICE
          PROVIDERS. To facilitate a rapid rollout of the RHEO(TM) System if and
          when we  receive  FDA  approval,  we are  identifying  key  groups  OF
          multi-facility  health care service  providers,  including  hospitals,
          dialysis clinics and ambulatory  surgery  centers,  as well as private
          practices,  which may be future  treatment  centers  for the  RHEO(TM)
          System.  To date,  our  marketing  activities  have  been  limited  to
          identifying  to whom we will  choose to market if and when we  receive
          FDA  approval.  We are not  currently  in  negotiations  with any U.S.
          healthcare  service provider to supply or license the RHEO(TM) System,
          nor can we pursue  any suCH  relationship  unless and until we receive
          FDA approval. In advance of commercialization in the United States, we
          intend to develop a plan to ensure that there is an adequate supply of


                                       10
<PAGE>

          trained nurses to support our service provider partners.  We intend to
          leverage  the  experience  of  clinics in Canada  currently  using the
          RHEO(TM) System to assist in training nurses and our service  provider
          partners IN advance of FDA  approval.  The  components of the RHEO(TM)
          System have had Health Canada approval since 2003. We currently supply
          three clinics in Canada which commercially provide RHEO(TM) Therapy to
          Dry AMD patienTS at the direction of their physician. We have recently
          signed an  agreement  to provide  the  RHEO(TM)  System IN Canada to a
          private company called Rheo  Therapeutics  Inc. Dr. Machat,  who is an
          investor  in and  one of the  directors  of Rheo  Therapeutics,  was a
          co-founder  and former  director  of TLC Vision.  We believe  that our
          experience  in  Canada  and  the  experience  of one of our  principal
          stockholders  in  Germany  will  allow  us to  develop  best  practice
          guidelines for integrating RHEO(TM) Therapy into a clinic setting.

     o    ENSURING  SUFFICIENT  MANUFACTURING  CAPACITY AND INVENTORY TO SUPPORT
          OUR  COMMERCIALIZATION  PLAN. We intend to work with our manufacturing
          and supplier partners to ensure that there is sufficient  capacity and
          inventory to support our  commercialization  plans.  In advance of FDA
          approval, we intend to accumulate an inventory of filters and pumps to
          support a rapid product launch. We have a distribution  agreement with
          Asahi  Medical  which  appoints  us  as  Asahi   Medical's   exclusive
          distributor  of  filters  in the  United  States,  Canada,  Mexico and
          certain  other  countries.  We recently  signed a purchase  order with
          Asahi  Medical for 9,600  filter sets (each filter set consists of one
          Plasmaflo filter and one  Rheofilter),  including 1,600 filter sets in
          the  fourth  quarter  of 2004 and  4,000  filter  sets for each of the
          following  two  quarters.  We intend to order  4,000  filter  sets per
          quarter in 2005 and 2006 in order to accumulate inventory in excess of
          our current  requirements  until we receive  FDA  approval in order to
          maximize the number of filters  available  to us due to  manufacturing
          constraints  on the number of  cellulose  acetate  filters  that Asahi
          Medical  can  produce.  Each  filter has a shelf life of three  years.
          Based on our expected current requirements, we do not believe that the
          accumulated  filters  will expire  before use.  While we believe  this
          strategy is prudent to maximize future revenues,  holding inventory in
          this manner will decrease our short term liquidity. We will be working
          closely with Asahi Medical to develop and conduct  clinical tests on a
          next generation polysulfone Rheofilter with similar characteristics to
          the current cellulose acetate Rheofilter. We believe that the proposed
          polysulfone   Rheofilter   will  be  able   to  be   manufactured   at
          significantly  higher  volumes and lower costs than the current filter
          technology.

     o    MAINTAINING OUR INTELLECTUAL  PROPERTY PORTFOLIO AND OTHER BARRIERS TO
          ENTRY. We believe that our intellectual  property  position may assist
          us in maintaining our competitive  position.  We also believe that the
          manufacturing  process  expertise  relating to the production by Asahi
          Medical of the  Rheofilter  is protected  by Asahi  Medical as a trade
          secret.   We  believe  that  the  exclusive  nature  of  our  supplier
          relationship with Asahi Medical gives us a competitive  advantage.  We
          intend to continue to strengthen our relationships  with our exclusive
          suppliers and to strengthen  our current  patents and seek  additional
          patent protection.

OUR PRODUCT

  THE RHEO(TM) SYSTEM

     The RHEO(TM) System employs a double filtration apheresis process,  whereby
a pair of  single  use  blood  aND  plasma  filters  sequentially  separate  and
partially   remove  the  targeted   plasma   components.   The  system   removes
macromolecules  greater  than a  specified  size from the plasma.  The  RHEO(TM)
System consists of two primary components:


                                       11
<PAGE>

     o    OCTONOVA PUMP. The OctoNova pump is a microprocessor controlled device
          used to  circulate  blood and  plasma  from the  patient  through  the
          filters, and back to the patient. The OctoNova pump is complemented by
          single-use sterilized tubing which creates a closed-loop system. Blood
          is pumped  through  the tubing  with small  gear-like  sprockets  that
          create a  peristaltic  action in the tube similar to that which occurs
          in our  intestines.  The  smooth-edged  teeth of the  sprockets  press
          against  the outside  surface of the tube  pushing the blood along the
          length  of the  tube as the  wheels  turn  all at the  same  rate  and
          direction.  No blood ever leaves the closed-loop  system. The OctoNova
          pump was  developed in the 1990s by Diamed and licensed to us in 2002.
          We are  seeking  FDA  approval  of the  OctoNova  pump  as part of the
          RHEO(TM) System PMA.

     o    DISPOSABLE  TREATMENT SETS.  Disposable  treatment sets consist of the
          tubing and two filters,  the Plasmaflo filter and the Rheofilter.  One
          treatment  set is used for each  treatment  undertaken by the patient.
          The Plasmaflo  filter performs the initial  function of separating the
          blood  cells  from  the  plasma.   The  Rheofilter  is  a  single-use,
          hollow-fiber nanopore membrane,  which is used to filter specific high
          molecular  weight proteins and other  macromolecules  from the plasma.
          Following  this, the filtered plasma is  reconstituted  with the blood
          cells and returned  into the  patient.  The tubing and the filters are
          easily  disposed  after each patient  procedure  by the  administering
          nurse, providing us with a recurring source of revenue. The Rheofilter
          was developed in the early 1980s by Asahi Medical.  We are seeking FDA
          approval of the tubing and two filters as part of the RHEO(TM)  System
          PMA. We are working TO complete the PMA with Asahi  Medical,  and upon
          FDA  approval of the PMA we have an  agreement  to  transfer  this FDA
          approval to them. In that same  agreement,  Asahi Medical agreed to us
          being  the  exclusive  distributor  of the  Plasmaflo  filter  and the
          Rheofilter in the United States,  Canada, Mexico and the Caribbean for
          a term of ten years  beginning at the date of the FDA approval,  which
          term is automatically  renewable for one year terms unless  terminated
          upon  six  months'  notice.  The  Rheofilter  is  currently  made of a
          cellulose  acetate filter material.  We are working with Asahi Medical
          to develop a new filter  made of  polysulfone  to replace  the current
          filter. We believe Asahi Medical has delivered two versions of its new
          polysulfone  filter to Germany to begin clinical trials to support the
          safety data necessary to obtain a CE Mark.  Asahi Medical has informed
          us that the  clinical  trials  should begin before the end of 2004 and
          should take approximately a year to complete. Following obtaining a CE
          Mark, we will work with Asahi to obtain the necessary approvals to use
          the new  polysulfone  filter in the RHEO(TM)  System in CanaDA and the
          United States.

     The disposable treatment sets received Health Canada regulatory approval in
2002.  The  OctoNova  pump  received   Health  Canada   approval  in  2003.  The
Rheopheresis system components have also been granted a CE Mark in Europe, where
the  commercialization  rights for  Rheopheresis are exclusively held by Diamed,
one of our  stockholders  and suppliers.  We are currently  conducting  clinical
studies  with  the goal of  obtaining  FDA  approval  and  widespread  physician
acceptance of RHEO(TM) Therapy.

  THE RHEO(TM) PROCEDURE

     Each RHEO(TM) Therapy procedure  typically takes between two and four hours
to complete  and begins by placiNG one  intravenous  line in each forearm of the
patient. Blood is pumped from a large vein in one arm and circulated through the
filtration  system  where the whole  blood is  separated  from the plasma by the
Plasmaflo filter.  The plasma is filtered through the Rheofilter,  which filters
high  molecular  weight  proteins and other  macromolecules  from the  patient's
plasma. The plasma is then remixed with the blood and is returned to the patient
intravenously.  Only approximately 1.25 pints of blood are outside the patient's
body and at all times blood remains in a sterile closed circuit.  Throughout the
RHEO(TM)  Therapy  procedure,  the attending  nurse monitors tHE blood pressure,
heart rate, oxygen saturation, cardiac rhythm and activated clotting time of the
patient.  The  attending  nurse also  gauges  the flow  rates,  temperature  and
pressures of the filters. No blood products or medications are added, other than
a small amount of heparin to prevent  clotting in the tubing system.  We believe


                                       12
<PAGE>

the initial course of eight  procedures of RHEO(TM)  Therapy given over a 10- to
12-week period  provides the beST results for patients with Dry AMD.  Typically,
one or two  booster  procedures  are given  each 12 to 18 months  thereafter  to
maintain  the  clinical  benefits  derived  from the initial  course of RHEO(TM)
Therapy  .  The  referriNG  physician  monitors  post-procedure  follow-up.  The
following graphic shows the RHEO(TM) Therapy process:

                                [GRAPHIC OMITTED]


  BACKGROUND OF RHEOPHERESIS

     Researchers  discovered  Rheopheresis for AMD during the search for a blood
treatment  for  elevated  cholesterol  levels in the  mid-1980s.  Asahi  Medical
developed a filter aimed at selectively  removing the low-density lipid, or LDL,
macromolecules  known  as  the  "bad"  cholesterol  in an  apheresis  procedure.
Although the filter  successfully  removed LDL, it also  removed  several  other
large molecules,  including von Willebrand's factor,  fibrinogen,  lipoprotein A
and C reactive  protein.  Researchers  have confirmed that  apheresis,  a plasma
filtering or exchange  procedure,  is a relatively safe procedure and that there
do not appear to be  negative  consequences  to also  filtering  out these large
molecules.  At approximately the same time,  however,  the first statin drug was
proven to be effective in lowering LDL levels in the blood,  thereby eliminating
the need for an apheresis  procedure to remove LDL.  Shortly  thereafter,  Asahi
Medical ceased its efforts to develop and commercialize  apheresis treatment for
elevated LDL levels.

     In the late 1980s, researchers at the University of Cologne in Germany were
searching  for a  treatment  for a  small  group  of  patients  referred  to the
university with a condition known as refractory uveitis, a chronic  inflammatory
eye condition that was not responding to  conventional  therapy.  Having learned
that the Asahi Medical  filters had the ability to remove large  molecules  from
the blood and that the eye condition was related to  significant  levels of many
of the same  molecules,  the  researchers  performed  a small pilot  study.  The
filtration  procedure  was  effective  for uveitis  but also showed  preliminary
success in improving  the vision of two patients in the study that also had AMD.
This led the  researchers  to conduct  several  years of  clinical  research  to
develop  apheresis  for  AMD in  Germany.  The  research  suggested  that  eight
procedures over a 10- to 12-week period was the optimal treatment regime.


                                       13
<PAGE>

CLINICAL STUDIES

     We are currently  conducting our FDA clinical trial, MIRA-1, or Multicenter
Investigation  of  Rheopheresis  for AMD.  Two other  clinical  trials have been
conducted by third parties:  MAC-1,  which was conducted in Germany from 1995 to
1998; and the Rheopheresis  pilot study which was conducted by the University of
Utah from 1997 to 1998.  While the protocols of these three clinical trials were
not  identical,  the  results  of  each of them  to  date  have  been  generally
consistent.

     MIRA-1 is  currently  being  conducted  at eight  treatment  centers in the
United States and Canada. We have an agreement with Promedica  International,  a
contract research organization,  to oversee each center. Promedica International
provides study  monitoring and site and data management  services.  We expect to
pay Promedica International a total of approximately $1,500,000 for certain fees
and expenses  for the period from 2003 to the  completion  of the MIRA-1  study.
Either  party may  terminate  this  agreement  by giving the other  thirty days'
written notice.

  MIRA-1

     MIRA-1 is a randomized,  placebo-controlled  trial designed to evaluate the
safety and efficacy of RHEO(TM)  Therapy in patients  with  intermediate-to-late
stage, or Category 3 and Category 4, Dry AMD.

     In September 1999, we received an Investigational Device Exemption from the
FDA to begin MIRA-1. Between early 2000 and August 2001, we enrolled 98 patients
in  MIRA-1.  In  August  2001,  due to  financial  constraints,  we  temporarily
suspended the new enrollment of patients but continued to pursue  follow-up with
the remaining  patients in MIRA-1.  In late 2001, with permission of the FDA, we
submitted  the data sets of the 43 patients who had reached  their full 12-month
follow-up in MIRA-1 for independent third-party analysis. Over the course of the
next several months,  the FDA addressed a number of matters  relating to MIRA-1.
First,  the FDA  allowed  us to  submit  the  PMA in  modules.  Second,  the FDA
acknowledged  that MIRA-1 is intended to be the pivotal  trial for obtaining FDA
approval for RHEO(TM)  Therapy . Third, the FDA allowed us to treat the patients
in the  placebo  groUP  with  RHEO(TM)  Therapy  free of charge  once their full
12-month  follow-up  data had been obtained.  Fourth,  the FDA confirmed that we
would be  required  to submit at least 150 full data sets from the 180  patients
that were to be  enrolled  in the trial.  Following  disclosure  of the  interim
results of MIRA-1 and these  changes  to the  MIRA-1  protocol,  we were able to
obtain new  financing.  As a result of the new  financing,  in October  2003, we
began screening  additional  patients for enrollment in MIRA-1 and since then we
have opened five additional  MIRA-1 sites and are now currently  operating eight
MIRA-1 sites.

     As of December 31, 2004, we had enrolled a total of 185 patients in MIRA-1.
This completes the enrollment  phase of MIRA-1,  exceeding our goal of enrolling
180  subjects  by  December  31,  2004.  We  have  collected  complete  12-month
post-treatment data sets for 87 of these patients. Of the remaining 98 patients,
82 are in the process of treatment or follow-up and the treatment of 16 patients
did not result in  complete  data sets.  We intend to derive  the  required  150
complete 12-month  post-treatment  data sets from our enrolled  subjects.  As of
December  31,  2004,  we had also  submitted  to the FDA the first three of four
modules of the PMA filing, the non-clinical  portion.  These first three modules
contain non-clinical results of bench tests and quality assurance,  and document
manufacturing  processes on the components of the RHEO(TM) System.  We intend to
submit the fourth modulE,  which consists of the follow-up clinical data, in two
components.  We  expect  that we  will  submit  the  first  component  following
completion  of our  six-month  data on at least  150 data  sets,  including  the
12-month  data sets for all  patients for whom they are  available;  and that we
will submit the second component following completion of our 12-month data on at
least 150 data sets.

     To  be   included   in   MIRA-1,   a   patient's   eyes  must   demonstrate
intermediate-to-late  stage Dry AMD, corresponding to Category 3 and Category 4,
with ten or more intermediate or large drusen. Additionally,  patients must show
elevated serum levels of at least two out of three macromolecules  associated in


                                       14
<PAGE>

previous studies that suggested the best positive  treatment  outcomes.  Primary
eyes in the  study  must  show no  signs of Wet AMD and  must  demonstrate  best
corrected visual acuity, or BCVA, between 20/32 and 20/125, inclusive.

     Two out of every three  patients are treated in the trial,  while the third
is a placebo or control  patient.  Patients receive eye exams prior to treatment
and at three-,  six-,  nine-,  and 12-month  follow-up  intervals.  Each patient
receives  either eight  RHEO(TM)  Therapy or eight placebo  procedures  over ten
weeks.  Patients in tHE placebo-control  group are made to believe that they are
receiving  RHEO(TM)  Therapy.  All subjects,  including thoSE  randomized to the
placebo  group,  are shrouded from the neck down to prevent them from  observing
their treatment and receive actual needle sticks in both arms.  Additionally,  a
partition is positioned in front of the OctoNova pump so that the patient cannot
see the  system.  The machine is  activated  so that the  patients  can hear the
background noise of the machine, but those patients in the placebo group are not
connected to the tubing  circuit.  In addition,  all subjects,  including  those
randomized  in the  placebo  group,  are  required  to  take  the  same  dose of
antioxidant  vitamins  that are commonly  recommended  for Dry AMD patients as a
possible inhibitor of conversion into Wet AMD.

     The study's  primary  endpoint  is the mean change in BCVA.  In this trial,
visual  acuity is measured as the number of letters that the patient can read on
the Early Treatment Diabetic Retinopathy Study, or ETDRS, eye chart. This is the
standard eye chart used in these types of trials.  Five letters on the ETDRS eye
chart equate to one line of visual  acuity.  Secondary  and  tertiary  endpoints
include:

     o    the  ability  to pass a  vision  test in order  to  regain a  driver's
          license;

     o    vision improvement;

     o    vision loss;

     o    drusen reduction;

     o    the Pepper  Visual  Skills  for  Reading  Test,  which is a measure of
          reading ability;

     o    the National Eye Institute visual functioning questionnaire; and

     o    progression to legal blindness.

     The following chart presents the interim  12-month  results of the first 43
patients in the MIRA-1 study.  Of these 43 patients,  we only obtained  12-month
results from 36 patients because three treated patients and four patients in the
placebo group did not complete all of the required follow-up.

<TABLE>
<CAPTION>
                                                                   TOTAL COHORT
                                                 ---------------------------------------------------
                                                 PRIMARY EYES      PLACEBO      NET LINES
                                                    (N=25)         (N=11)      DIFFERENCE   P VALUE
                                                 ------------    ------------  ----------   --------
<S>                                               <C>             <C>             <C>       <C>
Mean change BCVA............................      0.74           -0.87            1.61      0.0011
Vision improvement greater or equal to:
  3 lines...................................         3(12%)          0(0%)
  2 lines...................................         7(28%)          2(18%)
  1 line....................................        12(48%)          3(27%)
Vision loss greater or equal to:
  3 lines...................................         1(4%)           2(18%)
  2 lines...................................         2(8%)           2(18%)
Drusen reduction............................        29%             13%
Progression to legal blindness..............         0%             18%
</TABLE>


                                       15
<PAGE>

    The following  chart  represents the subgroup of 28 patients with worse than
legal driving vision,  or a BCVA of worse than 20/40,  prior to enrolling in the
trial. Twenty-six patients (19 treatment and seven placebo) completed the entire
12 month follow-up;  the remaining two patients in the placebo group who did not
complete 12 month follow up are not included.

<TABLE>
<CAPTION>
                                                               COHORT (SUB-GROUP) WITH BCVA
                                                   ----------------------------------------------------
                                                              WORSE THAN 20/40 AT ENROLLMENT
                                                   TREATMENT GROUP     PLACEBO     NET LINES
                                                        (N=19)            (N=7)    DIFFERENCE  P VALUE
                                                   ---------------     ----------  ----------  --------
<S>                                                      <C>           <C>            <C>      <C>
Mean change BCVA..............................           +1.1          -1.9           3.00     0.0014
Improved to  >20/40 (legal driving vision)....             11(58%)        1(14%)
Vision improvement greater or equal to:
  3 lines.....................................              3(16%)        0(0%)
  2 lines.....................................              6(31%)        1(14%)
  1 line......................................             11(58%)        2(29%)
Vision loss greater or equal to:
  3 lines.....................................              1(5%)         2(29%)
  2 lines.....................................              1(5%)         2(29%)
Drusen reduction..............................             35%           14%
</TABLE>


     Vision research typically uses a "standard  measurement" called the "change
in BCVA", which is measured using a chart that provides five letters per line of
decreasing  size or increasing  difficulty.  Each letter has a relative value of
0.2 or 20% of the entire line. A patient  entering the study who gains two lines
of vision will be able to read ten  additional  letters or two complete lines of
vision.

     "Mean  change" is the  cumulative  averaging  of all  patient  results in a
specific  category.  For example, a patient entering the study with 20/40 vision
and gaining 1.4 lines following  treatment would have improved to 20/32 plus two


                                       16
<PAGE>

letters  on  the  20/25  line.  This  number,  1.4,  would  be  included  in the
calculation  with all other  individual  patient  results when  calculating  the
cumulative average.

     We do not know whether the completed MIRA-1 results will be consistent with
the interim  results,  which are based on a very small  number of  subjects,  or
whether,  if the results are consistent,  the FDA would consider them sufficient
to support our approval.

  LEARN STUDIES

     On February 28, 2005,  we announced  that the FDA had completed a review of
the Long-term  Efficacy in AMD from  Rheopheresis  in North  America,  or LEARN,
protocols  submitted to it by us on January 21, 2005 and has given us permission
to initiate those two studies.

     LEARN-1 is an  open-label  multi-center  study  that will  enroll up to 120
subjects  who  were  treated  in  the  MIRA-1  study.  There  will  be  up to 12
investigational  sites where the subjects will be randomized in a 1:1 fashion to
receive  either  two or four RHEO  Therapy  "booster"  procedures.  The  results
between the groups will be compared after three,  six, nine and twelve months of
follow-up from baseline.

     LEARN-2  is an  open-label  multi-center  study  that will  enroll up to 60
subjects who were placebo  patients in the MIRA-1 study.  There will be up to 12
investigational  sites  where the  subjects  will  receive  eight  RHEO  Therapy
procedures and will have a three-,  six-, nine- and twelve-month  follow-up from
baseline evaluation.

  MAC-1

     The  MAC-1  trial  was a  40-patient  study  conducted  in  Germany  by the
University of Cologne from 1995 to 1998 and resulted in Rheopheresis for Dry AMD
achieving the CE Mark. The patients were randomized into two groups, a treatment
group and a  placebo-control  group.  The treatment  group was treated ten times
over a period of 21 weeks.

     Unlike MIRA-1, the investigators and each patient knew whether that patient
was in the  treatment  group or the control group because the 20 patients in the
control group did not receive placebo treatments but were simply examined at the
designated  follow-up  intervals.  The MAC-1 study also  included  patients with
signs of Wet AMD and included patients with significant soft drusen. Eighteen of
the patients in the study had signs of Wet AMD and would have been excluded from
MIRA-1 under the MIRA-1 protocol.

     The main  parameter of the study was BCVA.  Electrical  activity in the eye
was also recorded. Plasma and whole-blood speed and volume in the macular region
were also  measured.  The results of MAC-1 were  similar to the interim  results
that have been seen in MIRA-1: statistically significant relative improvement of
1.6 lines of BCVA immediately  following the course of treatment,  with the same
level of benefit seen at 12-months.  For patients with soft drusen,  the average
difference  was 2.3 lines  (p<0.01);  for  patients  without  soft  drusen,  the
difference was only 0.64 lines  (p=0.43).  In the treated group,  improvement in
electrical activity was statistically significant,  indicating that the cells of
the retina were functioning more efficiently. The speed and volume of blood flow
in the  choridial  arteries  which  supply  blood to the retina were found to be
decreased  by 37%  and  33%,  respectively,  in  patients  with  AMD.  Following
treatment of those patients,  blood flow increased by 22%. There were no serious
adverse events noted.

  RHEOPHERESIS PILOT STUDY

     The study was  conducted by  physicians  at the  University  of Utah Health
Sciences  Center  in Salt  Lake  City,  Utah  under  an  Investigational  Device
Exemption from the FDA. The University of Utah's Institutional Review Board also
provided  approval  for human  experimentation  prior to  enrollment.  The study


                                       17
<PAGE>

involved 30 patients. The trial measured electrical activity in the cells of the
macula  before  and after  treatment.  The  results  of this  study were used to
support the  application  for the  Investigational  Device  Exemption to conduct
MIRA-1.

  PERC STUDY

     In April 2004,  RHEO Clinic  Inc.,  a  subsidiary  of TLC Vision,  received
Institutional  Review  Board  approval  for and  launched a new study called the
Prospective Evaluation of Rheopheresis in Canada, or PERC.

     PERC is a single  center study in Canada  designed to examine the effect of
RHEO(TM) Therapy on the outcoME variables for 60 patients with Dry AMD to gain a
greater  understanding of the treatment's  method of action.  As of December 31,
2004, 13 patients  were enrolled in PERC.  Each patient will receive a series of
eight  RHEO(TM)  TheraPY  over a 10- to 12-week  period.  Clinical  data will be
collected  at   three-month   intervals  for  one  year  following  the  initial
treatments.

     One  objective  of the study is to  develop a complete  description  of the
physiological  changes  produced  by RHEO(TM)  Therapy.  This will be done using
structural and functional  objective tests and subjective  measures of visiON in
its  broad  context.  This  includes  measurements  of the size and shape of the
retina,  retinal  electrical  activity and vascular  function as well as general
visual  performance  using standard  measurements of acuity,  reading speed, and
color and contrast sensitivity. Subjective vision assessments using the National
Eye Institute Visual Functioning Questionnaire 25 will also be evaluated to gain
understanding about general quality of life and AMD-specific visual symptoms.

     David T. Wong,  MD,  FRCSC or Fellow of the Royal  College of  Surgeons  of
Canada,  is the principal  investigator of the PERC study. Dr. Wong has been our
Medical  Director  since  July  2004.  Dr.  Wong is an  Assistant  Professor  of
Ophthalmology at the University of Toronto,  Active Staff Ophthalmologist at St.
Michael's  Hospital and Director of Fellowship  Training in Ophthalmology at the
University of Toronto. Dr. Wong is a sub-specialist surgical  ophthalmologist in
the  areas of the  vitreous  and  retina  of the eye.  Dr.  Wong is a member  of
numerous organizations  including the Canadian  Ophthalmology Society,  American
Academy of  Ophthalmology,  the American  Society of Retina  Specialists and the
Association for Research in Vision and  Ophthalmology.  Dr. Wong is a frequently
invited  lecturer in North  America,  Asia and  Europe,  has  authored  numerous
scientific  papers and  publications  and is an  investigator  in  numerous  FDA
clinical  trials,  including  trials for QLT's Visudyne,  Eyetech's  Macugen and
Alcon's Retaane.

  RHEONET REGISTRY

     The  RHEONET  Registry is a  collaborative  effort  between  the  Apheresis
Research Institute in Cologne,  Germany and us. The registry contains a database
of  Rheopheresis  procedures  from centers and clinics  performing  Rheopheresis
commercially  in Germany,  using  systems sold by Diamed,  and in Canada,  using
systems sold by us. In March 2004, a total of 3,314  Rheopheresis  procedures on
529 patients were registered,  including 365 patients with AMD. Ophthalmological
data of 149  eyes of 108  patients  with  Dry AMD  could  be  analyzed  from the
registry as of March 2004.

SUPPLIER RELATIONSHIPS

     We have  three  key  supplier  arrangements  --  with  Asahi  Medical,  who
manufactures  the treatment  sets,  including the  Rheofilter  and the Plasmaflo
filter,   and  with  Diamed  and  MeSys,  the  designer  and  the  manufacturer,
respectively, of the OctoNova pump. The Rheofilter, the Plasmaflo filter and the
OctoNova pump are all key components of the RHEO(TM) System.


                                       18
<PAGE>

     RHEOFILTER AND PLASMAFLO  FILTER.  We purchase the Rheofilter and Plasmaflo
filter from Asahi Medical.  We make these  purchases  pursuant to a distribution
agreement  which  appoints us as Asahi  Medical's  exclusive  distributor of the
Rheofilter  and the  Plasmaflo  filter  for use in  treating  AMD in the  United
States, Canada, Mexico and certain Caribbean countries,  subject to us obtaining
necessary regulatory approvals in those agreed countries where we choose to sell
the filters. Under this agreement:

     o    we  may  not  market  or  sell  any  product  that  is  similar  to or
          competitive with the filters;

     o    we must use our best efforts to support  providers in their efforts to
          secure  reimbursement  from public and private U.S. health insurers on
          behalf of patients  whose Dry AMD treatment  involves  utilization  of
          these filters;

     o    we must purchase a minimum of 9,000 filters during the one-year period
          commencing  six months  following FDA approval,  15,000 filters in the
          succeeding  one-year  period and 22,500 filters in the next succeeding
          one-year period. If we fail to meet our minimum purchase  requirements
          under  our  agreement  with  Asahi  Medical,   our  agreement  may  be
          terminated or rendered  non-exclusive  at the sole discretion of Asahi
          Medical; and

     o    we must  transfer  the whole  ownership  of the FDA  approval to Asahi
          Medical upon receipt. We will,  however,  continue to own the clinical
          trial data from  MIRA-1.  We have agreed  with Asahi  Medical to allow
          them to use the clinical  data from MIRA-1 to obtain  approval to sell
          the  Rheofilters  in  other  countries  so  long as we are  granted  a
          distributorship in those other countries.

     Although we have an  obligation  to purchase a minimum  annual  quantity of
filters,  Asahi  Medical  has  the  right  to  reject  any  order  but  may  not
unreasonably  reject  any order  placed by us in order to  satisfy  our  minimum
purchase  requirements.  Under the agreement,  Asahi Medical can cease to supply
Rheofilters and Plasmaflo  filters to us, after a 12-month notice period, in the
event that: (1) Asahi Medical cannot economically supply the product; (2) due to
special  circumstances,   such  as  patent  infringement  liability  or  product
liability issues,  Asahi Medical cannot supply the product; or (3) Asahi Medical
develops an improved product, in which case, we have a right of first refusal to
become the  exclusive  distributor  of that new product in the same  territories
where we are the exclusive distributor of the Rheofilter on terms and conditions
satisfactory to Asahi Medical and to us.

     Asahi Medical has indicated that they intend to  discontinue  manufacturing
the cellulose acetate Rheofilter in 2008 and replace it with a newer polysulfone
Rheofilter.  We believe that Asahi Medical has delivered two versions of its new
polysulfone filter to Germany to begin clinical tests to support the safety data
necessary to obtain a CE Mark.  Following obtaining a CE Mark, we will work with
Asahi  Medical  to obtain the  necessary  approvals  to use the new  polysulfone
filter in the  RHEO(TM)  System in Canada  and the United  States.  Based on tHE
discussion  we have  had with  Asahi  Medical  to  date,  we  expect  to  obtain
distribution rights to this new filter on terms substantially  equivalent to the
terms for the  existing  filter.  We are  currently  not seeking an  alternative
supplier  of  the  Rheofilter   because  we  believe  that  Asahi  is  the  only
manufacturer  possessing the requisite technological and production capabilities
to produce the Rheofilter.

     This  agreement  has a term of ten years from our obtaining FDA approval to
use the filters to treat AMD, and is automatically  renewable for one-year terms
unless  terminated  upon six months'  notice.  In  addition,  Asahi  Medical may
terminate our agreement in certain circumstances, including:

     o    if we become insolvent or are petitioned into bankruptcy;


                                       19
<PAGE>

     o    if we transfer  all or an  important  part of our  business to a third
          party;

     o    if we are unable to obtain FDA approval and other necessary  approvals
          in the territories for which we have distribution rights by the end of
          December 2006;

     o    if we breach the  agreement  and do not remedy the  default  within 30
          days of Asahi Medical notifying us that we are in default; or

     o    if any essential  changes in our management or ownership of our shares
          would adversely affect the sale of filters in the territories in which
          we have exclusive distribution rights.

     OCTONOVA  PUMP.  We purchase the OctoNova  pump pursuant to a marketing and
distribution  agreement  with Diamed,  the developer of the OctoNova pump, and a
distribution  agreement with MeSys GmbH, the company that manufactures the pumps
for Diamed.

     Under the agreement with Diamed we have been appointed  Diamed's  exclusive
distributor  of the OctoNova pump in the United States,  Canada,  Mexico and the
Caribbean. Under this agreement:

     o    we have  committed to use our best  efforts in promoting  the sale and
          use of,  and  securing  orders and  developing  the  market  for,  the
          OctoNova  pump in the  territories  for  which  we  have  distribution
          rights; and

     o    we are  obligated  to use our best  efforts  in  promoting  public and
          private  medical   insurance   reimbursement   for  the  treatment  of
          hemo-rheological disorders in microcirculation in the United States.

     This  agreement  has a term of ten years from FDA  approval of the RHEO(TM)
System, and is automatically renewabLE for one-year terms unless terminated upon
six months' notice. In addition,  Diamed may terminate this agreement in certain
circumstances, including:

     o    if we become insolvent or are petitioned into bankruptcy;

     o    if the whole or an important  part of our business is transferred to a
          third party and such transfer would  adversely  affect the sale of the
          OctoNova pump;

     o    if we breach the  agreement  and do not remedy the  default  within 30
          days of Diamed notifying us that we are in default;

     o    if any  essential  changes in our  management  or our share  ownership
          would adversely affect the sale of the OctoNova pump;

     o    if our distribution agreement with MeSys is terminated; or

     o    if we are unable to obtain FDA approval and other necessary  approvals
          in the territories for which we have distribution rights by the end of
          2006.

