**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
        10-Q**
  (Mark
        One)
 x
              **QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(d) OF THE****SECURITIES
                  EXCHANGE ACT OF 1934**
  For
        the
        quarterly period ended:  **June
        30, 2005**
  **o**
              **TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
                  ACT**
  For
        the
        transition period from _______________ to _______________
  Commission
        file number: 000-51030
  
 **OccuLogix,
        Inc.**
 
 (Exact
        name of registrant as specified
        in its charter)
  **Delaware**
              
              **59
                  343 4771**(State
                  or other jurisdiction of incorporation or organization)
              
              (IRS
                  EmployerIdentification
                  No.)
   **2600
        Skymark Avenue, Unit 9, Suite 201, Mississauga, Ontario L4W
        5B2**
 
 (Address
        of principal executive offices)
  **(905)
        602-0887**
 
 (Registrant’s
        telephone number)
  Check
        whether the registrant (1) 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 o
  Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act).   Yes
o    No x
  State
        the
        number of shares outstanding of each of the registrant’s classes of common
        equity, as of the latest practical date:   42,040,651
        as of August 1, 2005
 
 
 **OccuLogix,
          Inc.**
 
 Special
                    Note Regarding Forward-Looking Statements
                1**PART
                    I. FINANCIAL INFORMATION**Item
                    1. Consolidated Financial Statements
                2Item
                    2. Management’s Discussion And Analysis Of Financial Condition And Results
                    Of Operations
                14Item
                    3. Quantitative And Qualitative Disclosures About Market
                    Risk
                21Item
                    4. Controls And Procedures
                21**PART
                    II. OTHER INFORMATION**Item
                    1. Legal Proceedings
                22Item
                    2. Unregistered Sales Of Equity Securities And Use Of
                    Proceeds
                22Item
                    3. Defaults Upon Senior Securities
                22Item
                    4. Submission Of Matters To A Vote Of Security Holders
                23Item
                    5. Other Information
                23Item
                    6. Exhibits
                24
  i
 Table
              of Contents
 **SPECIAL
        NOTE REGARDING FORWARD-LOOKING
        STATEMENTS**
  This
        Quarterly Report on Form 10-Q contains certain forward-looking statements
        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, which statements
        can be identified by the use of forward-looking terminology, such as “may”,
“will”, “expect”, “anticipate”, “estimate”, “plans”, “intends” or “continue” or
        the negative thereof or other variations thereon or comparable terminology.
        Our
        actual results could differ materially from those anticipated in these
        forward-looking statements as a result of certain factors, including but
        not
        limited to those set forth elsewhere in this Form 10-Q, in the section entitled
        “Management’s Discussion and Analysis of Financial Condition and Results of
        Operations” and in our Annual Report on Form 10-K for the period ended December
        31, 2004. You should not place undue reliance on our forward-looking statements,
        as we cannot assure you that the plans, assumptions, intentions or expectations
        upon which they are based will be realized. By their nature, forward-looking
        statements involve numerous assumptions, risks and uncertainties. Except
        as
        required by law, we undertake no obligation to update publicly or otherwise
        revise any forward-looking statements, whether as a result of new information,
        future events or otherwise, or the foregoing list of factors affecting this
        information. Unless the context indicates or requires otherwise, in this
        Quarterly Report on Form 10-Q, references to the “Company” shall mean OccuLogix,
        Inc. and its subsidiaries. References to “$” or “dollars” shall mean U.S.
        dollars unless otherwise indicated. References to “C$” shall mean Canadian
        dollars. OccuLogix,
        Inc.
  1
 Table
            of Contents
  OccuLogix,
        Inc.
  **CONSOLIDATED
        BALANCE SHEETS**
 (expressed
        in U.S. dollars **)**
 (Unaudited)
 
 **June
                  30,**
                ******2005**
              
              **December
                  31,**
                **2004****ASSETS****Current**Cash
                  and cash equivalents
              
              $
              11,645,229
              
              $
              17,530,552Short
                  term investments
              
              
              37,784,513
              
              
              42,500,000Amounts
                  receivable
              
              
              1,202,735
              
              
              472,156Due
                  from related parties
              
              
              ―
              
              
              8,226Inventory
              
              
              3,954,834
              
              
              1,086,339Prepaid
                  expenses
              
              
              556,327
              
              
              480,813Deposit
              
              
              4,891
              
              
              8,996Total
                  current assets
              
              
              55,148,529
              
              
              62,087,082Fixed
                  assets, net
              
              
              422,707
              
              
              367,589Patents
                  and trademarks, net
              
              
              143,396
              
              
              104,654Intangible
                  asset, net
              
              
              24,785,529
              
              
              25,643,862Goodwill
              
              
              213,397,444
              
              
              213,397,444**Total
                  assets**
              
              $
              293,897,605
              
              $
              301,600,631**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current**Accounts
                  payable
              
              $
              377,082
              
              $
              221,063Accrued
                  liabilities
              
              
              1,947,631
              
              
              2,791,291Deferred
                  revenue and rent inducement
              
              
              2,865
              
              
              485,047Due
                  to related parties
              
              
              103,386
              
              
              ―Due
                  to stockholders
              
              
              243,016
              
              
              516,756Total
                  current liabilities
              
              
              2,673,980
              
              
              4,014,157Deferred
                  tax liability
              
              
              9,170,646
              
              
              9,488,229Total
                  liabilities
              
              
              11,844,626
              
              
              13,502,386**Stockholders’
                  equity**Capital
                  stockCommon
                  stock
              
              
              41,868
              
              
              41,807Par
                  value of $0.001 per share;Authorized:
                  75,000,000; Issued and outstanding:June
                  30, 2005 - 41,867,318; December 31, 2004 - 41,806,768Additional
                  paid-in capital
              
              
              336,459,318
              
              
              336,063,557Accumulated
                  deficit
              
              
              (54,448,207
              )
              
              (48,007,119
              )Total
                  stockholders’ equity
              
              
              282,052,979
              
              
              288,098,245**Total
                  liabilities and stockholders’ equity**
              
              $
              293,897,605
              
              $
              301,600,631
  *See
        accompanying notes to interim consolidated financial
        statements*
  2
 Table
            of Contents
  **OccuLogix,
        Inc.**
  **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 (expressed
        in U.S. dollars)
 (Unaudited)
  **Three
                  months ended,****June
                  30, 2005**
              
              **June
                  30, 2004**RevenuesSales
                  to related parties
              
              $
              14,726
              
              $
              108,880Sales
                  to unrelated parties
              
              
              583,115
              
              
              —Total
                  revenues
              
              
              597,841
              
              
              108,880Cost
                  of goods soldCost
                  of goods sold to related parties
              
              
              10,757
              
              
              113,932Cost
                  of goods sold to unrelated parties
              
              
              368,098
              
              
              —Royalty
                  costs
              
              
              25,000
              
              
              27,394Total
                  cost of goods sold
              
              
              403,855
              
              
              141,326Gross
                  margin (loss)
              
              
              193,986
              
              
              (32,446
              )Operating
                  expensesGeneral
                  and administrative
              
              
              2,199,372
              
              
              1,812,872Clinical
                  and regulatory
              
              
              1,309,989
              
              
              667,086Sales
                  and marketing
              
              
              380,061
              
              
              —3,889,422
              
              
              2,479,958Loss
                  from operations
              
              
              (3,695,436
              )
              
              (2,512,404
              )Other
                  income (expenses)Interest
                  income (expense)
              
              
              420,980
              
              
              (3,973
              )Other
              
              
              (44,056
              )
              
