**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q/A**




Amendment
      No. 1




(Mark
      One)


(X)
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934**





For
      the
      quarterly period ended:   **March
      31, 2006**





(
                )
            **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
                Employer Identification No.)





**2600
      Skymark Avenue, Unit 9, Suite 201, Mississauga, Ontario L4W
      5B2**


(Address
      of principal executive offices)





**(905)
      602-0887**


(Registrant’s
      telephone number)





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





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





Large
                accelerated filer
            Accelerated
                filerX
            Non-accelerated
                filer


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





State
      the
      number of shares outstanding of each of the registrant’s classes of common
      equity, as of the latest practical date: 42,186,579
      as of May 9, 2006











1





Explanatory
      Note


Special
      Note Regarding Forward-Looking Statements











**PART
                I.**
            **FINANCIAL
                INFORMATION**Item
                1.
            Consolidated
                Financial StatementsItem
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                OperationsItem
                3.
            Quantitative
                and Qualitative Disclosures about Market RiskItem
                4.
            Controls
                and Procedures**PART
                II.**
            **OTHER
                INFORMATION**Item
                1.
            Legal
                ProceedingsItem
                2.
            Unregistered
                Sales of Equity Securities and Use of ProceedsItem
                3.
            Defaults
                upon Senior SecuritiesItem
                4.
            Submission
                of Matters to a Vote of Security HoldersItem
                5.
            Other
                InformationItem
                6.
            Exhibits








2











**EXPLANATORY
      NOTE**





This Amendment No. 1 to this Quarterly Report on Form 10-Q is being filed in
      order to include Exhibit 10.8, the Convertible Unsecured Promissory Note of
      SOLX, Inc., dated April 4, 2006, in the principal amount of
      $2,000,000.




**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





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




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




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.












3





**OccuLogix,
      Inc.**






PART1.
              FINANCIAL
                  INFORMATIONITEM
                  1.
              CONSOLIDATED
                  FINANCIAL STATEMENTS




















4
 **OccuLogix,
              Inc.**





**CONSOLIDATED
      BALANCE SHEETS**


(expressed
      in U.S. dollars **)**


(Unaudited)





**March
                31,**
              **2006**
            
            **December
                31,**
              **2005****ASSETS****Current**Cash
                and cash equivalents
            
            $
            14,814,326
            
            $
            9,599,950Short-term
                investments
            
            
            21,711,346
            
            
            31,662,845Amounts
                receivable, net
            
            
            528,929
            
            
            554,966Inventory,
                net
            
            
            4,059,234
            
            
            4,701,464Prepaid
                expenses
            
            
            789,736
            
            
            803,268Deposit
            
            
            11,314
            
            
            4,891Total
                current assets
            
            
            41,914,885
            
            
            47,327,384Fixed
                assets, net
            
            
            438,205
            
            
            470,561Patents
                and trademarks, net
            
            
            205,231
            
            
            135,232Intangible
                asset, net
            
            
            23,498,028
            
            
            23,927,195Goodwill
            
            
            65,945,686
            
            
            65,945,686**Total
                assets**
            
            $
            132,002,035
            
            $
            137,806,058**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current**Accounts
                payable
            
            $
            100,497
            
            $
            522,520Accrued
                liabilities
            
            
            2,241,098
            
            
            2,226,619Due
                to related party
            
            
            26,926
            
            
            5,065Due
                to stockholders
            
            
            185,565
            
            
            158,233Total
                current liabilities
            
            
            2,554,086
            
            
            2,912,437Deferred
                tax liability
            
            
            8,694,271
            
            
            8,853,062Total
                liabilities
            
            
            11,248,357
            
            
            11,765,499**Stockholders’
                equity**Capital
                stockCommon
                stock
            
            
            42,187
            
            
            42,086Par
                value of $0.001 per shareAuthorized:
                75,000,000; Issued and outstanding:March
                31, 2006 - 42,186,579; December 31, 2005 - 42,085,853Additional
                paid-in capital
            
            
            337,422,548
            
            
            336,977,578Accumulated
                deficit
            
            
            (216,711,057
            )
            
            (210,979,105
            )Total
                stockholders’ equity
            
            
            120,753,678
            
            
            126,040,559**Total
                liabilities and stockholders’ equity**
            
            $
            132,002,035
            
            $
            137,806,058


*See
      accompanying notes to interim consolidated financial
      statements*








5
 **OccuLogix,
              Inc.**











**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(expressed
      in U.S. dollars)


(Unaudited)


**Three
                months ended,****March
                31,****2006**
            
            **2005**RevenuesSales
                to unrelated parties
            
            $
            —
            
            $
            340,200Sales
                to related parties
            
            
            —
            
            
            63,539Total
                revenues
            
            
            —
            
            
            403,739Cost
                of goods soldCost
                of goods sold to unrelated parties
            
            
            1,625,000
            
            
            242,455Cost
                of goods sold to related parties
            
            
            —
            
            
            32,479Royalty
                costs
            
            
            25,000
            
            
            25,000Total
                cost of goods sold
            
            
            1,650,000
            
            
            299,934Gross
                (loss) margin
            
            
            (1,650,000
            )
            