     Under this agreement,  we have an obligation to purchase a minimum quantity
of 1,000 OctoNova pumps before the fifth anniversary of FDA approval. If we fail
to meet our minimum purchase  requirements  under our agreement with Diamed, our
agreement may be terminated or rendered  non-exclusive at the sole discretion of
Diamed. Subsequent minimum purchase orders will be as mutually agreed.

     Under our agreement with MeSys,  MeSys agrees to manufacture and sell to us
the OctoNova  pump.  Under our  agreement  with MeSys,  we have an obligation to
purchase a minimum annual quantity of OctoNova pumps.  This agreement expires on


                                       20
<PAGE>

the third  anniversary of our obtaining FDA approval to use the OctoNova pump to
treat  AMD.  In  addition,   MeSys  may   terminate  our  agreement  in  certain
circumstances, including:

     o    if we become insolvent or are petitioned into bankruptcy;

     o    if we breach the  agreement  and do not remedy the  default  within 60
          days of MeSys notifying us that we are in default;

     o    if Diamed's manufacturing agreement with MeSys is terminated; or

     o    if our marketing agreement with Diamed is terminated.


SALES AND MARKETING

     We  currently  have  limited  sales  and  marketing   capabilities  and  no
distribution  capabilities.  We will seek to develop our own sales and marketing
infrastructure  to commercialize  the RHEO(TM) System. We have recruited a chiEF
operating officer with significant sales, marketing and distribution experience.
We intend to recruit our domestic  ophthalmic  sales force in the near future in
order to have an  established  sales  and  marketing  capability  if and when we
receive FDA approval to market the RHEO(TM) System in the United States.

     We expect to focus our sales and marketing efforts on multi-facility health
care service  providers,  including  hospitals,  dialysis clinics and ambulatory
surgery  centers,  as  well  as  private  eye  care   professionals,   including
optometrists and ophthalmologists. Each of these two groups would be serviced by
separate  dedicated  sales forces,  with knowledge of the  particular  needs and
concerns of each group.

     In order to make the  RHEO(TM)  System more  attractive  to  multi-facility
health care  service  providers  aND private  eye care  professionals,  prior to
commercialization  in the  United  States,  we will  seek to  create a  training
program for nurses, leveraging existing clinics in Canada and potential partners
who already have experience in apheresis  treatments,  such as dialysis clinics,
to  ensure an  adequate  supply  of  trained  nurses  for our  service  provider
partners.

       If the RHEO(TM) System is approved for  commercialization  by the FDA, we
also intend to increase markET  awareness of RHEO(TM) Therapy by identifying and
developing  relationships  with  key  opinion  leaders  in each of tHE eye  care
disciplines,  including ophthalmologists and optometrists. We believe that these
opinion leaders,  some of whom are investigators in MIRA-1,  will help establish
credibility for RHEO(TM) Therapy . If and when we obtain FDA approval, we intend
to launch a public relations campaign targeted directly at patients and advocacy
groups to alert them to this new treatment.  Members of our management team were
leaders in creating  market  awareness  of laser vision  correction  when it was
introduced to the North  American  market in the 1990s and in doing so they were
effective  in creating  relationships  with a large number of  optometrists  and
ophthalmologists in the United States.

     We currently have an exclusive  agreement with  Apheresis  Technologies  to
provide warehousing, order fulfillment,  shipping, billing services and customer
service  related to shipping  and billing for the  RHEO(TM)  System.  Under this
agreement,  we pay Apheresis  Technologies a basic service fee of 5% of the cost
to us of the RHEO(TM)  System.  The  agreement  expires 10 years  subsequent  to
approval by the FDA of the RHEO(TM) System uNLess otherwise terminated by us.

     In Canada,  we are  currently  marketing  and selling the  RHEO(TM)  System
through a small, dedicated Canadian salES force. In September 2004, we signed an
agreement with Rheo  Therapeutics  Inc., a private Canadian  company,  which has


                                       21
<PAGE>

agreed to  purchase  approximately  8,000  treatment  sets and an  estimated  20
OctoNova  pumps  by the  end of  2005,  with  an  option  to  purchase  up to an
additional 2,000 treatment sets, subject to availability. Rheo Therapeutics pays
a  first-to-the-market  favorable price of $750 per treatment set.  However,  we
expect our pricing in the United States to be approximately $1,200 per treatment
set. Under our agreement with Rheo Therapeutics,  either party may terminate the
agreement  with 90 days'  written  notice to the other party.  However,  if Rheo
Therapeutics  gives notice to terminate the  agreement  before all of its orders
have been shipped,  Rheo Therapeutics is liable for the remaining balance of its
orders.  Dr.  Machat,  who is an  investor in and one of the  directors  of Rheo
Therapeutics, was a co-founder and former director of TLC Vision.

COMPETITION

     The  pharmaceutical,  biotechnology  and medical  industries  are intensely
competitive.  We specifically  target those afflicted with Dry AMD. While we are
aware  that a number  of  companies  have  developed  or are in the  process  of
developing   treatments  for  Wet  AMD,   including   Eyetech   Pharmaceuticals,
Inc./Pfizer Inc.,  Genentech,  Inc./Novartis  Ophthalmics,  Alcon  Laboratories,
Inc.,  Iridex  Corporation,  QLT Inc. and Gen Vec, Inc., we are not aware of any
companies  developing  treatments  specifically for Dry AMD. This  significantly
enhances our competitive position.  However, some of these companies may develop
new treatments for Dry AMD or may develop  modifications to their treatments for
Wet AMD that may be effective for Dry AMD as well. In addition,  other companies
also may be involved in competitive activities of which we are not aware.

     While there are other  suppliers who  manufacture a pump that could be used
in the RHEO(TM) Therapy , there aRE no other suppliers of Asahi's Rheofilter and
consequently  we believe  that a third  party  could not  readily  make a system
similar  to the  RHEO(TM)  System.  Furthermore,  if a  third  party  were to be
successful  in  making a systEM  similar  to the  RHEO(TM)  System,  it would be
required to have that system  approved for marketing in the United StatES by the
FDA.

PATENTS AND PROPRIETARY RIGHTS

     Our  success  depends  in part on our  ability  to  develop  a  competitive
intellectual  property advantage over potential competitors for the treatment of
Dry AMD. There is currently no FDA-approved therapy for Dry AMD and, to date, we
are not aware of any other  treatment in clinical  development in North America.
We own or have licenses to certain  patents and we have  exclusive  arrangements
with certain  suppliers  that we believe  will help us develop this  competitive
advantage.  We also rely on know-how,  continuing  technological  innovation and
in-licensing  opportunities  to further  develop our proprietary  position.  Our
ability  and the  ability  of our  licensors  to  obtain  intellectual  property
protection  for the RHEO(TM)  System and related  processes,  and our abiliTY to
operate  without  infringing the  intellectual  property rights of others and to
prevent  others from  infringing  our  intellectual  property  rights will be an
important  factor  to our  success.  Our  strategy  is to  seek to  protect  our
proprietary  position by, among other methods,  filing U.S. patent  applications
related to our technology, inventions and improvements that are important to the
development of our business.

     One aspect of the  RHEO(TM)  System is a treatment  method  described in an
issued U.S. patent which expires IN 2017. This patent,  issued under U.S. patent
number  6,245,038  and  entitled  "Method  for  Treatment  of   Ophthalmological
Diseases",  is  directed  to  a  process  for  treating  ocular  diseases  using
apheresis.  We license this patent from the two  co-owners of the patent under a
separate license  agreement with each owner.  Under the license  agreements,  we
have the exclusive right to use the claimed  treatment method in the U.S. during
the term of the patent.  As part of those  agreements,  we are  required to make
royalty  payments in the aggregate of 2% of the sales for the OctoNova pumps and
filters, subject to minimum required payments in the aggregate amount of $25,000
during each calendar quarter.


                                       22
<PAGE>

     We expect that we will request  re-examination of the patent licensed to us
in 2005 at the U.S.  Patent and  Trademark  Office  and we  believe  that a more
detailed  claim set will be issued.  Subsequent  to entering  into these license
agreements,  we determined  that certain prior art  publications  written by the
inventor  related to the claimed  subject matter may not have been considered by
the Examiner  during  prosecution  of this patent and that these  references may
affect the validity of certain patent claims as issued.  We therefore  intend to
request  re-examination  in order  to have  the  issued  claims  in this  patent
considered in view of these publications.  During the re-examination proceeding,
we also intend to submit additional claims, which are narrower in scope than the
issued  claims,  and are limited to the use of plasma  filtration  processes for
treatment of ophthalmological diseases.

     In addition,  we own one issued patent in the United States,  which expires
in 2019.  This patent,  issued under U.S.  patent number  6,551,266 and entitled
"Rheological  Treatment Methods and Related Apheresis  Systems",  is directed to
methods of screening and identifying  patient  candidates for RHEO(TM) Therapy .
We also have thrEE additional pending patent  applications in the United States,
Europe and Japan relating to the 6,551,266 patent.

     The patent  position of  companies  like ours is  generally  uncertain  and
involves  complex  legal and factual  questions.  Our  ability to  maintain  and
solidify a proprietary position for our technology will depend on our success in
obtaining  effective  claims and enforcing those claims once granted.  We do not
know whether any part of our patent  applications will result in the issuance of
any patents. Our issued patents and those that may issue in the future, or those
licensed to us, may be  challenged,  invalidated  or  circumvented,  which could
limit our ability to stop  competitors  from marketing our product or the length
of  term  of  patent  protection  that  we  may  have  for  our  processes.  The
reexamination of patent 6,245,038 may result in the patent being rejected and no
claims  of  commercial  value  being  issued  or it may  result  in  competitors
acquiring  intervening rights. In addition,  the rights granted under any issued
patents may not provide us with proprietary protection or competitive advantages
against  competitors  with similar  technology.  Because of the  extensive  time
required for development,  testing and regulatory review of a potential product,
it is possible  that,  before any of our  products  can be  commercialized,  any
related  patent may expire or remain in force for only a short period  following
commercialization, thereby reducing any advantage of the patent.

     In addition to patent  protection,  we have  registered  the following U.S.
trademarks:

          o    OCCULOGIX;

          o    OUR VISION IS YOUR VISION;

          o    RHEOTHERAPY;

          o    VASCULAR SCIENCES; and

          o    RHEOPHERESIS

     We also  have the right to use the  following  registered  trademarks  from
Asahi Medical: Rheofilter, and Plasmaflo.

     We may  rely,  in some  circumstances,  on trade  secrets  to  protect  our
technology.  However, trade secrets are difficult to protect. We seek to protect
our proprietary technology and processes, in part, by confidentiality agreements
with our  employees,  consultants,  scientific  advisors and other  contractors.
These agreements may be breached,  and we may not have adequate remedies for any
breach.  In  addition,  our  trade  secrets  may  otherwise  become  known or be
independently  discovered  by  competitors.  To the extent  that our  employees,


                                       23
<PAGE>

consultants or contractors  use  intellectual  property owned by others in their
work for us,  disputes  may  arise as to the  rights  in  related  or  resulting
know-how and inventions.

GOVERNMENT REGULATION

     Government authorities in the United States and other countries extensively
regulate, among other things, the research,  development,  testing, manufacture,
labeling,  promotion,  advertising,  distribution  and marketing of the RHEO(TM)
System,  which is a medical  device.  In the United  States,  the FDA  regulates
medical devices under tHE Federal Food,  Drug, and Cosmetic Act and implementing
regulations. Failure to comply with the applicable FDA requirements, both before
and after approval,  may subject us to  administrative  and judicial  sanctions,
such  as a  delay  in  approving  or  refusal  by  the  FDA to  approve  pending
applications,  warning letters,  product  recalls,  product  seizures,  total or
partial suspension of production or distribution,  injunctions,  and/or criminal
prosecution.

     Unless  exempted by  regulation,  medical  devices may not be  commercially
distributed  in the United  States  unless they have been cleared or approved by
the FDA. Medical devices are classified into one of the three classes,  class I,
II or III, on the basis of the  controls  necessary to  reasonably  assure their
safety and effectiveness.  Class I devices are subject to general controls, such
as  labeling,  premarket  notification,  and  adherence  to  good  manufacturing
practices.  Class II devices are subject to general and specific controls,  such
as performance  standards,  patient  registries and FDA  guidelines.  Generally,
class III devices are those which must  receive  approval of a PMA by the FDA to
provide  reasonable  assurance of their safety and  effectiveness.  For example,
life-sustaining,  life-supporting, and implantable devices, or new devices which
have not been  found  substantially  equivalent  to  legally  marketed  devices,
generally require approval of a PMA by the FDA.

     There are two  review  procedures  by which  medical  devices  can  receive
clearance or approval.  Some products may qualify for clearance  under a Section
510(k) procedure,  in which the manufacturer  provides a premarket  notification
that it intends to begin  marketing  the product,  and shows that the product is
substantially  equivalent to another legally marketed  product,  that is that it
has the same  intended use and is as safe and  effective  as a legally  marketed
device and does not raise different  questions of safety and effectiveness  than
does a legally marketed device.  In some cases, the submission must include data
from  human  clinical  studies.  Marketing  may  commence  when the FDA issues a
clearance letter finding substantial equivalence.

     If the medical  device does not  qualify for the 510(k)  procedure,  either
because  it is not  substantially  equivalent  to a legally  marketed  device or
because it is a class III device  required to have an approved PMA, then the FDA
must approve a submitted PMA before marketing can begin. A PMA must demonstrate,
among other matters,  that the medical  device is safe and  effective.  A PMA is
typically a complex submission, usually including the results of preclinical and
clinical studies,  and preparing an application is a detailed and time-consuming
process. The PMA must be accompanied by the payment of user fees which currently
exceed  $200,000 for most  submissions.  When modular  submissions are used, the
entire fee is due when the first module is submitted to the FDA.  Once a PMA has
been  submitted,  the FDA's  review may be lengthy and may include  requests for
additional data. The FDA usually inspects device  manufacturers  before approval
of a PMA,  and the FDA  will  not  approve  the PMA  unless  the  manufacturer's
compliance with the quality systems regulation is satisfactory.

     The RHEO(TM)  System is a class III device and will  require  approval of a
PMA, which has not yet been submittED to the FDA. Once  submitted,  we cannot be
sure when the FDA's  review will be complete or that the FDA will  approve a PMA
for our product in a timely  fashion,  or at all. FDA  requests  for  additional
studies  during the review period are not uncommon and can  significantly  delay
approvals. Even if we were able to obtain approval of a PMA of a product for one
indication,  changes to the product,  its indication or its labeling can require
additional clearances or approvals.


                                       24
<PAGE>

     To obtain approval of a PMA, clinical studies  demonstrating the safety and
effectiveness  of the medical device must be conducted.  Prior to beginning such
studies, an Investigational Device Exemption,  or IDE, for the study must become
effective. The IDE will automatically become effective 30 days after its receipt
by the FDA, unless the FDA raises concerns or questions about the conduct of the
study.  In that case,  the concerns and  questions  must be resolved  before the
study can begin. Even after an IDE becomes effective,  the FDA may suspend it at
any time on various grounds, including a finding that patients are being exposed
to an  unacceptable  health  risk.  The  RHEO(TM)  System is the  subject  of an
effective  IDE,  but we cannot be sure that the FDA will not suspeND  it,  which
would prevent us from completing the MIRA-1 and other studies.

     Regardless of whether a medical device  requires FDA clearance or approval,
a number of other FDA  requirements  apply to the device,  its  manufacturer and
those who  distribute  it. Device  manufacturers  must be  registered  and their
products   listed  with  the  FDA,  and  certain   adverse  events  and  product
malfunctions  must be reported to the FDA.  The FDA also  regulates  the product
labeling,  promotion,  and in some cases,  advertising,  of medical devices.  In
addition,  manufacturers  and their suppliers must comply with the FDA's quality
system  regulation  which  establishes  extensive  requirements  for quality and
manufacturing procedures.  Thus, suppliers,  manufacturers and distributors must
continue to spend time, money and effort to maintain compliance,  and failure to
comply can lead to enforcement action. The FDA periodically  inspects facilities
to ascertain compliance with these and other requirements.

EMPLOYEES

     As of December 31, 2004,  we had 17 full-time  employees.  Of our full-time
workforce,  seven employees are engaged in clinical trial activities and ten are
engaged in  business  development,  finance and  administration.  We also retain
outside consultants.  None of our employees are covered by collective bargaining
arrangements,  and our management considers its relationships with our employees
to be good.  To date,  our strategy has been to limit the size of our  full-time
workforce and to outsource several of our key operating functions, including the
management of the MIRA-1 clinical trial.  We have also relied  significantly  on
the resources of two of our major stockholders, TLC Vision and Diamed, to assist
us in the planning and execution of our business plan to date.

RISK FACTORS

RISKS RELATING TO OUR BUSINESS

WE HAVE  INCURRED  LOSSES  SINCE  INCEPTION  AND  ANTICIPATE  THAT WE WILL INCUR
CONTINUED LOSSES FOR THE FORESEEABLE FUTURE.

    We have incurred  losses in each year since our  inception in 1996.  Our net
loss for the fiscal years ended December 31, 2004, 2003, 2002 and 2001 was $21.8
million,  $2.5  million,  $2.9  million and $4.1  million,  respectively.  As of
December 31, 2004, we had an accumulated deficit of $48.0 million. These losses,
among other things,  have had and will continue to have an adverse effect on our
stockholders'  equity and working capital. We expect our clinical and regulatory
expenses to increase in  connection  with MIRA-1 and any other  clinical  trials
that we may  initiate.  In  addition,  subject to FDA  approval of the  RHEO(TM)
System , we  expect  to  incur  significaNT  sales,  marketing  and  procurement
expenses. As a result, we expect to continue to incur significant and increasing
operating  losses for the next several years.  Because of the numerous risks and
uncertainties associated with developing new medical therapies, we are unable to
predict the extent of any future  losses or when we will become  profitable,  if
ever.

OUR BUSINESS MAY NOT GENERATE THE CASH NECESSARY TO FUND OUR OPERATIONS.

    Since inception, we have funded our operations through private placements of
our equity and debt securities,  early stage revenues and a recently  successful
initial  public  offering,  or IPO.  Prior to the IPO, our cash  resources  were
limited.  We may need  additional  capital in the future,  and our prospects for


                                       25
<PAGE>

obtaining  it are  uncertain.  We expect that the funding  requirements  for our
operating  activities  will  continue to increase  substantially  in the future,
primarily due to the  commercialization  of the RHEO(TM) System . We may need to
seEK  additional  funds in the future from a combination  of sources,  including
product  licensing,  joint  development  and other  financing  arrangements.  In
addition, we may issue debt or equity securities if we determine that additional
cash resources could be obtained under favorable conditions or if future funding
requirements  cannot be satisfied  with  available  cash  resources.  Additional
capital may not be  available  on terms  favorable to us, or at all. If adequate
capital  is  unavailable,  and  if our  operations  do not  generate  cash,  our
commercialization of the RHEO(TM) System will be delayed and we may be unable to
continue our operations.

WE DO NOT KNOW WHETHER WE WILL BE ABLE TO INCREASE OUR REVENUES, DERIVE REVENUES
FROM SOURCES  OTHER THAN SALES TO A RELATED  PARTY OR BECOME  PROFITABLE  IN THE
FUTURE.

    We were  founded  in 1996 but the  focus of our  operations  since  2000 has
shifted  towards our ongoing  pivotal trial,  MIRA-1,  for the RHEO(TM)  System.
Prior to 2000,  our  focus was on  commercializing  and  performing  therapeutIC
apheresis,  or blood filtering.  We generated revenues of approximately $900,200
and $1,277,800 for the years ended June 30, 1999 and 1998, respectively,  all of
which were earned in the United  States.  For the years ended  December 31, 2004
and 2003,  we had  revenues  of $969,357  and  $390,479,  respectively  of which
$731,757  and  $390,479,  respectively,  were derived from sales of the RHEO(TM)
System to OccuLogix, L.P., a related party, which then selLS the RHEO(TM) System
to three clinics in Canada, one of which is a related party, RHEO Clinic Inc., a
subsidiary OF TLC Vision. For the period from July 2002 to December 8, 2004, our
only customer was OccuLogix,  L.P., a related  party.  Subsequent to December 8,
2004,  OccuLogix,  L.P.  became  wholly owned by us. Our ability to increase our
revenues and to earn  revenues in the United  States is dependent on a number of
factors, including:

     o    successfully completing MIRA-1 for the RHEO(TM) System;

     o    obtaining  FDA  approval to market the  RHEO(TM)  System in the United
          States;

     o    successfully building the infrastructure and manufacturing capacity to
          market and sell the RHEO(TM) System;

     o    achieving  widespread  acceptance of RHEO(TM) Therapy among physicians
          and patients; and

     o    agreement of  governmental  and  third-party  payors to reimburse  for
          RHEO(TM) Therapy.

    We do not anticipate that we will generate any revenues in the United States
until late 2006,  at the  earliest.  If we do not  obtain FDA  approval  and are
required to focus our efforts on  marketing  the  RHEO(TM)  System TO clinics in
Canada,  or if we are  unable to  generate  significant  revenues  in the United
States,  we may not  become  profitable,  and we may be unable to  continue  our
operations.

WE MAY BE UNABLE TO COMPLETE MIRA-1.

    We are required to obtain FDA approval to market the RHEO(TM)  System in the
United States. To support AN application for FDA approval, we are conducting, at
our own  expense,  MIRA-1 to evaluate the safety and efficacy of RHEO Therapy in
humans. Clinical testing is expensive,  can take many years and has an uncertain
outcome.  Although  we have  submitted  an interim  analysis  to the FDA,  these
results may not be indicative of the final results for MIRA-1. Failure can occur
at any stage of the testing.  We may encounter  numerous factors during, or as a
result of,  MIRA-1  that could  delay or prevent us from  completing  MIRA-1 and
receiving FDA approval for a number of reasons, including:


                                       26
<PAGE>

     o    we may be unable to obtain the complete  number of data sets  required
          by the  protocol  filed with the FDA if  patients  do not  fulfill the
          requirement to have a 12-month follow-up visit, or otherwise;

     o    costs of MIRA-1 may be greater than we currently anticipate;

     o    we,  or  the  regulators,  may  suspend  or  terminate  MIRA-1  if the
          participating patients are being exposed to unacceptable health risks;
          and

     o    MIRA-1  may  produce  negative  or  inconclusive  results,  and we may
          decide, or regulators may require us, to conduct  additional  clinical
          and/or preclinical testing.

    MIRA-1 is currently being conducted at eight treatment centers in the United
States and  Canada.  We are working  with our  contract  research  organization,
Promedica  International,  and the following consulting organizations to conduct
our MIRA-1 trial:  McGarvey  Group,  Center for Clinical  Research (Don Sanders,
PhD),  Jules Stein Eye Institute,  LabCorp,  and Biostat  International.  If our
relationship  with any of these  organizations  terminates,  we believe  that we
would  be able to  enter  into  arrangements  with  alternative  third  parties,
however,   such  a  change  may  delay  the  completion  of  MIRA-1.   If  these
organizations  or  any   replacements  do  not  successfully   carry  out  their
contractual duties or obligations,  do not meet expected deadlines or need to be
replaced,  or if the  quality or accuracy  of the  clinical  data they obtain is
compromised  due to their  failure to adhere to our  clinical  protocols  or for
other reasons, our clinical trial may be extended, delayed or terminated, and we
may not be able to obtain regulatory approval for the RHEO(TM) System.

EVEN IF WE  COMPLETE  MIRA-1,  WE MAY NOT  RECEIVE  FDA  APPROVAL  TO MARKET THE
RHEO(TM) SYSTEM IN THE UNITED STATES.

    Even if we complete MIRA-1 successfully,  we may not receive FDA approval to
market the RHEO(TM)  System in tHE United  States.  Obtaining  FDA approval is a
lengthy and expensive process,  and approval is uncertain.  We may never receive
FDA approval for the RHEO(TM)  System or we may  experience  delays in receiving
approval.  Delays in obtainiNG or failure to obtain FDA approval  would delay or
prevent the successful  commercialization  of the RHEO(TM) SysteM,  diminish our
competitive advantage and/or defer or decrease our receipt of revenues.  Even if
we obtain FDA approval,  this approval may only be for a limited or narrow class
of Dry AMD patients,  thereby  diminishing  the size of the class of prospective
patients for whose use the RHEO(TM) System can be promoted.

    In  addition,  changes to the  RHEO(TM)  System can require  additional  FDA
approvals.  The RHEO(TM) System  currENtly uses a cellulose  acetate  Rheofilter
which is manufactured  by Asahi Medical.  We have been informed by Asahi Medical
that it intends to  discontinue  manufacturing  the cellulose  acetate filter in
2008 and we are working with Asahi Medical to develop a new  polysulfone  filter
to replace it. We will  require FDA  approval to replace the  cellulose  acetate
Rheofilter with the new polysulfone  Rheofilter which may require the generation
and  submission of additional  clinical data which could delay the timing of the
application  and  increase  the cost of obtaining  such  approval.  If we do not
receive FDA approval for the new  polysulfone  Rheofilter  or, if obtaining  the
approval  takes  longer than we expect,  we may be unable to market the RHEO(TM)
System.

OUR PURCHASE COMMITMENTS MAY ADVERSELY AFFECT OUR LIQUIDITY.

    We currently  have  commitments to purchase  approximately  $21.6 million of
OctoNova  pumps (based on current  exchange  rates)  within five years after FDA
approval  and  $13.3  million  of  Rheofilters  and  Plasmaflo  filters  over  a
three-year period beginning six months after FDA approval. We expect to fund our
purchase commitments with up to $15.2 million from the proceeds of the IPO, cash
from  operations  following  FDA  approval  or,  in the  event  we do  not  have


                                       27
<PAGE>

sufficient cash from operations,  other financing sources.  Should these sources
be insufficient to fund our purchase commitments, our liquidity may be adversely
affected.

WE CURRENTLY  DEPEND ON SINGLE SOURCES FOR KEY COMPONENTS OF THE RHEO(TM) SYSTEM
.. THE LOSS OF ANY OF THESE SOURCES COULD DELAY OUR CLINICAL TRIALS OR PREVENT OR
DELAY COMMERCIALIZATION OF THE RHEO(TM) SYSTEM .

    We currently  depend on single sources for the filters and the OctoNova pump
used in the RHEO(TM)  System . WE have entered into a supply  agreement  for the
filters with Asahi Medical and for the OctoNova pump with Diamed, which designed
the  OctoNova  pump,  and MeSys,  which  manufactures  the pumps for Diamed.  We
currently have commitments to purchase $21.6 million of OctoNova pumps (based on
current  exchange  rates) within five years after FDA approval and $13.3 million
of  Rheofilters  and Plasmaflo  filters over a three-year  period  beginning six
months after FDA approval.  If we fail to meet our minimum purchase requirements
under our  agreements  with Diamed or Asahi  Medical,  those  agreements  may be
terminated or rendered  non-exclusive at the sole discretion of the supplier. If
any of these suppliers  ceases to supply  components to us or does not supply an
adequate  number  of  components,  our  sales and  growth  could be  restricted,
potentially  materially.  If we do not achieve FDA approval and other  necessary
approvals in the territories for which we have distribution rights by the end of
December 2006,  Asahi Medical can terminate the supply agreement for the filters
and  Diamed  can  terminate  the supply  agreement  for the  pumps.  Each of the
agreements  has a term ending ten years after the date of FDA  approval,  and is
automatically  renewable for one year terms unless  terminated  upon six months'
notice. In addition,  Diamed may terminate its agreement upon the termination of
our  manufacturing  agreement  with  MeSys,  which  has a term  of  three  years
following FDA approval.  We believe that establishing  additional or replacement
suppliers for these components may not be possible as these suppliers have trade
secrets,  patents and other intellectual property that may prevent a third party
from  manufacturing  a  suitable  replacement  product.  Even  if we  switch  to
replacement  suppliers and the supplier can manufacture the necessary components
without  violating any third-party  intellectual  property  rights,  we may face
additional  regulatory  delays and the distribution of the RHEO(TM) SystEM could
be  interrupted  for an  extended  period  of time,  which may delay or slow the
commercialization  of  RHEO(TM)  Therapy  and  adversely  impact  our  financial
condition and results of operations.

OUR SUPPLY AGREEMENT WITH ASAHI MEDICAL REQUIRES US TO TRANSFER THE FDA APPROVAL
OF THE RHEO(TM)  SYSTEM TO IT UPON  RECEIPT  WHICH WILL LIMIT OUR CONTROL OF THE
FDA APPROVAL.

    In the 2001 supply  agreement  with Asahi  Medical for the filters  that are
used in the RHEO(TM) System, we agreED to obtain the FDA approval in the name of
Asahi Medical and to maintain that approval.  In a subsequent  2003 amendment to
that agreement, we agreed to transfer FDA approval to Asahi Medical upon receipt
from the FDA. Any clinical data  contained in the  application  for FDA approval
continues to belong to us. Asahi  Medical will have the right to use the data in
any territory  where Asahi Medical grants us a  distributorship.  This agreement
also makes us the  exclusive  distributor  of Asahi  Medical's  RHEO(TM)  System
filters in the United States, Canada, MexiCO and the Caribbean for a term of ten
years beginning at the date of the FDA approval, and is automatically  renewable
for one-year terms unless terminated upon six months' notice. The agreement also
provides that Asahi Medical may terminate the  exclusivity  provision if certain
post-FDA  approval minimum  purchase  requirements are not met. This transfer of
FDA approval to Asahi Medical may limit our  flexibility  to make changes in the
FDA  approval  such as the addition of  alternate  suppliers of RHEO(TM)  System
components  without  Asahi  Medical's  consenT,  or limit our ability to prevent
changes to the FDA  approval  that we might  consider  detrimental,  such as the
addition  of  labeling  changes  or  the  substitution  of  alternate  component
suppliers.

IF WE OR OUR SUPPLIERS FAIL TO COMPLY WITH THE EXTENSIVE REGULATORY REQUIREMENTS
TO WHICH WE AND THE RHEO(TM)  SYSTEM ARE SUBJECT,  THE RHEO(TM)  SYSTEM COULD BE
SUBJECT TO RESTRICTIONS  OR WITHDRAWALS  FROM THE MARKET AND WE COULD BE SUBJECT
TO PENALTIES.


                                       28
<PAGE>

    We, our suppliers and our products are subject to numerous FDA  requirements
covering  the design of the RHEO(TM)  System,  testing,  manufacturing,  quality
control, labeling, advertising,  promotion and export of the RHEO(TM) SysteM and
other matters.  Failure to comply with statutes and regulations  administered by
the FDA could result in, among other things, any of the following actions:

    o    warning letters;

    o    fines and other civil penalties;

    o    unanticipated expenditures;

    o    withdrawal of FDA approval;

    o    delays in approving or refusal to approve the RHEO(TM) System;

    o    product recall or seizure;

    o    interruption of production;

    o    operating restrictions;

    o    injunctions; and

    o    criminal prosecution.

    We and our suppliers are subject to numerous  federal,  state and local laws
relating to such matters as safe working  conditions,  manufacturing  practices,
environmental  protection,  fire hazard  control and  disposal of  hazardous  or
potentially  hazardous  substances.  In addition,  advertising  and  promotional
materials  relating to medical  devices  are, in certain  instances,  subject to
regulation by the Federal Trade Commission. We and our suppliers may be required
to incur  significant  costs to comply  with such  laws and  regulations  in the
future,  and such  laws  and  regulations  may  materially  harm  our  business.
Unanticipated changes in existing regulatory requirements,  the failure of us or
our  manufacturers  to comply  with such  requirements  or the  adoption  of new
requirements could materially harm our business.

WE MAY BE UNABLE TO COMMERCIALIZE THE RHEO(TM) SYSTEM SUCCESSFULLY IN THE UNITED
STATES.

    Even if we  successfully  complete  MIRA-1 and obtain FDA  approval  for the
RHEO(TM)  System,  our  success  depends  oN our  ability to market and sell the
RHEO(TM) System. Successful  commercialization of the RHEO(TM) System depends On
a number of factors, including:

    o   achieving widespread acceptance of RHEO(TM) Therapy among physicians and
        patients;

    o   agreement  of   governmental   and   third-party   payors   to   provide
        reimbursement for RHEO(TM) Therapy;

    o   maintaining our relationships with our single source suppliers;

    o   obtaining sufficient quantities of components for the RHEO(TM) System;

    o   establishing adequate sales and marketing capabilities;

    o   obtaining sufficient facility space;


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<PAGE>

    o   our  ability  to  identify   and  sell  the   RHEO(TM)   System  to  key
        multi-facility  health  care  providers  as well aS to private  eye care
        professional practices;

    o   our ability  to  successfully  sell the RHEO(TM) System at our projected
        selling price;

    o   whether  there   are  adverse  side  effects  or  unfavorable  publicity
        concerning the RHEO(TM) System; and

    o   whether  there  is  competition  for the  RHEO(TM)  System  from  new or
        existing products, which may prove to bE safer, more efficacious or more
        cost-effective than the RHEO(TM) System.