              (465
              )376,923
              
              
              (4,438
              )Loss
                  before income taxes
              
              
              (3,318,512
              )
              
              (2,516,842
              )Recovery
                  of income taxes
              
              
              158,792
              
              
              —**Net
                  loss for the period**
              
              $
              (3,159,720
              )
              $
              (2,516,842
              )**Weighted
                  average number of shares outstanding**
                **- basic and diluted**
              
              
              41,860,288
              
              
              5,082,665Basic
                  and diluted net loss per share
              
              $
              (0.08
              )
              $
              (0.50
              )
  *See
        accompanying notes to interim consolidated financial
        statements*
  3
 Table
            of Contents
  **OccuLogix,
        Inc.**
  **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 (expressed
        in U.S. dollars)
 (Unaudited)
  **Six
                  months ended,****June
                  30, 2005**
              
              **June
                  30, 2004**RevenuesSales
                  to related parties
              
              $
              78,264
              
              $
              163,600Sales
                  to unrelated parties
              
              
              923,315
              
              
              ―Total
                  revenues
              
              
              1,001,579
              
              
              163,600Cost
                  of goods soldCost
                  of goods sold to related parties
              
              
              43,236
              
              
              171,081Cost
                  of goods sold to unrelated parties
              
              
              610,554
              
              
              ―Royalty
                  costs
              
              
              50,000
              
              
              54,275Total
                  cost of goods sold
              
              
              703,790
              
              
              225,356Gross
                  margin (loss)
              
              
              297,789
              
              
              (61,756
              )Operating
                  expensesGeneral
                  and administrative
              
              
              4,380,086
              
              
              3,617,558Clinical
                  and regulatory
              
              
              2,654,014
              
              
              1,122,456Sales
                  and marketing
              
              
              765,907
              
              
              ―7,800,007
              
              
              4,740,014Loss
                  from operations
              
              
              (7,502,218
              )
              
              (4,801,770
              )Other
                  income (expenses)Interest
                  income (expense)
              
              
              776,022
              
              
              (7,525
              )Other
              
              
              (32,475
              )
              
              (1,891
              )743,547
              
              
              (9,416
              )Loss
                  before income taxes
              
              
              (6,758,671
              )
              
              (4,811,186
              )Recovery
                  of income taxes
              
              
              317,583
              
              
              ―**Net
                  loss for the period**
              
              $
              (6,441,088
              )
              $
              (4,811,186
              )**Weighted
                  average number of shares outstanding**
                **- basic and diluted**
              
              
              41,835,772
              
              
              5,071,354**Basic
                  and diluted net loss per share**
              
              $
              (0.15
              )
              $
              (0.95
              )
  *See
        accompanying notes to interim consolidated financial
        statements*
  4
 Table
            of Contents
  **OccuLogix,
        Inc.**
  **CONSOLIDATED
        STATEMENTS OF CHANGES**
 **IN
        STOCKHOLDERS’ EQUITY**
 (expressed
        in U.S. dollars)
 (Unaudited)
  **Voting
                  common stock**
                **at
                  par value****Number
                  of shares issued**
              
              **Value**
              
              **Additional
                  paid-in capital**
              
              **Accumulated
                  deficit**
              
              **Net
                  stockholders’ equity****December
                  31, 2004**
              
              
              41,806,768
              
              $
              41,807
              
              $
              336,063,557
              
              $
              (48,007,119
              )
              $
              288,098,245Stock
                  based compensation
              
              
              ―
              
              
              ―
              
              
              137,087
              
              
              ―
              
              
              137,087Stock
                  issued on exercise of options
              
              
              60,550
              
              
              61
              
              
              12,384
              
              
              ―
              
              
              12,445Fractional
                  payout of converted shares due to preferred stockholders
              
              
              ―
              
              
              ―
              
              
              (45
              )
              
              ―
              
              
              (45
              )Subscriptions
                  receivable
              
              
              ―
              
              
              ―
              
              
              221,661
              
              
              ―
              
              
              221,661Share
                  issuance costs
              
              
              ―
              
              
              ―
              
              
              (88,714
              )
              
              ―
              
              
              (88,714
              )Contribution
                  of inventory from related party
              
              
              ―
              
              
              ―
              
              
              113,388
              
              
              ―
              
              
              113,388Net
                  loss for the period
              
              
              ―
              
              
              ―
              
              
              ―
              
              
              (6,441,088
              )
              
              (6,441,088
              )**June
                  30, 2005**
              
              
              41,867,318
              
              $
              41,868
              
              $
              336,459,318
              
              $
              (54,448,207
              )
              $
              282,052,979
  *See
        accompanying notes to interim consolidated financial
        statements*
  5
 Table
            of Contents
  **OccuLogix,
        Inc.**
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 (expressed
        in U.S. dollars)
 (Unaudited)
  **Six
                  months ended**
                **June
                  30,****2005**
              
              **2004****OPERATING
                  ACTIVITIES**Net
                  loss for the period
              
              $
              (6,441,088
              )
              $
              (4,811,186
              )Adjustments
                  to reconcile net loss tocash
                  used in operating activities:Stock-based
                  compensation
              
              
              137,087
              
              
              3,105,015Amortization
                  of fixed assets
              
              
              40,918
              
              
              19,089Amortization
                  of patents and trademarks
              
              
              2,771
              
              
              2,709Amortization
                  of intangibles
              
              
              858,333
              
              
              ―Amortization
                  of premium/discount on short-term investments
              
              
              50,669
              
              
              ―Provision
                  for subscriptions receivable
              
              
              37,545Deferred
                  income taxes
              
              
              (317,583
              )
              
              ―Net
                  change in non-cash working capitalbalances
                  related to operations
              
              
              (4,888,298
              )
              
              (110,030
              )**Cash
                  used in operating activities**
              
              
              (10,519,646
              )
              
              (1,794,403
              )**INVESTING
                  ACTIVITIES**Proceeds
                  from sale of short-term investments
              
              
              15,250,000
              
              
              ―Purchases
                  of short-term investments
              
              
              (10,585,182
              )Purchases
                  of patents and trademarks
              
              
              (41,513
              )Purchases
                  of fixed assets
              
              
              (96,036
              )
              
              (73,541
              )**Cash
                  provided by (used in) investing activities**
              
              
              4,527,269
              
              
              (73,541
              )**FINANCING
                  ACTIVITIES**Increase
                  in long-term convertible debenture
              
              
              ―
              
              
              1,400,000Proceeds
                  from the exercise of common stock options
              
              
              12,445
              
              
              23,217Receipt
                  of subscriptions receivable on the exercise of Series Aconvertible
                  preferred stock warrants
              
              
              184,115
              
              
              ―Fractional
                  payout of converted shares due to preferred stockholders
              
              
              (792
              )
              
              ―Share
                  issuance costs
              
              
              (88,714
              )
              
              ―**Cash
                  provided by financing activities**
              
              
              107,054
              
              
              1,423,217**Net
                  decrease in cash and cash equivalents****during
                  the period**
              
              
              (5,885,323
              )
              
              (444,727
              )Cash
                  and cash equivalents, beginning of period
              