            103,805Operating
                expensesGeneral
                and administrative
            
            
            1,996,585
            
            
            2,180,713Clinical
                and regulatory
            
            
            1,475,387
            
            
            1,344,026Sales
                and marketing
            
            
            425,986
            
            
            385,846Restructuring
                charges
            
            
            819,642
            
            
            —4,717,600
            
            
            3,910,585Loss
                from operations
            
            
            (6,367,600
            )
            
            (3,806,780
            )Other
                income (expense)Interest
                income
            
            
            370,926
            
            
            355,043Other
            
            
            (381
            )
            
            11,581370,545
            
            
            366,624Loss
                before income taxes and cumulative effect of a change in accounting
                principle
            
            
            (5,997,055
            )
            
            (3,440,156
            )Recovery
                of income taxes
            
            
            158,058
            
            
            158,792Loss
                before cumulative effect of a change in accounting
                principle
            
            
            (5,838,997
            )
            
            (3,281,364)Cumulative
                effect of a change in accounting principle
            
            
            107,045
            
            
            —**Net
                loss for the period**
            
            $
            (5,731,952
            )
            $
            (3,281,364
            )**Weighted
                average number of shares outstanding**
              **-
                basic and diluted**
            
            
            42,166,561
            
            
            41,810,679Loss
                before cumulative effect of a change in accounting principle per
                share -
                basic and diluted
            
            $
            (0.14
            )
            $
            (0.08
            )Cumulative
                effect of a change in accounting principle per share - basic and
                diluted
            
            
            —
            
            
            —Basic
                and diluted net loss per share
            
            $
            (0.14
            )
            $
            (0.08
            )


*See
      accompanying notes to interim consolidated financial
      statements*








6
 **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, 2005**
            42,085,853
            $
                42,086
            $
                336,977,578
            $
                (210,979,105)
            $
                126,040,559Stock-based
                compensation
            ―
            ―
            185,861
            ―
            185,861Common
                stock issued on exercise of options
            100,726
            101
            233,609
            ―
            233,710Contribution
                of inventory from related party
            ―
            ―
            25,500
            ―
            25,500Net
                loss for the period
            ―
            ―
            ―
            (5,731,952)
            (5,731,952)**March
                31, 2006**
            42,186,579
            $
                42,187
            $
                337,422,548
            $
                (216,711,057)
            $
                120,753,678


*See
      accompanying notes to interim consolidated financial
      statements*








7
 **OccuLogix,
              Inc.**








**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(expressed
      in U.S. dollars)


(Unaudited)


**Three
                months ended**
              **March
                31,****2006**
            
            **2005****OPERATING
                ACTIVITIES**Net
                loss for the period
            
            $
            (5,731,952
            )
            $
            (3,281,364
            )Adjustments
                to reconcile net loss tocash
                used in operating activities:Write-down
                of inventory
            
            
            1,625,000
            
            
            —Stock-based
                compensation
            
            
            292,906
            
            
            41,638Amortization
                of fixed assets
            
            
            32,356
            
            
            18,309Amortization
                of patents and trademarks
            
            
            1,488
            
            
            1,385Amortization
                of intangible asset
            
            
            429,167
            
            
            429,167Amortization
                of premiums/discounts on short-term investments
            
            
            26,499
            
            
            9,037Deferred
                income taxes
            
            
            (158,792
            )
            
            (158,792
            )Cumulative
                effect of a change in accounting principle
            
            
            (107,045
            )
            
            —Net
                change in non-cash working capitalbalances
                      related to operations
            
            
            (1,282,475
            )
            
            (2,841,444
            )**Cash
                used in operating activities**
            
            
            (4,872,848
            )
            
            (5,782,064
            )**INVESTING
                ACTIVITIES**Sale
                of (purchase of) short-term investments
            
            
            9,925,000
            
            
            (5,169,982
            )Additions
                to fixed assets
            
            
            ―
            
            
            (49,215
            )Additions
                to patents and trademarks
            
            
            (71,486
            )
            
            ―**Cash
                provided by (used in) investing activities**
            
            
            9,853,514
            
            
            (5,219,197
            )**FINANCING
                ACTIVITIES**Proceeds
                from the exercise of common stock options
            
            
            233,710
            
            
            3,980Proceeds
                from the exercise of Series A convertible preferred stock
                warrants
            
            
            ―
            
            
            171,016Fractional
                payout of converted shares due to preferred stockholders
            
            
            ―
            
            
            (792
            )Share
                issuance costs
            
            
            ―
            
            
            (83,234
            )**Cash
                provided by financing activities**
            
            
            233,710
            
            
            90,970**Net
                increase (decrease) in cash and cash equivalents**
              **during
                the period**
            
            
            5,214,376
            
            
            (10,910,291
            )Cash
                and cash equivalents, beginning of period
            
            
            9,599,950
            
            
            17,530,552**Cash
                and cash equivalents, end of period**
            
            $
            14,814,326
            
            $
            6,620,261


*See
      accompanying notes to interim consolidated financial
      statements*








8
 **OccuLogix,
              Inc.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


(expressed
      in U.S. dollars unless otherwise stated)


March
      31,
      2006 (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
      OccuLogix, Inc. (the “Company”) as of March 31, 2006 and the results of its
      operations for the three-month period then ended. These interim unaudited
      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.