RHEO(TM)  THERAPY  IS  BASED  ON  A  MODEL  THAT  HAS  NOT  ACHIEVED  WIDESPREAD
ACCEPTANCE,  AND MAY BE PROVEN  INCORRECT.  IF WE ARE  UNSUCCESSFUL IN ACHIEVING
WIDESPREAD  ACCEPTANCE OF RHEO(TM)  THERAPY AMONG  PHYSICIANS AND PATIENTS,  OUR
BUSINESS MAY NOT SUCCEED.

    AMD is not a well-understood  disease and its underlying cause is not known.
RHEO(TM)  Therapy is based on A disease  model that has not achieved  widespread
acceptance  with  eye  care   professionals.   Unlike  traditional   therapeutic
treatments  for eye diseases,  RHEO(TM)  Therapy is a systemic  approach for the
treatment of Dry AMD, rather than a localized approach. Our success is dependent
upon achieving widespread acceptance of RHEO(TM) TherapY among  ophthalmologists
and optometrists.  Eye care  professionals and health care service providers may
not be willing to integrate  RHEO(TM) Therapy into their workflow.  In addition,
because  RHEO(TM)  Therapy can be performeD by health care providers  other than
eye care  professionals,  eye care  professionals  may be  reluctant  to endorse
RHEO(TM) Therapy.

    Even if we are  successful  in achieving  widespread  acceptance of RHEO(TM)
Therapy  among  physicians,  we may bE unable to achieve  widespread  acceptance
among  potential  patients.  An  initial  course  of  RHEO(TM)  Therapy  is timE
consuming,  requiring eight  procedures over a 10- to 12-week period,  with each
procedure  lasting between two and four hours. Some patients may be reluctant to
undergo RHEO(TM) Therapy because of the time commitment.  In addition,  RHEO(TM)
Therapy providers may not be easily accessible to all patients and some patients
may be  unwilling  or unablE to travel to receive  RHEO(TM)  Therapy.  If we are
unable to achieve widespread acceptance,  our financial conditioN and results of
operations will be adversely affected.

    In August  1997,  our  predecessor  opened  its sole  client  facility,  the
Rheotherapy  Center,  in  Tampa,   Florida  to  perform  therapeutic   apheresis
commercially.  In 1999,  the  FDA's  Office  of  Compliance  issued a  directive
notifying our predecessor that further conducting of therapeutic apheresis would
need to be conducted under the authority of an Investigational  Device Exemption
filed with the FDA. In a related action,  our  predecessor,  on behalf of one of
our founders,  Dr. Richard C. Davis,  made a payment in the amount of $10,000 to
cover legal  expenses  incurred by the Florida Board of Medicine in  prosecuting
our  predecessor's  unauthorized  advertising  of  new  medical  therapies.  Our
predecessor  closed the Rheotherapy Center in 1999 and we have since received an
Investigational  Device Exemption and focused our resources on completing MIRA-1
in order to obtain FDA approval of the RHEO(TM) System.  Dr. Davis was our Chief
Executive  Officer from January to June 2003 and was our Chief  Science  Officer
from July 2003 to April 2004 and since then has  served as a  consultant  to us.
Dr. Davis is also a former  director of ours. We believe that the  activities of
the Rheotherapy Center engendered opposition in certain segments of the eye care
community to RHEO(TM)  Therapy and if this opposition  continues,  acceptance of
RHEO(TM) Therapy among eye care  professionals  and patients may be difficult to
achieve.

IF RHEO(TM)  THERAPY IS NOT  REIMBURSED BY  GOVERNMENTAL  AND OTHER  THIRD-PARTY
PAYORS, OR IS ONLY REIMBURSED ON A LIMITED BASIS, OUR BUSINESS MAY NOT SUCCEED.

    Undergoing  RHEO(TM)  Therapy  is  expensive,  with  an  initial  course  of
treatment  expected to initially cost betweeN  $16,000 and $25,600 in the United
States.  Continuing efforts of governmental and third-party payors to contain or


                                       30
<PAGE>

reduce the costs of health care could negatively affect the sale of the RHEO(TM)
System.  Our ability tO  commercialize  the RHEO(TM)  System  successfully  will
depend in substantial part on favorable  determinations bY governmental  payors,
most prominently Medicare,  private health insurers and state-funded health care
coverage programs.  Without the establishment of timely,  favorable coverage and
reimbursement  policies,  we may be  unable  to set  or  maintain  price  levels
sufficient  to  realize  an  appropriate  return on our  investment  in  product
development.  Other significant insurance coverage  limitations,  such as narrow
restrictions on patient coverage criteria and restrictions on treatment settings
in which RHEO(TM) Therapy is covered, may also limit our potentiaL revenues.

OUR  PATENTS  MAY NOT BE  VALID  AND WE MAY NOT BE ABLE TO  OBTAIN  AND  ENFORCE
PATENTS TO PROTECT OUR PROPRIETARY RIGHTS FROM USE BY COMPETITORS.

    Our owned and  licensed  patents  may not be valid and we may not be able to
obtain and enforce  patents  and to maintain  trade  secret  protection  for our
technology. The extent to which we are unable to do so could materially harm our
business.

    We have  applied  for and will  continue  to apply for  patents  for certain
processes used in the RHEO(TM) System.  Such  applications may not result in the
issuance of any patents,  and any patents now held or that may be issued may not
provide us with adequate  protection from  competition.  In addition,  we expect
that we will seek to have the patent  licensed to us  re-examined in the next 12
months at the U.S.  Patent and  Trademark  Office,  and we  believe  that a more
detailed claim set will be issued.  The re-examination of this patent may result
in the patent being rejected or no claims of commercial value being issued or it
may result in  competitors  acquiring  intervening  rights.  Furthermore,  it is
possible that patents  issued or licensed to us may be challenged  successfully.
In that  event,  if we have a  preferred  competitive  position  because of such
patents,  any  preferred  position held by us would be lost. If we are unable to
secure or to continue to maintain a preferred  position,  the  components of the
RHEO(TM)  System could become  subject to  competition  from the sale of generic
products.

    Patents  issued  or  licensed  to us may be  infringed  by the  products  or
processes of others. The cost of enforcing our patent rights against infringers,
if such  enforcement  is required,  could be  significant,  and the time demands
could  interfere  with  our  normal  operations.   There  has  been  substantial
litigation  and  other  proceedings  regarding  patent  and  other  intellectual
property  rights in the  pharmaceutical,  biotechnology  and medical  technology
industries.  We may become a party to patent  litigation and other  proceedings.
The cost to us of any patent litigation, even if resolved in our favor, could be
substantial.  Some of our  competitors  may be able to sustain the costs of such
litigation more effectively than we can because of their  substantially  greater
financial resources. Litigation may also absorb significant management time.

    Unpatented trade secrets, improvements, confidential know-how and continuing
technological innovation are important to our scientific and commercial success.
Although we attempt to and will  continue to attempt to protect our  proprietary
information through reliance on trade secret laws and the use of confidentiality
agreements with our corporate partners, collaborators, employees and consultants
and  other  appropriate  means,  these  measures  may  not  effectively  prevent
disclosure of our proprietary information, and, in any event, others may develop
independently, or obtain access to, the same or similar information.

    Certain of our patent rights are licensed to us by third parties. If we fail
to  comply  with the  terms of these  license  agreements,  our  rights to those
patents may be terminated, and we will be unable to conduct our business.

PATENTS OF OTHER COMPANIES COULD REQUIRE US TO STOP USING OR PAY TO USE REQUIRED
TECHNOLOGY.

    It is possible that a court may find us to be infringing upon validly issued
patents of third  parties.  In that event,  in addition to the cost of defending
the  underlying  suit for  infringement,  we may have to pay license fees and/or


                                       31
<PAGE>

damages and we may be enjoined from  conducting  certain  activities.  Obtaining
licenses under third-party  patents can be costly,  and such licenses may not be
available at all. Under such circumstances,  we may need to materially alter our
products or processes and we may be unable to do so successfully.

IF WE ARE UNABLE TO ESTABLISH ADEQUATE SALES AND MARKETING CAPABILITIES,  WE MAY
NOT BE ABLE TO GENERATE SIGNIFICANT REVENUE AND MAY NOT BECOME PROFITABLE.

    While  our  management  team  has  some  experience  in  marketing   medical
technology, we do not have a sales organization and have limited experience as a
company in the sales, marketing and distribution of ophthalmic therapy products.
In order to commercialize RHEO(TM) Therapy, we must develop our sales, marketing
and distributioN capabilities or make arrangements with a third party to perform
these functions. If and when marketing of the RHEO(TM) System is approved by the
FDA, we currently  plan to establish  our own sales force to market the RHEO(TM)
SyStem in the United  States.  Developing  a sales force is  expensive  and time
consuming and we may not be able to develop this  capacity.  If we are unable to
establish adequate sales, marketing and distribution capabilities, independently
or with others, we may not be able to generate  significant  revenue and may not
become profitable.

OUR SUPPLIERS MAY NOT HAVE  SUFFICIENT  MANUFACTURING  CAPACITY AND INVENTORY TO
SUPPORT OUR COMMERCIALIZATION PLANS.

    Our success requires that our suppliers have adequate manufacturing capacity
and inventory in order to facilitate a rapid rollout of the RHEO(TM) System.  We
have been  informed by Asahi Medical that the currenT  Rheofilter  being used in
the RHEO(TM)  System will be  discontinued  in 2008 and that,  even if it is not
discontinued,  Asahi Medical would not be able to produce  enough of the current
cellulose  acetate  Rheofilter to meet our anticipated  demand.  Although we are
working with Asahi Medical to develop a new  polysulfone  filter that we believe
Asahi Medical will be able to  manufacture  in larger  quantities and at a lower
cost  to us,  there  can be no  assurance  that  we and  Asahi  Medical  will be
successful in these efforts. Even if we are able to develop a new filter, we may
not be able to obtain FDA approval for the new filter and the new filter may not
be  manufactured  at a lower cost to us. If we are unable to obtain FDA approval
for, or the  necessary  quantities  of,  this new filter,  we may not be able to
generate product revenue and may not become profitable.

    We plan to use between $9.5 million and $10.5 million of the net proceeds of
our recent IPO to  stockpile an  inventory  of filters  from Asahi  Medical.  We
recently  signed a purchase order with Asahi Medical for 9,600 filter sets (each
filter set consists of one Plasmaflo filter and one Rheofilter), including 1,600
filter sets in the fourth quarter of 2004 and 4,000  filter sets for each of the
following  two  quarters.  We intend to  accumulate  inventory in advance of FDA
approval  in order to  maximize  the  number of filters  available  to us due to
manufacturing  constraints on the number of cellulose acetate filters that Asahi
Medical  can  produce.  However,  we will not be in a position  to  commercially
market  the  RHEO(TM)  System in the  United  States  until  late  2006,  at thE
earliest.  Each  filter has a shelf life of  approximately  three  years.  It is
possible  that some or all of these  filters  will expire  before they are used.
Moreover,  holding  inventory  in this  manner  will  decrease  our  short  term
liquidity.

    Our  ability  to conduct  MIRA-1  and  commercialize  the  RHEO(TM)  System,
depends,  in large part,  on our ability tO have  components  manufactured  at a
competitive cost and in accordance with FDA and other  regulatory  requirements.
We do not control  the  manufacturing  processes  of our  suppliers.  If current
manufacturing  processes are modified,  or the source or location of our product
supply is changed,  voluntarily  or  involuntarily,  the FDA will  require us to
demonstrate  that the  material  produced  from the  modified  or new process or
facility is equivalent  to the material used in the clinical  trials or products
previously  approved.  Any such  modifications to the  manufacturing  process or
supply may not achieve or maintain  compliance  with the  applicable  regulatory


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<PAGE>

requirements.  In many cases,  prior approval by regulatory  authorities  may be
required  before  any  changes  can be made,  which  may  adversely  affect  our
business.

OUR SUCCESS DEPENDS UPON OUR ABILITY TO SELL TO KEY  MULTI-FACILITY  HEALTH CARE
PROVIDERS AS WELL AS PRIVATE EYE CARE PROFESSIONAL PRACTICES.

    In order to facilitate a rapid rollout of the RHEO(TM) System if and when we
receive FDA approval, we will neeD to establish relationships with key organized
groups of multi-facility  health care service  providers,  including  hospitals,
dialysis clinics and ambulatory  surgery centers,  as well as private practices.
We may be unsuccessful in establishing  these  relationships,  which could limit
our ability to commercialize the RHEO(TM) System.

    We  anticipate  that RHEO(TM)  Therapy will be prescribed by physicians  and
administered by nurses,  and thereforE our service provider  customers will need
the  support  of an  adequate  supply  of  trained  nurses.  Training  nurses to
administer  RHEO(TM)  Therapy may be costly,  and our customers  may  experience
shortages of nurses from time to time. If there is a shortage of trained  nurses
to work in our customers' facilities,  our commercialization of RHEO(TM) Therapy
may be unsuccessful.

RHEO(TM)  THERAPY MAY PRODUCE  ADVERSE SIDE EFFECTS IN PATIENTS THAT PREVENT ITS
ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET.

    RHEO(TM) Therapy may produce unexpected side effects not previously observed
during  clinical  trials.  ThesE  undesirable  and  unintended  side  effects in
patients may prevent or limit its commercial adoption and use. Side effects that
have been observed in MIRA-1 were all temporary and generally mild, and included
temporary  drops in blood  pressure,  abnormal  heart rate,  nausea,  chills and
localized  bleeding,  pain,  numbness and swelling in the area of the arms where
the needles were inserted.  Even after approval by the FDA and other  regulatory
authorities,  the  RHEO(TM)  System may later be found to produce  adverse  side
effects that prevent  widespread use oR necessitate  withdrawal from the market.
The  manifestation  of such side effects could cause our business to suffer.  In
some cases, regulatory authorities may require additional disclosure to patients
that could add warnings or restrict usage based on unexpected  side effects seen
after marketing a medical treatment.

WE MAY FACE FUTURE PRODUCT  LIABILITY CLAIMS THAT MAY RESULT FROM THE USE OF OUR
PRODUCTS.

    The  testing,  manufacturing,  marketing  and sale of  therapeutic  products
entails significant inherent risks of allegations of product liability.  Our use
of such  products in  clinical  trials and our sale of the  RHEO(TM)  SysteM may
expose us to liability claims.  These claims might be made directly by patients,
health care providers or others selling the RHEO(TM)  System.  We carry clinical
trials and product liability  insurance to cover certain claimS that could arise
during MIRA-1 or during the  commercial  use of RHEO(TM)  Therapy.  We currently
maintain clinicaL trials and product liability insurance with coverage limits of
$1,000,000 in the aggregate annually.  Such coverage,  and any coverage obtained
in the  future,  may be  inadequate  to protect us in the event of a  successful
product  liability  claim, and we may not be able to increase the amount of such
insurance  coverage or even renew it. A successful product liability claim could
materially  harm our  business.  In addition,  substantial,  complex or extended
litigation  could cause us to incur large  expenditures  and divert  significant
resources.

WE WILL NEED TO INCREASE  THE SIZE OF OUR  ORGANIZATION,  AND WE MAY  EXPERIENCE
DIFFICULTIES IN MANAGING OUR GROWTH.

    In order to commercialize  the RHEO(TM)  System,  we will need to expand our
employee base for management oF operational,  sales and marketing, financial and
other resources. We do not expect to be able to commercially launch the RHEO(TM)
System until late 2006, at the earliest.  Future growth will impose  significant
additionaL  responsibilities  on members of  management,  including  the need to


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<PAGE>

identify,  recruit,  maintain and  integrate  additional  employees.  Our future
financial  performance and our ability to commercialize  the RHEO(TM) System and
tO compete effectively will depend, in part, on our ability to manage any future
growth effectively. To that end, we must be able to:

     o    manage MIRA-1 effectively;

     o    integrate  additional  management,  administrative,  distribution  and
          sales and marketing personnel;

     o    develop our  administrative,  accounting  and  management  information
          systems and controls; and

     o    hire and train additional qualified personnel.

    We may not be able to accomplish  these tasks, and our failure to accomplish
any of them could prevent us from achieving or maintaining profitability.

WE MAY FACE COMPETITION AND MAY NOT BE SUCCESSFUL IN ADDRESSING IT.

    The  pharmaceutical,  biotechnology  and medical  technology  industries are
characterized by rapidly changing technology and intense competition. AMD is not
a  well-understood   disease  and  researchers  are  continuing  to  investigate
different  theories  of the  cause of AMD.  If the  cause of AMD is  determined,
competitors could potentially develop a treatment for Dry AMD that would replace
RHEO(TM) Therapy. In addition,  competitors maY develop  alternative  treatments
for Dry AMD that prove to be superior to, or more cost-effective  than, RHEO(TM)
Therapy.  Some of these  competitors may include  companies which have access to
financial, technical and marketing resources significantly greater than ours and
substantially  greater experience in developing,  manufacturing and distributing
products,  conducting  preclinical and clinical testing and obtaining regulatory
approvals.

    We are aware of a number of  companies  which have  developed  or are in the
process of developing treatments for Wet AMD, including Eyetech Pharmaceuticals,
Inc./Pfizer Inc.,  Genentech,  Inc./Novartis  Ophthalmics,  Alcon  Laboratories,
Inc., Iridex Corporation,  Genaera Corporation,  QLT, Inc. and GenVec, Inc. Some
of these treatments are in late-stage clinical development or have been approved
by the FDA. Some of these  companies may develop new  treatments  for Dry AMD or
may develop  modifications to their treatments for Wet AMD that may be effective
for Dry AMD as well.  In  addition,  other  companies  also may be  involved  in
competitive activities of which we are not aware.

WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL WHICH MAY ADVERSELY  AFFECT
OUR BUSINESS.

    Our success depends on the continued contributions of our executive officers
and scientific personnel. Many of our key responsibilities have been assigned to
a relatively  small number of  individuals.  We will be required to hire eyecare
specialists  as  well as  personnel  with  skill  sets  in  apheresis,  nursing,
training, equipment maintenance, finance, distribution,  logistics, warehousing,
sales  and  service  to meet  our  personnel  needs.  There is  competition  for
qualified personnel,  and the failure to secure the services of key personnel or
loss of services of key personnel could adversely affect our business.

FOR AS LONG AS TLC VISION OWNS A SUBSTANTIAL  PORTION OF OUR COMMON  STOCK,  OUR
OTHER   STOCKHOLDERS  MAY  BE  EFFECTIVELY  UNABLE  TO  AFFECT  THE  OUTCOME  OF
STOCKHOLDER VOTING.

     TLC Vision  beneficially owns approximately 51.4% of our outstanding common
stock,  or 48.2% on a fully diluted  basis.  Accordingly,  TLC Vision on its own
could possess an effective  controlling  vote on matters  submitted to a vote of
the holders of our common stock.


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<PAGE>

    While it owns a  substantial  portion of our common  stock,  TLC Vision will
effectively control decisions with respect to:

     o    our  business  direction  and  policies,  including  the  election and
          removal of our directors;

     o    mergers or other business combinations involving us;

     o    the acquisition or disposition of assets by us;

     o    our financing; and

     o    amendments to our certificate of incorporation and bylaws.

    Furthermore,  TLC Vision may be able to cause or prevent a change of control
of our  company,  and this  concentration  of  ownership  may have the effect of
discouraging others from pursuing  transactions  involving a potential change of
control  of our  company,  in either  case  regardless  of  whether a premium is
offered over then-current market prices.

CONFLICTS  OF  INTEREST  MAY ARISE  BETWEEN US AND TLC  VISION,  WHICH HAS THREE
DIRECTORS  ON OUR BOARD AND FOR WHICH OUR CHIEF  EXECUTIVE  OFFICER AND CHAIRMAN
SERVES AS CHAIRMAN.  OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER WILL ALSO DEVOTE A
PORTION  OF HIS TIME TO TLC  VISION,  WHICH MAY DIVERT  HIS  ATTENTION  FROM OUR
BUSINESS AND OPERATIONS.

    TLC Vision  beneficially owns approximately  51.4% of our outstanding common
stock, or 48.2% on a fully diluted basis. Messrs.  Vamvakas and Davidson and Dr.
Lindstrom, who comprise a majority of the members of our board of directors, are
also directors of TLC Vision.  Mr. Vamvakas  beneficially  owns 3,384,989 common
shares  of  TLC  Vision,   representing   approximately  5.1%  of  TLC  Vision's
outstanding  shares.  As of December 31, 2004, Mr. Davidson  beneficially  owned
64,827 common shares of TLC Vision and Dr. Lindstrom  beneficially  owned 63,500
common  shares of TLC  Vision.  Because  they are  directors  of TLC  Vision,  a
conflict of interest could arise.  Conflicts may arise between TLC Vision and us
as a  result  of our  ongoing  agreements.  We may not be able  to  resolve  all
potential  conflicts  with TLC Vision,  and even if we do, the resolution may be
less favorable to us than if we were dealing with an unaffiliated third party.

    In addition,  our Chairman and Chief Executive Officer,  Mr. Vamvakas,  also
serves as Chairman of TLC Vision and,  therefore,  devotes a portion of his time
to matters other than our business and operations.  We believe that Mr. Vamvakas
devotes  approximately 20% of his time, on average,  to TLC's operations,  which
may divert his attention  from our business  operations  and which may adversely
affect our business.

WE HAVE  ENTERED INTO A NUMBER OF RELATED  PARTY  TRANSACTIONS  WITH  SUPPLIERS,
CREDITORS,  STOCKHOLDERS,  OFFICERS  AND OTHER  PARTIES,  EACH OF WHICH MAY HAVE
INTERESTS WHICH CONFLICT WITH THOSE OF OUR PUBLIC STOCKHOLDERS.

    We have entered into several related party  transactions with our suppliers,
creditors,  stockholders,  officers  and other  parties,  each of which may have
interests which conflict with those of our public stockholders.

CERTAIN OF OUR DIRECTORS AND MANAGEMENT  TEAM MEMBERS HAVE BEEN WITH US FOR ONLY
A SHORT TIME.

    Thomas P. Reeves, our President and Chief Operating Officer, Stephen Kilmer,
our Vice President,  Corporate Affairs, Julie Fotheringham,  our Vice President,
Marketing,  Joseph Zawaideh, our Vice President,  Sales and our directors Thomas
Davidson,  Jay T. Holmes, and Richard L. Lindstrom have all served as members of


                                       35
<PAGE>

our  management  team for less  than one  year.  This  poses a number  of risks,
including the risk that these persons may:

     o    have limited familiarity with our past practices;

     o    lack experience in communicating  effectively within the team and with
          other employees;

     o    lack settled areas of responsibility; and

     o    lack an established track record in managing our projected growth.



                                       36
<PAGE>

ITEM 2.  PROPERTIES.

         In December  2004,  we moved from our  previous  headquarters  which we
subleased  from  TLC  Vision  to  our  new  headquarters,   which  are  also  in
Mississauga.  We sublease our new headquarters  from Echo Online Internet,  Inc.
The  facility  consists  of  approximately  5,237  square  feet of office  space
utilized for corporate  finance and clinical trial management  personnel and our
current  arrangement  expires on January  29,  2006.  Our current  annual  lease
obligation for rent for this facility is Cdn. $20,948. TLC Vision has advised us
that it does not have any ownership interest in our new headquarters.

         We also lease space in a facility in Palm Harbor, Florida consisting of
5,020 square feet of space used for warehousing  the RHEO(TM) System  components
and providing office space for our clinical trial personnel, JohN Cornish who is
our Vice President of Operations,  and administrative personnel and records. The
facility consists of office and working space and an approximately  1,700 square
foot warehouse in the back.  Our lease on this property  expires on December 31,
2005.  Our  current  monthly  lease  obligation  for rent for this  facility  is
approximately $2,745. The landlord under this lease is Cornish Properties, which
is owned by Mr.  Cornish.  Mr.  Cornish was also one of our directors from April
1997 to September 2004.

         We believe that if our existing facilities are not adequate to meet our
business  requirements for the near-term,  additional space will be available on
commercially reasonable terms.

ITEM 3.  LEGAL PROCEEDINGS.

         We are not aware of any  litigation  involving us that is  outstanding,
threatened or pending.

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

         On September 27, 2004, the majority of our  stockholders  authorized by
written  consent the  following:  to remove John Cornish and Richard C. Davis as
directors; to elect Jay Holmes, Richard Lindstrom and Tom Davidson as directors;
to remove Ray Gonzalez,  Reinhard Klingel and W. David Sullins as directors; and
to waive  their  rights that may arise  pursuant  to the  Amended  and  Restated
Investor's Rights Agreement in relation to the foregoing matters.

         On November 15,  2004,  the  majority of our  stockholders  approved by
written  consent the  Company's  Second  Amended  and  Restated  Certificate  of
Incorporation and conversion of Series A and B Convertible  Preferred Stock into
Common Stock and to ratify all actions in general since incorporation.

         On December 7, 2004,  the majority of our  stockholders  authorized  by
written consent the approval and adoption of the Amended 2002 Stock Option Plan.

         All such actions were effected pursuant to an action by written consent
of our  stockholders  in  compliance  with Section 228 of the  Delaware  General
Corporation Law.

         These written  consents were adopted by the majority  holders of shares
of our Common Stock,  our Series A Convertible  Preferred Stock and our Series B
Convertible  Preferred  Stock,  as applicable,  issued and outstanding as of the
date listed above.


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<PAGE>

                                     PART II

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

MARKET FOR COMMON EQUITY

         Our Common Stock commenced trading on the NASDAQ National Market System
under the symbol "RHEO" and the Toronto Stock Exchange under the symbol "RHE" on
December 9, 2004, in connection with our initial public offering which closed on
December 16, 2004.

         The  following  table sets forth the range of high and low sales prices
per share of our Common Stock on both the NASDAQ  National Market System and the
Toronto  Stock  Exchange  for the fourth  quarter of 2004.  Prior to December 9,
2004,  there was no  established  public  trading  market for our Common  Stock.
Therefore,  2004 fourth  quarter high and low sales prices per share can only be
calculated from December 9, 2004 through December 31, 2004.

                                                  Common Stock Prices
                                             ----------------------------
                                                High               Low
                                             ----------       -----------
NASDAQ National Market System

     2004 Fourth Quarter (December 9 to
       December 31, 2004)                     US$ 13.86           US$9.35

   Toronto Stock Exchange

     2004 Fourth Quarter (December 9 to
       December 31, 2004)                    CDN$ 16.50        CDN$ 12.04


         The  closing  share  price for our Common  Stock on March 9,  2005,  as
reported by the NASDAQ  National  Market  System , was $8.03.  The closing share
price for our Common  Stock on March 9, 2005,  as reported by the Toronto  Stock
Exchange, was CDN$9.55.

         As of March 9, 2005 there were approximately 167 stockholders of record
of our Common Stock.

         We have  never  declared  or paid any cash  dividends  on shares of our
capital  stock.  We currently  intend to retain all  available  funds to support
operations  and to finance  the  growth and  development  of our  business.  Any
determination  related to payments of future dividends will be at the discretion
of our board of directors  after taking into  account  various  factors that our
board of directors deems relevant, including our financial condition,  operating
results,  current and  anticipated  cash  needs,  plans for  expansion  and debt
restrictions.

          (a)     UNREGISTERED ISSUANCES OF CAPITAL STOCK

         On January 27, 2004,  we issued an aggregate of 25,000 shares of Common
Stock  to  Northlea  Partners  at  a  purchase  price  per  share  of  $0.80  in
consideration for cash.


                                       38
<PAGE>

         On March 22, 2004,  we issued an  aggregate of 24,750  shares of Common
Stock  to  Shirley   McGarvey  at  a  purchase  price  per  share  of  $0.13  in
consideration for cash.

         On July 17, 2004,  we issued an  aggregate  of 77,370  shares of Common
Stock to Carolina  Eye  Associates,  Gale Martin and the  children of Richard C.
Davis at a purchase price per share of $1.20, $1.20 and $4.00, respectively,  in
consideration for cash.

         On July 17, 2004,  we issued an aggregate of 40,871  shares of Series A
Convertible  Preferred Stock to Alexander Eaton,  M.D., Joshua Feldman,  William
Jacobsen,  Charles Jones, Harvey Kahn, Ralph Katz, Joel Levin, Lorraine Mikolon,
Gregory Mincey,  M.D., Joseph  Santaromita and Lior Sher at a purchase price per
share of $7.83 in consideration for cash.

         On July 17, 2004, we issued an aggregate of 173,224  shares of Series A
Convertible  Preferred Stock to Capital Paradigms,  Inc., David Israel,  Richard
Davis, Jr., Diamed, Dominion Financial Group Management, Inc., Burt Dubow, Jerre
Freeman,  M.D., James Gills,  M.D., JTB  VisionQuest,  Northlea  Partners,  A.H.
Rodriquez, Safe Harbor Fund I, L.P., Safe Harbor Managed Account 101-A, Ltd. and
Paul Scharfer at a purchase price per share of $5.55 in consideration for cash.

         On July 17, 2004, we issued an aggregate of 165,189  shares of Series A
Convertible  Preferred  Stock to Alan  Akers,  M.D.,  Gale  Martin,  M.D.,  John
Retzlaff,  M.D.,  Donald Sanders,  M.D.,  Sanders  Children's  Trust and Wise in
exchange for the cashless exercise of warrants.

         On July 28, 2004,  we issued an  aggregate of 152,500  shares of Common
Stock to Dana Deupree,  M.D., James Gills, M.D., JTB VisionQuest,  Andrew Krusen
and A.H.  Rodriguez at a purchase price per share of $0.04 in consideration  for
cash.

         On July 28, 2004,  we issued an  aggregate  of 12,500  shares of Common
Stock to Gray Cary at a purchase price per share of $0.13 in  consideration  for
cash.

         On July 28, 2004,  we issued an  aggregate  of 32,250  shares of Common
Stock to Burt Dubow, M.D., Tom Minero and A.H. Rodriquez at a purchase price per
share of $2.00 in consideration for cash.

         On July 28,  2004,  we issued an  aggregate  of 3,000  shares of Common
Stock  to  Burt  Dubow,  M.D.,  at a  purchase  price  per  share  of  $4.00  in
consideration for cash.

         On December 6, 2004,  we issued an aggregate of 22,200 shares of Common
Stock to Karen Coyle,  Carol Jones and Don  Strickland  at a purchase  price per
share of $0.99 in consideration for cash.

         On December 8, 2004, we issued  4,622,605 shares of Common Stock to our
Series A and Series B  Convertible  Preferred  Stockholders  upon the  automatic
conversion  of all our  outstanding  shares of Series A and Series B Convertible
Preferred Stock.

         On December 8, 2004, we issued  7,106,454 shares of common stock to TLC
Vision and Diamed upon conversion of $7,000,000  aggregate  principal  amount of
convertible debentures. The conversion price was $0.98502 per share.

         On December 8, 2004, we issued 19,070,234 shares of Common Stock to TLC
Vision in  connection  with the  purchase by us of TLC  Vision's 50% interest in
OccuLogix, L.P. This amount included 1,281,858 shares of Common Stock which have
been issued upon the exchange of shares of OccuLogix  ExchangeCo ULC, one of our
Canadian subsidiaries which was subsequently dissolved,  issued for tax purposes
to TLC Vision in connection with the purchase of OccuLogix, L.P.


                                       39
<PAGE>

         On December 16, 2004, we issued an aggregate of 24,999 shares of Common
Stock to Manus Kraff, Colman Kraff and Mira Perlman in exchange for the cashless
exercises of warrants.

         No underwriters were involved in the foregoing sales of securities. The
foregoing  sales,  with the exception of the December 8, 2004  conversion of the
Series A Convertible  Preferred  Stock and Series B Convertible  Preferred Stock
and the  conversion  of debentures  held by TLC Vision and Diamed,  were made in
reliance upon the exemption from the registration requirements of the Securities
Act of 1933,  as amended (the  "Securities  Act"),  as set forth in Section 4(2)
under the  Securities  Act and Rule 506 of Regulation D  promulgated  thereunder
relative to the sales by an issuer not  involving  any public  offering,  to the
extent an exemption from such  registration was required.  All purchasers of our
securities described above, with the exception of those involved in the December
8, 2004  conversion  of the Series A  Convertible  Preferred  Stock and Series B
Convertible  Preferred Sock and the conversion of debentures  held by TLC Vision
and Diamed,  represented to us in connection  with their purchase that they were
accredited  investors  and were  acquiring  the  shares for  investment  and not
distribution,  that they could bear the risks of the  investment  and could hold
the securities for an indefinite period of time. The purchasers received written
disclosures that the securities had not been registered under the Securities Act
and that any resale must be made  pursuant  to a  registration  or an  available
exemption from such  registration.  The December 8, 2004 issuances in connection
with the  conversion  of the Series A Convertible  Preferred  Stock and Series B
Convertible  Preferred Stock and the conversion of debentures held by TLC Vision
and  Diamed,  were made in reliance  upon the  exemption  from the  registration
requirements  of the Securities  Act, as set forth in Section  3(a)(9) under the
Securities Act.