              
              17,530,552
              
              
              1,237,168**Cash
                  and cash equivalents, end of period**
              
              $
              11,645,229
              
              $
              792,441
  *See
        accompanying notes to interim consolidated financial
        statements*
 6
 Table
              of Contents
  **OccuLogix,
        Inc.**
  **NOTES
        TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 (expressed
        in U.S. dollars unless otherwise stated)
 June
        30,
        2005 (Unaudited)
  **1.**
              **BASIS
                  OF PRESENTATION AND ACCOUNTING
                  POLICIES**
  The
        accompanying unaudited consolidated financial statements have been prepared
        in
        accordance with United States generally accepted accounting principles (“US
        GAAP”). These consolidated financial statements contain all normal recurring
        adjustments and estimates necessary to present fairly the financial position
        of
        the Company as of June 30, 2005 and the results of its operations for the
        three-
        and six-month periods then ended. These consolidated financial statements
        should
        be read in conjunction with the consolidated financial statements and notes
        included in the Company’s latest annual report on Form 10-K filed with the U.S.
        Securities and Exchange Commission (the “SEC”). Interim results are not
        necessarily indicative of results for a full year.
  The
        unaudited interim consolidated financial statements for the three- and six-month
        periods ended June 30, 2004 include certain reclassifications to conform
        with
        classifications for the three- and six-month periods ended June 30, 2005.
        These
        interim consolidated financial statements have been prepared using accounting
        policies that are consistent with the policies used in preparing the Company’s
        audited consolidated financial statements for the year ended December 31,
        2004.
  **2.**
              **SHORT-TERM
                  INVESTMENTS**
  Short-term
        investments, as of June 30, 2005, include $27,250,000 of auction rate
        securities, which are available to support the Company’s current operations.
        These investments are classified as available-for-sale securities and are
        recorded at fair value with unrealized gains or losses reported in other
        comprehensive income. Due to the short time period between the reset dates
        of
        the interest rates, there are no unrealized gains or losses associated with
        these securities. All of the auction rate securities have contractual maturities
        of more than three years. The Company previously classified auction rate
        securities as marketable securities. In addition, as of June 30, 2005, the
        balance of the short-term investments also included corporate and euro dollar
        bonds and corporate and United States federal agency notes, with maturities
        of
        one year or less, which are classified as held-to-maturity securities and
        carried at amortized cost.
  **3.**
              **LOSS
                  PER SHARE**
  Loss
        per
        share, basic and diluted, is computed using the treasury method. Potentially
        dilutive shares have not been used in the calculation of loss per share as
        their
        inclusion would be anti-dilutive.
  7
 Table
          of Contents
  **Three
                  months ended**
              
              **Six
                  months ended****June
                  30,**
              
              **June
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Weighted
                  average number of shares outstanding - basic
              
              
              41,860,288
              
              
              5,082,665
              
              
              41,835,772
              
              
              5,071,354Effect
                  of dilutive securities:Warrants
              
              
              ―
              
              
              960,145
              
              
              ―
              
              
              960,145Convertible
                  debentures
              
              
              ―
              
              
              3,734,555
              
              
              ―
              
              
              3,326,921Convertible
                  Preferred Stock
              
              
              ―
              
              
              3,986,106
              
              
              ―
              
              
              3,986,106Stock
                  options
              
              
              1,510,526
              
              
              1,081,850
              
              
              1,550,007
              
              
              1,081,850Weighted
                  average number of shares - diluted
              
              
              43,370,814
              
              
              14,845,321
              
              
              43,385,779
              
              
              14,426,376Loss
                  per share - basic and diluted
              
              $
              (0.08
              )
              $
              (0.50
              )
              $
              (0.15
              )
              $
              (0.95
              )
   **4.**
              **RECENT
                  ACCOUNTING PRONOUNCEMENT**
  In
        December 2004, the Financial Accounting Standards Board (the “FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based
        Payment”, which revised SFAS No. 123 and supercedes Accounting Principles Board
        Opinion No. 25, (“APB 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. SFAS No. 123R is effective at the beginning
        of the first interim or annual period beginning after June 15, 2005. In
        April 2005, the SEC announced the adoption of a new rule that amends the
        compliance dates for SFAS No. 123R. The SEC’s new rule allows companies to
        implement SFAS No. 123R at the beginning of their next fiscal year, instead
        of
        the next reporting period that begins after June 15, 2005. Accordingly, the
        Company is required to adopt SFAS No. 123R beginning January 1, 2006. The
        Company is currently evaluating the requirements of SFAS No. 123R. 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.
  **5.**
              **ACCOUNTING
                  FOR STOCK-BASED
                  COMPENSATION**
  The
        Company follows 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 APB 25 but to disclose
        the pro
        forma effects on net income (loss) as if the fair value of the options had
        been
        expensed. The Company has elected to apply APB 25 in accounting for employee
        stock option incentive plans.
  The
        following table illustrates the pro forma net loss and net loss per share
        of
        common stock as if the fair value method had been applied to all
        awards:
   8
 Table
          of Contents
  **Three
                  months ended**
              
              **Six
                  months ended****June
                  30,**
              
              **June
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  loss, as reported
              
              $
              (3,159,720
              )
              $
              (2,516,842
              )
              $
              (6,441,088
              )
              $
              (4,811,186
              )Adjustment
                  for APB 25
              
              
              11,899
              
              
              1,539,232
              
              
              11,899
              
              
              3,078,464Adjustment
                  for SFAS No. 123
              
              
              (1,151,953
              )
              
              (1,559,342
              )
              
              (1,594,365
              )
              
              (3,123,275
              )Pro
                  forma net loss
              
              $
              (4,299,774
              )
              $
              (2,536,952
              )
              $
              (8,023,554
              )
              $
              (4,855,997
              )Pro
                  forma net loss per share - basic and diluted
              
              $
              (0.10
              )
              $
              (0.50
              )
              $
              (0.19
              )
              $
              (0.96
              )
 
 During
        the three and six months ended June 30, 2005, the Company granted 316,250
        and
        1,513,750 options to employees, directors and certain consultants at a weighted
        average exercise price of $7.88 and $8.47, respectively. These options were
        issued under the Company’s 2002 stock option plan. Of the 1,513,750 options
        granted in the six months ended June 30, 2005, 100,000 options vest equally
        over
        a period of three years from the date of grant. The balance of 1,413,750
        options
        vests as to 100% when and if the Company receives U.S. Food and Drug
        Administration, or FDA, approval for the RHEOTM System before December 1,
        2006, as to 80% when and if FDA approval is received between December 1,
        2006 and January 31, 2007 and as to 60% when and if FDA approval is
        received after January 31, 2007. No options were granted during the three
        and six months ended June 30, 2004.
  Pursuant
        to SFAS No. 123, the weighted average fair values of employee stock options
        granted during the three and six months ended June 30, 2005 were $2.82 and
        $3.63, respectively. The estimated fair value was determined using the
        Black-Scholes option pricing model.
  Compensation
        expense associated with non-employee stock options was $83,551 and $125,188
        for
        the three and six months ended June 30, 2005 and $9,565 and $26,553 for the
        three and six months ended June 30, 2004, respectively. The fair value of
        these
        options was determined using the Black-Scholes fair value options model and
        is
        included in general and administrative expenses within the consolidated
        statements of operations.
  **6.**
              **RELATED
                  PARTY TRANSACTIONS**
  The
        following are the Company’s related party transactions:
  **June
                  30,**
              