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,
      2005.




**2.**  **RESTRUCTURING
      CHARGES**





In
      March
      2006, the Company implemented a number of structural and management changes
      designed to support both the continued development of its RHEOTM System to treat
      the dry form of age-related macular degeneration and to execute its accelerated
      diversification strategy within ophthalmology. In accordance with Statement
      of
      Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs
      Associated with Exit or Disposal Activities” (“SFAS No. 146”), the Company
      recognized a total of $819,642 in restructuring charges in the three months
      ended March 31, 2006.





The
      restructuring charge of $819,642 recorded in the three months ended March 31,
      2006, of which $398,923 was paid out by April 28, 2006, consists solely of
      severance and benefit costs related to the termination of a total of 12
      employees at both the Company’s Mississauga, Ontario and Palm Harbor, Florida
      offices. The severance and benefit costs are expected to be fully paid by
      November 30, 2006.





**3.**  **INVENTORY**





The
      Company evaluates its ending inventories for estimated excess quantities and
      obsolescence ,
      based
      on expected future sales levels and projections of future demand, with the
      excess inventory provided for. In addition, the


Company
      assesses the impact of changing technology and market conditions. In April
      2006,
      the Company sold a number of treatment sets to its only customer, Veris Health
      Sciences Inc. (“Veris”) *(see
      note 7)* ,
      at a
      price lower than the Company’s cost. Accordingly, Company wrote down the value
      of its treatment sets to reflect this current net realizable value as at March
      31, 2006.





As
      at
      March 31, 2006 and December 31, 2005, the Company had inventory reserves of
      $3,615,830 and $1,990,830, respectively. During the three months ended March
      31,
      2006, the Company recognized a provision related to inventory of $1,625,000
      related to inventory based on the above analysis (2005 - nil).








9





**4.**  **RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      December 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS
      No. 123R, “Share-Based Payments”, which revised SFAS No. 123, “Accounting for
      Stock-Based Compensation”, and supersedes Accounting Principles Board Opinion
      No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS No.
      123R requires all share-based payments to employees, including grants of
      employee stock options, to be recognized in the consolidated 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 has adopted SFAS No. 123R
      beginning January 1, 2006. The Company has selected the Black-Scholes
      option-pricing model as its method of determining the fair value for its awards
      and will recognize compensation cost on a straight-line basis over the awards’
vesting periods *(see
      note 5).*





Prior
      to
      the adoption of SFAS No. 123R, the Company  applied
      the provisions of SFAS No. 123, which allowed companies either to expense the
      estimated fair value of employee stock options or to follow the intrinsic value
      method as set forth in APB No. 25 but required companies to disclose the pro
      forma effects on net loss as if the fair value of the options had been expensed.
      The Company elected to apply APB No. 25
      in accounting for employee stock options. Therefore, as required by SFAS No.123,
      prior to the adoption of SFAS No. 123R, the Company provided pro forma net
      loss
      and pro forma net loss per share disclosures for stock-based awards as if the
      fair value of
      the options had been expensed.





The
      adoption of the following recent accounting pronouncements in the first quarter
      of fiscal 2006 did not have a material impact on the Company’s results of
      operations and financial condition:





·
            SFAS
                No. 151, “Inventory Costs — An Amendment of ARB No. 43, Chapter 4”;


·
            SFAS
                No. 153, “Exchanges of Nonmonetary Assets — An Amendment of APB Opinion
                No. 29”; and


·
            SFAS
                No. 154, “Accounting Changes and Error Corrections” which replaces APB No.
                20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in
                Interim Financial Statements — An Amendment of APB Opinion No.
                28”





In
      November 2005, the FASB issued FASB Staff Position FAS 115-1 and FAS 124-1,
“The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments” (“FSP 115-1”), which provides guidance on determining when
      investments in certain debt and equity securities are considered impaired,
      on
      whether that impairment is other-than-temporary and on measuring such impairment
      loss. FSP 115-1 also includes accounting considerations subsequent to the
      recognition of an other-than-temporary impairment and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. FSP 115-1 is required to be applied to
      reporting periods beginning after December 15, 2005. The adoption of FSP 115-1
      in the first quarter of fiscal 2006 did not have a material impact on the
      Company’s results of operations and financial condition.





**5.**  **STOCK-BASED
      COMPENSATION**





The
      Company has a stock option plan, the 2002 Stock Option Plan (the “Stock Option
      Plan”). Under
      the
      Stock Option Plan, up to 4,456,000 options are available for grant to
      employees, directors and consultants. Options
      granted under the Stock Option Plan may be either incentive stock options or
      non-statutory stock options. Under the terms of the Stock Option Plan, the
      exercise price per share for an incentive stock option shall not be less than
      the fair market value of a share of stock on the effective date of grant and
      the
      exercise price per share for non-statutory stock options shall not be less
      than
      85% of the fair market value of a share of stock on the date of grant. No option
      granted to a holder of more than 10% of the Company’s common stock shall have an
      exercise price per share less than 110% of the fair market value of a share
      of
      stock on the effective date of grant.