USE OF PROCEEDS FROM REGISTERED SECURITIES

         We registered 9,660,000 shares of our Common Stock (including 1,260,000
shares with respect to the  underwriters'  over-allotment  option) in connection
with our initial  public  offering under the  Securities  Act. Our  Registration
Statement  on Form S-1 (Reg.  No.  333-118204)  in  connection  with our initial
public  offering was  declared  effective  by the U.S.  Securities  and Exchange
Commission  ("SEC") on December 8, 2004 and closed on December 16, 2004. We sold
5,600,000   shares  of  our  Common  Stock  in  the  offering  and  the  selling
shareholders  sold 2,800,000  shares of Common Stock,  all at the initial public
offering  price per share of  $12.00.  The  underwriters  of the  offering  were
Citigroup  Global  Markets Inc., the sole  book-runner,  SG Cowen & Co., LLC and
ThinkEquity Partners LLC.

         The aggregate purchase price of the offering was $100,800,000. Prior to
the payment of expenses, we received proceeds from the offering in the amount of
$62,496,000. The net offering proceeds to us after deducting total expenses were
$59,429,925.  We incurred  total  expenses in  connection  with the  offering of
$7,770,075, which consisted of direct payments of:

         (i)   $2,501,142 in legal, accounting and printing fees;

         (ii)  $4,704,000 in underwriters' discounts, fees and commissions; and

         (iii) $564,933 in miscellaneous expenses.


                                       40
<PAGE>

         No payments for such  expenses  were made directly or indirectly to (i)
any of our directors,  officers or their  associates,  (ii) any person(s) owning
10%  or  more  of any  class  of  our  equity  securities  or  (iii)  any of our
affiliates.

         We will use the net proceeds from our initial  public  offering to fund
our ongoing pivotal clinical trial,  MIRA-1, and related clinical trials, and to
purchase and accumulate inventory and build infrastructure for commercialization
of the RHEO System in the United States if and when we receive FDA approval.  We
will also use the funds to continue our  expansion  in Canada.  We expect to use
the remainder of the net proceeds for general corporate purposes.

ITEM 6.  SELECTED FINANCIAL DATA.

    In December 2004, we completed the  acquisition of TLC Vision's 50% interest
in  OccuLogix,  L.P. The  transaction  was effected as an all-stock  purchase in
which we issued  19,070,234 shares of our common stock valued at $228,842,808 to
TLC Vision. See Note 3 to our consolidated financial statements included in Item
8 of this Form 10-K.

    The  following  tables  set  forth  our  selected  historical   consolidated
financial data for the years ended December 31, 2004,  2003, 2002, 2001 and 2000
which have been  derived from our  consolidated  financial  statements  included
elsewhere in this Form 10-K and our consolidated  financial  statements included
on Form S-1 for the years ended  December 31,  2003,  2002,  2001 and 2000.  The
following  tables should be read in conjunction  with our financial  statements,
the  related  notes  thereto  and  the  information   contained  in  "Item  7  -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations."

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                 -------------------------------------------------------------
                                    2000         2001         2002         2003         2004
                                 ---------    ---------    ---------    ---------    ---------
                                        (in thousands except per share and unit amounts)
<S>                              <C>          <C>          <C>          <C>          <C>
CONSOLIDATED STATEMENTS
  OF OPERATIONS DATA:

Revenues from related
  party ......................   $    --      $    --      $      94    $     390    $     732
                                 ---------    ---------    ---------    ---------    ---------
Revenues from third
  parties ....................        --           --           --           --            238
                                 ---------    ---------    ---------    ---------    ---------
Total revenues ...............        --           --             94          390          970
                                 ---------    ---------    ---------    ---------    ---------
  Cost of goods sold to
     related party ...........        --           --             81          373          689
  Cost of goods sold to
     third parties ...........        --           --           --           --            134
  Royalty costs ..............           6         --             78          109          135
                                 ---------    ---------    ---------    ---------    ---------
Gross margin (loss) ..........          (6)        --            (65)         (92)          12
Operating expenses
  General and administrative .       1,373          911          449        1,565       17,530
  Clinical and regulatory ....       3,202        1,873        1,447          731        3,995
  Sales and marketing ........        --           --           --           --            220
                                 ---------    ---------    ---------    ---------    ---------
                                     4,575        2,784        1,896        2,296       21,745
Other (expenses) income ......        (709)      (1,342)        (921)         (82)        (110)
                                 ---------    ---------    ---------    ---------    ---------
Earnings (loss) from
  discontinued operations ....         (15)          67         --           --           --
Net loss for the period before
  Income taxes ...............   $  (5,305)   $  (4,059)   $  (2,882)   $  (2,470)   $ (21,843)
Income tax benefit ...........        --           --           --           --             24
Net loss for the period ......   $  (5,305)   $  (4,059)   $  (2,882)   $  (2,470)   $ (21,819)
                                 =========    =========    =========    =========    =========
PER SHARE DATA:
Loss per share from
  continuing operations --
  basic and diluted ..........   $   (1.47)   $   (1.15)   $   (0.77)   $   (0.62)   $   (2.96)
Earnings per share from
  discontinued operations ....        --           0.02         --           --           --
                                 ---------    ---------    ---------    ---------    ---------
Net loss per share ...........   $   (1.47)   $   (1.13)   $   (0.77)   $   (0.62)   $   (2.96)
                                 =========    =========    =========    =========    =========
Weighted average number of
  shares used in per share
  calculations -- basic
  and diluted ................       3,603        3,603        3,735        3,977        7,370
</TABLE>


                                       41
<PAGE>

<TABLE>
<CAPTION>
                                                       AS OF DECEMBER 31,
                                 -------------------------------------------------------------
                                    2000         2001         2002         2003         2004
                                 ---------    ---------    ---------    ---------    ---------
<S>                              <C>          <C>          <C>          <C>          <C>
CONSOLIDATED BALANCE
  SHEET DATA:
Cash and cash equivalents ....   $      83    $      (8)   $     602    $   1,237    $  17,531
Marketable securities ........        --           --           --           --         42,500
Working capital
  (deficiency) ...............        (834)      (2,848)      (1,780)      (2,538)      58,073
Total assets .................       1,135          768        1,038        1,868      301,601
Long-term debt (including
  current portion due to
  stockholders) ..............       5,220        7,820        1,507        3,694          517
Total liabilities ............       6,321        9,526        2,693        4,134       13,502
Common stock .................           4            4            4            5           42
Series A Convertible
Preferred
  Stock ......................           1            1            2            2         --
Series B Convertible
Preferred
  Stock ......................        --           --              1            1         --
Additional paid-in
  capital ....................      11,415       11,839       22,057       23,915      336,064
Accumulated deficit ..........     (16,606)     (20,602)     (23,718)     (26,188)     (48,007)
Total stockholders' equity
  (deficiency) ...............      (5,186)      (8,759)      (1,655)      (2,266)     288,098
</TABLE>



                                       42
<PAGE>

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

    The following discussion and analysis of our financial condition and results
of operations  should be read in  conjunction  with our  consolidated  financial
statements  and  related  notes,  included  in item 8 of this Form 10-K.  Unless
otherwise specified, all dollar amounts are U.S. dollars.

OVERVIEW

    We are an ophthalmic therapeutic company founded to commercialize innovative
treatments  for eye  diseases,  including  AMD. The  RHEO(TM)  System is used to
perform  Rheopheresis,  a procedure  that  selectively  removes  moleculeS  from
plasma, which is designed to treat Dry AMD, the most common form of the disease.
Shortly  after  our  inception,   we  focused  on  commercializing   therapeutic
apheresis,  including the opening and operation of the Rheotherapy Center, which
generated  revenues of $900,200 and  $1,277,800  for the fiscal years ended June
30, 1999 and 1998 respectively. In 1999, the FDA's Office of Compliance issued a
directive  notifying  the  Rheotherapy  Center  that any further  conducting  of
therapeutic  apheresis  would need to be  conducted  under the  authority  of an
Investigational  Device  Exemption  filed  with the FDA  which  resulted  in the
closure of the Rheotherapy Center.  Subsequent to the closure of the Rheotherapy
Center,  our focus changed  primarily to conducting  clinical trials and seeking
regulatory  approval for the RHEO(TM) System.  In September 1999, we received an
Investigational DevicE Exemption from the FDA to begin a pivotal clinical trial,
MIRA-1, for the RHEO(TM) System. Between early 2000 anD August 2001, we enrolled
98  patients  in  MIRA-1.  In August  2001,  due to  financial  constraints,  we
downsized and temporarily suspended the enrollment of new patients.  However, we
continued to follow-up with the existing  patients  enrolled in MIRA-1.  In late
2001,  with  permission  of the FDA, we submitted  for  independent  third party
analysis data for the 43 enrolled  patients for whom we had  collected  complete
12-month  post-treatment  data sets. The results of this data analysis were used
to support our efforts to secure additional financing.

    In 2002 and 2003,  we received a net  aggregate of  $5,951,870 of additional
financing  from  Diamed,  TLC  Vision and other  investors.  As a result of this
incremental  funding,  in  October  2003,  we hired  new  management  and  began
screening additional patients for enrollment in MIRA-1. In addition, in 2003, we
began  limited  commercialization  of the  RHEO(TM)  System in three  clinics in
Canada.

    In September  2004, we signed an agreement  with Rheo  Therapeutics  Inc., a
private  Canadian  company,  which has agreed to  purchase  approximately  8,000
treatment  sets, and an estimated 20 OctoNova pumps by the end of 2005,  with an
option  to  purchase  up to an  additional  2,000  treatment  sets,  subject  to
availability.  We  believe  that  Rheo  Therapeutics  plans to open a number  of
commercial  treatment  centers in various Canadian cities where RHEO(TM) Therapy
will be  performed.  Dr.  Jeffrey  Machat,  who is an investor in and one of the
directors  of Rheo  Therapeutics,  was a co-founder  and former  director of TLC
Vision.

     On December 8, 2004,  we purchased  TLC Vision's 50% interest in OccuLogix,
L.P., which resulted in OccuLogix, L.P. becoming a wholly-owned subsidiary of us
for total consideration and related costs of $229,611,616.  Accordingly, 100% of
the results of OccuLogix,  L.P.'s  operations  are included in the  consolidated
financial  statements  since that date. We believe that our value resides solely
in OccuLogix,  L.P. to which we licensed all of the  distribution  and marketing
rights  for the  RHEO(TM)  System  foR  ophthalmic  indications  to which we are
entitled.  Prior to the  acquisition,  our only profit  stream has come from our
share of OccuLogix, L.P. earnings. Our acquisition of TLC Vision's 50% ownership
interest in OccuLogix,  L.P.  will transfer the earnings  potential for sales of
the RHEO(TM) System entirely to us.

     In December 2004,  5,600,000 shares of our common stock at $12.00 per share
were  issued in  connection  with the  initial  public  offering  for gross cash
proceeds of $67,200,000 (less issuance costs of $7,770,075).


                                       43
<PAGE>

    As of December 31, 2004,  we had enrolled a total of 185 patients in MIRA-1.
This completes the enrollment  phase of MIRA-1,  exceeding our goal of enrolling
180  subjects  by  December  31,  2004.  We  have  collected  complete  12-month
post-treatment data sets for 87 of these patients. Of the remaining 98 patients,
82 are in the process of treatment or follow-up and the treatment of 16 patients
did not result in  complete  data sets.  We intend to derive  the  required  150
complete 12-month  post-treatment  data sets from our enrolled  subjects.  As of
December  31,  2004,  we had also  submitted  to the FDA the first three of four
modules of the PMA filing,  the  non-clinical  portion.  We intend to submit the
fourth module, which consists of the follow-up clinical data, in two components.
We expect that we will submit the first  component  following  completion of our
six-month  data on at least 150 data sets,  including the 12-month data sets for
all  patients  for whom they are  available;  and that we will submit the second
component following completion of our 12-month data on at least 150 data sets.

REVENUES

    Up to the date of  acquisition  of TLC Vision's  50% interest in  OccuLogix,
L.P.,  we derived the majority of our revenues  from sales of the OctoNova  pump
and disposable  treatment sets, which include two disposable filters and tubing,
to  OccuLogix,  L.P.,  which  then sold the pumps  and  treatment  sets to three
clinics  in  Canada,  one of which is a  related  party,  RHEO  Clinic  Inc.,  a
subsidiary  of TLC Vision.  Historically,  we set sales  prices at a level which
would  reimburse  our cost of sales  excluding  the  effects of ongoing  minimum
royalty  commitment  costs.  Following the  acquisition,  our revenues have been
derived from sales of the OctoNova pump and  disposable  treatment sets directly
to RHEO Clinic Inc., and to other  commercial  providers of RHEO(TM)  Therapy in
Canada. WE believe that, in the future,  sales of disposable treatment sets will
provide a recurring  source of revenue and that the  percentage  of our revenues
that we derive from  disposable  treatment  sets will  increase over time as our
installed base of OctoNova pumps increases.  We also expect to derive additional
revenues from  miscellaneous  services for annual  calibration,  maintenance and
training,  which are not already included in the initial sale and service of the
RHEO(TM) System.

    OccuLogix, L.P.'s primary customer was RHEO Clinic Inc., a subsidiary of TLC
Vision,  for which OccuLogix,  L.P. has reported revenues of $401,236,  $459,730
and nil for the years ended December 31, 2004, 2003 and 2002, respectively. RHEO
Clinic  uses the  RHEO(TM)  System to treat  patients,  for which it charges its
customers  (thE patients) a  per-treatment  fee. RHEO Clinic has advised us that
the OctoNova  pumps  purchased  from  OccuLogix,  L.P. are  capitalized as fixed
assets to be  depreciated  over a period of five years on a straight  line basis
and the  treatment  sets are disposed of after each  treatment and expensed as a
cost of sale.  RHEO Clinic has further  advised us that all of its revenues,  in
Canadian dollars, of $595,275, $836,696 and nil for the years ended December 31,
2004,  2003 and 2002,  respectively,  are derived from sales to unrelated  third
parties.  The revenues reported from RHEO Clinic are unaudited and have not been
independently  verified by us.  However,  management  believes the amounts to be
accurate.

COST OF SALES

    Cost of sales includes  costs of goods sold and royalty  costs.  Our cost of
goods sold  consists  primarily  of costs for the  manufacture  of the  RHEO(TM)
System,  including  the costs we incur for the purchase of component  partS from
our  suppliers,   applicable   freight  and  shipping  costs,  fees  related  to
warehousing,  logistics  inventory  management  and recurring  regulatory  costs
associated  with  conducting  business  in  Canada  and  ISO  certification.  We
currently  have a contract  with a related  party  which  performs  warehousing,
shipping  and  inventory  management  for us in exchange for a fee. The terms of
this  contract  permit us to terminate  the contract upon notice at any time. We
expect  that  we will  terminate  this  contract  once  we  have  the  necessary
infrastructure to perform such functions internally.

    To  acquire  the  necessary   licensing  and  distribution  rights  for  the
components of the RHEO(TM) System, we havE entered into agreements with Mr. Hans
Stock and Dr.  Richard  Brunner,  the owners of a patent that we  license,  that


                                       44
<PAGE>

require us to pay them an aggregate of 2% of our cost of the  disposable  filter
sets  purchased  from Asahi  Medical and of sales of the Octo Nova pumps and the
tube sets,  (which together with the filter sets,  make up the treatment  sets),
with minimum  required  payments to Mr. Stock and Dr.  Brunner in the  aggregate
amount of  $25,000  during  each  calendar  quarter.  This  resulted  in royalty
payments  for the years ended  December  31,  2004,  2003 and 2002 of  $100,000,
$100,000 and $75,000,  respectively.  To date,  the minimum  required  quarterly
payments  have  exceeded  the amounts  that would have been  payable  absent the
requirement  of a minimum  payment,  and we are entitled to apply this excess in
future  periods  if and when our  revenue  increases  sufficiently  to  generate
royalty  payments in excess of the  minimum  payments.  We treat  these  minimum
royalty payments as an expense within cost of sales as they are only recoverable
based on  sufficient  volume.  We intend to use a portion of the net proceeds of
our recent initial public offering to accumulate inventory levels to help ensure
our ability to meet forecasted  sales levels if and when we obtain FDA approval.
As a result of the expected  increase in sales,  we expect  royalty  payments to
increase in the future and to exceed the minimum requirement.

    We have  entered  into an  agreement  with Mr.  Stock in  consideration  for
assisting us in procuring a distribution  agreement with Asahi Medical  relating
to the filters used in the RHEO(TM)  System and for his  commitmenT to assist in
the  procurement of  distribution  rights for new product lines.  This agreement
with Mr. Stock  requires us to pay  royalties of 5% of the price we pay to Asahi
Medical for all  products it supplies  to us. We record  these  royalties  as an
expense when we sell the products. Royalty expenses incurred as a result of this
agreement  in the years ended  December 31,  2004,  2003 and 2002 were  $35,457,
$9,234 and $598, respectively.

OPERATING EXPENSES

    Our operating expenses consist primarily of clinical and regulatory expenses
and  general and  administrative  expenses.  Clinical  and  regulatory  expenses
consist  primarily of those expenses  related to MIRA-1.  These expenses include
payments to clinical trial sites for  conducting the trial,  costs of a contract
research monitoring organization and other non-employee  consultants and experts
as  well as  compensation  and  overhead  for  those  of our  employees  who are
primarily  involved  in  clinical  trial  activities.  We  expect  clinical  and
regulatory  expenses to remain relatively  constant until MIRA-1 and the related
clinical trials are complete.

    General  and  administrative  expenses  consist  primarily  of the  costs of
corporate operations and personnel,  rent and legal and accounting expenses.  As
of December 31, 2004, we had 17 full-time employees.  We expect that general and
administrative expenses will increase in the future as we incur additional costs
related  to the growth of our  business,  as well as the costs  associated  with
becoming a public company,  including the costs of annual and periodic reporting
and  investor  relations  programs.  General and  administrative  expenses  also
include the cost of 1,352,500  stock options  granted to seven  employees,  five
directors and three  consultants in December 2003 at an exercise price of $0.99.
The Company  estimated the intrinsic value of these options to be $15,905,400 of
which  $513,077 and  $15,392,323  have been expensed in the years ended December
31, 2003 and 2004,  respectively.  All of these options became fully vested upon
the Company's initial public offering and therefore the remaining $15,392,323 of
stock based  compensation  charges as of December  31, 2003 was  expensed in the
year ended  December  31, 2004.  Of these stock  options,  500,000  options were
granted to Elias  Vamvakas,  300,000  options  were  granted  to Irving  Siegel,
100,000  options were granted to William Dumencu and 80,000 options were granted
to each of David  Eldridge  and John  Cornish.  292,500  options were granted to
other employees,  directors and consultants.  Management estimated the intrinsic
value of these options based on a range of then expected  offering prices of our
initial public offering. Management expects to issue stock options in the future
to compensate and attract employees and directors.  Also included in general and
administrative  expenses is the amortization of intangibles  expense of $106,138
for the year ended December 31, 2004, of the intangible  assets  acquired on the
acquisition of TLC Vision's 50% interest in OccuLogix, L.P.


                                       45
<PAGE>

    Historically,  we have not incurred any sales and marketing  expense because
we have had  limited  commercialization  and because  recent  sales have been to
OccuLogix,  L.P. In September  2004, we hired two  full-time  employees to begin
establishing  sales and  marketing  efforts to promote  the use of the  RHEO(TM)
System in Canada and, upon FDA  approval,  in the United  States.  We have begun
incurring sales and marketing expenses following the acquisition of TLC Vision's
50%  interest  in  OccuLogix,  L.P.  and we expect  these  expenses  to increase
substantially in the future.

OTHER INCOME (EXPENSES)

Other income (expenses)  consists primarily of interest,  foreign exchange and a
50% share of equity earnings from OccuLogix, L.P.'s activities up to the date of
our  acquisition  of TLC Vision's 50% interest.  Net interest  income  (expense)
reflects  interest  revenue from the Company's cash position  offset by interest
expense from convertible  debentures and promissory  notes,  interest on amounts
due to stockholders  and the accretion of the value we assign to our outstanding
warrants.

INCOME TAX BENEFIT

     Income  tax  benefit  represents  the  amortization  of  the  deferred  tax
liability net of an income tax  liability for the year ended  December 31, 2004.
The deferred tax liability was recorded based on the difference between the fair
value of the intangible asset acquired in December 2004 and its tax basis and is
being amortized over 15 years, the estimated useful life of the intangible asset

RESULTS OF OPERATIONS

    The components of the RHEO(TM) System have been given regulatory approval in
Canada.   Our  wholly   owneD   subsidiary,   OccuLogix,   L.P.,   is   actively
commercializing the sale of the RHEO(TM) System in Canada.  Currently,  thE cost
of the  treatments  in Canada is not covered by third  parties such as insurance
companies or government health programs. As a result, sales levels have remained
modest. We intend to pursue reimbursement of the treatment in Canada but believe
that it will be necessary  that both FDA  approval of the RHEO(TM)  System and a
National CoveragE Decision by the CMS in the United States to reimburse patients
for RHEO(TM)  Therapy  treatments  be obtained  before wE will be  successful in
obtaining reimbursement in Canada.

    At December 31, 2004, we had 2,749,199  options  outstanding.  The 1,352,500
options  issued in December  2003, of which  1,330,300  were  outstanding  as at
December  31,  2004,  were issued  within  twelve  months of our  initial  pubic
offering date.  These options have been  accounted for based on their  intrinsic
value as determined  based on a range of the then expected  price of our initial
public  offering.  While we believe that the exercise price of these options was
based on fair value at the time of grant, we understand that the U.S. Securities
and Exchange Commission has provided guidance which suggests that options issued
within twelve months of an initial  public  offering  should be  retrospectively
accounted for using the intrinsic  value unless  supported by significant  third
party transactions.

    The original  value  assigned to the options in December 2003 was consistent
with the price used in the  conversion of $500,000 of the principal of the Asahi
Medical note to 507,604 shares of common stock at $0.98502 per share on November
30, 2003. It was also consistent with the price used in a subsequent offering to
existing  investors  under our  Investor  Rights  Agreement  which  provided  an
opportunity  for  our  stockholders  to  maintain  their  ownership  percentages
subsequent  to the Asahi  Medical  conversion.  The $0.98502 per share price was
established  based on the pricing of our June 2003 agreement with TLC Vision and
Diamed to fund $7.0 million in convertible debt.  Discussions with Asahi Medical
were  ongoing  at the  time of the TLC  Vision  and  Diamed  transaction  and we
established  a price  that  remained  constant  until  the  Asahi  Medical  note
conversion  occurred in November 2003.  During the intervening  period from June


                                       46
<PAGE>

2003 to November  2003, we did not  experience  any  significant  changes in our
operations,  including  but not limited to our efforts  related to clinical  and
regulatory activities which would have generated increased share value.

    We believe that prior to 2004,  there was no progression in the value of the
common stock.  In early 2004,  enrollment in the MIRA-1 clinical trial increased
which in turn resulted in analysts  following  TLC Vision to ascribe  increasing
value in analysts  reports to the investment by TLC Vision in us. In March 2004,
we began discussions with underwriters about the recently successfully completed
initial public offering process.  Continued  enrolment in MIRA-1 and the related
clinical trials,  expansion of the management team, a signed sales agreement for
Canadian clinics and a greater acceptance of RHEO(TM) Therapy have had an impact
on the value ascribeD to us in the recent initial public offering.

    The exercise  price of stock  options  issued prior to 2003 was based on our
most recent financing  transactions.  The exercise price of stock options issued
upon the closing of our initial  public  offering  was equal to the price of the
shares issued in the offering.  We consider these  transactions to be indicative
of fair value of our common stock.

    Significantly  impacting  the  results  of  operations  is the  issuance  of
1,352,500  options in  December  2003 at an  exercise  price of $0.99,  of which
657,500 were issued to  employees,  600,000 were issued to directors  and 95,000
were issued to  consultants.  We estimated  the  intrinsic  value of these stock
options to be  $15,905,400,  to be expensed over the 31-month  vesting period at
$513,077 per month starting in the month of December 2003.  Management estimated
the intrinsic value of these options based on a range of then expected  offering
prices of our initial public offering.

    Subsequent  to the  transaction  in June 2003 in which TLC Vision and Diamed
agreed to invest a combined  $7.0  million in  convertible  debentures  and $5.0
million in non-convertible  debentures issued by us, we increased our efforts to
complete the MIRA-1 clinical trial,  resulting in increased clinical trial costs
in the second half of 2003 as new trial sites were  established.  Clinical trial
costs increased further in 2004 as these trial sites started incurring costs for
the screening, enrollment and treatment of patients. The total potential funding
of $12.0 million from TLC Vision and Diamed  represented the forecasted costs to
complete  the  MIRA-1,  associated  crossover  clinical  trials  and  associated
corporate  overhead  costs.  Enrollment in the MIRA-1  clinical  trial had fully
resumed by June 30, 2004 and was  completed by December 31, 2004.  We anticipate
approximately $5.3 million to $6.6 million of the proceeds of the initial public
offering will be used to complete the MIRA-1 trial,  a related  crossover  trial
and additional anticipated clinical trials.

    Following the  acquisition of TLC Vision's 50% interest in OccuLogix,  L.P.,
we expect  revenues  to increase to reflect  direct  sales to clinics  using the
RHEO(TM) System, while cost of sales is expected to remain materiallY unchanged.
Clinical and  regulatory  expenses will not be impacted by the  acquisition  but
general and  administrative  expenses will increase,  reflecting the creation of
the organizational  structure  necessary for the  commercialization  process. We
have also begun to incur sales and marketing  expenses  related to  establishing
sales and marketing  efforts to promote the use of the RHEO(TM) System in Canada
and, upon FDA approval, in the UniteD States.

YEARS ENDED DECEMBER 31, 2004 AND 2003

    REVENUES. Revenues increased by 148% to $969,357 for the year ended December
31, 2004 from $390,479 for the year ended  December 31, 2003.  This increase was
due to sales of  treatment  sets and pumps in the fourth  quarter of the year to
Rheo Therapeutics Inc. in accordance with the Product Purchase Agreement that we
entered into with RHEO Therapeutics Inc. in September 2004.


                                       47
<PAGE>

    COST OF SALES. Cost of sales increased by 98% to $957,269 for the year ended
December  31, 2004 from  $482,780 for the year ended  December  31,  2003,  as a
result of the increase in sales in the year.

    GROSS  MARGIN.  Gross  margin was impacted by the sales of  OccuLogix,  L.P.
(acquired on December 8, 2004).  OccuLogix,  L.P.  sales,  post-acquisition,  to
third parties generated sufficient profit to bring the consolidated gross margin
positive.

    GENERAL AND ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
increased  by 1,021% to  $17,530,019  for the year ended  December 31, 2004 from
$1,564,362  for the  year  ended  December  31,  2003.  This  increase  resulted
primarily from the requirement to expense the intrinsic value of options granted
in December 2003 over the vesting period of these options. The Company estimated
the  intrinsic  value of these  options to be  $15,905,400  which  resulted in a
monthly expense of $513,077 over the vesting period of the options. All of these
options  became  fully vested upon the  Company's  initial  public  offering and
therefore the remaining  unamortized balance of stock based compensation charges
as of December  31, 2003 was expensed in the year ended  December 31, 2004.  The
expense  for the years ended  December  31,  2004 and 2003 was  $15,392,323  and
$513,077,  respectively.  Employee and related  travel costs  increased  141% to
$1,126,641 for the year ended December 31, 2004 from $468,000 for the year ended
December  31,  2003 as a result of our  having  received  sufficient  additional
funding at the end of the first half of 2003 to fully resume  operations and the
hiring of new employees in 2004. Expenses related to the hiring of professionals
increased 70% to $634,128 for the year ended December 31, 2004 from $374,000 for
the year ended  December 31, 2003,  due  primarily to costs related to the audit
process.   Amortization  expense  of  the  intangible  assets  acquired  on  the
acquisition of TLC Vision's 50% interest in OccuLogix, L.P. was $106,138 for the
year ended December 31, 2004. There was no comparable  expense in the year ended
December 31, 2003.

    CLINICAL AND REGULATORY EXPENSES. Clinical and regulatory expenses increased
by 446% to $3,994,967 for the year ended December 31, 2004 from $731,166 for the
year ended  December 31, 2003,  as a result of increased  activities  associated
with MIRA-1.  We increased our  activities as a result of additional  funding we
have received from TLC Vision and Diamed since July 2003.

    SALES AND MARKETING EXPENSES. Sales and marketing expenses were $219,556 for
the year ended  December  31,  2004 with no  comparable  expense  for year ended
December 31, 2003.  In the third  quarter of 2004, we hired two new employees to
begin  establishing  sales  and  marketing  efforts  to  promote  the use of the
RHEO(TM) System in Canada and, upon FDA approval, in the United States.

    OTHER  (EXPENSES)  INCOME.  Other  (expenses)  income  totaled an expense of
$110,190  for the year ended  December  31,  2004,  an  increase  of 34% from an
expense of $82,059 for the year ended  December 31, 2003.  This increase was due
primarily  to  the  expense  of  $100,000  owed  to  Apheresis  Technologies  in
accordance  to the  amended  distribution  services  agreement  which  gives the
Company the sole  discretion as to when to terminate the exclusive  distribution
services  agreement with Apheresis  Technologies  Inc.  Also,  foreign  currency
exchange  loss was $43,548 for the year ended  December 31, 2004,  compared to a
foreign  exchange  gain of $2,063 for the year ended  December  31,  2003 due to
foreign exchange rate fluctuations. These increases were partially offset by the
decrease in net interest  expense  from  $67,997 in the year ended  December 31,
2004 to a net interest income of $35,735 in the year ended December 31, 2004 due
to the  conversion  of certain debt into common stock and interest  revenue from
the Company's cash position subsequent to the initial public offering.

     INCOME  TAX  BENEFIT.   Income  tax  benefit  of  $23,771   represents  the
amortization  of the  deferred  tax  liability  of $39,271  net of an income tax
liability  for the year ended  December 31, 2004 of $15,500.  This  deferred tax
liability  was recorded  based on the  difference  between the fair value of the
intangible  asset acquired in December 2004 and its tax basis.  The deferred tax


                                       48
<PAGE>

liability of $9,527,500 is being amortized over 15 years,  the estimated  useful
life of the intangible asset. There was no corresponding tax benefit in the year
ended December 31, 2003.

YEARS ENDED DECEMBER 31, 2003 AND 2002

    REVENUES. Revenues increased by 315% to $390,479 for the year ended December
31, 2003 from $94,100 for the year ended December 31, 2002  reflecting the first
full year of our commercial  sales  subsequent to the closure of the Rheotherapy
Center in the United  States in 1999.  Revenues  in the  second  half of 2003 of
$30,240 were substantially  lower than first half 2003 revenues of $360,239.  We
believe this decrease resulted from the outbreak of SARS in Toronto which caused
our customers' Toronto-based clinics to experience a decline in patient volumes.
This caused our customers to accumulate  excess  inventory in the second half of
2003 due to fixed ordering commitments. As a consequence,  our customers reduced
orders in early 2004 to reduce  inventory.  OccuLogix,  L.P.'s  revenues and net
loss  increased  to  $486,394  and  $20,308,  respectively,  for the year  ended
December 31, 2003, from revenues and a net loss of $0 and $5,068,  respectively,
for the period ended December 31, 2002.

    COST OF SALES.  Cost of sales  increased  by 204% to  $482,780  for the year
ended December 31, 2003 from $158,694 for the year ended December 31, 2002. This
increase  was due to an  increase  in the  number of  treatment  sets sold and a
resulting increase in the amount of royalty payments paid.

    GENERAL AND ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
increased  by 249% to  $1,564,362  for the year  ended  December  31,  2003 from
$448,856 for the year ended December 31, 2002. This increase resulted  primarily
from the  requirement  to expense  the  intrinsic  value of  options  granted in
December  2003 over the 31-month  vesting  period of these  options.  Management
estimated  the  total  intrinsic  value  of  these  options  to be  $15,905,400,
resulting in an additional  expense of $513,077 for the month of December  2003,
representing  one month in which this expense was incurred in 2003. There was no
comparable  expense for the year ended  December 31, 2002.  These  options fully
vest upon an initial  public  offering at which time any  unamortized  intrinsic
value would be fully expensed.  Employee and related travel costs increased 131%
to $468,000  for the year ended  December  31, 2003 from  $203,000  for the year
ended  December 31, 2002  reflecting  the receipt of  sufficient  funding in the
second  half of  2002  and the end of the  first  half of 2003 to  fully  resume
operations.  Expenses related to the hiring of  professionals  increased 307% to
$374,000  for the year ended  December  31, 2003 from $92,000 for the year ended
December 31, 2002 due to the increased  costs of finance  support and audit fees
not  incurred  in  2002  and  increased  legal  costs  incurred  to  reestablish
agreements,  review  and  adjust as  required  existing  contracts  and  address
operational  legal issues.  Director  fees,  which include the  amortization  of
vesting  options  granted to  directors,  increased  42% to $98,000 for the year
ended December 31, 2003 from $69,000 for the year ended December 31, 2002 due to
the  resumption  of  reimbursement  of  directors  in the  second  half of 2003.
Administrative  costs  increased 35% to $100,000 for the year ended December 31,
2003 from $74,000 for the year ended December 31, 2002 reflecting the receipt of
sufficient  funding in the second  half of 2002 and the end of the first half of
2003 to fully resume operations.