              **December
                  31,****2005**
              
              **2004**Due
                  (to)/from:Rheo
                  Clinic Inc.
              
              $
              (103,386
              )
              $
              8,226$
              (103,386
              )
              $
              8,226
 One
        of
        OccuLogix, L.P.’s (the “Partnership”) primary customers is Rheo Clinic Inc., a
        subsidiary of TLC Vision Corporation (“TLC Vision”), for which the Partnership
        has reported revenues of $14,726 and $78,264 for the three and six months
        ended
        June 30, 2005, respectively, and $128,155 and $184,171 for the three and
        six months ended June 30, 2004, respectively. Rheo Clinic Inc. uses the RHEOTM
System to treat patients for which it charges its customers (the patients)
        a
        per-treatment fee. The Company does not expect, going forward, that Rheo
        Clinic
        Inc. will be a significant source of revenue. The Company purchased TLC Vision’s
        50% interest in the Partnership on December 8, 2004 and the results of the
        Partnership’s operations have been included in the consolidated financial
        statements since that date. Accordingly, the results of the Partnership’s
        operations for the three and six months ended June 30, 2004 are not included
        in
        the Company’s consolidated financial statements for the periods then ended.
   9
 Table
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  Included
        in the balance due from Rheo Clinic Inc. as of June 30, 2005 and
        December 31, 2004 is the amount owing to the Partnership for the purchase
        of the components of the RHEOTM System net of the amount owing to Rheo Clinic
        Inc. for clinical and administrative support provided by Rheo Clinic Inc.
        for
        the Company’s MIRA-1 and related clinical trials.
  **TLC
        Vision and Diamed Medizintechnik GmbH** ***(see
        note 8)***
  On
        June
        25, 2003, the Company entered into agreements with TLC Vision and Diamed
        Medizintechnik GmbH (“Diamed”) to issue grid debentures in the maximum aggregate
        principal amount of $12,000,000. $7,000,000 of the aggregate principal amount
        was convertible into shares of common stock of the Company at a price of
        $0.98502 per share, and $5,000,000 was non-convertible. On
        December 8, 2004, as part of the corporate reorganization relating to the
        Company’s initial public offering, the Company 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
        $5,000,000 portion of the $12,000,000 commitment which was not convertible
        into
        the Company’s common stock was not advanced, and the commitment was terminated
        prior to the completion of the initial public offering.
  Collectively,
        as at June 30, 2005, TLC Vision and Diamed control at least a combined 56.03%
        of
        the equity interest in the Company on a fully diluted basis.
  The
        Company is economically dependent on Diamed to control the supply of the
        OctoNova pumps used in the RHEOTM System. The Company believes that the OctoNova
        pump is a critical component in the RHEOTM System.
  Included
        in amounts due to stockholders as of June 30, 2005 and December 31, 2004
        are
        $123,555 and $473,929, respectively, owing to TLC Vision for its payment
        of the
        salaries and related benefits of certain employees of the Company and for
        computer and administrative support.
  **Asahi
        Medical Co., Ltd.**
  The
        Company is party to a distributorship agreement with Asahi Medical Co., Ltd.
        (“Asahi Medical”) pursuant to which Asahi Medical supplies the filter products
        used in the RHEOTM 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 RHEOTM System. In the event the Company is not able to
        obtain regulatory approval for the RHEOTM System from the FDA and other necessary
        approvals in the territories for which the Company has distribution rights
        by
        December 31, 2006, Asahi Medical can terminate the distributorship
        agreement.
  The
        Company receives free inventory from Asahi Medical for purposes 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. The value of the free inventory received was $113,388 and
        $146,905 as at June 30, 2005 and December 31, 2004, respectively.
  10
 Table
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  **Mr.
        Hans Stock** ***(see
        note 7)***
  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 RHEOTM 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. Royalty payments made to Mr. Stock in respect
        of
        products supplied to the Company from Asahi Medical in the three- and six-month
        periods ended June 30, 2005 and 2004 were $106,961, $142,614, $2,394 and
        $4,275,
        respectively.
 
 Under
          its
          October 25, 2004 patent license and royalty agreement with Mr. Stock,
          pursuant to which the Company obtained an exclusive license to U.S. Patent
          No.
          6,245,038, the Company is required to make royalty payments, totaling 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 replaced
          and amended and restated prior agreements with Mr. Stock. Payments made
          under
          this agreement and predecessor agreements for the three- and six-month
          periods
          ended June 30, 2005 and 2004 were $12,500, $25,000, $12,500 and $25,000,
          respectively.
 **Apheresis
        Technologies, Inc.**
  On
        May 1,
        2002, the Company entered into an exclusive distribution services agreement
        with
        Apheresis Technologies Inc. (“ATI”), a company controlled by certain
        stockholders of the Company pursuant to which the Company pays ATI 5% of
        the
        Company’s cost of components of the RHEOTM System. Under this agreement, 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 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
        ATI
        $100,000 on the successful completion of the Company’s initial public offering.
        On January 18, 2005, the Company paid ATI $100,000 as provided for in the
        amended distribution services agreement. On March 28, 2005, the Company
        terminated its distribution services agreement with ATI.
  **Other**
  Effective
        April 1, 2005, the Company terminated its reimbursement agreement with ATI
        such
        that the Company no longer compensates ATI in respect of any salary paid
        to, or
        benefits provided to, Mr. Cornish by ATI. Until April 1, 2005, Mr. Cornish
        did
        not have an employment contract with the Company and received no compensation
        from the Company directly. On April 1, 2005, Mr. Cornish entered into an
        employment agreement with the Company under which he will receive an annual
        base
        salary of $106,450, representing compensation to him for devoting 80% of
        his
        time to the business and affairs of the Company. Effective June 1, 2005, 
the Company amended its employment agreement with Mr. Cornish such that he
        will
        receive an annual base salary of $113,103, representing compensation to him
        for
        devoting 85% of his time to the business and affairs of the Company. Mr.
        Cornish
        continues to participate in the Company’s bonus plan. Mr. Cornish is one of the
        Company’s stockholders and the Company’s Vice President,
        Operations.
  11
 Table
            of Contents
  Effective
        January 1, 2004, the Company entered into a rental agreement with a related
        party whereby the Company will lease space from Cornish Properties Corporation
        at $2,745 per month. The term of the lease extends to December 31, 2005. In
        the three- and six-month periods ended June 30, 2005 and 2004, the Company
        paid
        Cornish Properties Corporation $8,235, $16,470, $8,235 and $16,470,
        respectively. Amounts are paid monthly.
  Effective
        June 25, 2003, Elias Vamvakas, the Chairman of TLC Vision, became the Chairman,
        the Chief Executive Officer and the Secretary of the Company and the President
        and the Secretary of 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, and therefore, any unvested
        compensation expense was expensed immediately. The impact of this stock
        compensation expense for the three- and six-month periods ended June 30,
        2005
        and 2004 was nil, nil, $569,032 and $1,138,064, respectively.
  In
        addition, the Company entered into a consultancy and non-competition agreement
        on July 1, 2003 with the Center for Clinical Research, which requires the
        Company to pay a fee of $5,000 per month. In 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. In addition, the related party also agreed to
        the
        repayment of the balance of $150,500 due to him at $7,500 per month beginning
        in
        July 2003. Included in accounts payable as at June 30, 2005 and December
        31,
        2004 are nil and $15,500, respectively, due to the related party. On April
        18,
        2005, the Company’s Board of Directors authorized the increase of the fee
        payable to the related party from $5,000 to $15,000 per month effective January
        1, 2005, the payment of a one-time bonus of $200,000 upon successful FDA
        approval of the RHEOTM System and the grant of 60,000 options to the related
        party at an exercise price of $7.15. These options are expected to fully
        vest on
        successful FDA approval of the RHEOTM System. This resulted in a consulting
        expense for the three- and six-months ended June 30, 2005 of $45,000 and
        $90,000, respectively.
  On
        September 29, 2004, the Partnership signed a product purchase agreement with
        Veris Health Services Inc. (“Veris”) formerly Rheo Therapeutics Inc. (an
        Ontario, Canada corporation), for the purchase from the Partnership of 8,004
        treatment sets 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. However, due
        to
        delays in opening its planned number of clinics throughout Canada, Veris
        will no
        longer require the contracted number of treatment sets in the period. OccuLogix
        has agreed to the original pricing for the reduced number of treatment sets
        required in the period. Dr. Machat, who is an investor in and one of the
        directors of Veris, was a co-founder and former director of TLC
        Vision *.* As
        of
        June 30, 2005, the Partnership had received a total of $557,400 from Veris.
        Included in amounts receivable as at June 30, 2005 and December 31, 2004
        are
        $839,696 and $322,920, respectively, due from Veris for the purchase of
        additional pumps and treatment sets, the payment of which is expected to
        be made
        by August 31, 2005.
  12
 Table
          of Contents
  On
        March 28, 2005, the Company entered into a supply and co-marketing
        agreement with Rheogenx Biosciences Corporation (“Rheogenx”), an unrelated
        party, for the supply of pumps and disposable treatment sets to Rheogenx
        and its affiliates, including PhereSys Therapeutics Corporation (“PhereSys”),
        Rheogenx’s wholly-owned subsidiary. Under this agreement, the Company will
        provide marketing support for PhereSys’ mobile apheresis business upon obtaining
        FDA approval to market the RHEOTM System in the United States. In connection with
        entering into this agreement, the Company also entered into an asset purchase
        agreement with Rheogenx on March 28, 2005 to effectively terminate the
        patent, know-how and trademark rights to non-ophthalmic indications for RHEOTM in
        North America which the Company had previously licensed to Rheogenx. The
        purchase price of the assets under the asset purchase agreement was
        $10.
  **7.**
              **DUE
                  TO STOCKHOLDERS**
  **June
                  30,**
              