10





Options
      granted may be time-based or performance-based options. The vesting of
      performance-based options is contingent upon meeting company-wide goals,
      including obtaining FDA approval of the Company’s RHEOTM System and the
      achievement of a minimum amount of sales over a specified period. Generally,
      options expire 10 years after the date of grant. No incentive stock options
      granted to a 10% owner optionee shall be exercisable after the expiration of
      five years after the effective date of grant of such option, no option granted
      to a prospective employee, prospective consultant or prospective director may
      become exercisable prior to the date on which such person commences service,
      and
      with the exception of an option granted to an officer, director or a consultant,
      no option shall become exercisable at a rate less than 20% per annum over a
      period of five years from the effective date of grant of such option unless
      otherwise approved by the board of directors of the Company (the “Board of
      Directors”).





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





On
      January 1, 2006, the Company adopted the provisions of SFAS No. 123R, requiring
      the recognition of expense related to the fair value of its stock-based
      compensation awards. The Company elected to use the modified prospective
      transition method as permitted by SFAS No. 123R and therefore has not restated
      its financial results for prior periods. Under this transition method,
      stock-based compensation expense for the three months ended March 31, 2006
      includes compensation expense for all stock-based compensation awards granted
      prior to, but not yet vested as of, January 1, 2006 based on the grant date
      fair
      value estimated in accordance with the original provisions of SFAS No. 123.
      Stock-based compensation expense for all stock-based compensation awards granted
      subsequent to January 1, 2006 was based on the grant date fair value estimated
      in accordance with the provisions of SFAS No. 123R. The Company recognizes
      compensation expense for stock option awards on a straight-line basis over
      the
      requisite service period of the award.





The
      following table sets forth the total stock-based compensation expense resulting
      from stock options included in the Company’s Consolidated Statements of
      Operations:





**Three
                months ended**
              **March
                31,****2006**
            
            **2005
                (i)**General
                and administrative
            
            $
            169,349
            
            $
            26,100Clinical
                and regulatory
            
            
            27,433
            
            
            15,538Sales
                and marketing
            
            
            96,124
            
            
            —Stock-based
                compensation expense before income taxes (ii)
            
            $
            292,906
            
            $
            41,638





(i)
            Stock-based
                compensation expense for the three months ended March 31, 2005 relates
                to
                compensation expense associated with non-employee stock options.
                The fair
                value of these options was determined using the Black-Scholes fair
                value
                options model and was recorded in the Company’s Consolidated Statements of
                Operations in accordance with the provisions of SFAS No. 123.





(ii)
            The
                tax benefit associated with the Company’s stock-based compensation expense
                for the three months ended March 31, 2006 is $108,375. This amount
                has not
                been recognized in the Company’s financial statements for the three-month
                period as it is more likely than not that the Company will not realize
                this benefit.








11





Net
      cash
      proceeds from the exercise of stock options were $233,710 and $3,980 for the
      three months ended March 31, 2006 and 2005, respectively. No income tax benefit
      was realized from stock option exercises during the three months ended March
      31,
      2006 and 2005. In accordance with SFAS No. 123R, the Company presents excess
      tax
      benefits from the exercise of stock options, if any, as financing cash flows
      rather than operating cash flows.





As
      a
      result of adopting SFAS No. 123R on January 1, 2006, the Company’s net loss for
      the three months ended March 31, 2006 is $100,842 higher than if it had
      continued to account for share-based compensation under APB No. 25. Basic and
      diluted loss per share for the three months ended March 31, 2006 will be the
      same as the reported basic and diluted loss per share of $0.14 if the Company
      had not adopted SFAS No. 123R.





The
      Company did not estimate forfeitures, resulting from the failure to satisfy
      performance conditions, on its outstanding awards prior to the adoption of
      SFAS
      No. 123R. Under SFAS No. 123, the Company could assume all awards will vest
      and
      reverse recognized compensation cost or adjust its disclosure for forfeited
      awards when the awards are actually forfeited. SFAS No. 123R requires a company
      to estimate the number of awards that are expected to vest and revise the
      estimate as actual forfeitures differ from the estimate. On January 1, 2006,
      the
      effective date of adopting SFAS No. 123R, the Company was required to estimate
      the number of forfeitures of its outstanding awards as of the effective date.
      Consolidated balance sheet amounts related to any compensation cost for these
      estimated forfeitures previously recognized in prior periods before the adoption
      of SFAS No. 123R have to be eliminated and recognized in income as the
      cumulative effect of a change in accounting principle as of the effective date.
      During the three months ended March 31, 2006, the Company recognized $107,045
      as
      the cumulative effect of a change in accounting principle resulting from the
      requirement to estimate forfeitures on its outstanding awards as at January
      1,
      2006. The compensation cost previously recognized in prior periods before the
      adoption of SFAS No. 123R relates to compensation expense associated with
      non-employee stock options.