    CLINICAL AND REGULATORY EXPENSES. Clinical and regulatory expenses decreased
by 49% to $731,166 in the year ended  December 31, 2003 from  $1,446,662 for the
year ended  December  31,  2002.  This  reflects a decrease  in  clinical  trial
activity as a result of reduced available funding for MIRA-1.

    OTHER (EXPENSES)  INCOME.  Other (expenses)  income,  decreased by 91% to an
expense  of  $82,059  for the year ended  December  31,  2003 from an expense of
$921,485 for the year ended  December 31, 2002.  This decrease was primarily due
to lower interest  expense as a result of the conversion of certain  convertible
debentures into Convertible Preferred Stock.


                                       49
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

    Since  inception,  we have funded our operations  through  placements of our
equity securities and through borrowings from financial institutions and others.
In December  2004,  5,600,000  shares of common  stock were issued at $12.00 per
share in connection  with the initial public offering for gross cash proceeds of
$67,200,000 (less issuance costs of $7,770,075).

    Cash and cash equivalents and marketable securities at December 31, 2004 was
$60,030,552.  To date,  we have used the largest  portion of our cash to finance
the ongoing costs of the MIRA-1 clinical  trial, as well as losses  generated by
our operations.  In the future,  we expect that we will continue to use our cash
resources  to fund losses  generated by our  operations,  to complete the MIRA-1
clinical trial, to accumulate  inventory,  to undertake other  commercialization
activities and to start a new clinical  crossover trial,  treating patients from
the MIRA-1 clinical trial, including those patients in the placebo group.

    From July 2003 to December 2004, we have used the monthly  combined  funding
received  from TLC Vision and Diamed of up to  $350,000 in  connection  with our
issuance of convertible  debentures to fund MIRA-1  clinical  trial  activities.
Increased  sales and negotiated  credit terms has resulted in an increase in our
accounts  receivable.  We also  continue to maintain our level of orders in line
with supplier expectations,  resulting in increased levels of inventory. We have
reported an increased level of prepaid  expenses in 2003 and 2004,  representing
advance payments to our participating MIRA-1 clinical research  organization and
clinical trial sites, and to insurance providers.

    As a result  of  increased  funding  in 2003 and 2004  from our  convertible
debenture  transaction  with TLC  Vision  and  Diamed,  and more  recently,  the
proceeds  from the  initial  public  offering,  we have been able to reduce  our
accounts payable and we continue to keep payments  current to maintain  positive
supplier  relationships.  Expense  accruals are increasing as a result of higher
levels of clinical trial activity and costs  associated  with the initial public
offering and the related corporate reorganization.

    We have  incurred  losses  since  inception  and have had a working  capital
deficiency  in each of the years ended  December 31, 2002 and 2003 and up to the
date of our initial public offering. As a result, we required additional funding
to continue our operations.  During 2004 and prior to the closing of the initial
public  offering in December  2004,  TLC Vision and Diamed  funded the remaining
$4,350,000 available as of December 31, 2003 for borrowing under the convertible
debentures.  The  convertible  debentures  required  that these funds be used to
complete  MIRA-1 and  related  clinical  trials.  Management  believes  that the
receipt of the funds available for borrowing  under the  convertible  debentures
and the receipt of net proceeds of $59,429,925 from the initial public offering,
net of underwriting  discounts and commissions and offering costs, will generate
sufficient funds for our operations and other demands and commitments  until the
latter half of 2006.

    We plan on  using  approximately  $17.5  million  to  $18.8  million  of the
proceeds of the initial public offering to build our organizational structure to
prepare for  commercialization in the United States,  approximately $5.3 million
to $6.6 million to complete  the MIRA-1  clinical  trial and related  trials and
approximately  $9.5  million to $10.5  million to  purchase  and  accumulate  an
inventory  of  components  of  the  RHEO(TM)  System  to  facilitate  thE  rapid
commercialization  of the  RHEO(TM)  System in the United  States if and when we
receive  FDA  approval.  The use oF funds will be  impacted  by any delay in the
completion  of the MIRA-1 trial which would result in a  corresponding  delay in
our commercialization efforts in the United States.

    Our forecast of the period of time  through  which our  financial  resources
will be adequate to support our  operations is a  forward-looking  statement and
involves  risks and  uncertainties.  Actual  results could vary as a result of a
number of factors (including the factors discussed at item 1 of this form 10-K).
We have based this estimate on  assumptions  that may prove to be wrong,  and we


                                       50
<PAGE>

could utilize our available  capital  resources sooner than we currently expect.
Our future funding  requirements will depend on many factors,  including but not
limited to:

     o    the rate of progress,  cost and results of MIRA-1 and related clinical
          trials;

     o    our  ability to obtain FDA  approval  to market and sell the  RHEO(TM)
          System  and the  timing of such  approval;  o whether  government  and
          third-party payors agree to reimburse RHEO(TM) System;

     o    the cost and timing of building the  infrastructure  and manufacturing
          capacity to market and sell the RHEO(TM) System;

     o    the costs of filing,  prosecuting,  defending and enforcing any patent
          claims and other intellectual property rights;

     o    the  costs  of   establishing   sales,   marketing  and   distribution
          capabilities; and

     o    the effect of competing technological and market developments.

    Even if we receive regulatory  approval for the RHEO(TM) System, we will not
have significant product revenuE until late 2006, at the earliest.  Until we can
generate a sufficient  amount of product  revenue,  we expect to finance  future
cash  needs  through  public  or  private  equity  offerings,  debt  financings,
corporate  collaboration  or licensing  arrangements or other  arrangements.  We
cannot be certain that additional funding will be available on acceptable terms,
or at all.  To the  extent  that we raise  additional  funds by  issuing  equity
securities,  our stockholders may experience dilution. In addition,  future debt
financing,  if available,  may involve restrictive covenants. To the extent that
we raise additional funds through collaboration and licensing  arrangements,  it
may be  necessary  to  relinquish  some  rights  to our  technologies,  or grant
licenses  on terms  that are not  favorable  to us.  If  adequate  funds are not
available, we may be required to delay, reduce the scope of or eliminate some of
our commercialization efforts.

    The following table  summarizes our  contractual  commitments as of December
31, 2004 and the effect those  commitments are expected to have on liquidity and
cash flow in future periods.

                                             PAYMENTS DUE BY PERIOD
                              -------------------------------------------------
                                                         LESS THAN
                                                          1 TO 3      MORE THAN
  CONTRACTUAL COMMITMENTS        TOTAL       1 YEAR        YEARS       3 YEARS
  -----------------------     ----------   ----------   ----------   ----------
Operating leases ............ $   98,620   $   98,620   $       --   $       --
Royalty payments ............ $1,250,000   $  100,000   $  300,000   $  850,000
Consulting and
  non-competition
  agreements ................ $   60,000   $   60,000   $       --   $       --


    Pursuant  to the  terms of our  distribution  agreement  with  MeSys,  dated
January 1, 2002, we undertook a minimum purchase commitment of 25 OctoNova pumps
per year beginning  after FDA approval of the RHEO(TM)  System,  representinG an
annual  commitment  after  FDA  approval  of  (euro)405,000,   or  approximately
$552,420. The marketing and distributorsHip agreement with Diamed provides for a
minimum  purchase of 1,000 OctoNova pumps during the period from the date of the


                                       51
<PAGE>

agreement  until  five  years  after FDA  approval,  representing  an  aggregate
commitment of (euro)16,219,000,  or approximately  $22,122,716 based on exchange
rates as of December 31, 2004.

    To  ensure  there is  sufficient  capacity  and  inventory  to  support  our
commercialization  plan, we intend, in advance of FDA approval, to accumulate an
inventory of filters and pumps to support a rapid product  launch.  In line with
these  intentions,  in July 2004, we placed a purchase  order with Asahi Medical
for 9,600 filter sets (each filter set consists of one Plasmaflo  filter and one
Rheofilter),  for  the  period  ended  March  31,  2005,  representing  a  total
commitment  of  $2,736,000.  This  purchase  order for 9,600  filter  sets is in
addition to our  minimum  purchase  commitment  under our  agreement  with Asahi
Medical. Our minimum purchase obligations under our agreement with Asahi Medical
are triggered six months after we receive FDA approval of the RHEO(TM) System.

    Pursuant  to the terms of the  distribution  agreement  with Asahi  Medical,
dated January 1, 2002, the Company  undertook a commitment to purchase a minimum
of 9,000,  15,000, and 22,500 each of Plasmaflo filters and Rheofilters in years
1, 2 and 3 respectively  beginning six months after FDA approval of the RHEO(TM)
System.  MinimuM  purchase  orders  for the  fourth  year  shall  be  determined
immediately  after the term of the first year by mutual consent but shall not be
less  than  that  of the  previous  year.  This  same  method  shall  be used in
subsequent  years to determine  future  minimum  purchase  quantities  such that
minimum  purchase  quantities  are always fixed for three years.  Future minimum
annual commitments after FDA approval are approximately as follows:

Year 1  ........................................................$ 2,565,000
Year 2  ........................................................$ 4,275,000
Year 3  ........................................................$ 6,412,500

    In July 2004, we amended our Distribution  Services Agreement with Apheresis
Technologies,  Inc.  such that we would have the sole  discretion as to when the
agreement would terminate.  In consideration of this amendment, we agreed to pay
Apheresis  Technologies  $100,000 on the  successful  completion  of our initial
public  offering.  Included  in  accounts  payable as at  December  31,  2004 is
$100,000 due to Apheresis Technologies.

CASH USED IN OPERATING ACTIVITIES

    Cash used in operating activities was $5,382,465,  $2,374,822 and $2,125,533
for the years ended December 31, 2004, 2003 and 2002,  respectively.  Changes in
net cash  provided by operating  activities  in 2004 reflect a net loss adjusted
for non-cash items and netted  against  changes in working  capital.  Changes in
working capital in 2004 reflect a $222,218  increase in accounts  receivable due
to increased sales and negotiated  credit terms, a $324,353  increase in prepaid
assets  due  mainly  to  advance  payments  to  insurance   providers,   and  to
participating  MIRA-1 clinical  research  organizations and clinical trial sites
and a $136,527  increase in  inventory  as we continue to maintain  our level of
orders  in  line  with  supplier  expectations.  In  addition,  amounts  due  to
stockholders  decreased by $931,652 with the repayment of the $500,000 loan from
Asahi Medical and the $500,000 due to the Stock Foundation. These increased uses
of cash was offset in part by a  $2,538,445  increase  in  accounts  payable and
accrued  liabilities  from  increased  obligations  due  to the  initial  public
offering process,  MIRA-1 clinical trial expenses and professional fees. Changes
in  working  capital  in 2003  and  2002  reflect  the  reduction  of  increased
liabilities from 2001 due to the receipt of additional funding.


                                       52
<PAGE>

CASH USED IN INVESTING ACTIVITIES

    Cash used in investing activities was $43,428,156,  $175,780 and $31,045 for
the years ended  December 31, 2004,  2003 and 2002,  respectively.  Cash used in
investing   activities   during  the  year  ended  December  31,  2004  included
$42,500,000 for the purchase of marketable securities, $192,281 for the purchase
of fixed assets and $768,808 for costs related to the  corporate  reorganization
transactions  consummated in connection with the initial public  offering.  Cash
used in investing  activities  during the years ended December 31, 2003 and 2002
was  primarily  for the  purchase  of fixed  assets  of  $164,716  and  $24,151,
respectively.  Fixed asset  expenditures were for medical equipment and OctoNova
pumps to be used in clinical trials.

CASH PROVIDED BY FINANCING ACTIVITIES

    Cash  provided by  financing  activities  was  $65,104,005,  $3,185,311  and
$2,766,559 for years ended December 31, 2004, 2003 and 2002, respectively.

    Cash provided by financing activities primarily reflects issuances of common
stock, convertible debentures,  as well as the issuance of Convertible Preferred
Stock.  In 2002,  we issued  $492,500  in  series B  convertible  debentures,  a
$1,000,000   subordinated  promissory  note  and  345,843  shares  of  Series  B
Convertible  Preferred  Stock for gross cash proceeds of  $2,000,000  less share
issue costs of $725,941.  Cash provided by financing activities in 2003 was from
the issue of $2,650,000 in convertible  grid  debentures  less issuance costs of
$24,796  and  613,292  shares of common  stock for  $604,092.  In the year ended
December  31,  2004,  we issued  5,600,000  shares of common  stock,  during the
Company's  initial public offering,  for gross cash proceeds of $67,200,000 less
issue costs of $7,770,075, $4,350,000 in convertible grid debentures and 374,569
shares of common  stock for cash  proceeds of $263,900.  We also issued  379,284
shares of Series A  Convertible  Preferred  Stock for  total  cash  proceeds  of
$1,281,841,  of which  $1,060,180  has been received and the balance of $221,661
has yet to be  received  as of  December  31,  2004  and has  been  included  in
stockholders' deficiency.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

    Our discussion and analysis of financial condition and results of operations
is based upon our audited  consolidated  financial  statements,  which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets,  liabilities,
sales and expenses, and related disclosure of contingent assets and liabilities.
On an ongoing  basis,  we evaluate our  estimates,  including  those  related to
uncollectible receivables, inventories, income taxes, financial income, warranty
obligations,  excess component and order  cancellation  costs, and contingencies
and  litigation.  We base our estimates on historical  experience and on various
other assumptions that we believe to be reasonable under the circumstances,  the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Because
this can vary in each situation,  actual results may differ from these estimates
under different assumptions or conditions.

    We  believe  the  following  critical  accounting  policies  affect our more
significant  judgments  and  estimates  used in the  preparation  of our audited
consolidated financial statements.

REVENUE RECOGNITION

     We  recognize  revenue  from  the  sale of the  RHEO(TM)  System  which  is
comprised  of  OctoNova  pumps and the relateD  disposable  treatment  sets.  We
receive a signed binding  purchase  order from our  customers.  The pricing is a
negotiated amount between our customers and us.

    We have the  obligation  to train,  if required,  and calibrate the OctoNova
pumps delivered to our customers.  Only upon the completion of these services do
we recognize  revenue for the pumps.  We are also  responsible  for  providing a


                                       53
<PAGE>

one-year  warranty period  complementary to that offered by the manufacturer and
the estimated  cost of providing  this service is accrued at the time revenue is
recognized.  The  treatment  sets do not require any  additional  servicing  and
revenue is  recognized  upon passage of title.  All related costs of revenue are
accrued for by us.

INVENTORY VALUATION

    Inventory  is  recorded  at the lower of cost and net  realizable  value and
consists of  finished  goods.  Cost is  accounted  for on a first-in,  first-out
basis.

     WE RECEIVE FREE  INVENTORY FROM ASAHI MEDICAL FOR THE PURPOSE OF THE MIRA-1
AND  RELATED  CLINICAL  STUDIES.  WE  ACCOUNT  FOR  THIS  INVENTORY  AT A  VALUE
EQUIVALENT  TO THE COST WE PAY FOR THE SAME  FILTERS  PURCHASED  FOR  COMMERICAL
SALES TO RELATED AND UNRELATED THIRD PARTIES.

FUNCTIONAL CURRENCY

     The currency of the primary economic environment in which we operate is the
U.S.  dollar.  Substantially  all of our sales are derived in U.S. dollars or in
other currencies  linked to the U.S. dollar.  Purchases of substantially  all of
our materials and  components  are carried out in U.S.  dollars or are linked to
the U.S. dollar. As a result, we have determined that our functional currency is
the U.S. dollar.

     Monetary  balances in non-U.S.  dollar  currencies are translated into U.S.
dollars using current exchange rates.  Non-monetary balances in non-U.S.  dollar
currencies are translated into U.S.  dollars using historic  exchange rates. For
non-U.S.  dollar transactions reflected in our statements of operations,  we use
the exchange rates as of the transaction dates.  Depreciation,  amortization and
changes in inventories and other changes  deriving from  non-monetary  items are
based on historical exchange rates. We record the resulting translation gains or
losses as financial income or expenses, as appropriate.

STOCK-BASED COMPENSATION

    We follow Statement of Financial Accounting Standard No. 123 "Accounting for
Stock-Based  Compensation,"  ("SFAS No.  123").  The  provisions of SFAS No. 123
allow  companies to either  expense the estimated fair value of stock options or
to continue to follow the intrinsic  method set forth in  Accounting  Principles
Board Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB 25") but
disclose  the pro forma  effects on net income  (loss) had the fair value of the
options been expensed. We have elected to continue to apply APB 25 in accounting
for stock-based compensation.

    During the year ended  December 31, 2003,  we issued stock options on a date
that,  was within  twelve  months of the filing of the initial  public  offering
registration statement. Accordingly, subject to published guidance from the U.S.
Securities and Exchange Commission,  or SEC, we estimated the intrinsic value of
these  stock  options  based on the  offering  price of our common  stock in the
initial  public  offering,  which we expensed  over the vesting  period of these
options.  These  options  became  fully  vested  upon the closing of the initial
public offering. Therefore, the remaining unamortized stock compensation expense
has been recorded in the year ended December 31, 2004.

    Pursuant  to SFAS No.  123,  the  weighted-average  fair  values of employee
options  granted during the years ended December 31, 2004,  2003 and 2002 (other
than the stock options described immediately above) were $6.96, $0.56 and $0.77,
respectively.  The  estimated  fair  value was  determined  using the  following
assumptions:

    o   Volatility: 2004 -- 89.1%, 2003 -- 75%, 2002 -- 83%


                                       54
<PAGE>

    o   Expected life of option: 2004 -- 3 years, 2003 -- 4.1 years, 2002 --
        8.9 years

    o   Risk-free interest rate: 2004 -- 3.21%, 2003 -- 2.15%, 2002 -- 4.95%

    Compensation expense associated with non-employee stock options was $47,637,
$196,686  and $134,948  for the years ended  December  31, 2004,  2003 and 2002,
respectively.  The  fair  value  of  these  options  was  determined  using  the
Black-Scholes  fair value options model using the same assumptions  above and is
included  in  general  and  administrative   expenses  within  the  consolidated
statement of operations.

EFFECTIVE CORPORATE TAX RATE

INCOME TAXES

    As of December  31,  2004,  we had net  operating  loss carry  forwards  for
federal income taxes of $28.2 million. Our utilization of the net operating loss
and tax credit carry forwards may be subject to annual  limitations  pursuant to
Section 382 of the Internal  Revenue Code,  and similar state  provisions,  as a
result of changes in our ownership structure.  The annual limitations may result
in the expiration of net operating losses and credits prior to utilization.

    At December 31, 2004,  we had recorded a deferred tax  liability  due to the
difference  between the fair value of our intangible asset and its tax basis. We
also had  deferred tax assets  representing  the benefit of net  operating  loss
carry forwards and certain stock issuance costs capitalized for tax purposes. We
did not record a benefit for the deferred tax asset because  realization  of the
benefit was uncertain  and,  accordingly,  a valuation  allowance is provided to
offset the deferred tax asset.

RECENT ACCOUNTING PRONOUNCEMENTS

     In November 2004, the Financial  Accounting  Standards  Board, or the FASB,
issued SFAS No. 151,  "Inventory  Costs - An Amendment of ARB No. 43, Chapter 4"
("SFAS No.  151").  SFAS No.  151  requires  that  items  such as idle  facility
expense,  excessive spoilage,  double freight,  and rehandling costs be excluded
from the cost of inventory and expensed as incurred.  Additionally, SFAS No. 151
requires that the allocation of fixed  overheads be based on the normal capacity
of the  production  facilities.  SFAS No.  151 is  effective  for  fiscal  years
beginning  after June 15, 2005. We are currently  evaluating the effect that the
adoption of SFAS No. 151 will have on our consolidated results of operations and
financial position.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment"  ("SFAS No.  123R"),  which revises SFAS No. 123 and supercedes APB No.
25. SFAS No. 123R  requires all  share-based  payments to  employees,  including
grants of employee stock options,  to be recognized in the financial  statements
based on their fair values. The pro forma disclosures previously permitted under
SFAS  No.  123  will  no  longer  be  an  alternative  to  financial   statement
recognition.   Under  SFAS  No.  123R,  we  must   determine   the   appropriate
option-pricing  model  to be  used  for  valuing  share-based  payments  and the
transition  method to be used at date of adoption.  The transition  alternatives
are the modified-prospective and  modified-retrospective  methods. Both of these
methods  require  that  compensation  expense be  recorded  for all  share-based
payments  granted,  modified or settled  after the date of adoption  and for all
unvested   stock   options  at  the  date  of  adoption;   however,   under  the
modified-retrospective   method,  prior  periods  are  restated  by  recognizing
compensation  cost  in  amounts  previously  reported  in  the  pro  forma  note
disclosures  under SFAS No. 123. Prior periods may be restated  either as of the
beginning of the year of adoption or for all periods presented. SFAS No. 123R is
effective beginning with the first interim or annual period after June 15, 2005.
Accordingly,  we are required to adopt SFAS No. 123R  beginning July 1, 2005. We
are currently  evaluating the  requirements of SFAS No. 123R and expect that the
adoption  of SFAS No.  123R will  have a  material  impact  on our  consolidated
results of operations.  We have not yet determined the method of adoption or the


                                       55
<PAGE>

effect  of  adopting  SFAS No.  123R,  and we have not  determined  whether  the
adoption  will  result in  amounts  that are  similar to the  current  pro forma
disclosures under SFAS No. 123.

     In December 2004,  the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets  - An  Amendment  of APB  Opinion  No.  29,  Accounting  for  Nonmonetary
Transactions"  ("SFAS No. 153").  SFAS 153  eliminates  the exception  from fair
value  measurement for nonmonetary  exchanges of similar  productive  assets and
replaces  it  with an  exception  for  exchanges  that  do not  have  commercial
substance.  SFAS No. 153 specifies  that a nonmonetary  exchange has  commercial
substance  if the  future  cash  flows of the  entity  are  expected  to  change
significantly  as a result of the  exchange.  SFAS No. 153 is effective  for the
fiscal periods  beginning  after June 15, 2005. We are currently  evaluating the
effect that the adoption of SFAS No. 153 will have on our  consolidated  results
of operations and financial position, but we do not expect it to have a material
impact.

DEVELOPMENTS DURING THE YEAR ENDED DECEMBER 31, 2004

     ON DECEMBER 8 2004,  AS PART OF THE CORPORATE  REORGANIZATION  TRANSACTIONS
RELATING TO THE INITIAL PUBLIC OFFERING,WE ACQUIRED TLC VISION'S 50% INTEREST IN
OCCULOGIX,  L.P. IN EXCHANGE FOR THE ISSUANCE TO TLC VISION 19,070,234 SHARES OF
ITS  COMMON  STOCK.  THE STOCK  CONSIDERATION  WAS VALUED  BASED ON OUR  INITIAL
OFFERING  SHARE  PRICE OF $12.00 PER SHARE.  THE  RESULTS OF  OCCULOGIX,  L.P.'S
OPERATIONS HAVE BEEN INCLUDED IN THE  CONSOLIDATED  FINANCIAL  STATEMENTS  SINCE
THAT DATE.

     In December 2004,  5,600,000 shares of our common stock at $12.00 per share
were  issued in  connection  with the  initial  public  offering  for gross cash
proceeds of $67,200,000 (less issuance costs of $7,770,075).

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment"  ("SFAS No.  123R"),  which revises SFAS No. 123 and supercedes APB No.
25. SFAS No. 123R  requires all  share-based  payments to  employees,  including
grants of employee stock options,  to be recognized in the financial  statements
based on their fair values. The pro forma disclosures previously permitted under
SFAS  No.  123  will  no  longer  be  an  alternative  to  financial   statement
recognition.   Under  SFAS  No.  123R,  we  must   determine   the   appropriate
option-pricing  model  to be  used  for  valuing  share-based  payments  and the
transition  method to be used at date of adoption.  The transition  alternatives
are the modified-prospective and  modified-retrospective  methods. Both of these
methods  require  that  compensation  expense be  recorded  for all  share-based
payments  granted,  modified or settled  after the date of adoption  and for all
unvested   stock   options  at  the  date  of  adoption;   however,   under  the
modified-retrospective   method,  prior  periods  are  restated  by  recognizing
compensation  cost  in  amounts  previously  reported  in  the  pro  forma  note
disclosures  under SFAS No. 123. Prior periods may be restated  either as of the
beginning of the year of adoption or for all periods presented. SFAS No. 123R is
effective beginning with the first interim or annual period after June 15, 2005.
Accordingly,  we are required to adopt SFAS No. 123R  beginning July 1, 2005. We
are currently  evaluating the  requirements of SFAS No. 123R and expect that the
adoption  of SFAS No.  123R will  have a  material  impact  on our  consolidated
results of  operations.  We have not yet  determined the method of adopting SFAS
No. 123R.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

CURRENCY FLUCTUATIONS AND EXCHANGE RISK

     All of our  sales are in U.S.  dollars  or are  linked to the U.S.  dollar,
while a portion of our  expenses  are in Canadian  dollars and euros.  We cannot
predict any future  trends in the exchange  rate of the Canadian  dollar or euro
against the U.S.  dollar.  Any  strengthening  of the Canadian dollar or euro in


                                       56
<PAGE>

relation  to the  U.S.  dollar  would  increase  the  U.S.  dollar  cost  of our
operations, and affect our U.S. dollar measured results of operations. We do not
engage in any hedging or other  transactions  intended to manage these risks. In
the future, we may undertake hedging or other similar  transactions or invest in
market risk  sensitive  instruments  if we determine that is advisable to offset
these risks.

INTEREST RATE RISK

    The primary  objective of our investment  activity is to preserve  principal
while  maximizing  interest  income we  receive  from our  investments,  without
increasing risk. We believe this will minimize our market risk.




                                       57
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Consolidated Financial Statements

OCCULOGIX, INC.[formerly Vascular Sciences Corporation]

December 31, 2004 and 2003




                                       58
<PAGE>

                        REPORT OF INDEPENDENT REGISTERED

                             PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of

OCCULOGIX, INC.

We have audited the accompanying  consolidated balance sheets of OCCULOGIX, INC.
[formerly  Vascular  Sciences  Corporation] as of December 31, 2004 and 2003 and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity  (deficiency)  and cash  flows for each of the three  years in the period
ended December 31, 2004. 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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting.  Accordingly we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates  made by management  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of OCCULOGIX, INC. at
December 31, 2004 and 2003 and the  consolidated  results of its  operations and
its cash flows for each of the three years in the period ended December 31, 2004
in conformity with U.S. generally accepted accounting principles.


Toronto, Canada,                                     /s/ Ernst & Young LLP

February 28, 2005.                                   Chartered Accountants



                                       59
<PAGE>

OCCULOGIX, INC.

[formerly Vascular Sciences Corporation]

                           CONSOLIDATED BALANCE SHEETS
                           [expressed in U.S. dollars]

<TABLE>
<CAPTION>
                                                                                  AS AT DECEMBER 31,
                                                                           ------------------------------
                                                                               2004               2003
---------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>
ASSETS

CURRENT
Cash and cash equivalents                                                  $  17,530,552    $   1,237,168
Marketable securities                                                         42,500,000               --
Amounts receivable [note 13]                                                     472,156               --
Due from related parties [note 13]                                                 8,226           14,074
Inventory                                                                      1,086,339          188,071
Prepaid expenses                                                                 480,813          156,460
Deposit                                                                            8,996               --
---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                          62,087,082        1,595,773
---------------------------------------------------------------------------------------------------------
Fixed assets, net [note 4]                                                       367,589          191,231
Patents and trademarks, net [note 5]                                             104,654           81,144
Intangible asset, net [note 6]                                                25,643,862               --
---------------------------------------------------------------------------------------------------------
Goodwill [note 7]                                                            213,397,444               --
---------------------------------------------------------------------------------------------------------
                                                                             301,600,631        1,868,148
=========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT
Accounts payable                                                                 221,063          194,515
Accrued liabilities [note 15]                                                  2,791,291          245,581
Deferred revenue and rent inducement [note9 and 10]                              485,047               --
Due to stockholders [note 11]                                                    516,756        1,043,865
Convertible debentures due to stockholders [note 12]                                  --        2,650,000
---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                      4,014,157        4,133,961
---------------------------------------------------------------------------------------------------------
Deferred tax liability [note 14]                                               9,488,229               --
---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                             13,502,386        4,133,961
---------------------------------------------------------------------------------------------------------

Commitments and contingencies [notes 13 and 16]

STOCKHOLDERS' EQUITY (DEFICIENCY)

Capital stock  [note 17]

  Common stock                                                                    41,807            5,033
     Par value of $0.001 per share;
     Authorized: 75,000,000; Issued and outstanding:
     December 31, 2004 - 41,806,768; December 31, 2003 - 5,032,906
  Preferred stock                                                                     --               --
     Par value of $0.001 per share;
     Authorized: 10,000,000; Issued and outstanding:
     December 31, 2004 and  2003 - nil
  Series A Convertible Preferred Stock                                                --            1,768
     Non-cumulative, convertible par value of $0.001 per share
     Authorized: December 31, 2004 - nil; December 31, 2003 - 2,500,000;
     Issued and outstanding:
     December 31, 2004 - nil; December 31, 2003 - 1,767,740
  Series B Convertible Preferred Stock                                                --              620
     Non-cumulative, convertible par value of $0.001 per share
     Authorized: December 31, 2004 - nil; December 31, 2003 - 2,000,000;
     Issued and outstanding:
     December 31, 2004 - nil; December 31, 2003 - 620,112
  Additional paid-in capital                                                 336,063,557       23,915,012
Accumulated deficit                                                          (48,007,119)     (26,188,246)
---------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                      288,098,245       (2,265,813)
---------------------------------------------------------------------------------------------------------
                                                                             301,600,631        1,868,148
=========================================================================================================
</TABLE>


See accompanying notes


                                       60
<PAGE>

OCCULOGIX, INC.

[formerly Vascular Sciences Corporation]

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                           [expressed in U.S. dollars]

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                       --------------------------------------------
                                                            2004            2003           2002
---------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>             <C>
REVENUE
   Sales to related parties                            $    731,757    $    390,479    $     94,100
   Sales to unrelated parties                               237,600              --              --
---------------------------------------------------------------------------------------------------
                                                            969,357         390,479          94,100
---------------------------------------------------------------------------------------------------

 COST OF GOODS SOLD
   Cost of goods sold to related parties                    688,102         373,546          80,391
   Cost of goods sold to unrelated parties                  133,710              --              --
   Royalty costs                                            135,457         109,234          78,303
---------------------------------------------------------------------------------------------------
                                                            957,269         482,780         158,694
---------------------------------------------------------------------------------------------------

 GROSS MARGIN                                                12,088         (92,301)        (64,594)
---------------------------------------------------------------------------------------------------

 OPERATING EXPENSES
 General and administrative [notes 11, 13 and 17[f]]     17,530,019       1,564,362         448,856
 Clinical and regulatory                                  3,994,967         731,166       1,446,662
 Sales and marketing                                        219,556              --              --
---------------------------------------------------------------------------------------------------
                                                         21,744,542       2,295,528       1,895,518
---------------------------------------------------------------------------------------------------
 Loss from operations                                   (21,732,454)     (2,387,829)     (1,960,112)
---------------------------------------------------------------------------------------------------

 OTHER INCOME (EXPENSES)

 Interest income (expense)                                   35,735         (67,997)     (1,022,627)
 Other [notes 13 and 22]                                   (145,925)        (14,062)        101,142
---------------------------------------------------------------------------------------------------
                                                           (110,190)        (82,059)       (921,485)
---------------------------------------------------------------------------------------------------
 Loss from operations before income taxes               (21,842,644)     (2,469,888)     (2,881,597)
 Recovery of income taxes [note 14]                          23,771              --              --
---------------------------------------------------------------------------------------------------
 NET LOSS FOR THE YEAR                                  (21,818,873)     (2,469,888)     (2,881,597)
===================================================================================================

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
  - BASIC AND DILUTED                                     7,369,827       3,976,921       3,735,062
===================================================================================================

 NET LOSS PER SHARE                                    $      (2.96)   $      (0.62)   $      (0.77)
===================================================================================================
</TABLE>


See accompanying notes


                                       61
<PAGE>

OCCULOGIX, INC.