              **December
                  31,****2005**
              
              **2004****Due
                  to:**TLC
                  Vision Corporation
              
              $
              123,555
              
              $
              473,929Other
                  stockholders
              
              
              119,461
              
              
              42,827$
              243,016
              
              $
              516,756
 
  Included
        in amounts due to stockholders as at June 30, 2005 and December 31, 2004
        are
        $123,555 and $473,929, respectively, owing to TLC Vision for its payment
        of the
        salaries and related benefits of certain employees of the Company and for
        computer and administrative support.
  Included
        in the balance due to other stockholders as of June 30, 2005 and December
        31,
        2004 are $119,461 and $42,827, respectively, due to Mr. Hans Stock as royalty
        fees *(note
        6).*
  **8.**
              **COMMITMENTS**
  On
        July
        22, 2004, the Company placed a purchase order with Asahi Medical for filter
        sets
        (each filter set consists of one Plasmaflo filter and one Rheofilter)
        representing a total commitment of $2,736,000. As of June 30, 2005, a full
        payment has been made to Asahi Medical on the above purchase order, with
        78% of
        the filter sets having been received as at June 30, 2005.
  On
        March
        4, 2005, the Company placed an order with MeSys GmbH for the purchase of
        OctoNova pumps representing a total commitment of €1,135,330 or approximately
        $1,369,549 based on exchange rates as of June 30, 2005. The pumps are to
        be
        manufactured throughout the remainder of 2005, with the final shipment of
        pumps
        being made in December 2005. The Company expects to make monthly payments
        to
        MeSys GmbH for the pumps as manufacturing is completed.
  13
 Table
          of Contents
  **9.**
              **CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**
  The
        net
        change in non-cash working capital balances related to operations consists
        of
        the following:
  **Six
                  months ended****June
                  30,****2005**
              
              **2004**Due
                  to/from related parties
              
              $
              111,612
              
              $
              (150,491
              )Amounts
                  receivable
              
              
              (730,579
              )
              
              (9,076
              )Inventory
              
              
              (2,755,107
              )
              
              (74,471
              )Prepaid
                  expenses
              
              
              (75,514
              )
              
              7,353Deposit
              
              
              4,105
              
              
              ―Accounts
                  payable and accrued liabilities
              
              
              (686,894
              )
              
              131,043Deferred
                  revenue and rent inducement
              
              
              (482,182
              )
              
              ―Due
                  to stockholders
              
              
              (273,740
              )
              
              (14,388
              )$
              (4,888,299
              )
              $
              (110,030
              )
  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:
  **Six
                  months ended****June
                  30,****2005**
              
              **2004**Non-cash
                  investing and financing activities -Free
                  inventory
              
              $
              113,388
              
              $
              159,360
  **10.**
              **SUBSEQUENT
                  EVENTS**
  On
        July
        29, 2005, the Company finalized an agreement with Rheo Clinic Inc. (a subsidiary
        of TLC Vision) to purchase fixed assets and intellectual property valued
        at
        C$61,812 to be used for the Company’s clinical trial activities. The Company has
        also agreed to share equally in losses incurred by Rheo Clinic Inc., to a
        maximum of C$28,952, for assets that Rheo Clinic Inc. is not able to dispose
        of.
        The Company agreed to reimburse Rheo Clinic Inc. for that proportion of the
        costs incurred by Rheo Clinic Inc. deemed applicable to clinical trial
        activities for the period from October 1, 2004 to June 30, 2005. The amount
        to
        be reimbursed, by the Company to Rheo Clinic Inc., up to June 30, 2005, has
        been calculated to be C$281,581 and is consistent with amounts included in
        the
        Company’s expenses for the same period up to June 30, 2005.
  14
 
 Table
          of Contents
  I TEM
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS
 
 **OVERVIEW**
  We
          are an
          ophthalmic therapeutic company founded to commercialize innovative treatments
          for eye diseases, including age-related macular degeneration, or AMD. Our
          product, the RHEOTM System, is used to perform Rheopheresis, a procedure that
          selectively removes molecules from plasma and 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 RHEOTM
System. In September 1999, we received an Investigational Device Exemption
          from
          the FDA to begin a pivotal clinical trial, MIRA-1, for the RHEOTM 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 RHEOTM System in three clinics in Canada.
  In
          September 2004, we signed an agreement with Veris Health Services Inc.,
          formerly
          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. Veris Health Services Inc. operates three
          commercial treatment centers where RHEOTM therapy is offered, and we believe that
          it plans to open additional centers in various Canadian cities. Dr. Jeffrey
          Machat, who is an investor in and one of the directors of Veris Health
          Services
          Inc., 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.
          Accordingly, 100% of the results of OccuLogix, L.P.’s operations are included in
          our 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 RHEOTM 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. has transferred the earnings potential for
          sales of
          the RHEOTM 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 our initial public offering for gross cash proceeds
          of
          $67,200,000 (less issuance costs of $7,858,789).
  As
          of
          December 31, 2004, we had enrolled a total of 185 patients in MIRA-1 which
          completes the enrollment phase of MIRA-1, exceeding our goal of enrolling
          180
          subjects by December 31, 2004. All subjects have completed the treatment
          phase
          of the study. As of June 30, 2005, we have collected complete 12-month
          post-treatment data sets for 116 of these patients. Of the remaining 69
          patients, 53 are in the process of follow-up and 16 subjects will 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 all of the clinical data, to the FDA in
          the
          first quarter of 2006.
  15
 