Prior
      to
      the adoption of SFAS No. 123R, the Company  applied
      the provisions of SFAS No. 123, which allowed companies either to expense the
      estimated fair value of employee stock options or to follow the intrinsic value
      method as set forth in APB No. 25 but required companies to disclose the pro
      forma effects on net loss as if the fair value of the options had been expensed.
      The Company elected to apply APB No. 25
      in accounting for employee stock options. Therefore, as required by SFAS No.123,
      prior to the adoption of SFAS No. 123R, the Company provided pro forma net
      loss
      and pro forma net loss per share disclosures for stock-based awards as if the
      fair value of
      the options had been expensed.





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 during
      the three-month period ended March 31, 2005:





**Three
                months ended****March
                31, 2005**Net
                loss, as reported
            
            $
            (3,281,364
            )Adjustment
                for APB No. 25
            
            
            —Adjustment
                for SFAS No. 123
            
            
            (442,412
            )Pro
                forma net loss
            
            
            (3,723,776
            )Pro
                forma net loss per share - basic and diluted
            
            $
            (0.09
            )








12





The
      fair
      value of stock options granted during the three months ended March 31, 2006
      and
      2005 was $3.22 and $3.80, respectively. The estimated fair value was determined
      using the Black-Scholes option-pricing model with the following weighted-average
      assumptions:





**Three
                months ended**
              **March
                31,****2006**
            
            **2005**Volatility
            
            
            98.7%
            
            
            78.2%Expected
                life of options
            
            
            5.9
                years
            
            
            2
                yearsRisk-free
                interest rate
            
            
            4.65%
            
            
            3.86%Dividend
                yield
            
            
            0%
            
            
            0%





The
      Company’s computation of expected volatility for the three months ended March
      31, 2006 and 2005 is based on a comparable company’s historical stock prices as
      the Company did not have sufficient historical data. The Company’s computation
      of expected life has been estimated using the “short-cut approach” as provided
      in Staff Accounting Bulletin No. 107. Under this approach, estimated life is
      calculated to be the mid-point between the vesting date and the end of the
      contractual period. The risk-free interest rate for an award is based on the
      U.S. Treasury yield curve with a term equal to the expected life of the award
      on
      the date of grant.





Prior
      to
      the adoption of SFAS No. 123R, the Board
      of
      Directors approved accelerating the vesting of unvested stock options granted
      prior to December 31, 2004 to employees, officers and directors. As a result
      of
      the vesting acceleration, options to purchase 438,561 shares of the Company’s
      common stock became exercisable immediately, including 308,611 held by executive
      officers, 48,958 held by non-employee directors and 80,992 held by other
      employees. These accelerated stock options represent approximately 30% of the
      total employee stock options of the Company that would not have been vested
      as
      at December 31, 2005. The weighted average exercise price of the options that
      were accelerated was $11.78. The purpose of the acceleration was to enable
      the
      Company to avoid recognizing compensation expense associated with these options
      of $1,532,203 and $1,466,253 during the years ending December 31, 2006 and
      2007,
      respectively, in its consolidated statements of operations as a result of the
      adoption of SFAS No. 123R on January 1, 2006. In accordance with APB No. 25,
      the
      Company recorded a compensation expense of $53,295 for the year ended December
      31, 2005 as 9,033 of the total options, of which the vesting was accelerated,
      were “in-the-money” as at the date of the accelerated vesting. With respect to
      SFAS No. 123, the Company recognized, for purposes of pro forma disclosures,
      the
      incremental increase in fair value and the remaining balance of unrecognized
      compensation cost for the affected options at the time of
      acceleration.





A
      summary
      of the options issued during the three months ended March 31, 2006 and total
      number of options outstanding as of that date are set forth below:





Number
                of Options Outstanding
            Weighted-Average
                Exercise Price
            Weighted-Average
                Remaining Contractual Life (years)
            Aggregate
                Intrinsic ValueOutstanding,
                December 31, 2005
            4,107,614
            $6.19Granted
            130,000
            4.32Exercised
            (100,726)
            2.32
            
            $141,294Forfeited
            (1,250)
            8.03**Outstanding,
                March 31, 2006**
            **4,135,638**
            **5.90******
            **8.09******
            **3,072,357****Vested
                or expected to vest, March 31, 2006**
            **2,418,046**
            **5.08******
            **7.36******
            **3,069,043****Exercisable,
                March 31, 2006**
            **2,197,719**
            **4.78******
            **7.18******
            **3,069,043**








13





The
      aggregate intrinsic value in the table above represents the total pre-tax
      intrinsic value (i.e., the difference between the Company’s closing stock price
      on the last trading day of the first quarter of 2006 of $3.45 and the exercise
      price, multiplied by the number of shares that would have been received by
      the
      option holders if the options had been exercised on March 31, 2006). This amount
      changes based on the fair market value of the Company’s stock. The total
      intrinsic value of options exercised during the three months ended March 31,
      2006 is $141,294. The total intrinsic value of options outstanding, vested
      or
      expected to vest, and exercisable as at March 31, 2006 is $3,072,357, $3,069,043
      and $3,069,043, respectively.