[formerly Vascular Sciences Corporation]

     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                           [expressed in U.S. dollars]

<TABLE>
<CAPTION>
                                                           VOTING                NON-VOTING              SERIES A CONVERTIBLE
                                                        COMMON STOCK            COMMON STOCK                PREFERRED STOCK
                                                        AT PAR VALUE            AT PAR VALUE                 AT PAR VALUE
                                                  -----------------------  -----------------------     ------------------------
                                                    NUMBER OF                NUMBER OF                   NUMBER OF
                                                  SHARES ISSUED            SHARES ISSUED               SHARES ISSUED
                                                        #            $           #             $             #              $
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>         <C>             <C>        <C>               <C>
BALANCE, DECEMBER 31, 2001                          3,603,362      3,604       288,940         289        581,325           582
Discontinued operations                                    --         --            --          --             --            --
Stock issued in lieu of consulting fees                 2,333          2            --          --             --            --
Stock based compensation [note 2]                          --         --            --          --             --            --
Conversion of non-voting common
   stock to voting common stock upon
   merger of companies [notes 17[b][i] and [f]]       288,940        289      (288,940)       (289)            --            --
Conversion of Series A convertible debentures
   into Series A convertible preferred stock
   [note 17[d][i]]                                         --         --            --          --      1,089,172         1,089
Shares issued pursuant to anti-dilution
   provisions [note 17[d][i]]                              --         --            --          --         97,243            97
Shares issued pursuant to private offering
   memorandum, net of share issue
   cost [note 17[d][ii]]                                   --         --            --          --             --            --
Conversion of Series B convertible
   debentures into Series B convertible
   preferred stock [note 17[d][ii]]                        --         --            --          --             --            --
Conversion of subordinated convertible
   debentures into Series B convertible
   preferred stock [note 17[d][ii]]                        --         --            --          --             --            --
Contribution of inventory from related party
   [note 13]                                               --         --            --          --             --            --
Value ascribed to warrants issued [note 17[g]]             --         --            --          --             --            --
Net loss for the year                                      --         --            --          --             --            --
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002                          3,894,635      3,895            --          --      1,767,740         1,768
================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                  SERIES B CONVERTIBLE
                                                     PREFERRED STOCK
                                                      AT PAR VALUE                                          NET
                                                  --------------------    ADDITIONAL                   STOCKHOLDERS'
                                                    NUMBER OF              PAID-IN      ACCUMULATED       EQUITY
                                                  SHARES ISSUED            CAPITAL        DEFICIT       (DEFICIENCY)
                                                        #            $        $              $               $
-------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>     <C>           <C>             <C>
BALANCE, DECEMBER 31, 2001                               --         --    11,839,195    (20,602,323)    (8,758,653)
Discontinued operations                                  --         --       (66,000)      (234,438)      (300,438)
Stock issued in lieu of consulting fees                  --         --         2,798             --          2,800
Stock based compensation [note 2]                        --         --       134,948             --        134,948
Conversion of non-voting common
   stock to voting common stock upon
   merger of companies [notes 17[b][i] and [f]]          --         --            --             --             --
Conversion of Series A convertible debentures
   into Series A convertible preferred stock
   [note 17[d][i]]                                       --         --     7,118,022             --      7,119,111
Shares issued pursuant to anti-dilution
   provisions [note 17[d][i]]                            --         --           (97)            --             --
Shares issued pursuant to private offering
   memorandum, net of share issue
   cost [note 17[d][ii]]                            345,843        346     1,273,713             --      1,274,059
Conversion of Series B convertible
   debentures into Series B convertible
   preferred stock [note 17[d][ii]]                 178,227        178     1,030,506             --      1,030,684
Conversion of subordinated convertible
   debentures into Series B convertible
   preferred stock [note 17[d][ii]]                  96,042         96       499,825             --        499,921
Contribution of inventory from related party
   [note 13]                                             --         --       155,141             --        155,141
Value ascribed to warrants issued [note 17[g]]           --         --        69,138             --         69,138
Net loss for the year                                    --         --            --     (2,881,597)    (2,881,597)
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002                          620,112        620    22,057,189    (23,718,358)    (1,654,886)
===================================================================================================================
</TABLE>

                                       62
<PAGE>

OCCULOGIX, INC.

[formerly Vascular Sciences Corporation]

     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                           [expressed in U.S. dollars]

<TABLE>
<CAPTION>
                                                                                   VOTING                        NON-VOTING
                                                                                COMMON STOCK                    COMMON STOCK
                                                                                AT PAR VALUE                    AT PAR VALUE
                                                                        -----------------------------     -------------------------
                                                                           NUMBER OF                        NUMBER OF
                                                                         SHARES ISSUED                    SHARES ISSUED
                                                                               #                 $              #              $
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>            <C>              <C>
BALANCE, DECEMBER 31, 2002 CONT'D                                           3,894,635          3,895             --             --

Conversion of debt into common
   stock [notes 11 and 17[c]]                                                 507,604            508             --             --
Stock issued in lieu of consulting fees [note 17[e]] 17,375                        17             --             --             --
Stock issued pursuant to private offering
   memorandum [note 17[e]]                                                    613,292            613             --             --
Contribution of inventory from related party [note 13]                             --             --             --             --
Stock based compensation [note 2]                                                  --             --             --             --
Net loss for the year                                                              --             --             --             --
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2003                                                  5,032,906          5,033             --             --
Stock based compensation [note 17[f]]                                              --             --             --             --
Stock issued on exercise of options
   [note 17[f]]                                                               272,200            273             --             --
Stock issued on exercise of warrants
    [note 17[g]]                                                              102,369            102             --             --
Subscription receivable [note 17[g]]                                               --             --             --             --
Contribution of inventory from related party [note 13]                             --             --             --             --
Conversion of Series A convertible preferred
   stock into common stock [note 17[b][ii]]                                 3,603,350          3,603             --             --
Conversion of Series B convertible preferred
   stock into common stock [note 17[b][ii]]                                 1,019,255          1,019             --             --
Conversion of convertible grid debentures into
   common stock [notes 12 and 17[b][ii]]                                    7,106,454          7,107             --             --
Fractional payout of converted shares due to
   preferred stockholders                                                          --             --             --             --
Shares issued on acquisition of The Partnership
   [note 17[b][ii]]                                                        19,070,234         19,070             --             --
Initial public offering, net of issue costs [note 17[e]]                    5,600,000          5,600             --             --
Net loss for the year                                                              --             --             --             --
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2004                                                 41,806,768         41,807             --             --
===================================================================================================================================
</TABLE>

                                       63
<PAGE>

<TABLE>
<CAPTION>
                                                                         SERIES A CONVERTIBLE            SERIES B CONVERTIBLE
                                                                            PREFERRED STOCK                 PREFERRED STOCK
                                                                              AT PAR VALUE                    AT PAR VALUE
                                                                       ---------------------------    --------------------------
                                                                          NUMBER OF                       NUMBER OF
                                                                        SHARES ISSUED                   SHARES ISSUED

                                                                              #               $               #               $
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>         <C>                <C>
BALANCE, DECEMBER 31, 2002 CONT'D                                        1,767,740           1,768         620,112           620
Conversion of debt into common
   stock [notes 11 and 17[c]]                                                   --              --              --            --
Stock issued in lieu of consulting fees [note 17[e]] 17,375                     --              --              --            --
Stock issued pursuant to private offering
   memorandum [note 17[e]]                                                      --              --              --            --
Contribution of inventory from related party [note 13]                          --              --              --            --
Stock based compensation [note 2]                                               --              --              --            --
Net loss for the year                                                           --              --              --            --
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2003                                               1,767,740           1,768         620,112           620
Stock based compensation [note 17[f]]                                           --              --              --            --
Stock issued on exercise of options
   [note 17[f]]                                                                 --              --              --            --
Stock issued on exercise of warrants
    [note 17[g]]                                                           379,284             379              --            --
Subscription receivable [note 17[g]]                                            --              --              --            --
Contribution of inventory from related party [note 13]                          --              --              --            --
Conversion of Series A convertible preferred
   stock into common stock [note 17[b][ii]]                                 (2,147)             --              --        (1,456)
Conversion of Series B convertible preferred
   stock into common stock [note 17[b][ii]]                                     --              --        (620,112)         (620)
Conversion of convertible grid debentures into
   common stock [notes 12 and 17[b][ii]]                                        --              --              --            --
Fractional payout of converted shares due to
   preferred stockholders                                                       --              --              --            --
Shares issued on acquisition of The Partnership
   [note 17[b][ii]]                                                             --              --              --            --
Initial public offering, net of issue costs [note 17[e]]5,600,0005,600          --              --              --            --
Net loss for the year                                                           --              --              --            --
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2004                                                      --              --              --            --
==================================================================================================================================
</TABLE>

                                       64
<PAGE>

<TABLE>
<CAPTION>
                                                                                                          NET
                                                                         ADDITIONAL                   STOCKHOLDERS'
                                                                           PAID-IN     ACCUMULATED       EQUITY
                                                                           CAPITAL        DEFICIT     (DEFICIENCY)
                                                                               $             $            $
---------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>           <C>            <C>
BALANCE, DECEMBER 31, 2002 CONT'D                                         22,057,189     (23,718,358)     (1,654,886)
Conversion of debt into common
   stock [notes 11 and 17[c]]                                                480,507              --         481,015
Stock issued in lieu of consulting fees [note 17[e]] 17,375                   22,571              --          22,588
Stock issued pursuant to private offering
   memorandum [note 17[e]]                                                   578,683              --         579,296
Contribution of inventory from related party [note 13]                        66,300              --          66,300
Stock based compensation [note 2]                                            709,762              --         709,762
Net loss for the year                                                             --      (2,469,888)     (2,469,888)
---------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2003                                                23,915,012     (26,188,246)     (2,265,813)
Stock based compensation [note 17[f]]                                     15,439,960              --      15,439,960
Stock issued on exercise of options
   [note 17[f]]                                                              129,147              --         129,420
Stock issued on exercise of warrants
    [note 17[g]]                                                           1,415,840              --       1,416,321
Subscription receivable [note 17[g]]                                        (221,661)                       (221,661)
Contribution of inventory from related party [note 13]                       146,905              --         146,905
Conversion of Series A convertible preferred
   stock into common stock [note 17[b][ii]]                                       --              --              --
Conversion of Series B convertible preferred
   stock into common stock [note 17[b][ii]]                                     (399)             --              --
Conversion of convertible grid debentures into
   common stock [notes 12 and 17[b][ii]]                                   6,992,893              --       7,000,000
Fractional payout of converted shares due to
   preferred stockholders                                                       (747)             --            (747)
Shares issued on acquisition of The Partnership
   [note 17[b][ii]]                                                      228,823,738              --     228,842,808
Initial public offering, net of issue costs [note 17[e]]                  59,424,325              --      59,429,925
Net loss for the year                                                             --     (21,818,873)    (21,818,873)
---------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2004                                               336,063,557     (48,007,119)    288,098,245
======================================================================================================================
</TABLE>

See accompanying notes


                                       65
<PAGE>

OCCULOGIX, INC.

[formerly Vascular Sciences Corporation]

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           [expressed in U.S. dollars]

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                            ------------------------
                                                           2004            2003          2002

                                                             $               $             $
---------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>             <C>
 OPERATING ACTIVITIES
Net loss for the year                                  (21,818,873)     (2,469,888)     (2,881,597)
 Adjustments to reconcile net loss to
  cash used in operating activities:
  Stock-based compensation [notes 2 and 17[f]]          15,439,960         709,761         134,948
  Shares issued for services performed                          --          22,588           2,800
  Non-cash interest expense on long-term debt                   --              --         938,427
  Gain on settlement of debt                                    --          (7,190)             --
  Non-cash warrant value                                        --              --          69,138
  Amortization of fixed assets                              42,956          12,742          79,395
  Amortization of patents and trademarks                     5,480           3,887             841
  Amortization of intangible asset                         106,138              --              --
  Income taxes                                             (39,271)             --              --
  Loss (gain) on sale of fixed assets                       (6,000)         (1,746)          2,380
  Impairment of fixed assets                                13,850          46,128         131,240
 Net change in non-cash working capital
   balances related to operations [note 18]                873,295        (691,102)       (603,105)
---------------------------------------------------------------------------------------------------
 CASH USED IN OPERATING ACTIVITIES                      (5,382,465)     (2,374,820)     (2,125,533)
---------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
 Proceeds on sale of fixed assets                            6,000           4,000              --
Purchase of marketable securities                       42,500,000              --              --
 Additions to fixed assets                                (192,281)       (164,716)        (24,151)
 Additions to patents and trademarks                       (28,990)        (15,064)         (6,894)
Acquisition costs                                         (768,808)             --              --
Cash acquired on the acquisition OccuLogix, L.P.            55,923              --              --
---------------------------------------------------------------------------------------------------
 CASH USED IN INVESTING ACTIVITIES                     (43,428,156)       (175,780)        (31,045)
---------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
 Increase in long-term convertible
  debentures [note 12]                                   4,350,000       2,650,000              --
 Increase in convertible debentures due
  to stockholders                                               --              --       1,492,500
 Repayment of long-term debt                                    --         (25,000)             --
 Share issuance costs                                   (7,770,075)        (18,985)       (725,941)
 Debt issuance costs                                            --         (24,796)             --
 Proceeds from exercise of common
  stock options and warrants
  [notes 17[f] and [g]]                                    263,900         604,092              --
 Proceeds from exercise of Series A
  convertible preferred stock warrants [note 17[g]]      1,060,180              --              --
 Proceeds from sale of Series B
  convertible preferred stock [note 17[d][ii]]                  --              --       2,000,000
Proceeds from issuance of common stock [note 17[e]]     67,200,000              --              --
---------------------------------------------------------------------------------------------------
 CASH PROVIDED BY FINANCING ACTIVITIES                  65,104,005       3,185,311       2,766,559
---------------------------------------------------------------------------------------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS
  DURING THE YEAR                                       16,293,384         634,711         609,981

 Cash (bank indebtedness), beginning of year             1,237,168         602,457          (7,524)
---------------------------------------------------------------------------------------------------
 CASH AND CASH EQUIVALENT, END OF YEAR                  17,530,552       1,237,168         602,457
===================================================================================================
</TABLE>

See accompanying notes

                                       66
<PAGE>

1. NATURE OF OPERATIONS

OccuLogix,  Inc. [formerly Vascular Sciences  Corporation] and its subsidiaries:
OccuLogix  Holdings,  Inc.,  OccuLogix  ExchangeCo  ULC,  OccuLogix,   L.P.  and
OccuLogix U.S. LLC.  [collectively the "Company"],  is an ophthalmic therapeutic
company  founded  to  commercialize  innovative  treatments  for  eye  diseases,
including age-related macular degeneration, or AMD. The RHEO(TM) System contains
a pump  that  circulates  blood  through  two  filters  and is used  to  perform
Rheopheresis,  a form of apheresis,  which the Company refers to under the trade
name RHEO(TM)  Therapy,  which is designed to treat Dry AMD. The RHEO(TM) System
is designed to improve  microcirculation  in the eye by filtering high molecular
weight proteins and other macromolecules from the patient's plasma.

The Company owns and/or has licensed  certain  patents  relating to the RHEO(TM)
System and has the  exclusive  right to  develop  and sell the  equipment  which
comprises the RHEO(TM) System in the North American markets.

The Company  began  limited  commercialization  of the  RHEO(TM)  System at some
clinics in Canada in 2003. The Company is currently conducting a clinical trial,
called MIRA-1, which, if successful, is expected to support its application with
the U.S. Food and Drug  Administration  ["FDA"] to obtain approval to market the
RHEO(TM) System in the United States.

The Company licensed its right to develop and sell the RHEO System to OccuLogix,
L.P. [the "Partnership"] in exchange for a 50% interest in the Partnership [note
8].  The  other  50%  interest  in the  Partnership  was  owned  by  TLC  Vision
Corporation ["TLC Vision"], who is a significant  stockholder of the Company. On
December 8, 2004, as part of the  reorganization  transactions [note 17[b]], the
Company  purchased TLC Vision's 50% interest in the  Partnership and the results
of the Partnership's operations have been included in the consolidated financial
statements since that date.



                                       67
<PAGE>

2. SIGNIFICANT ACCOUNTING POLICIES

The  consolidated  financial  statements  have been  prepared by  management  in
conformity with accounting principles generally accepted in the United States of
America ["U.S. GAAP"].

Basis of consolidation

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

Use of estimates

The  preparation of  consolidated  financial  statements in conformity with U.S.
GAAP 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 revenue and expenses during the reporting  periods.  Actual
results could differ from those estimates.

Revenue recognition

The Company  recognizes  revenue from the sale of the RHEO(TM) System,  which is
comprised  of OctoNova  pumps and the related  disposable  treatment  sets.  The
Company  receives  a signed,  binding  purchase  order from its  customers.  The
pricing is a negotiated amount between the Company and its customers.

The Company has the obligation to train, if required, and calibrate the OctoNova
pumps  delivered to its  customers.  Only upon the  completion of these services
does  the  Company  recognize  revenue  for  the  pumps.  The  Company  is  also
responsible  for  providing a one year  warranty  period  supplementary  to that
offered by the  manufacturer and the estimated cost of providing this service is
accrued at the time revenue is recognized. The treatment sets do not require any
additional  servicing  and  revenue is  recognized  upon  passage of title.  All
related costs of revenue are accrued for by the Company.

Cost of sales

Cost of goods sold consists primarily of costs for the purchase of the Company's
products,  including  direct costs incurred for the purchase of component  parts
from its  suppliers,  applicable  freight and shipping costs and fees related to
warehousing.  In addition to these direct  costs,  included in the cost of sales
that are only  recoverable  based on sufficient  volume are the minimum  royalty
payments  due to Mr.  Hans Stock and Dr.  Richard  Brunner and  licensing  costs
associated with distributing the RHEO(TM) System in Canada.

Cash and cash equivalents

Cash and cash  equivalents  comprise cash on hand and highly  liquid  short-term
investments with original maturities of 90 days or less at the date of purchase.
As at December  31,  2004,  the Company had cash  equivalents  of  approximately
$16,900,000,  comprised  primarily of money market funds with a weighted average
effective rate of 1.8%.

Marketable Securities

Marketable securities are classified as "available-for-sale"  and are carried at
market value with unrealized  gains and losses  reported as other  comprehensive
income or loss which is a separate component of stockholders' deficit.

Available for sale investments  consist  primiarly of corporate  notes,  federal
agency notes and municipal notes.

As at December 31, 2004, the Company's  available for sale  investments  all had
original maturity of less than 90 days and comprised of the following:



                                       68
<PAGE>

                                                                 Cost
                                                                   $
                                                                  ---
Corporate notes......................................         24,000,000
Federal agency notes.................................          7,500,000
Municipal notes......................................         11,000,000
------------------------------------------------------------------------
                                                              42,500,000
                                                              ==========
========================================================================

The fair value of the Company's available for sale investments  approximates the
carrying value given the short-term nature.

Inventory

Inventory is recorded at the lower of cost and net realizable value and consists
of finished goods. Cost is accounted for on a first-in, first-out basis.

The Company  receives  free  inventory  from Asahi  Medical  Co.,  Ltd.  ["Asahi
Medical"]  for the  purpose of the  MIRA-1 and  related  clinical  studies.  The
Company  accounts  for  this  inventory  at a value  equivalent  to the cost the
Company pays for the same filters purchased for commercial sales unrelated third
parties.

Fair value of financial instruments

Fair  value of a  financial  instrument  is  defined  as the amount at which the
instrument could be exchanged in a current  transaction between willing parties.
The  estimated  fair  values  of cash and  cash  equivalents,  due from  related
parties,  amounts  receivable,  accounts payable,  accrued  liabilities,  due to
stockholders and convertible  debentures due to stockholders  approximate  their
carrying values due to the short-term maturities of these instruments.

Fixed assets

Fixed assets are recorded at cost less accumulated amortization. Amortization is
calculated  using the  straight-line  method,  commencing when the assets become
available for productive use, based on the following estimated useful lives:

Furniture and office equipment                         7 years
Computer equipment                                     3 years
Medical equipment                                      5 years


Impairment of long-lived assets

The  Company  reviews  its fixed  assets  and  intangible  asset for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
an  asset  might  not be  recoverable.  When  such an event  occurs,  management
estimates the future  undiscounted cash flows expected to result from the use of
the asset and its eventual disposition. In the event the undiscounted cash flows
are less than the carrying  amount of the asset, an impairment loss equal to the
excess of the carrying amount over the fair value is charged to operations.

Investments

Investments  are  accounted  for using the  equity  method  if the  Company  has
significant influence, but not control, over an investee.  Accordingly, prior to
the  purchase of TLC  Vision's  50%  interest in the  Partnership,  the Company,
through its wholly-owned subsidiary OccuLogix Holdings, Inc. ("OHI") which owned



                                       69
<PAGE>

a 50%  interest  in the  Partnership,  recorded  its  share  of  loss  from  the
Partnership using the equity method. Subsequent to the purchase of the remaining
50%  interest  in the  Partnership,  the  Company  commenced  consolidating  the
Partnership's results effective December 9, 2004.

Patents and trademarks

Patents and trademarks  have been recorded at historical  cost and are amortized
using the straight-line  method over their estimated useful lives, not to exceed
15 years.

Goodwill

Effective January 1, 2002,  goodwill is no longer amortized and is subject to an
annual  impairment test.  Goodwill  impairment is evaluated between annual tests
upon the occurrence of certain events or circumstances.  Goodwill  impairment is
assessed  based on a  comparison  of the fair value of a  reporting  unit to the
underlying  carrying  value  of  the  reporting  unit's  net  assets,  including
goodwill. When the carrying amount of the reporting unit exceeds its fair value,
the fair value of the  reporting  unit's  goodwill is compared with its carrying
amount to  measure  the amount of  impairment  loss,  if any.  The fair value of
goodwill is determined using the estimated  discounted  future cash flows of the
reporting unit.

Intangible asset

The intangible asset is comprised of the exclusive  distribution  agreements the
Company has with Asahi  Medical,  the  manufacturer  of the  Rheofilter  and the
Plasmaflo filter, and Diamed  Medizintechnik GmbH ["Diamed"] and MeSys Gmbh, the
designer and manufacturer,  respectively,  of the OctoNova pumps. The intangible
asset is amortized using the straight-line  method over an estimated useful life
of 15 years.

Foreign currency translation

The Company's  functional and reporting  currency is the U.S. dollar. The assets
and  liabilities  of the Company's  Canadian  operations  are maintained in U.S.
dollars.  Monetary assets and liabilities  denominated in foreign currencies are
translated  into U.S.  dollars at exchange  rates in effect at the  consolidated
balance sheet dates and  non-monetary  assets and  liabilities are translated at
exchange  rates in effect on the date of the  transaction.  Revenue and expenses
are translated into U.S. dollars at average exchange rates prevailing during the
year.  Resulting exchange gains and losses are included in net loss for the year
and are not material in any of the years presented.

Clinical and regulatory costs

Clinical  and  regulatory  costs  attributable  to the  performance  of contract
services are recognized as the services are performed. Non-refundable,  up-front
fees  paid in  connection  with  these  contracted  services  are  deferred  and
recognized as an expense on a straight-line basis over the estimated term of the
related contract.

Income taxes

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

Stock-based compensation

The Company  follows SFAS No. 123  "Accounting  for  Stock-Based  Compensation,"
["SFAS No.  123"].  The  provisions  of SFAS No. 123 allow  companies  to either
expense the  estimated  fair value of employee  stock  options or to continue to
follow the  intrinsic  value  method set forth in  Accounting  Principles  Board


                                       70
<PAGE>

Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees"  ["APB 25"] but
disclose  the pro forma  effects on net loss had the fair  value of the  options
been  expensed.  The  Company  has  elected  to apply APB 25 in  accounting  for
employee  stock option  incentive  plan [note  17[f]].  The  intrinsic  value is
amortized over the vesting period.

The following  table  illustrates  the pro forma net loss and pro forma loss per
share as if the fair value method had been applied to all awards:

<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                                       ----------------------------------
                                                       2004           2003           2002

                                                        $              $              $
------------------------------------------------------------------------------------------
<S>                                             <C>             <C>            <C>
 Net loss, as reported                          (21,818,873)    (2,469,888)    (2,881,597)
 Adjustment for APB 25 [note 17[f]]              15,392,323        513,077             --
 Adjustment for SFAS No. 123                    (15,673,031)      (539,012)       (96,412)
------------------------------------------------------------------------------------------
 Pro forma net loss                             (22,099,581)    (2,495,823)    (2,978,009)
==========================================================================================

Pro forma loss per share - basic and diluted          (3.00)         (0.63)         (0.80)
==========================================================================================
</TABLE>

Pursuant to SFAS No. 123,  the weighted  average  fair values of employee  stock
options  granted  during the years ended  December 31, 2004,  2003 and 2002 were
$6.96, $11.91 and $0.77,  respectively.  The estimated fair value was determined
using the following assumptions:

                                      Years ended December 31,
                               ----------------------------------------
                                 2004           2003           2002
-----------------------------------------------------------------------
Volatility                        89.1%           75.0%           83.0%
Expected life of option        3.0 yrs         4.1 yrs         8.9 yrs
Risk-free interest rate           3.21%           2.15%           4.95%
=======================================================================

The assumed dividend yield for all years presented is nil.

Net loss per share

The Company  follows SFAS No. 128,  ""Earnings  Per Share" ["SFAS No. 128"].  In
accordance  with SFAS No. 128,  companies that are publicly held or have complex
capital  structures are required to present basic and diluted earnings per share
("EPS") on the face of the statement of income.  Basic EPS excludes dilution and
is  computed  by  dividing  net loss  available  to common  stockholders  by the
weighted  average  number of shares of common  stock  outstanding  for the year.
Diluted EPS reflects the  potential  dilution  that could occur if securities or
other  contracts  to issue common  stock were  exercised  or  converted  and the
resulting  additional shares are dilutive because their inclusion  decreases the
amount of EPS.


                                       71
<PAGE>

The following  table presents the  potentially  dilutive  effects of outstanding
securities:

<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                             -------------------------------
                                                             2004          2003         2002

                                                               $             $            $
-----------------------------------------------------------------------------------------------
<S>                                                         <C>          <C>          <C>
Weighted average number of shares
  outstanding - basic                                       7,369,827    3,976,921    3,735,062
 Effect of dilutive securities:
  Convertible debentures                                           --    1,179,310      874,385
  Convertible Preferred Stock                                      --    3,986,106    1,613,575
  Warrants                                                         --      960,145      674,359
  Stock options                                             1,498,950      910,920           --
-----------------------------------------------------------------------------------------------
 Weighted average number of shares outstanding - diluted    8,868,777   11,013,402    6,897,381
===============================================================================================
</TABLE>

Potentially dilutive securities have not been used in the calculation of diluted
net loss per share as they are anti-dilutive.



                                       72
<PAGE>

Recent accounting pronouncements

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs - An Amendment
of ARB No. 43,  Chapter 4" ["SFAS No.  151"].  SFAS No. 151 requires  that items
such  as  idle  facility  expense,   excessive  spoilage,  double  freight,  and
rehandling  costs be  excluded  from  the  cost of  inventory  and  expensed  as
incurred.  Additionally,  SFAS No. 151  requires  that the  allocation  of fixed
overheads be based on the normal capacity of the production facilities. SFAS No.
151 is effective for fiscal years  beginning after June 15, 2005. The Company is
currently  evaluating  the effect that the adoption of SFAS No. 151 will have on
its consolidated results of operations and financial position.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-Based
Payment"  ["SFAS No.  123R"],  which revises SFAS No. 123 and supercedes APB No.
25. SFAS No. 123R  requires all  share-based  payments to  employees,  including
grants of employee stock options,  to be recognized in the financial  statements
based on their fair values. The pro forma disclosures previously permitted under
SFAS  No.  123  will  no  longer  be  an  alternative  to  financial   statement
recognition.  Under SFAS No. 123R,  the Company must  determine the  appropriate
option-pricing  model  to be  used  for  valuing  share-based  payments  and the
transition  method to be used at date of adoption.  The transition  alternatives
are the modified-prospective and  modified-retrospective  methods. Both of these
methods  require  that  compensation  expense be  recorded  for all  share-based
payments  granted,  modified or settled  after the date of adoption  and for all
unvested   stock   options  at  the  date  of  adoption;   however,   under  the
modified-retrospective   method,  prior  periods  are  restated  by  recognizing
compensation  cost  in  amounts  previously  reported  in  the  pro  forma  note
disclosures  under SFAS No. 123. Prior periods may be restated  either as of the
beginning of the year of adoption or for all periods presented. SFAS No. 123R is
effective beginning with the first interim or annual period after June 15, 2005.
Accordingly,  the Company is required to adopt SFAS No. 123R  beginning  July 1,
2005. The Company is currently  evaluating the requirements of SFAS No. 123R and
expects  that the  adoption of SFAS No. 123R will have a material  impact on its
consolidated  results of  operations.  The  Company has not yet  determined  the
method of  adoption  or the effect of  adopting  SFAS No.  123R,  and it has not
determined  whether the adoption  will result in amounts that are similar to the
current pro forma disclosures under SFAS No. 123.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- An Amendment of APB Opinion No. 29,  Accounting for Nonmonetary  Transactions"
["SFAS No. 153"].  SFAS 153 eliminates the exception from fair value measurement
for nonmonetary  exchanges of similar  productive assets and replaces it with an
exception  for exchanges  that do not have  commercial  substance.  SFAS No. 153
specifies  that a nonmonetary  exchange has  commercial  substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange.  SFAS No. 153 is effective for the fiscal periods beginning after June
15, 2005.  The Company is currently  evaluating  the effect that the adoption of
SFAS No. 153 will have on its  consolidated  results of operations and financial
position but does not expect it to have a material impact.

3. ACQUISITIONS

On December 8, 2004, as part of the  reorganization  transactions  [note 17[b]],
the Company  acquired TLC Vision's 50% interest in the  Partnership  in exchange
for the issuance to TLC Vision of  19,070,234  shares of its common  stock.  The
stock  consideration  was valued based on the Company's  initial  offering share
price of $12.00 per share. The results of the Partnership's operations have been
included in the consolidated financial statements since that date.

The purchase price of the  acquisition  consists of 19,070,234  shares of common
stock of the Company valued at $228,842,808,  plus acquisition costs of $768,808
for a total  acquisition  cost of  $229,611,616.  The  purchase  price  has been
allocated as follows:

                                  $
--------------------------------------
Net tangible assets            (8,328)
Deferred tax liability     (9,527,500)
Intangible asset           25,750,000
--------------------------------------
                           16,214,172

Goodwill                  213,397,444
--------------------------------------
                          229,611,616
======================================


                                       73
<PAGE>

If the  acquisition  of TLC  Vision's  50%  share  of the  Partnership  had been
completed by January 1 2003, the unaudited pro forma effects on the consolidated
statements  of operations  for the years ended  December 31, 2004 and 2003 would
have been to  decrease  revenue by  $166,634  and  increase  revenue by $95,915,
respectively.  The unaudited net loss for the years ended  December 31, 2004 and
2003 would have increased by $1,008,371 and $26,573,  respectively.  As a result
of the  impact of the above pro forma  changes  to net loss,  combined  with the
dilutive effect from the increased number of shares,  the unaudited net loss per
share for the years ended  December 31, 2004 and 2003 would have been reduced by
$2.06 and $0.51 per share, respectively.

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  acquisition  had occurred on January 1, 2003, nor is it necessarily
indicative of the results of operations which may occur in the future.



                                       74
<PAGE>

4. FIXED ASSETS

<TABLE>
<CAPTION>
                                             2004                     2003
                                     ---------------------    --------------------
                                              Accumulated             Accumulated
                                     Cost     amortization     Cost   amortization

                                       $            $            $            $
----------------------------------------------------------------------------------
<S>                                  <C>          <C>          <C>          <C>
Furniture and office equipment       34,828       20,024       28,229       15,597
Computer equipment                   52,654       20,675       27,864       13,930
Medical equipment                   764,071      443,265      590,080      425,415
----------------------------------------------------------------------------------
                                    851,553      483,964      646,173      454,942

Less accumulated amortization       483,964                   454,942
----------------------------------------------------------------------------------
                                    367,589                   191,231
==================================================================================
</TABLE>

The Company has recorded a reduction  of the carrying  value of fixed assets for
the year ended  December 31, 2004 of $13,850 [2003 - $46,128;  2002 - $131,240],
of which, $12,640 [2003 - $26,840;  2002 - nil] reflects a write down of certain
of the Company's  medical  equipment to a value at December 31, 2004 of nil. The
assets written down do not represent the most current  technology  available and
are no longer being used in the MIRA-1  clinical trials and the Company has made
the  decision  to write  down these  assets to their  fair value and  intends to
evaluate  the best  disposal  option.  In  addition to the write down of medical
equipment,  the carrying values of certain  furniture and office  equipment were
reduced in 2004 to current  value.  This was in addition  to a reduction  in the
carrying values of these same assets in prior years.