 Table
            of Contents
  **RECENT
        DEVELOPMENTS**
  On
        May
        17, 2005, John Y. Caloz was appointed our Chief Financial Officer and Treasurer,
        effective June 1, 2005. Mr. Caloz succeeds William (Bill) G. Dumencu who
        remains
        with the Company as our Vice President, Finance. Mr. Caloz has provided senior
        financial leadership over many years in the life sciences sector, serving
        most
        recently as Chief Financial Officer for IRIS International Inc., a Chatsworth,
        CA-based medical device manufacturer, from 2001 to 2004. Before joining IRIS,
        he
        was Chief Financial Officer of San Francisco, CA-based Synarc, Inc., a startup
        medical imaging services company with operations in the U.S. and Europe.
        From
        1993 to 1999, he was Senior Vice President, Finance and Chief Financial Officer
        of Phoenix International Life Sciences Inc. of Montreal, QC and Irvine, CA,
        a
        TSX and NASDAQ listed contract research organization that was acquired by
        MDS
        Inc. in 1999. Mr. Caloz was a partner at Rooney, Greig, Whitrod, Filion &
Assoc. of Saint Laurent, QC, a firm of Chartered Accountants specializing
        in
        R&D and high tech companies, from 1983 to 1993. Mr. Caloz, a Chartered
        Accountant, holds a B.A. in Accounting from York University, Toronto,
        ON.
  **CRITICAL
        ACCOUNTING POLICIES**
  Our
        consolidated financial statements are 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 amounts of assets, liabilities, revenues and expenses, and related
        disclosures. On an ongoing basis, we evaluate our estimates and assumptions.
        We
        base our estimates on historical experience and on various other assumptions
        that are believed to be reasonable under the circumstances, the results of
        which
        form the basis for making judgments about the carrying values of assets and
        liabilities that are not readily apparent from other sources. Actual results
        may
        differ from these estimates under different assumptions or
        conditions.
  **RESULTS
        OF OPERATIONS**
  ***Three
        Months Ended June 30, 2005 and 2004***
  ***Revenues.*** Revenues
        increased by 449% to $597,841 for the three months ended June 30, 2005 from
        $108,880 for the three months ended June 30, 2004. This increase was due
        to
        sales of treatment sets and pumps to Veris Health Services Inc. of $577,200
        in
        the period and also reflects the impact of the acquisition of TLC Vision’s 50%
        ownership interest in OccuLogix, L.P. Included in revenues for the three
        months
        ended June 30, 2005, were sales made to Rheo Clinic Inc., a subsidiary of
        TLC
        Vision and a related party, for which we reported revenues of $14,726 in
        the
        period. We do not expect that Rheo Clinic Inc. will be a significant source
        of
        revenue going forward. The reported revenues for the three months ended June
        30,
        2004 reflect sales made to OccuLogix, L.P. prior to the acquisition of TLC
        Vision’s 50% interest in OccuLogix, L.P.
  ***Cost
        of Sales and Gross Margin.*** Cost
        of
        sales increased by 186% to $403,855 for the three months ended June 30, 2005
        from $141,326 for the three months ended June 30, 2004, as a result of the
        increase in sales from the prior period and the impact of the acquisition
        of TLC
        Vision’s 50% ownership interest in OccuLogix, L.P. Cost of sales to Rheo Clinic
        Inc., a related party, in the three months ended June 30, 2005 was
        $10,757.
  Gross
        margin on sales increased to $193,986 in the three months ended June 30,
        2005
        from a loss of $32,446 during the prior year period due to the acquisition
        of
        OccuLogix, L.P. on December 8, 2004. OccuLogix, L.P.’s sales to third parties,
        in the three months ended June 30, 2005, generated sufficient profit to result
        in a positive consolidated gross margin. Gross profit from sales as a percentage
        of sales increased to 32% for the three months ended June 30, 2005 from a
        loss
        of 30% for the comparative 2004 period. On a pro forma basis, had the Company
        acquired OccuLogix, L.P. on January 1, 2004, the gross margin percentage
        would
        have been 25% for the three months ended June 30, 2004. The Company’s gross
        margins are affected by product mix. As our customers’ treatment sites are
        established, they will purchase a continuous supply of disposable treatment
        sets
        for which the margins are much higher.
  16
 Table
          of Contents
  ***General
        and Administrative Expenses.*** General
        and administrative expenses were $2,199,372 for the three months ended June
        30,
        2005 from $1,812,872 an increase of 21% for the three months ended June 30,
        2004. This increase is due to the hiring of several key executives and employees
        in the third quarter of 2004, increased professional fees to establish
        agreements, review and adjust existing contracts, the fees associated with
        compliance with Section 404 of the Sarbanes Oxley Act of 2002 as well as
        other
        public company costs, and amortization expense of the intangible assets acquired
        on the purchase of TLC Vision’s 50% interest in OccuLogix, L.P. These increased
        costs were offset by the requirement to expense, in the six months ended
        June
        30, 2004, the intrinsic value of options granted in December, 2003 over the
        vesting period of these 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. There was, therefore, no comparable
        expense
        in the three months ended June 30, 2005.
  ***Clinical
        and Regulatory Expenses.*** Clinical
        and regulatory expenses were $1,309,989 for the three months ended June 30,
        2005, an increase of 96% from $667,086 for the three months ended June 30,
        2004,
        as a result of increased activities associated with the MIRA-1, LEARN and
        related clinical trials.
  ***Sales
        and Marketing Expenses.*** Sales
        and
        marketing expenses were $380,061 for the three months ended June 30, 2005
        with
        no comparable expense for the three months ended June 30, 2004 since all
        sales
        and marketing expenses had been incurred by OccuLogix, L.P. prior to our
        acquisition of TLC Vision’s 50% interest in OccuLogix, L.P. In the third and
        fourth quarters of 2004, we hired three new employees to begin establishing
        sales and marketing efforts to promote the use of the RHEOTM System in Canada
        and, upon FDA approval, in the United States.
  ***Other
        Income (Expenses).*** Other
        income was $376,923 for the three months ended June 30, 2005, compared to
        an
        expense of $4,438 for the three months ended June 30, 2004. This change was
        due
        primarily to interest income earned in the current period due to the Company’s
        cash and short-term investment position subsequent to the initial public
        offering.
  ***Income
        Tax Recovery.*** Income
        tax recovery of $158,792 for the three months ended June 30, 2005 represents
        the
        amortization of the deferred tax liability which 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 liability of $9,527,500 is being
        amortized over 15 years, the estimated useful life of the intangible asset.
        There was no corresponding tax recovery in the three months ended June 30,
        2004.
  ***Six
        Months Ended June 30, 2005 and 2004***
  ***Revenues.*** Revenues
        increased by 512% to $1,001,579 for the six months ended June 30, 2005 from
        $163,600 for the six months ended June 30, 2004. This increase was due to
        sales
        of treatment sets and pumps to Veris Health Services Inc. of $917,400 in
        the
        period and reflects the impact of the acquisition of TLC Vision’s 50% ownership
        interest in OccuLogix, L.P. Included in revenues for the six months ended
        June 30, 2005 are sales made to Rheo Clinic Inc., for which we have
        reported revenues of $78,264 in the period. We do not expect that Rheo Clinic
        Inc. will be a significant source of revenue going forward.
  17
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  ***Cost
        of Sales and Gross Margin.*** Gross
        margin on sales increased to 30% in the six months ended June 30, 2005 from
        a
        loss of 38% during the prior year period due to the acquisition of OccuLogix,
        L.P. on December 8, 2004. OccuLogix, L.P.’s sales to third parties in the six
        months ended June 30, 2005 generated sufficient profit to result in a positive
        consolidated gross margin. On a pro forma basis, had the Company acquired
        OccuLogix, L.P. on January 1, 2004, the gross margin percentage would have
        been
        29% for the six months ended June 30, 2004. The Company’s gross margins are
        affected by product mix. As our customers’ treatment sites are established, they
        are expected to purchase a continuous supply of disposable treatment sets
        for
        which the margins are much higher.
  ***General
        and Administrative Expenses.*** General
        and administrative expenses were $4,380,086 for the six months ended June
        30,