As
      at
      March 31, 2006, $3,365,821 of total unrecognized compensation cost related
      to
      stock options is expected to be recognized over a weighted-average period of
      2.97 years.




**6.**  **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.




**Three
                months ended**
              **March
                31,****2006**
            
            **2005**Weighted
                average number of shares outstanding - basic
            
            
            42,166,561
            
            
            41,810,679Effect
                of dilutive securities:Stock
                options
            
            
            1,080,422
            
            
            1,154,674Weighted
                average number of shares - fully diluted
            
            
            43,246,983
            
            
            42,965,353





**7.**  **RELATED
      PARTY TRANSACTIONS**





The
      following are the Company’s related party transactions:





**RHEO
      Clinic Inc.**





**March
                31,**
            
            **December
                31,****2006**
            
            
            **2005**Due
                to:RHEO
                Clinic Inc.
            
            $
            26,926
            
            $
            5,065$
            26,926
            
            $
            5,065





One
      of
      the Company’s primary customers had
      been
      RHEO Clinic Inc., a subsidiary of TLC Vision Corporation (“TLC Vision”). RHEO
      Clinic Inc. used the RHEOTM System to treat patients for which it charged its
      customers (the patients) a per-treatment fee. During the third quarter of 2005,
      RHEO Clinic Inc. determined that it will no longer treat patients and
      subsequently sold certain of its assets to the Company at a purchase price
      of
      C$61,812, including all applicable taxes. In connection with that sale, 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
      as at the agreed date, being December 31, 2005. Included in the balance due
      to
      RHEO Clinic Inc. as at March 31, 2006 is C$28,952 owing to RHEO Clinic Inc.
      for
      losses incurred for assets that it was not able to dispose of, and included
      in
      the balance owing to RHEO Clinic Inc. as at December 31, 2005 is the amount
      owing to the Company 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.





14








**TLC
      Vision and Diamed Medizintechnik GmbH**





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 in connection with the funding of the Company’s MIRA-1 and
      related clinical trials. $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 of the aggregate principal amount was
      non-convertible.





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 Company' initial public offering of shares of
      its
      common stock. During the years ended December 31, 2004 and 2003, the Company
      issued an aggregate of $4,350,000 and $2,650,000 to TLC Vision and Diamed,
      respectively, under the convertible portion of the grid debentures. 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 of aggregate principal
      amount of convertible debentures at a conversion price of $0.98502 per share.
      Collectively, as at March 31, 2006, the two companies have a combined 54.8%
      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
      pumps are a critical component in the RHEOTM System.





**Asahi
      Medical Co., Ltd.**





The
      Company is party to a distributorship agreement with 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
      the end of December 2006, Asahi Medical can terminate the distributorship
      agreement.





The
      Company receives free inventory from Asahi Medical for the purpose of the MIRA-1
      and related clinical studies. The Company has accounted for this inventory
      at a
      value equivalent to the cost the Company has paid for the same filters purchased
      from Asahi Medical for commercial sales to its customers. The value of the
      free
      inventory received was $25,500, nil and $167,730 for the three months ended
      March 31, 2006 and 2005 and the year ended December 31, 2005,
      respectively.





**Mr.
      Hans Stock** ***(Note
      8)***





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. During the three months ended March 31, 2006 and
      2005 and the year ended December 31, 2005, the Company paid Mr. Stock nil,
      $35,654 and $240,657, respectively, as royalty fees. Included in due to
      stockholders as at March 31, 2006 and December 31, 2005 is $48,023 and $29,663,
      respectively, due to Mr. Stock.





On
      June
      25, 2002, the Company entered into a consulting agreement with Mr. Stock for
      the
      purpose of procuring a patent license for the extracorporeal applications in
      ophthalmic diseases for that period of time in which the patent was effective.
      Mr. Stock was entitled to 1.0% of total net revenue from the Company’s
      commercial sales of products





15





sold
      in
      reliance and dependence upon the validity of the patent’s claims and rights in
      the United States. The Company agreed to make advance consulting payments to
      Mr.
      Stock of $50,000 annually, payable on a quarterly basis, to be credited against
      any and all future consulting payments payable in accordance with this
      agreement. Due to the uncertainty of future royalty payment requirements, all
      required payments to date have been expensed.


On
      August
      6, 2004, the Company entered into a patent license and royalty agreement with
      Mr. Stock to obtain an exclusive license to U.S. Patent No. 6,245,038. The
      Company is required to make royalty payments 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 replaces the June 25, 2002
      consulting agreement with Mr. Stock which provided for a royalty payment of
      1%
      of product sales *.* During
      the three months ended March 31, 2006 and 2005 and the year ended December
      31,
      2005, the Company paid $12,500, $12,500 and $50,000, respectively, to Mr. Stock
      as royalty fees. Included in due to stockholders as at March 31, 2006 and
      December 31, 2005 is $12,500 and $12,500, respectively, due to Mr.
      Stock.