5. PATENTS AND TRADEMARKS

                                        2004                2003
                                --------------------  ----------------
                                        Accumulated          Accumulated
                                  Cost  amortization  Cost   amortization

                                   $          $        $         $
---------------------------------------------------------------------
Patents                          87,859     6,777    60,991     2,711
Trademarks                       27,608     4,036    25,486     2,622
---------------------------------------------------------------------
                                115,467    10,813    86,477     5,333

Less accumulated amortization    10,813               5,333
---------------------------------------------------------------------
                                104,654              81,144
=====================================================================



                                       75
<PAGE>

Estimated  amortization  expense for patents and trademarks for each of the next
five years are as follows:

           Patents    Trademarks      Total
             $            $            $
-------------------------------------------
2005        4,066        1,476        5,542
2006        4,066        1,476        5,542
2007        4,066        1,476        5,542
2008        4,066        1,476        5,542
2009        4,066        1,476        5,542
-------------------------------------------
           20,330        7,380       27,710
===========================================

6. INTANGIBLE ASSET

The Company's intangible asset consists of the exclusive distribution agreements
the Company  has with Asahi  Medical,  manufacturer  of the  Rheofilter  and the
Plasmaflo  filter,  and Diamed and MeSys GmbH,  the designer  and  manufacturer,
respectively,  of the OctoNova pumps. The distribution  agreements are amortized
using  the  straight-line  method  over an  estimated  useful  life of 15 years.
Amortization expense was $106,138 for the year ended December 31, 2004 [2003 and
2002 - nil].

Estimated  amortization  expense for the  intangible  asset for each of the next
five years is as follows:

            $
-----------------
2005    1,716,667
2006    1,716,667
2007    1,716,667
2008    1,716,667
2009    1,716,667
=================

The intangible  asset was valued using the cost approach  methodology as part of
the  Reorganization  process  [note  17[b]].  The cost  approach is based on the
premise  that a  prudent  investor  would  pay no more  for an  asset  than  its
replacement  or  reproduction  cost. The cost to replace the asset would include
the cost of  constructing  a  similar  asset of  equivalent  utility  at  prices
applicable at the time of the  appraisal.  To arrive at the estimated fair value
using the cost  approach,  the  replacement  cost is determined  and reduced for
amortization of the asset.

The  Company  determined  that,  as at  December  31,  2004,  there have been no
significant  changes in the methods used to  determine  the fair market value of
the intangible asset using the cost approach.  Therefore,  no impairment  charge
should be recorded during the year ended December 31, 2004.



                                       76
<PAGE>

7. GOODWILL

The Company  follows SFAS No. 142, which requires that goodwill not be amortized
but instead be tested for  impairment at least  annually and more  frequently if
circumstances indicate possible impairment.

The Company's goodwill amount is as follows:

                                         $
-----------------------------------------------
Balance, December 31, 2003                   --
Acquired during the year [note 3]   213,397,444
-----------------------------------------------
Balance, December 31, 2004          213,397,444
===============================================

The Company will perform its annual  impairment test on its acquired goodwill on
October 1st of each year.

8. INVESTMENT IN LIMITED PARTNERSHIP

On July 25, 2002, the  Partnership  was formed by an agreement  between OHI, TLC
Apheresis, L.P. ("Apheresis L.P."), a wholly-owned subsidiary of TLC Vision, and
OccuLogix  Management,  Inc.  ("General  Partner")  for the  purpose of pursuing
commercial  applications  of  technologies  owned  or  licensed  by the  Company
applicable to the  evaluation,  diagnosis,  monitoring and treatment of Dry AMD.
The Company has an agreement with the Partnership  appointing the Partnership as
the sole  distributor  of the RHEO(TM)  System and its component  parts in North
America, the Caribbean and Israel. Pricing is reviewed quarterly and adjusted as
required for future sales. Each of OHI and Apheresis L.P. directly or indirectly
own a 50% interest in the Partnership and the General  Partner;  in exchange for
the 50% interest  each of the  partners  contributed  certain  assets which were
recorded at fair value which were nominal.

The Company did not  consolidate the  Partnership's  results for the years ended
December  31,  2003  and  2002,  as  TLC  Vision's  effective  interest  in  the
Partnership  is  greater  than  50% due to its  direct  ownership  and  indirect
ownership through the Company.  Accordingly, the Partnership was consolidated by
TLC Vision. In addition, the Partnership's management was primarily comprised of
TLC Vision's  representatives and TLC Vision had  disproportionately  funded the
activity of the Partnership.

The  amount  reported  represents  the  Company's  proportionate  share  of  the
Partnership's cumulative earnings to date on an equity basis.

The Company did not recognize in the  consolidated  statements of operations its
50% interest in the net loss of the Partnership for the years ended December 31,
2003 and 2002, as the net loss of the Partnership exceeded the net investment of
the Company.

On December 8, 2004, as part of the  reorganization  transactions  [note 17[b]],
the Company  purchased  TLC  Vision's 50%  interest in the  Partnership  and the
results of the  Partnership's  operations have been included in the consolidated
financial statements since that date.

9. RENT INDUCEMENT

Deferred rent represents the benefit of operating  lease  inducements of $5,557,
net, which is being amortized on a straight-line  basis over the related term of
the lease.


                                       77
<PAGE>

10. DEFERRED REVENUE

Deferred revenue includes the the sale of six pumps to RHEO  Therapeutics,  Inc.
for $187,200.  Also  included in deferred  revenue is the balance of the advance
payment received from RHEO Therapeutics,  Inc. for the purchase of 660 treatment
sets, of which the total amount  received was $495,000.  The 252 treatment sets,
at a total purchase price of $202,230 [plus applicable taxes] had been delivered
to the  customer  and is included in the  revenue  reported in the  consolidated
statements of operations for the year ended December 31, 2004.

11. DUE TO STOCKHOLDERS

                                                   December 31,
                                                   ------------
                                              2004           2003
                                               $              $
------------------------------------------------------------------
Due to
Asahi Medical Co., Ltd.                          --        502,083
Hans K. Stock, stockholder [note 13]             --        500,000
TLC Vision Corporation [note 13]            473,929             --
Other stockholders [note 13]                 42,827         41,782
------------------------------------------------------------------
                                            516,756      1,043,865
==================================================================

On February  28, 2001,  the Company  issued a secured  promissory  note to Asahi
Medical in the principal  amount of $1,000,000 [the "Asahi Medical  Note"].  The
Asahi Medical Note had an annual interest rate of 8.5% and was originally due on
November 30,  2001.  The terms of the Asahi  Medical Note were amended  twice in
each of the  subsequent  years to extend the maturity  date to November 30, 2003
and 2002,  respectively.  On November  30, 2003,  the Company and Asahi  Medical
agreed to convert $500,000 of the principal of the Asahi Medical Note to 507,604
shares of  common  stock at a price of  $0.98502  per share  [note  17[c]].  All
accrued  interest was paid. The remaining  $500,000 matured on November 30, 2004
and had an  annual  interest  rate of 5.0%,  which was  payable  in  arrears  on
maturity.  On December 22, 2004,  the Company paid  $523,918 to Asahi Medical as
repayment  of the balance of the  principal  amount of the Asahi  Medical  Note,
together with accrued interest thereon.

On February 11, 1997, Apheresis  Technologies,  Inc. ["Old ATI"] entered into an
agreement  with  an  entity  controlled  by a  stockholder  to pay  that  entity
$1,000,000  for the purpose of supporting  the conduct of research and gathering
of clinical  data in Germany by that  entity.  This amount has been  expensed in
previous  years. On May 20, 1998, the Company agreed to assume the obligation to
make this  payment.  Payments of $250,000 were made in each of December 1997 and
June 1999. The balance of $500,000  remained unpaid as at December 31, 2003. The
balance  was  unsecured,  due on  demand  and no  interest  was  payable  on the
outstanding  balance.  On December  22,  2004,  the Company  paid the balance of
$500,000 to Hans Stock, the stockholder who controls the entity.

The  balance  owing to TLC  Vision  of  $473,929  is  included  in  general  and
administrative  expenses and is related to computer and  administrative  support
provided by TLC Vision,  all of which is accrued at December  31, 2004 and which
has been expensed.

12. CONVERTIBLE DEBENTURES DUE TO STOCKHOLDERS

On June 25, 2003, the Company entered into agreements with TLC Vision and Diamed
to  issue  grid  debentures  in  the  maximum  aggregate   principal  amount  of



                                       78
<PAGE>

$12,000,000.  $7,000,000 of the aggregate  principal  amount is convertible into
shares of common  stock of the  Company at a price of  $0.98502  per share,  and
$5,000,000 of the aggregate principal amount is non-convertible.

Advances,  which  were  at the  option  of TLC  Vision  and  Diamed,  under  the
convertible  portion of the grid debentures were  non-interest  bearing and were
due six months following demand notice by the debenture holder.

Advances under the non-convertible  portion of the grid debentures had an annual
interest rate of 10% per annum,  with interest  payments due monthly in arrears.
Advances under the  non-convertible  portion of the grid  debentures were due at
the earlier of: [a] six months following demand notice by the debenture  holder;
[b] 60 days  following  the date the Company has  received  FDA  approval of the
technology  described in note 1; and [c] two business days following the date of
closing of any debt  financing  of at least  $5,000,000.  No advances  under the
non-convertible portion of the grid debentures were to be made until the maximum
amount of advances  under the  convertible  portion of grid  debentures had been
received.

During  the years  ended  December  31,  2004 and 2003,  the  Company  issued an
aggregate of $4,350,000  and  $2,650,000,  respectively,  under the  convertible
portion  of  the  grid  debentures.   On  December  8,  2004,  as  part  of  the
reorganization transactions [note 17[b]], the Company issued 7,106,454 shares of
common  stock to TLC  Vision  and  Diamed,  upon  conversion  of  $7,000,000  of
aggregate  principal  amount of convertible  debentures at a conversion price of
$0.98502 per share.

13. RELATED PARTY TRANSACTIONS

The following are the Company's related party  transactions in addition to those
disclosed in notes 1, 8, 11, 12 and 16:

                                     December 31,
                                     ------------
                                   2004      2003
                                    $        $
-------------------------------------------------
Due (to) from OccuLogix, L.P.        --    15,028
Diamed Medizintechnik GmbH           --     2,433
RHEO Clinic Inc.                  8,226    (3,387)
-------------------------------------------------
                                  8,226    14,074
=================================================

The  Partnership's  primary  customer is RHEO Clinic Inc.,  a subsidiary  of TLC
Vision,  for which the Partnership has reported  revenues of $401,236,  $459,730
and nil for the years ended December 31, 2004, 2003 and 2002, respectively. RHEO
Clinic Inc. uses the RHEO(TM)  System to treat patients for which it charges its
customers [the patients] a per-treatment fee.

TLC Vision and Diamed

As  discussed  in note 12, on June 25,  2003,  TLC Vision  and Diamed  agreed to
invest a total of  $12,000,000  in the Company on an equal  basis in  connection
with  the  funding  of  the  Company's   MIRA-1  and  related  clinical  trials.
Collectively, as at December 31 2004, the two companies control a combined 57.9%
of the equity interest in the Company on a fully diluted basis.



                                       79
<PAGE>

The  Company is  economically  dependent  on Diamed to control the supply of the
OctoNova  pumps used in the  RHEO(TM)  System.  The  Company  believes  that the
OctoNova pumps are a critical component in the RHEO(TM) System.

As discussed in note 11, on February 11, 1997, Old ATI entered into an agreement
with the Stock Foundation  ("the  Foundation") to pay $1,000,000 for the purpose
of  supporting  the  Foundation's  conduct of research and gathering of clinical
data in Germany. On May 20, 1998, the Company agreed to assume the obligation to
make this  payment.  Payments of $250,000 were made in each of December 1997 and
June 1999. The balance of $500,000  remained unpaid as at December 31, 2003. The
balance  was  unsecured,  due on  demand  and no  interest  was  payable  on the
outstanding  balance.  On December  22,  2004,  the Company  paid the balance of
$500,000 to Hans Stock, the stockholder who controls the Foundation.

The  balance  owing to TLC  Vision  of  $473,929  is  included  in  general  and
administrative  expenses and is related to computer and  administrative  support
provided by TLC Vision,  all of which is accrued at December  31, 2004 and which
has been expensed.

Asahi Medical Co., Ltd. [note 11]

The Company is party to a distributorship  agreement with Asahi Medical pursuant
to which Asahi Medical supplies the filter products used in the RHEO(TM) System.

The Company is economically  dependent on Asahi Medical to continuously  provide
filters and believes  that the filter  products  provided by Asahi Medical are a
critical  component in the RHEO(TM) System. In the event the Company is not able
to obtain  regulatory  approval for the  RHEO(TM)  System from the FDA and other
necessary  approvals in the territories  for which the Company has  distribution
rights  by  the  end  of  December   2006,   Asahi  Medical  can  terminate  the
distributorship agreement.

On February 28, 2001, the Company issued the Asahi Medical Note to Asahi Medical
in the amount of $1,000,000  [note 11], of which $500,000 was repaid in cash and
$500,000 converted into common stock of the Company.

The Company  receives free  inventory  from Asahi Medical for the purpose of the
MIRA-1  and  related  clinical  studies.  The  Company  has  accounted  for this
inventory  at a value  equivalent  to the  cost  the  Company  pays for the same
filters for commercial sales to the Partnership. The value of the free inventory
received  was  $146,905  and $66,300 for the years ended  December  31, 2004 and
2003, respectively.

Apheresis Technologies, Inc. and other related party acquisitions

On September 13, 2000, the Company  acquired 100% of the issued and  outstanding
shares of Old ATI for  consideration  of $100 cash. Old ATI was a distributor of
Plasmaflo  filters and related  products in North  America.  Prior to and at the
time of the  acquisition,  the  Company  and Old ATI were  related  parties as a
result of the significant influence exercisable by officers and directors common
to both  companies.  Accordingly,  the  acquisition  has  been  recorded  at the
historical  cost  of  Old  ATI,  under  the  continuity  of  interest  basis  of
accounting.  Subsequent to the acquisition,  the Company and Old ATI merged.  In
2002, the Company  reorganized  its assets,  such that the net assets of Old ATI
were  spun-out into a new separate  corporation,  Apheresis  Technologies,  Inc.
["New ATI"].

Mr. Hans Stock [see note 11]

On February 21, 2002, the Company  entered into an agreement with Mr. Stock as a
result of his  assistance  in procuring a  distributor  agreement for the filter
products  used in the RHEO(TM)  System from Asahi  Medical.  Mr. Stock agreed to
further assist the Company in procuring new product lines from Asahi Medical for
marketing and  distribution by the Company.  The agreement will remain effective
for a term consistent with the term of the distributorship  agreement with Asahi
Medical and Mr. Stock will  receive a 5% royalty  payment on the purchase of the
filters from Asahi Medical.


                                       80
<PAGE>

On June 25, 2002, the Company entered into a consulting agreement with Mr. Stock
for  the  purpose  of  procuring  a  patent   license  for  the   extracorporeal
applications in ophthalmic  diseases for that period of time in which the patent
was  effective.  Mr.  Stock was  entitled to 1.0% of total net revenue  from the
Company's  commercial sales of products sold in reliance and dependence upon the
validity of the  patent's  claims and rights in the United  States.  The Company
agreed to make advance  consulting  payments to Mr.  Stock of $50,000  annually,
payable  on a  quarterly  basis,  to be  credited  against  any and  all  future
consulting  payments  payable  in  accordance  with this  agreement.  Due to the
uncertainty of future royalty  payment  requirements,  all required  payments to
date have been expensed.

On August 6,  2004,  the  Company  entered  into a patent  license  and  royalty
agreement  with Mr.  Stock to obtain an  exclusive  license  to U.S.  Patent No.
6,245,038.  The Company is required to make royalty  payments  totalling 1.5% of
product  sales to Mr.  Stock,  subject to minimum  advance  royalty  payments of
$12,500 per quarter.  The advance  payments are credited  against future royalty
payments to be made in accordance  with the agreement.  This agreement  replaces
the June 25, 2002  consulting  agreement  with Mr.  Stock which  provided  for a
royalty payment of 1% of product sales [note 11].

New Apheresis Technologies, Inc.

On May 1, 2002,  the Company  entered  into an exclusive  distribution  services
agreement  with New ATI, a company  controlled  by certain  stockholders  of the
Company  pursuant to which the Company pays New ATI 5% of the Company's  cost of
components of the RHEO System.  Under this  agreement,  New ATI is the exclusive
provider of  warehousing,  order  fulfillment,  shipping,  billing  services and
customer service related to shipping and billing to the Company.

On July 30, 2004, the Company amended its distribution  services  agreement with
New ATI such that the  Company  would  have the sole  discretion  as to when the
agreement would  terminate.  In  consideration  of this  amendment,  the Company
agreed to pay New ATI  $100,000  on the  successful  completion  of the  initial
public  offering.  Included in accrued  liabilities  as at December  31, 2004 is
$100,000 due to New ATI. [note 22]

Other

On June 25, 2003, the Company  entered into a  reimbursement  agreement with New
ATI,  pursuant to which employees of New ATI provide services to the Company and
New ATI is reimbursed for the applicable  percentage of time the employees spend
working for the Company. These employees of New ATI participate in the Company's
bonus  plan.  During  the year  ended  December  31,  2004 and during the period
between June 25, 2003 and  December 31, 2003,  the Company paid New ATI $188,262
and $78,695, respectively.  Included in accounts payable as at December 31, 2004
and 2003 are $28,721 and $3,961, respectively, due to New ATI.

During the period  between  January 1, 2004 and November 30, 2004 and the period
between  November 1, 2003 and  December  31,  2003,  the Company paid $4,515 and
$826,  respectively,  to a  subsidiary  of TLC Vision for  office  space.  These
amounts are expensed in the period incurred and paid monthly.

Effective  January 1, 2004, the Company  entered into a rental  agreement with a
related  party  whereby the Company  will lease space from New ATI at $2,745 per
month.  The term of the lease  extends to December  31, 2005 [note 11].  For the
year ended  December 31, 2004 and the four months ended  December 31, 2003,  the
Company paid the related  party  $32,940 and $5,580,  respectively.  Amounts are
paid monthly.

Effective June 25, 2003, Elias Vamvakas,  the Chairman of TLC Vision, became the
Chairman  and  Secretary  of both the  Company  and the  General  Partner of the
Partnership.  500,000  options  issued to Mr.  Vamvakas  in  December  2003 were
accounted  for in  accordance  with APB 25. The Company  estimated the intrinsic
value of these options granted to Mr. Vamvakas to be  approximately  $5,880,000.
Management  estimated  the fair value of the  underlying  common  stock based on
management's estimate of the Company's value. The intrinsic value of the options
is being  amortized  over  the  vesting  period.  However,  upon the  successful
completion  of  the  Company's  initial  public  offering,  the  options  vested
immediately,   therefore   any  unvested   compensation   expense  was  expensed
immediately.  The impact of this stock compensation  expense for the years ended
December 31, 2004 and 2003 was $5,690,323 and $189,677, respectively.


                                       81
<PAGE>

During the period from August 1, 2003 to December 31, 2003, the Company  charged
$9,897 to the Partnership for clinical and management services.  Included in due
from related parties as at December 31, 2003 is $9,897 due from the Partnership.

In  addition,  the  Company  entered  into  a  consultancy  and  non-competition
agreement on July 1, 2003 with a related  party,  which  requires the Company to
pay a fee of $5,000 per month.  This  resulted in a  consulting  expense for the
years ended December 31, 2004 and 2003 of $60,000 and $30,000, respectively. For
the year ended December 31, 2003, the related party agreed to forego the payment
of $75,250 due to him in  exchange  for  options to  purchase  20,926  shares of
common  stock of the Company at an exercise  price of $0.13.  The related  party
also  agreed  to the  repayment  of  $150,500  due to him at $7,500  per  month.
Included in accounts  payable as at December  31, 2004 and December 31, 2003 are
$15,500 and $105,500, respectively, due to the related party.

On September 29, 2004, the Partnership,  the Company's wholly-owned  subsidiary,
signed a product purchase agreement with Rheo Therapeutics Inc. for the purchase
of 8,004 treatment sets from the  Partnership  over the period from October 2004
to  December  2005,  a  transaction  valued at  $6,003,000,  after  introductory
rebates.  Subject to  availability,  the purchaser may order up to an additional
2,000 treatment sets. Dr. Machat, who is an investor in and one of the directors
of Rheo  Therapeutics  Inc., was a co-founder and former director of TLC Vision.
As at December 31, 2004, the  Partnership  had received a total of $557,400 from
Rheo  Therapeutics  Inc.  for the  purchase of 660  treatment  sets and 2 pumps.
Included in amounts receivable as at December 31, 2004 is $322,920 due from Rheo
Therapeutics  Inc.  for  the  purchase  of 9  additional  pumps  on  which  Rheo
Therapeutics  Inc. has negotiated  payment terms extending the payment period to
June 2005.

14. INCOME TAXES

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

                                               December 31,
                                               ------------
                                          2004           2003
                                           $              $
---------------------------------------------------------------
Deferred tax assets

Intangibles                                  --              --
Fixed assets                              3,754              --
Stock options                         5,565,688         182,820
Accruals and other                       60,914           6,592
Foreign tax credit                       15,500              --
Net operating loss carryforwards     10,448,101       8,177,058
---------------------------------------------------------------
                                     16,093,957       8,366,470

Valuation allowance                 (16,093,957)     (8,366,470)
---------------------------------------------------------------
Deferred tax asset                           --              --
===============================================================



                                       82
<PAGE>

                                                December 31,
                                                ------------
                                           2004           2003
                                            $              $
----------------------------------------------------------------

Deferred tax liabilities
Intangibles (other than goodwill)     (9,488,229)             --
----------------------------------------------------------------
Deferred tax liability                (9,488,229)             --
================================================================

The following is a reconciliation  of the recovery of income taxes between those
that are expected,  based on substantively  enacted tax rates and laws, to those
currently reported:

<TABLE>
<CAPTION>
                                                                     Years ended December 31,
                                                                     ------------------------
                                                               2004            2003            2002
                                                                $               $               $
----------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>             <C>
 Net loss for the year before income taxes              (21,803,373)     (2,469,888)     (2,881,597)
====================================================================================================
 Expected recovery of income taxes [tax rate of 37%]     (8,067,250)       (913,859)     (1,066,191)
 Stock-based compensation                                   312,292           7,018              --
Non-deductible interest expense relating
   to warrants                                                   --              --         166,877
Return to provision                                              --           8,957              --
 Non-deductible expenses                                      3,700           2,442           1,984
Change in valuation allowance                             7,727,487         895,442         897,330
----------------------------------------------------------------------------------------------------
 Recovery of income taxes                                   (23,771)             --              --
====================================================================================================
</TABLE>

The Company and its subsidiaries have current and prior year losses available to
reduce  taxable  income and taxes  payable in future years and, if not utilized,
will expire as follows:

                                      $
-------------------------------------------
                        2017      3,466,935
                        2018      4,500,400
                        2019      1,893,700
                        2020      4,488,361
                        2021      3,356,992
                        2022      2,497,602
                        2023      1,896,167
                        2024      6,137,952
===========================================


                                       83
<PAGE>

15. ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                    ------------
                                                               2004           2003
                                                                $              $
-----------------------------------------------------------------------------------
<S>                                                          <C>            <C>
Due to professionals                                         190,762        120,000
Due to MIRA-1 clinical trial sites                           571,078         47,172
Due to MIRA-1 clinical trial specialists                     526,848             --
Due to ATI [notes 13 and 22]                                 100,000             --
Due to employees and directors                                79,329             --
Sales tax and capital tax payable                             85,472             --
Legal and professional fees assoicated with
   initial public offering and related reorganization      1,041,151             --

Miscellaneous                                                196,651         78,409
-----------------------------------------------------------------------------------
                                                           2,791,291        245,581
===================================================================================
</TABLE>

16. COMMITMENTS AND CONTINGENCIES

Commitments

The Company  leases  office  space from a related  party [note 13] under a lease
agreement  expiring  December 31, 2005. The Company may terminate the lease with
three months' notice and may also renew the lease for one  additional  year. The
future minimum obligation under the lease is $32,940 for 2005.

Rent paid amounted to $32,940,  $5,580 and nil for the years ended  December 31,
2004, 2003 and 2002, respectively.

The  Company  also leases  office  space from an  unrelated  party under a lease
agreement  expiring  January 29, 2006. The future minimum  obligation  under the
lease is Cdn $79,131 for 2005.  Rent paid was Cdn  $13,189,  nil and nil for the
years ended December 31, 2004, 2003 and 2002, respectively.

In May and June 2002, the Company entered into two separate  agreements with Dr.
Richard Brunner and Mr. Stock, respectively,  to obtain the exclusive license to
U.S.  Patent No.  6,245,038.  The Company is required to make  royalty  payments
totalling 1.5% of product sales. The Company is required to make minimum advance
quarterly  royalty  payments  of $25,000  and amounts  credited  against  future
royalty payments to be made in accordance with the agreements.  These agreements
may be terminated by the Company upon the first of:

[a]   all patents of the patent rights expire, which is June 2017;

[b]   all patent claims of the patent rights are invalidated; or



                                       84
<PAGE>

[c]   the introduction of a similar competing  technology deployed in the United
      States which could not be deterred by enforcement of the patent.

On August 6,  2004,  the  Company  entered  into a patent  license  and  royalty
agreement  with Mr.  Stock to obtain an  exclusive  license  to U.S.  Patent No.
6,245,038.  The Company is required to make royalty  payments  totalling 1.5% of
product  sales to Mr.  Stock,  subject to minimum  advance  royalty  payments of
$12,500 per quarter.  The advance  payments are credited  against future royalty
payments to be made in accordance  with the agreement.  This agreement  replaces
the June 25, 2002  consulting  agreement  with Mr. Stock,  which  provided for a
royalty payment of 1% of product sales. This agreement effectively increases the
total  royalty  payments  required  to be made in  respect  of U.S.  Patent  No.
6,245,038 to 2% of product sales [note 13].

Future minimum royalty payments under the agreements as at December 31, 2004 are
approximately as follows:

                                                                       $
--------------------------------------------------------------------------
2005                                                               100,000
2006                                                               100,000
2007                                                               100,000
2008                                                               100,000
2009 and thereafter                                                850,000
--------------------------------------------------------------------------
                                                                 1,250,000
==========================================================================

In  addition,  the  Company  entered  into  a  consultancy  and  non-competition
agreement  on July 1, 2003 with a related  party [note 13],  which  requires the
Company to pay a fee of $5,000 per month. The agreement  expires on December 31,
2005.  The  monthly  fee is fixed  regardless  of actual  time  incurred  by the
consultant in performance of the services rendered to the Company. The agreement
allows either party to convert the payment arrangement to a fee of $2,500 daily.
In the event of such  conversion,  the  consultant  shall provide  services on a
daily  basis as required by the  Company,  and will  invoice the Company for the
total number of days services were provided in that month.

The  future  minimum  obligation  under  the  consultancy  and   non-competition
agreement for 2005 is $60,000.

On July 22, 2004,  the Company  placed a purchase  order with Asahi  Medical for
9,600  filter sets [each  filter set  consists of one  Plasmaflo  filter and one
Rheofilter]  representing a total  commitment of  $2,736,000.  As at December 31
2004, a total  payment of $410,400  has been made to Asahi  Medical on the above
purchase  order for 1,440  filter  sets,  all of which have been  received as at
December 31, 2004.

Contingencies

During  the  ordinary  course  of  business  activities,   the  Company  may  be
contingently  liable for litigation and a party to claims.  Management  believes
that adequate provisions have been made in the accounts where required. Although
it is not possible to estimate the extent of potential costs and losses, if any,
management  believes that the ultimate resolution of any such contingencies will
not have a material  adverse  effect on the  financial  position  and results of
operations of the Company.

Pursuant  to the terms of the  distribution  agreement  with MeSys  GmbH,  dated
January 1, 2002,  the Company  undertook a  commitment  to purchase a minimum of
twenty-five  OctoNova pumps yearly  beginning after FDA approval of the RHEO(TM)
System, representing an annual commitment of $538,000.

In July 2004,  the Company  placed a purchase order with Asahi Medical for 9,600
filter  sets  [each  filter  set  consists  of  one  Plasmaflo  filter  and  one


                                       85
<PAGE>

Rheofilter],  representing a total  commitment of $2,736,000.  As at December 31
2004, a total  payment of $410,400  has been made to Asahi  Medical on the above
purchase  order for 1,440  filter  sets,  all of which have been  received as at
December 31, 2004.

Pursuant to the terms of the  distribution  agreement with Asahi Medical,  dated
January 1, 2002,  the Company  undertook a  commitment  to purchase a minimum of
9,000,  15,000, and 22,500 each of Plasmaflo filters and Rheofilters in years 1,
2 and 3,  respectively,  beginning six months after FDA approval of the RHEO(TM)
System.  Minimum  purchase  orders  for the  fourth  year  shall  be  determined
immediately  after the term of the first year by mutual consent but shall not be
less  than  that  of the  previous  year.  This  same  method  shall  be used in
subsequent  years to determine  future  minimum  purchase  quantities  such that
minimum  purchase  quantities  are always fixed for three years.  Future minimum
annual commitments after FDA approval are approximately as follows:

                                                                $
--------------------------------------------------------------------
Year 1                                                     2,565,000
Year 2                                                     4,275,000
Year 3                                                     6,412,500
====================================================================

17. CAPITAL STOCK

[a]   Authorized share capital

      The total number of authorized shares of common stock is 75,000,000.  Each
      share of  common  stock has a par value of  $0.001  per  share.  The total
      number of authorized  shares of preferred stock is 10,000,000.  Each share
      of preferred stock has a par value of $0.001 per share.

[b]   Reorganization

            [i]   On July 18, 2002, Old OccuLogix merged with the Company, which
                  was then a wholly-owned subsidiary of Old OccuLogix.  Pursuant
                  to the merger, the Company effected a one for four stock split
                  of its common and  convertible  preferred  stock  pursuant  to
                  which each share of Old  OccuLogix  common  stock  outstanding
                  immediately  prior to the merger was converted into one-fourth
                  of one fully paid and  non-assessable  share of the  Company's
                  common stock. Each outstanding share of Old OccuLogix Series A
                  preferred  stock was  converted  into  one-fourth of one fully
                  paid  and  non-assessable  share  of the  Company's  Series  A
                  convertible preferred stock.

                  At the effective time of the merger,  each outstanding warrant
                  and  option to  purchase  common  stock of Old  OccuLogix  was
                  assumed by the Company and converted  into a warrant or option
                  to purchase  common  stock of the  Company,  with  appropriate
                  adjustments  to the  exercise  price and  number of shares for
                  which such warrants or options were exercisable.

            [ii]  On  December  8,  2004,   the  Company   consummated   certain
                  reorganization transactions, which is collectively referred to
                  as the "Reorganization" which consisted of the following:

                  o     4,622,605   shares  of  common  stock  issued  upon  the
                        automatic conversion of all outstanding shares of Series
                        A and Series B convertible preferred stock;

                  o     7,106,454  shares of common  stock  issued to TLC Vision
                        and  Diamed  upon  conversion  of  $7,000,000  aggregate
                        principal amount of convertible debentures held by them.
                        The conversion price was $0.98502 per share; and

                  o     19,070,234  shares of common  stock issued to TLC Vision
                        in  connection  with the  purchase by the Company of TLC


                                       86
<PAGE>

                        Vision's  50% interest in the  Partnership.  This amount
                        includes  1,281,858  shares  of common  stock  which was
                        issued  upon  the   exchange  of  shares  of   OccuLogix
                        ExchangeCo   ULC,   one   of  the   Company's   Canadian
                        subsidiaries,  issued for tax  purposes to TLC Vision in
                        connection with the purchase of the Partnership.

                        Following the  reorganization,  the  Partnership's  U.S.
                        business will be carried on by OccuLogix LLC, a Delaware
                        limited   liability   company  that  is  the   Company's
                        wholly-owned,  indirect  subsidiary.  The  Partnership's
                        will continue to carry on the Canadian business.

                        The Company  believes that its value  resides  solely in
                        the  Partnership,  to  which  it  licensed  all  of  the
                        distribution  and  marketing  rights  for  the  RHEO(TM)
                        System  for  ophthalmic   indications  to  which  it  is
                        entitled. Prior to the reorganization the Company's only
                        profit  stream came from its share of the  Partnership's
                        earnings.  The Company's acquisition of TLC Vision's 50%
                        ownership  interest in OccuLogix,  L.P. achieved through
                        the Reorganization  will move the earnings potential for
                        sales of the RHEO(TM) System to the Company.