        2005 an increase of 21% from $3,617,558 for the six months ended June 30,
        2004.
        This increase is due to the hiring of several key executives and employees
        in
        the third quarter of 2004, increased professional fees to establish agreements,
        review and adjust existing contracts, the fees associated with compliance
        with
        Section 404 of the Sarbanes Oxley Act of 2002 as well as other public company
        costs, and amortization expense of the intangible assets acquired on the
        purchase of TLC Vision’s 50% interest in OccuLogix, L.P. These increased costs
        in the six months ended June 30, 2004 were offset by the requirement to expense
        the intrinsic value of options granted in December, 2003 over the vesting
        period
        of these 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. There was, therefore, no comparable expense in the
        six
        months ended June 30, 2005.
  ***Clinical
        and Regulatory Expenses.*** Clinical
        and regulatory expenses were $2,654,014 for the six months ended June 30,
        2005,
        an increase of 136% from $1,122,456 for the six months ended June 30, 2004,
        as a
        result of increased activities associated with the MIRA-1, LEARN and related
        clinical trials.
  ***Sales
        and Marketing Expenses.*** Sales
        and
        marketing expenses were $765,907 for the six months ended June 30, 2005 with
        no
        comparable expense for six months ended June 30, 2004, since all sales and
        marketing expenses had been incurred by OccuLogix, L.P. prior to our acquisition
        of TLC Vision’s 50% interest in OccuLogix, L.P. In the third and fourth quarters
        of 2004, we hired three new employees to begin establishing sales and marketing
        efforts to promote the use of the RHEOTM System in Canada and, upon FDA approval,
        in the United States.
  ***Other
        Income (Expenses).*** Other
        income was $743,547 for the six months ended June 30, 2005, compared to an
        expense of $9,416 for the six months ended June 30, 2004. This change was
        due
        primarily to interest income earned for the six months ended June 30, 2005
        due
        to the Company’s cash and short-term investment position subsequent to the
        initial public offering.
  ***Income
        Tax Recovery.*** Income
        tax of $317,583 for the six months ended June 30, 2005 represents the
        amortization of the deferred tax liability which 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 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 six months ended June 30,
        2004.
  **LIQUIDITY
        AND CAPITAL RESOURCES**
  In
        December 2004, the Company raised $67,200,000 of gross cash proceeds (less
        issuance costs of $7,858,789) in an initial public offering. Immediately
        prior
        to the offering, the primary source of the Company’s liquidity was cash raised
        through the issuance of debentures.
  18
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  To
        date,
        cash has been primarily utilized to finance increased infrastructural costs,
        to
        accumulate inventory and to fund ongoing costs of the MIRA-1 clinical trial
        and
        more recently the LEARN trials. In the future, we expect that we will continue
        to use our cash resources to fund the development of our infrastructure,
        to
        complete the MIRA-1, LEARN and other clinical trials, to accumulate inventory
        and to undertake other commercialization activities. Cash and cash equivalents
        and short-term investments as at June 30, 2005 were $49,429,742 compared
        to
        $60,030,552 as at December 31, 2004. Working capital as of June 30, 2005
        was
        $52,474,549, a decrease of $5,598,376 from $58,072,925 as at December 31,
        2004.
  Management
        believes that the existing cash and cash equivalents and short term investments,
        together with funds expected to be generated from operations, will be sufficient
        to fund the Company’s anticipated level of operations and other demands and
        commitments through 2006.
  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. We have based this estimate on assumptions that may prove to be
        wrong,
        and we 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:
  ·
              the
                  rate of progress, cost and results of the MIRA-1, LEARN and related
                  clinical trials;
  ·
              our
                  ability to obtain FDA approval to market and sell the RHEOTM System in the
                  United States and the timing of such
                  approval;
  ·
              whether
                  government and third-party payors agree to reimburse treatments
                  using the
                  RHEOTM System;
  ·
              the
                  costs and timing of building the infrastructure and manufacturing
                  capacity
                  to market and sell the RHEOTM
System;
  ·
              the
                  costs of filing, prosecuting, defending and enforcing any patent
                  claims
                  and other intellectual property
                  rights;
  ·
              the
                  costs of establishing sales, marketing and distribution capabilities;
                  and
  ·
              the
                  effect of competing technological and market
                  developments.
  Even
        if
        we receive regulatory approval for the sale of the RHEOTM System in the United
        States, we will not have significant product revenue until late 2006, at
        the
        earliest. Until we can generate a sufficient amount of revenue, we expect
        to
        finance future cash needs through public or private equity offerings, debt
        financings, corporate collaboration or licensing 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 or reduce the scope of, or eliminate,
        some of our commercialization efforts.
  19
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  ***Cash
        Used in Operating Activities***
  Net
        cash
        used in operating activities was $10,519,646 for the six months ended June
        30,
        2005. Changes in net cash provided by operating activities in the period
        reflect
        a net loss of $6,441,088 adjusted for non-cash items of $809,741 and netted
        against changes in working capital of $4,888,299. Non-cash items are made
        up
        primarily of the amortization of intangibles, fixed assets, patents and
        trademarks and the premium/discounts on investments of $952,691 netted by
        applicable deferred income taxes of $317,583. Additional non-cash items result
        from stock-based compensation expense of $137,087 and the provision for doubtful
        collections of subscriptions receivable of $37,546. Changes in working capital
        in the period reflect a $730,579 increase in amounts receivable primarily
        from
        accrued interest receivable on investments and amounts due from Veris Health
        Services Inc. for the purchase of treatment sets and pumps, a $2,755,107
        increase in inventory as we continue to maintain our order level in line
        with
        supplier expectations and a $75,514 increase in prepaid expenses. Amounts
        due to
        related parties increased by $111,612 primarily due to the amount owed to
        Rheo
        Clinic Inc. for clinical and administrative support provided by Rheo Clinic
        Inc.
        Accounts payable and accrued liabilities decreased by $686,894 as payments
        are
        being made for costs associated with clinical trial activities and the initial
        public offering and the related corporate reorganization. Amounts due to
        stockholders also decreased by $273,740 with the payment of $411,829 due
        to TLC
        Vision. In addition, deferred revenue decreased by $482,182 due to the shipment
        of treatment sets.
  ***Cash
        Provided by Investing Activities***
  Net
        cash
        provided by investing activities was $4,527,269 for the six months ended
        June
        30, 2005, resulting from the net sale of short-term investments of $4,664,818,
        offset by cash used to protect and maintain patents and trademarks in the
        amount
        of $41,513 and the purchase of fixed assets of $96,036 ($73,541 in the prior
        comparative period).
  ***Cash
        Provided by Financing Activities***
  Net
        cash
        provided by financing activities was $107,054 for the six months ended June
        30,
        2005 and relates to the exercise of stock options for cash proceeds of $12,445
        ($23,217 in the comparative 2004 period) and the receipt of $184,115 as part
        of
        the balance due from stockholders from the exercise of warrants. We also
        paid
        additional share issue costs of $88,714 in the six months ended June 30,
        2005 in
        relation to our initial public offering.
  SUBSEQUENT
        EVENTS
  On
        July
        29, 2005, the Company finalized an agreement with Rheo Clinic Inc. to purchase
        fixed assets and intellectual property valued at C$61,812 to be used for
        the
        Company's clinical trial activities and other purposes.  The Company agreed
        to share equally in losses incurred by Rheo Clinic Inc., to a maximum of
        C$28,952, for assets that Rheo Clinic Inc. is not able to dispose of.  The