**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 was
      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 its 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**





On
      June
      25, 2003, the Company entered into a reimbursement agreement with ATI, pursuant
      to which employees of ATI, including John Cornish, one of the Company’s
      stockholders and its Vice President, Operations, provide services to the Company
      and ATI is reimbursed for the applicable percentage of time the employees spend
      working for the Company. 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 direct compensation from the Company. 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 began to receive an annual base salary of $116,723,
      representing compensation to him for devoting 85% of his time to the business
      and affairs of the Company. Effective April 13, 2006, the Company further
      amended its employment agreement with Mr. Cornish such that his annual base
      salary was decreased to $68,660 in consideration of his devoting 50% of his
      time
      to the business and affairs of the Company. Mr. Cornish continues to participate
      in the Company’s bonus plan.





Effective
      January 1, 2004, the Company entered into a rental agreement with Cornish
      Properties Corporation, a company owned and managed by Mr. Cornish, whereby
      the
      Company will lease space from Cornish Properties Corporation at $2,745 per
      month. The term of the lease extended to December 31, 2005. On November 8,
      2005,
      as provided for in the rental agreement, the Company extended the term of the
      rental agreement with Cornish Properties Corporation for another year, ending
      December 31, 2006. In the three months ended March 31, 2006 and 2005 and the
      year ended December 31, 2005, the Company paid Cornish Properties Corporation
      an
      amount of $8,235, $8,235 and $32,940, respectively.





Effective
      June 25, 2003, Elias Vamvakas, the Chairman of TLC Vision, became the Chairman
      and Secretary of both the Company and the General Partner of the Partnership.
      500,000 stock options issued to Mr. Vamvakas in December 2003 were accounted
      for
      in accordance with APB No. 25. The Company estimated the intrinsic value of





16





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 in December 2004, the options vested
      immediately, and therefore, any unvested compensation expense was expensed
      immediately.





In
      addition, the Company entered into a consultancy and non-competition agreement
      on July 1, 2003 with the Center for Clinical Research (“CCR”), then a
      significant shareholder, which requires the Company to pay a fee of $5,000
      per
      month. For the year ended December 31, 2003, CCR agreed to forego the payment
      of
      $75,250 due to it in exchange for options to purchase 20,926 shares of common
      stock of the Company at an exercise price of $0.13 per share. In addition,
      CCR
      also agreed to the repayment of the balance of $150,500 due to it at $7,500
      per
      month beginning in July 2003. On August 22, 2005, the Company amended the
      consultancy and non-competition agreement with CCR such that the fee payable
      to
      it was increased from $5,000 to $15,000 per month effective January 1, 2005,
      the
      payment of a one-time bonus of $200,000 upon successful U.S. Food and Drug
      Administration, or FDA, approval of the RHEOTM System and the grant of 60,000
      options to CCR at an exercise price of $7.15 per share. These options are
      expected to fully vest on successful FDA approval of the RHEOTM System. This
      resulted in a combined consulting expense, included within clinical and
      regulatory expense for the three months ended March 31, 2006, of
      $51,071.





On
      September 29, 2004, OccuLogix, L.P. (the “Partnership”), a wholly-owned
      subsidiary of the Company, signed a product purchase agreement with Veris 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. However, due to delays in opening its planned number
      of
      clinics throughout Canada, Veris no longer required the contracted-for number
      of
      treatment sets in the period. The Company 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. In December 2005, by letter agreement, the Company
      agreed to the volume and other terms for the purchase and sale of treatment
      sets
      and pumps for the period ending February 28, 2006. As at March 31, 2006, the
      Partnership had received a total of $1,779,566 from Veris. Included in amounts
      receivable as at March 31, 2006 and December 31, 2005 is $1,047,622 and
      $1,047,622, respectively, due from Veris for the purchase of additional pumps
      and treatment sets. Veris has agreed to the payment of interest at the rate
      of
      8% per annum on all amounts outstanding for more than 45 days up to March 31,
      2006, the expected date of final payment. In January 2006, the Partnership
      received from Veris, an interest payment of $4,495 on amounts outstanding for
      more than 45 days to December 31, 2005. On February 3, 2006, the Company
      announced that the MIRA-1 clinical trial had not met its primary endpoint and
      that it is more likely than not that the Company will be required to conduct
      a
      follow-up clinical trial of the RHEOTM System in order to support its Pre-Market
      Approval application to the FDA. Because of this delay in being able to pursue
      commercialization of the RHEOTM System in the U.S. and the resulting market
      reaction to this news and based on discussions with Veris, the Company believes
      that Veris will not be able to meet its financial obligations to the Company.
      Therefore, during the year ended December 31, 2005, the Company recorded an
      allowance for doubtful accounts of $1,047,622 against the amount due from Veris
      and did not accrue additional interest on the amount outstanding in the three
      months ended March 31, 2006.