[c]   Share conversion

      On November 30, 2003,  $500,000 of principal  amount of the Asahi  Medical
      Note [less issuance costs of $18,985] was converted into 507,604 shares of
      common stock at a conversion price of $0.98502 per share [note 11].

[d]   Convertible preferred stock

      Convertible preferred stockholders were entitled to one vote per share, on
      an "as-converted to common stock" basis. Each share of Series A and Series
      B  Convertible  Preferred  Stock was entitled to receive a  non-cumulative
      dividend of $0.411216 and $0.34698,  respectively, prior to the payment of
      any  dividend  on  common  stock.  Each  share of  Series  A and  Series B
      Convertible  Preferred  Stock was entitled to a liquidation  preference of
      $4.836 and $3.5183,  respectively,  plus any declared but unpaid  dividend
      before any payment could be made to holders of common stock.

      After giving effect to the  anti-dilution  adjustment  resulting  from the
      issuance of the June 25, 2003 related party secured grid debenture  [notes
      2 and 12], each share of Series A and Series B Convertible Preferred Stock
      was  convertible  into  1.678323  and  1.643683  shares of  common  stock,
      respectively,  at the option of the  holder.  Each share of Series A and B
      Convertible  Preferred  Stock would  automatically  convert into shares of
      common stock at the conversion  rate  previously  described if the Company
      obtained a firm  underwriting  commitment for an initial public  offering.
      The conversion  rate would be adjusted for stock  dividends,  stock splits
      and other dilutive events.  Shares of Series A and B Convertible Preferred
      Stock  would  automatically  convert  in  the  event  of  sale  of  all or
      substantially all of the assets or capital stock of the Company.

      [i]   Series A Convertible Preferred Stock

      On July 19, 2002,  the Company and the holders of its Series B convertible
      debentures,  with a carrying  value of  $7,119,111  [note  12],  agreed to
      convert such Series B  convertible  debentures  into  1,089,172  shares of
      Series  A   convertible   preferred   stock   immediately   following  the
      consummation  of the merger as  described in notes 13 and  17[b][i].  As a
      result  of this  conversion,  an  additional  97,243  shares  of  Series A
      Convertible  Preferred  Stock were  issued to the  holders of the Series A
      Convertible  Preferred Stock in conjunction with anti-dilution  provisions
      included in the terms of the respective debentures.

      [ii]  Series B convertible preferred stock

      On  July  25,  2002,  the  Company  issued  345,843  shares  of  Series  B
      Convertible  Preferred  Stock for gross cash proceeds of $2,000,000  [less
      issuance costs of $725,941].

      Simultaneously,  Series B convertible debentures and accrued interest with
      a carrying  value of  $1,030,684  were  converted  into 178,227  shares of


                                       87
<PAGE>

      Series B Convertible Preferred Stock.

      In addition, a previously issued subordinated  convertible promissory note
      and accrued  interest with a carrying value of $499,921 was converted into
      96,042 shares of Series B Convertible Preferred Stock.

[e]   Common stock

      On April 17, 2003, the Company issued 17,375 shares of common stock to two
      consultants in exchange for services  valued at $22,588.  The common stock
      was  issued  at what  management  believed  to be the  fair  value  of the
      services received.

      In connection  with the  conversion of a portion of the Asahi Medical Note
      described  in note 11 and  pursuant  to the  June  25,  2003  Amended  and
      Restated  Investors'  Rights Agreement,  the existing common  stockholders
      were allowed to exercise  pre-emptive rights to purchase additional common
      stock. In connection  therewith,  on December 31, 2003, the Company issued
      613,292  shares  of common  stock at  $0.98502  per  share for gross  cash
      proceeds of $604,092.

      In  December  2004,  5,600,000  shares of common  stock of the  Company at
      $12.00  per  share  were  issued in  connection  with the  initial  public
      offering for gross cash proceeds of  $67,200,000  [less  issuance costs of
      $7,770,075].

      As at  December  31,  2004,  the  number of shares of common  stock of the
      Company reserved for issuance is as follows:

Range of exercise prices                     Expiry date

         $                                                           #
-------------------------------------------------------------------------------
     0.04 - 4.00                       January - December 2008       75,000
     2.00 - 4.00                       January - December 2009      217,625
     2.00 - 4.00                       January - December 2010      119,375
     0.80 - 2.00                       January - December 2012      147,973
     0.13 - 1.30                       January - December 2013    1,361,226
     12.00                             January - December 2014      828,000
-------------------------------------------------------------------------------
                                                                  2,749,199
===============================================================================

[f]   Stock option plan

      Under the 2002 Stock Option Plan [the "Stock Option Plan"] up to 4,456,000
      options are available for grant to employees, directors and consultants.

      Options granted under the Stock Option Plan may be either  incentive stock
      options  or  non-statutory  stock  options.  Under  the terms of the Stock
      Option Plan,  the exercise  price per share for an incentive  stock option
      shall  not be less than the fair  market  value of a share of stock on the
      effective date of grant and the exercise price per share for non-statutory
      stock  options  shall not be less than 85% of the fair  market  value of a
      share of stock on the date of grant. No option granted to a holder of more
      than 10% of the  Company's  common stock shall have an exercise  price per
      share less than 110% of the fair  market  value of a share of stock on the
      effective date of grant.

      Generally,  options  expire 10 years after the grant.  No incentive  stock
      options  granted to a 10% owner optionee  shall be  exercisable  after the


                                       88
<PAGE>

      expiration of five years after the effective date of grant of such option,
      no option  granted to a prospective  employee,  prospective  consultant or
      prospective  director  may become  exercisable  prior to the date on which
      such person commences service, and with the exception of an option granted
      to  an  officer,   director  or  a  consultant,  no  option  shall  become
      exercisable  at a rate less than 20% per annum over a period of five years
      from the effective date of grant of such option unless otherwise  approved
      by the Board of Directors.

      The Company  has also issued  options  outside of the Stock  Option  Plan.
      These  options were issued  before the  establishment  of the Stock Option
      Plan or when the  authorized  limit of the Stock Option Plan was exceeded.
      In  addition,  options  issued to  companies  for the  purpose of settling
      amounts  owing were issued  outside of the Stock Option Plan, as the Stock
      Option Plan prohibited the granting of options to companies.  The issuance
      of such options were  approved by the Board of Directors  and were granted
      on terms and  conditions  similar to those options  issued under the Stock
      Option Plan.

      A summary of the options issued under the Stock Option Plan and outside of
      the Stock  Option Plan  outstanding  at December  31, 2004 and the changes
      since December 31, 2001 is as follows:

<TABLE>
<CAPTION>
                                                                         Weighted
                                                                          average
                                                                      exercise price
                                                              #              $
----------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>
     Outstanding, December 31, 2001                         449,500             3.04
     Granted                                                204,224             1.13
     Conversion of non-voting common stock options
        to voting common stock options [i]                  476,729             1.24
----------------------------------------------------------------------------------------
     Outstanding, December 31, 2002                       1,130,453             1.95
     Granted                                              1,420,676             0.96
     Forfeited                                             (161,168)            0.82
----------------------------------------------------------------------------------------
     Outstanding, December 31, 2003                       2,389,961             1.45
     Granted                                                828,000            12.00
     Exercised                                             (272,200)            0.48
     Forfeited                                             (196,562)            2.48
----------------------------------------------------------------------------------------
     Outstanding, December 31, 2004                       2,749,199             4.64
========================================================================================
</TABLE>

[i]   During the year ended  December 31, 2002,  the Company  converted  476,729
      non-voting common stock options into voting common stock options.


Included in the total  options  outstanding  as at December 31, 2004 are 344,083
options issued outside of the Stock Option Plan.


                                       89
<PAGE>

Included in the total options  outstanding  as at December 31, 2004 of 2,749,199
are 1,330,300 options issued to employees,  directors and certain  executives in
December 2003 which were issued into a voting trust.  Upon the exercise of these
options,  the Board of Directors controls the voting privileges  associated with
the common stock underlying these options.  Upon the completion of the Company's
initial  public  offering,  the  voting  trust was  dissolved  with all  options
returning to each respective individual.

The Company  estimated the intrinsic value of 1,352,500 stock options granted in
December  2003 to be  $15,905,400  of which  $15,392,323  and  $513,077 has been
expensed for the years ended  December 31, 2004 and 2003,  respectively.  All of
these options became fully vested upon the Company's initial public offering and
therefore the remaining  $15,392,323 of stock-based  compensation  charges as at
December  31,  2003 was  expensed  during  the year  ended  December  31,  2004.
Management estimated the fair value of these options  retrospectively based on a
range of then expected offering prices of the Company's initial public offering.

Compensation  expense  associated with  non-employee  stock options was $47,637,
$196,685  and $134,948  for the years ended  December  31, 2004,  2003 and 2002,
respectively.  The  fair  value  of  these  options  was  determined  using  the
Black-Scholes  option pricing model using the same  assumptions  described above
and is included in general and  administrative  expenses within the consolidated
statements of operations.

The following table summarizes information relating to stock options outstanding
at December 31, 2004:

<TABLE>
<CAPTION>
                                      Options outstanding                  Options exercisable
                                      -------------------                  -------------------
                                           Weighted
                                            average      Weighted                        Weighted
                                           remaining      average                         average
 Range of exercise                        contractual    exercise                        exercise
      prices             Outstanding         life          price        Exercisable        price
         $                    #             [years]          $               #               $
--------------------------------------------------------------------------------------------------
<S>                      <C>              <C>           <C>             <C>              <C>
0.04                         50,000           3.00          0.04            50,000           0.04
0.13                         20,926           8.25          0.13            20,926           0.13
0.80 - 0.99               1,364,883           8.49          0.99         1,339,571           0.98
1.30                        110,890           7.70          1.30            78,158           1.30
2.00                         87,500           4.82          2.00            87,500           2.00
4.00                        287,000           4.92          4.00           274,500           4.00
12.00                       828,000           9.96         12.00                --             --
--------------------------------------------------------------------------------------------------
                          2,749,199           8.31          4.64         1,850,655           1.46
==================================================================================================
</TABLE>


                                       90
<PAGE>

The following table summarizes information relating to stock options outstanding
at December 31, 2003:

<TABLE>
<CAPTION>
                                      Options outstanding                  Options exercisable
                                      -------------------                  -------------------
                                           Weighted
                                            average      Weighted                        Weighted
                                           remaining      average                         average
 Range of exercise                        contractual    exercise                        exercise
      prices             Outstanding         life          price        Exercisable        price
         $                    #             [years]          $               #               $
--------------------------------------------------------------------------------------------------
<S>                       <C>               <C>           <C>            <C>               <C>
0.04                        204,125           4.15          0.04           204,125           0.04
0.13                         58,176           9.27          0.13            58,176           0.13
0.80 - 0.99               1,438,833           9.15          0.99           281,715           0.99
1.30                        110,890           8.70          1.30            63,622           1.30
2.00                        222,937           5.49          2.00           222,937           2.00
4.00                        355,000           6.03          4.00           331,943           4.00
--------------------------------------------------------------------------------------------------
                          2,389,961           8.07          1.45         1,162,518           1.88
==================================================================================================
</TABLE>

[g]   Warrants

Purchasers of Series A convertible preferred stock received warrants to purchase
shares of common  stock at an exercise  price of $1.00 per share.  The  warrants
were exercisable for the purchase of one share of common stock for each share of
Series A  convertible  preferred  stock owned.  In February  1998, an additional
voluntary warrant was granted to each Series A convertible preferred stockholder
to purchase an equal number of voting common stock at an exercise price of $2.00
per share.  Additionally,  warrants to purchase  50,000  shares of voting common
stock at an  exercise  price of $1.00 per share were  granted to an officer  and
certain  directors  and  stockholders  of the Company in exchange for  providing
certain private credit guarantees.


                                       91
<PAGE>

                                                                Weighted
                                                                 average
                                                             exercise price
Common stock warrants                                   #          $
--------------------------------------------------------------------------
Outstanding, December 31, 2000 and 2001               87,500         4.00
Granted                                               62,500         1.20
--------------------------------------------------------------------------
Outstanding, December 31, 2002 and 2003 [i]          150,000         2.83
Exercised [ii]                                      (102,369)        2.29
Expired                                              (47,631)        4.00
--------------------------------------------------------------------------
Outstanding, December 31, 2004                            --           --
==========================================================================

<TABLE>
<CAPTION>
                                                                                 Weighted
                                                                                 average
                                                                              exercise price

Series A convertible preferred stock warrants                           #           $
---------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>
Outstanding, December 31, 2001                                       90,780            5.55
Granted on adjustment for anti-dilution provision                    40,026              --
Converted from Series B convertible preferred stock warrants        157,631            7.83
---------------------------------------------------------------------------------------------
Outstanding, December 31, 2002                                      288,437            6.80
Granted on adjustment for anti-dilution provision                   195,097              --
Cancelled                                                              (824)           7.83
---------------------------------------------------------------------------------------------
Outstanding, December 31, 2003 [i]                                  482,710            6.80
Exercised [ii]                                                     (379,284)           6.73
Expired                                                            (103,426)           7.04
---------------------------------------------------------------------------------------------
Outstanding, December 31, 2004                                           --              --
=============================================================================================
</TABLE>

[i]   As a result of the  issuance of Series B  convertible  preferred  stock on
      July 25,  2002 at a price  lower than the  exercise  price of the Series A
      convertible  preferred  stock  warrants,  anti-dilution  adjustments  were
      applied to reduce the exercise price of the Series A convertible preferred
      stock  warrants  and to increase  the number of shares  issuable  upon the
      exercise of the Series A convertible preferred stock warrants.

      As a result of the TLC Vision and Diamed  convertible  grid note debenture
      agreements  entered into on June 25, 2003 at a conversion price lower than


                                       92
<PAGE>

      the exercise price of the Series A convertible  preferred  stock warrants,
      further  anti-dilution  adjustments  were  applied to reduce the  exercise
      price of the Series A convertible preferred stock warrants and to increase
      the  number  of  shares  issuable  upon  the  exercise  of  the  Series  A
      convertible preferred stock warrants.

[ii]  Of the 102,369  warrants  exercised  to purchase  shares of common  stock,
      24,999  shares of common stock were issued on a cashless  basis [note 18].
      The  remaining  77,370  shares of common  stock were issued for total cash
      proceeds of $134,480.

      Of  the  379,284  warrants  exercised  to  purchase  shares  of  Series  A
      convertible  preferred  stock,  165,189  shares  of  Series A  convertible
      preferred stock were issued on a cashless basis

      [note 18]. The remaining 214,095 shares of Series A convertible  preferred
      stock were issued for total cash proceeds of $1,281,841 of which  $221,661
      has yet to be received as at December 31, 2004.

<TABLE>
<CAPTION>
                                                                             Weighted
                                                                              average
                                                                           exercise price

Series B convertible preferred stock warrants                           #        $
-----------------------------------------------------------------------------------------
<S>                                                                <C>            <C>
Outstanding, December 31, 2000 and 2001                             479,000        8.00
Granted on adjustment for anti-dilution provision                     5,556        7.83
Converted fiom Series A convertible preferred stock warrants       (264,556)       8.00
Expired                                                            (220,000)       8.00
-----------------------------------------------------------------------------------------
Outstanding, December 31, 2002, 2003 and 2004                            --          --
=========================================================================================
</TABLE>

All  warrants  to  purchase  shares of common  stock  and  Series A  convertible
preferred  stock at exercise  prices between $1.20 per share and $7.83 per share
expired on July 17,  2004,  other than  379,284  warrants to purchase  shares of
Series A convertible  preferred stock and 102,369 warrants to purchase shares of
common stock which were exercised prior to expiration of the warrants.

18. CONSOLIDATED STATEMENTS OF CASH FLOWS

The net change in  non-cash  working  capital  balances  related  to  operations
consists of the following:

<TABLE>
<CAPTION>
                                                           Years ended
                                                           December 31,
                                                           ------------
                                                 2004          2003          2002
                                                  $             $             $
----------------------------------------------------------------------------------
<S>                                           <C>            <C>          <C>
Due from related parties                      110,749        52,034       (52,142)
Amounts receivable                           (222,218)       39,746        12,254
Inventory                                    (136,527)       24,399         8,971
Prepaid expenses                             (324,353)     (134,844)      (21,616)
Deposit                                        (8,996)        4,326        (4,326)
Accounts payable and accrued liabilities    2,538,445      (681,181)     (548,638)
Deferred revenue and rent inducements        (152,153)           --            --
Due to stockholders                          (931,652)        4,418         2,392
----------------------------------------------------------------------------------
                                              873,295      (691,102)     (603,105)
==================================================================================
</TABLE>


                                       93
<PAGE>


The  following  table  lists  those  items  that  have  been  excluded  from the
consolidated  statements  of cash flows as they relate to non-cash  transactions
and additional cash flow information:

<TABLE>
<CAPTION>
                                                                  Years ended
                                                                  December 31,
                                                      -----------------------------------
                                                      2004            2003           2002
                                                       $               $              $
-------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>             <C>
Non-cash investing and financing activities
   Convertible preferred stock issued
      to reduce borrowings from stockholder               --         500,000              --
   Common stock issued to pay consulting fees             --          22,588           2,800
   Bridge notes issued for services                       --              --          22,500
   Conversion of debentures                        7,000,000              --       8,649,716
   Conversion of debt                                     --         481,015              --
   Cashless exercise of warrants to purchase
      shares of Series A convertible
      preferred stock                              1,269,845              --              --
   Cashless exercise of warrants to purchase
      shares of common stock                          99,996              --              --
   Free inventory                                    146,905          66,300         155,141
   Common stock issued on acquisition            228,842,808              --              --
Additional cash flow information
   Interest paid                                     (26,575)        (85,000)       (152,375)
===================================================================================================
</TABLE>


                                       94
<PAGE>

19. FINANCIAL INSTRUMENTS

Currency risk

The Company's  activities  which result in exposure to  fluctuations  in foreign
currency  exchange  rates  consist of the purchase of equipment  from  suppliers
billing in foreign  currencies.  The Company does not use  derivative  financial
instruments to reduce its currency risk.

Credit risk

The Company's financial  instruments that are exposed to concentration of credit
risk consist primarily of cash and cash equivalents and amount  receivable.  The
Company  maintains  its accounts  for cash with large low credit risk  financial
institutions in United States and Canada in order to reduce its exposure.

The Company  derives all of its revenue  from three  customers,  the RHEO Clinic
Inc., which is a subsidiary of TLC Vision, RHEO Therapeutics,  Inc. and Canadian
Retinal Institute.

20. SEGMENT INFORMATION

The Company operates in a single reportable segment, the ophthalmic  therapeutic
industry, focused on the treatment of eye diseases, including Dry AMD.

For all years presented, the Company's revenue was earned in Canada.

Although the Company has generated  all of its revenue in Canada,  the Company's
fixed  assets and patents and  trademarks  are  primarily  located in the United
States.

21. COMPARATIVE FIGURES

Certain  comparative  figures have been reclassified to conform with the current
year's presentation.

22.  SUBSEQUENT EVENTS

[a]   On January 11, 2005, the Company entered into a medical director agreement
      with David Wong, M.D. FRCS for the provision of consulting  services.  The
      term of the agreement is for one year from August 1, 2004.  The Company is
      required to pay consulting fees of Cdn $50,000  annually,  payable monthly
      on the last day of each month  throughout  the term of the agreement and a
      one time bonus of Cdn $50,000 upon receipt of a fully executed  agreement.
      In addition, David Wong will receive 25,000 options with an exercise price
      equal to the price of the shares issued in the initial public offering.

[b]   On January 13,  2005,  the Company  paid Asahi  Medical  $713,070  for the
      purchase of 2,502 filter sets [each filter set consists of one  Rheofilter
      and one Plasmaflo filter]. This order is part of the purchase order signed
      with Asahi Medical in July 2004 for 9,600 filter sets.

[c]   On January 18, 2005,  the Company paid New ATI $100,000 as provided for in
      the amendment to the distribution  services  agreement dated July 30, 2004
      [note 13].

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

      Not applicable.


                                       95
<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES

            (a) Management's Report on Internal Control Over Financial Reporting
and  Evaluation  of  Disclosure  Controls and  Procedures.  As of the end of our
fiscal year ended December 31, 2004, an evaluation of the  effectiveness  of our
"disclosure controls and procedures" (as such term is defined in Rules 13a-15(e)
and 15d-15(e) of the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"))  was  carried  out by  our  principal  executive  officer  and  principal
financial officer.  Based upon that evaluation,  our principal executive officer
and principal financial officer have concluded that as of the end of that fiscal
year,  our  disclosure  controls  and  procedures  are  effective to ensure that
information  required to be  disclosed  by us in reports  that we file or submit
under the Exchange Act is recorded,  processed,  summarized and reported  within
the time periods specified in SEC rules and forms.

            It  should be noted  that  while our  management  believes  that our
disclosure controls and procedures provide a reasonable level of assurance, they
do not expect that our disclosure  controls and procedures or internal financial
controls will prevent all errors and fraud. A control system, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met.

            (b) Changes in Internal Control Over Financial Reporting. During the
last quarter of the fiscal year ended  December 31, 2004,  there were no changes
in our internal control over financial  reporting that has materially  affected,
or is  reasonably  likely  to  materially  affect,  our  internal  control  over
financial reporting.

ITEM 9B. OTHER INFORMATION

None.


                                       96
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The information  required with respect to directors is incorporated herein
by reference to the information  contained in the General Proxy  Information for
our 2005 Annual Meeting of Stockholders (the "Proxy Statement"). The information
with respect to our audit committee  financial expert is incorporated  herein by
reference to the information contained in the sections captioned "Appointment of
Auditors" and "Audit Committee Report" of the Proxy Statement.

      Information  about our Code of Ethics  appears  under the heading "Code of
Business Conduct and Ethics" in the Proxy  Statement.  That portion of the Proxy
Statement is incorporated by reference into this report.

      Information  about  compliance  with  Section  16(a) of the  Exchange  Act
appears is under the  heading  "Section  16(a)  Beneficial  Ownership  Reporting
Compliance"  in the Proxy  Statement.  That  portion of the Proxy  Statement  is
incorporated by reference into this report.

      In addition,  to our knowledge,  based solely on a review of the copies of
such reports  furnished to us, the Form 4 filings for Thomas P. Reeves,  Stephen
J. Kilmer, Julie A. Fotheringham, Richard L. Lindstrom, Jay T. Holmes and Thomas
N. Davidson,  disclosing  the options  granted to them by us upon the closing of
the initial public offering,  were not filed on a timely basis. In addition, the
Form 4 filing for Joseph  Zawaideh,  disclosing  options granted to him upon the
closing of the initial public  offering and his  acquisition  and disposition of
our Common Stock was not filed on a timely basis.

ITEM 11. EXECUTIVE COMPENSATION

      Information  about  compensation of our named executive  officers  appears
under  the  headings   "Executive   Officers"  and   "Information  on  Executive
Compensation"  in the Proxy  Statement.  Information  about  compensation of our
directors  appears  under the heading  "Compensation  of Directors" in the Proxy
Statement.  These portions of the Proxy Statement are  incorporated by reference
into this report.

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

      Information  about  security  ownership of certain  beneficial  owners and
management and information  regarding  securities  authorized for issuance under
equity  compensation plans appears under the headings  "Information on Executive
Compensation",  "Employee  Benefit  Plans" and "Principal  Stockholders"  in the
Proxy  Statement.  These  portions of the Proxy  Statement are  incorporated  by
reference to this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      Information about certain  relationships and related  transactions appears
under the heading "Certain  Relationships and Related Party Transactions" in the
Proxy  Statement.  That  portion  of the  Proxy  Statement  is  incorporated  by
reference into this report.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

      Information  about the principal  accountant  fees and services as well as
related  pre-approval   policies  and  procedures  appears  under  the  headings
"Appointment of Auditors" and "Audit  Committee  Report" in the Proxy Statement.
These portions of the Proxy  Statement are  incorporated  by reference into this
report.


                                       97
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)   1. Financial Statements:

Included in PART II of this report:                          Page
                                                             ----
Reports of Independent Auditors.........................      64

Consolidated Balance Sheets at December 31, 2004 and
December 31, 2003.......................................      65

Consolidated Statements of Operations for the three years
in the period ended December 31, 2004...................      67

Consolidated Statements of Changes in Stockholders'
Deficiency for the three years in the period ended
December 31, 2004 ......................................      68

Consolidated Statements of Cash Flows for the three years
in the period ended December 31, 2004...................      71

Notes to Consolidated Financial Statements..............      74

(a)   2. Financial Statement Schedules:

            All financial statement schedules have been omitted because they are
inapplicable,   not  required  by  the  instructions  or  because  the  required
information  is either  incorporated  herein by  reference  or  included  in the
financial statements or notes thereto included in this report.

      3. Exhibits:

            The exhibits  required to be filed as part of this Annual  Report on
Form 10-K are listed in the attached Index to Exhibits.

            (b)   Exhibits

            The exhibits  required to be filed as part of this Annual  Report on
Form 10-K are listed in the attached Index to Exhibits.

            (c)   Financial Statement Schedules

            All financial statement schedules have been omitted because they are
inapplicable,   not  required  by  the  instructions  or  because  the  required
information  is either  incorporated  herein by  reference  or  included  in the
financial statements or notes thereto included in this report.

                                      * * *

            Copies of the exhibits filed with this Annual Report on Form 10-K or
incorporated by reference herein do not accompany copies hereof for distribution
to stockholders of the Registrant.  The Registrant will furnish a copy of any of
such exhibits to any  stockholder  requesting  the same for a nominal  charge to
cover duplicating costs.


                                       98
<PAGE>

                                POWER OF ATTORNEY

      The  registrant  and each person  whose  signature  appears  below  hereby
appoint  Elias  Vamvakas  and William G. Dumencu as  attorney-in-fact  with full
power of  substitution,  severally,  to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to this Annual Report on Form 10-K,  which amendments may
make such changes in this Annual  Report as the  attorney-in-fact  acting in the
premises  deems  appropriate  and to file any such  amendment(s)  to this Annual
Report with the Securities and Exchange Commission.

                                   SIGNATURES

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

Dated: March 14, 2005                      OCCULOGIX, INC.


                                           By:   /s/ Elias Vamvakas
                                                 -----------------------
                                                 Elias Vamvakas
                                                 Chief Executive Officer

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Annual  Report has been signed below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.


                                       99
<PAGE>

Dated:  March 14, 2005                By:     /s/ Elias Vamvakas
                                              ------------------------------
                                              Elias Vamvakas

                                              Chief Executive Officer and
                                              Chairman of Board of Directors

Dated:  March 14, 2005                By:     /s/ William G. Dumencu
                                              ------------------------------
                                              William G. Dumencu

                                              Chief Financial Officer

Dated:  March 14, 2005                By:     /s/ Jay T. Holmes
                                              ------------------------------
                                              Jay T. Holmes

                                              Director

Dated:  March 14, 2005                By:     /s/ Thomas N. Davidson
                                              ------------------------------
                                              Thomas N. Davidson

                                              Director

Dated:  March 14, 2005                By:     /s/ Richard L. Lindstrom
                                              ------------------------------
                                              Richard L. Lindstrom, M.D.

                                              Director

Dated:  March 14, 2005                By:     /s/ Georges Noel
                                              ------------------------------
                                              Georges Noel
                                              Director


                                      100
<PAGE>

                                Index to Exhibits

2.1   Form of Plan of  Reorganization  (incorporated by reference to Exhibit 2.1
      to the Registrant's Registration Statement on Form S-1/A No. 4, filed with
      the Commission on December 6, 2004 (file no. 333.-118024)).

3.1   Amended and Restated  Certificate  of  Incorporation  of the Registrant as
      currently  in effect  (incorporated  by  reference  to Exhibit 10.4 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 3, filed with the
      Commission on November 16, 2004 (file no. 333.-118024)).

3.2   Amended and  Restated  By-Laws of the  Registrant  as  currently in effect
      (incorporated   by  reference   to  Exhibit   10.4  to  the   Registrant's
      Registration  Statement on Form S-1/A No. 3, filed with the  Commission on
      November 16, 2004 (file no. 333.-118024)).

10.1  2004  Memorandum  dated July 18, 2004,  by and between  Asahi Medical Co.,
      Ltd. and the Registrant  (incorporated by reference to Exhibit 10.4 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 1, filed with the
      Commission on October 7, 2004 (file no. 333.-118024)).

10.2  Amended and Restated  Marking and  Distribution  Agreement  dated  October
      25,2004   between   Diamed   Medizintechnik   GmbH   and  the   Registrant
      (incorporated   by  reference   to  Exhibit   10.6  to  the   Registrant's
      Registration  Statement on Form S-1/A No. 1, filed with the  Commission on
      October 7, 2004 (file no. 333.-118024)).

10.3  Amended and Restated  Patent License and Royalty  Agreement  dated October
      25, 2004 between the Registrant and Dr. Richard Brunner  (incorporated  by
      reference to Exhibit 10.8 to the  Registrant's  Registration  Statement on
      Form S-1/A No. 1, filed with the  Commission  on October 7, 2004 (file no.
      333.-118024)).

10.4  Amendment  to the  Distribution  Services  Agreement  dated July 30,  2004
      between the Registrant and Apheresis  Technologies,  Inc. (incorporated by
      reference to Exhibit 10.9 to the  Registrant's  Registration  Statement on
      Form S-1/A No. 1, filed with the  Commission  on October 7, 2004 (file no.
      333.-118024)).

10.5  Amendment  to the 2002 Stock  Option Plan  (incorporated  by  reference to
      Exhibit 10.22 to the Registrant's Registration Statement on Form S-1/A No.
      3, filed with the Commission on November 16, 2004 (file no. 333.-118024)).

10.6  Amended and Restated  Patent License and Royalty  Agreement  dated October
      25, 2004 between the Registrant and Hans Stock  (incorporated by reference
      to Exhibit 10.12 to the Registrant's  Registration Statement on Form S-1/A
      No.  1,  filed  with  the   Commission   on  October  7,  2004  (file  no.
      333.-118024)).

10.7  Employment  Agreement  between the  Registrant  and Elias  Vamvakas  dated
      September  1, 2004  (incorporated  by  reference  to Exhibit  10.13 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 1, filed with the
      Commission on October 7, 2004 (file no. 333.-118024)).

10.8  Employment  Agreement  between the  Registrant  and Thomas P. Reeves dated
      August  1,  2004  (incorporated  by  reference  to  Exhibit  10.14  to the
      Registrant's  Registration  Statement  on Form S-1/A No. 1, filed with the
      Commission on October 7, 2004 (file no. 333.-118024)).

10.9  Employment  Agreement between the Registrant and Stephen Kilmer dated July
      30, 2004  (incorporated  by reference to Exhibit 10.17 to the Registrant's
      Registration  Statement on Form S-1/A No. 1, filed with the  Commission on
      October 7, 2004 (file no. 333.-118024)).

10.10 Employment  Agreement between the Registrant and Julie  Fotheringham dated
      September  1, 2004  (incorporated  by  reference  to Exhibit  10.18 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 1, filed with the
      Commission on October 7, 2004 (file no. 333.-118024)).


                                      101
<PAGE>

10.11 Employment  Agreement  between the  Registrant  and Joseph  Zawaideh dated
      September  7, 2004  (incorporated  by  reference  to Exhibit  10.19 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 1, filed with the
      Commission on October 7, 2004 (file no. 333.-118024)).

10.12 Product Purchase Agreement dated September 29, 2004 between the Registrant
      and Promedica International (incorporated by reference to Exhibit 10.20 to
      the  Registrant's  Registration  Statement on Form S-1/A No. 2, filed with
      the Commission on November 2, 2004(file no. 333.-118024)).

10.13 Employment  Agreement  between the Registrant and Dr. David Eldridge dated
      November  9,  2004((incorporated  by  reference  to  Exhibit  10.23 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 3, filed with the
      Commission on November 16, 2004 (file no. 333.-118024)).

10.14 Consulting Agreement between the Registrant and Richard Davis dated May 1,
      2004  (incorporated  by  reference  to Exhibit  10.24 to the  Registrant's
      Registration  Statement on Form S-1/A No. 4, filed with the  Commission on
      December 6, 2004 (file no. 333.-118024)).

10.15 Rental Agreement between the Registrant and Cornish Properties Corporation
      dated January 1, 2004  (incorporated  by reference to Exhibit 10.27 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 4, filed with the
      Commission on December 6, 2004 (file no. 333.-118024)).

10.16 Sub-sublease  between Echo Online Internet,  Inc. and the Registrant dated
      September  29, 2004  (incorporated  by reference  to Exhibit  10.28 to the
      Registrant's  Registration  Statement  on Form S-1/A No. 4, filed with the
      Commission on December 6, 2004 (file no. 333.-118024)).

21.1  Subsidiaries of Registrant  (incorporated  by reference to Exhibit 21.1 to
      the  Registrant's  Registration  Statement on Form S-1/A No. 1, filed with
      the Commission on October 7, 2004 (file no. 333.-118024)).

24.1  Power of Attorney (included on signature page).

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

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

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

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


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