        Company agreed to reimburse Rheo Clinic Inc. for that proportion of the costs
        incurred by Rheo Clinic Inc. deemed applicable to clinical trial activities
        for
        the period from October 1, 2004 to June 30, 2005. The amount to be reimbursed
        over that period has been calculated to be C$281,581 and is consistent with
        amounts included in the Company's expenses for the same period.
  RECENT
        ACCOUNTING PRONOUNCEMENT
  In
        December 2004, FASB issued SFAS No. 123R “Share-Based Payment”, which revised
        SFAS No. 123 and supercedes APB 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. SFAS No. 123R is effective
        at
        the beginning of the first interim or annual period beginning June 15,
        2005. In April 2005, the SEC announced the adoption of a new rule that amends
        the compliance dates for SFAS No. 123R. The SEC’s new rule allows companies to
        implement SFAS No. 123R at the beginning of their next fiscal year, instead
        of
        the next reporting period that begins after June 15, 2005. Accordingly, the
        Company is required to adopt SFAS No. 123R beginning January 1, 2006. The
        Company is currently evaluating the requirements of SFAS No. 123R. 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.
  20
 Table
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  ITEM
        3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET 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 relation to the
        U.S.
        dollar would increase the U.S. dollar cost of our operations and would 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.
  ITEM
        4.   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 the six-month period ended June 30, 2005, 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 (the “CEO”) and principal financial officer (the “CFO”). Based upon that
        evaluation, the CEO and the CFO have concluded that as of the end of that
        fiscal
        period, 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.
  (b)  Limitations
        on the Effectiveness of Controls .
        The
        Company maintains a system of internal accounting controls to provide reasonable
        assurance that assets are safeguarded and that transactions are executed
        in
        accordance with management’s authorization and recorded properly to permit the
        preparation of financial statements in accordance with accounting principles
        generally accepted in the United States. However, the Company’s management,
        including the CEO and CFO, does not expect that the Company’s disclosure
        controls or internal controls will prevent all errors and all fraud. A control
        system, no matter how well conceived and operated, can provide only reasonable,
        not absolute, assurance that the objectives of the control system are met.
        Further, the design of a control system must reflect the fact that there
        are
        resource constraints, and the benefits of more controls must be considered
        relative to their costs. Because of the inherent limitations in all control
        systems, no evaluation of controls can provide absolute assurance that all
        control issues and instances of fraud, if any, within the Company have been
        detected. These inherent limitations include the realities that judgments
        in
        decision-making can be faulty and that breakdowns can occur because of a
        simple
        error or mistake. Additionally, controls can be circumvented by the individual
        acts of some persons, by collusion of two or more people or by management
        override of the controls. The design of any system of controls also is based
        in
        part upon certain assumptions about the likelihood of future events, and
        there
        can be no absolute assurance that any design will succeed in achieving its
        stated goals under all potential future conditions. Over time, controls may
        become inadequate because of changes in conditions, or the degree of compliance
        with the policies or procedures may deteriorate. Because of the inherent
        limitations in a cost-effective control system, misstatement due to error
        or
        fraud may occur and not be detected.
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 Table
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  (c) Changes
        in Internal Control Over Financial Reporting .
        During
        the six-month period ended June 30, 2005, 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.
  PART
        II.
        OTHER INFORMATION
  I TEM
        1.  LEGAL PROCEEDINGS
  We
        are
        not aware of any litigation involving us that is outstanding, threatened
        or
        pending.
  ITEM
        2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS
  On
        March
        24, 2005, we issued an aggregate of 50,000 shares of Common Stock to the
        Center
        for Clinical Research as a result of the exercise of options to purchase
        common
        shares at an exercise price per share of $0.04 in consideration for
        cash.
  On
        March
        30, 2005, we issued an aggregate of 2,000 shares of Common Stock to Carol
        Jones
        as a result of the exercise of options to purchase common shares at an exercise
        price per share of $0.99 in consideration for cash.
  On
        June
        15, 2005, we issued an aggregate of 8,550 shares of Common Stock to Don
        Strickland as a result of the exercise of options to purchase common shares
        at
        an exercise price per share of $0.99 in consideration for cash.
  Each
        of
        these issuances was exempt from registration under the Securities Act of
        1933,
        as amended, pursuant to Rule 701 thereunder.
  ITEM3.  DEFAULTS
        UPON SENIOR SECURITIES
  There
        has
        not been any default upon our senior securities.
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  ITEM
        4.  SUB
  MISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS
  On
        June
        24, 2005, the Company held its 2005 Annual Meeting of Stockholders. At the
        Annual Meeting, the following matters were submitted to a vote of
        stockholders:
  1.
              The
                  following seven individuals were nominated and elected to serve
                  as
                  directors of the Company:
  Elias
                  Vamvakas
              FOR:
                WITHHOLD
                  AUTHORITY:
              37,500,893
                3,400Thomas
                  N. Davidson
              FOR:
                WITHHOLD
                  AUTHORITY:
              37,500,893
                3,400Jay
                  T. Holmes
              FOR:
                WITHHOLD
                  AUTHORITY:
              37,500,893
                3,400Richard
                  Lindstrom
              FOR:
                WITHHOLD
                  AUTHORITY:
              37,500,893
                3,400Georges
                  Noël
              FOR:
                WITHHOLD
                  AUTHORITY:
              37,500,893
                3,400Gilbert
                  S. Omenn
              FOR:
                WITHHOLD
                  AUTHORITY:
              37,500,893
                3,400Adrienne
                  L. Graves
              FOR:
                WITHHOLD
                  AUTHORITY:
              37,500,893
                3,400
  2.
              The
                  holders of 37,496,622 shares of common stock voted in favour of,
                  2,000
                  voted against and 5,671 abstained from voting with respect to the
                  ratification of the selection of Ernst & Young LLP, auditors, to serve
                  as independent accountants of the Company for the fiscal year ending
                  December 31, 2005.
  
 ITEM
        5.  OTHER
        INFORMATION
  None.
  23
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 ITEM
        6.  EXHIBITS
  Index
        to Exhibits
  10.1
              Settlement
                  Agreement among the registrant, David Crain Eldridge and David
                  C. Eldridge
                  O.D., P.C. dated as of May 20, 2005.10.2
              Employment
                  Agreement between John Caloz and the registrant dated as of May
                  18,
                  2005.10.3
              Amending
                Agreement between the Registrant and John Cornish, dated as of June
                1,
                2005, amending the Employment Agreement between the Registrant and
                John
                Cornish dated as of April 1, 2005.10.4
              Amending
                  Agreement between the Registrant and Thomas P. Reeves, dated as
                  of July 1,
                  2005, amending the Employment Agreement between the Registrant
                  and Thomas
                  P. Reeves dated August 2004.14.1
              Code
                  of Conduct of the Registrant.14.2
              Complaint
                  and Reporting Procedures of the Registrant.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.
 24
 Table
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  **SIGNATURES**
  In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, hereunto duly
        authorized.
  OCCULOGIX,
                INC.Date: August
                8, 2005
              By:
              /s/ Elias
                VamvakasElias
                VamvakasChief Executive
                Officer