In
      addition, the Company entered into a clinical trial agreement on November 22,
      2005 with Veris which requires Veris to provide certain clinical trial services
      to the Company. The agreement provides for an advance payment of C$195,000
      to
      Veris which represents 30% of the total value of the contract. The Company
      paid
      Veris C$195,000 on November 22, 2005 as provided for in the clinical trial
      agreement. This amount has been expensed during the year ended December 31,
      2005
      as the Company has suspended the clinical trial for the time being.





On
      March
      28, 2005, the Company entered into a supply and co-marketing agreement with
      Rheogenx Biosciences Corporation (“Rheogenx”) 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’s 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 the RHEOTM System in





17





North
      America which the Company had previously licensed to Rheogenx. The purchase
      price of the assets under the asset purchase agreement was $10 and has been
      included within accrued liabilities.





During
      the fourth quarter of 2004, the Company began a business relationship with
      Innovasium Inc., an Ontario corporation. Innovasium Inc. designed and built
      some
      of the Company’s websites and also created some of the sales and marketing
      materials to reflect the look of the Company’s websites. Daniel Hageman, who is
      the President and one of the owners of Innovasium Inc., is the spouse of an
      officer of the Company. During the three months ended March 31, 2006 and 2005
      and the year ended December 31, 2005, the Company paid Innovasium Inc. C$27,636,
      C$34,635 and C$123,967, respectively. Included in accounts payable and accrued
      liabilities as at March 31, 2006 and December 31, 2005 is C$541 and C$15,798,
      respectively, due to Innovasium Inc. These amounts are expensed in the period
      incurred and paid when due.




**8.**  **DUE
      TO STOCKHOLDERS**





**March
                31,**
            
            **December
                31,****2006**
            
            **2005****Due
                to:**TLC
                Vision Corporation
            
            $
            125,042
            
            $
            116,070Other
                stockholder
            
            
            60,523
            
            
            42,163$
            185,565
            
            $
            158,233





Included
      in amounts due to stockholders as at March 31, 2006 and December 31, 2005 is
      $125,042 and $116,070, respectively, owing to TLC Vision for its payment of
      benefits of certain employees of the Company and for computer and administrative
      support.





The
      balances due to other stockholders as of March 31, 2006 and December 31, 2005
      are $60,523 and $42,163, respectively, and are for amounts due to Mr. Hans
      Stock
      for royalty fees *(see
      note 7).*




**9.**  **CONSOLIDATED
      STATEMENTS OF CASHFLOW**





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





**Three
                months ended**
              **March
                31,****2006**
            
            
            **2005**Due
                to related party
            
            $
            21,861
            
            $
            (4,908
            )Amounts
                receivable
            
            
            26,037
            
            
            (189,318
            )Inventory
            
            
            (957,270
            )
            
            (1,864,404
            )Prepaid
                expenses
            
            
            13,532
            
            
            (51,217
            )Deposit
            
            
            (6,423
            )
            
            4,105Accounts
                payable
            
            
            (422,023
            )
            
            353,460Accrued
                liabilities
            
            
            14,479
            
            
            (379,548
            )Deferred
                revenue and rent inducement
            
            
            —
            
            
            (352,004
            )Due
                to stockholders
            
            
            27,332
            
            
            (357,610
            )$
            (1,282,475
            )
            $
            (2,841,444
            )








18





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:





**Three
                months ended****March
                31,****2006**
            
            **2005**Non-cash
                financing activitiesFree
                inventory
            
            $
            25,500
            
            $
            —





**10.**  **SUBSEQUENT
      EVENTS**





a.
            On
                April 4, 2006, the Company announced that it has initiated its expansion
                into the glaucoma space by signing a non-binding Letter of Intent,
                subject
                to the Company completing its due diligence satisfactorily, to acquire
                SOLX, Inc. (“SOLX”), a privately held company based at the Boston
                University Photonics Center that has developed a system for the treatment
                of glaucoma. The DeepLight® Glaucoma Treatment System ("DeepLight®
                System") includes the DeepLight® 790 Titanium Sapphire Laser, the
                DeepLight® Gold Micro-Shunt and the DeepLight® Gold Micro-Shunt Plus which
                can be used to provide physicians with multiple options to manage
                intraocular pressure. The components of SOLX's DeepLight® System have
                received approval from Intertek Certification Services, a European
                agency
                for the evaluation of medicinal products, and are currently the subject
                of
                two randomized, multi-center studies in the U.S. SOLX is seeking
                to obtain
                510K approval to market the components of the DeepLight® System in the
                U.S. before the end of 2007.





The
      Company anticipates that the consideration for the acquisition of SOLX, which
      is
      yet to be determined, will be primarily in common stock of the Company. In
      connection with the proposed acquisition, the Company has advanced to SOLX
      a
      convertible unsecured loan in the principal amount of $2,000,000 at an annual
      interest rate equal to the prime rate, as announced from time to time by Bank
      of
      America, N.A. or its successor, plus 2%, to be accrued on a daily basis from
      the
      date of advance. The Convertible Unsecured Promissory Note of SOLX dated April
      4, 2006 (the “Note”), governing the terms of the loan, provides that the
      principal amount of the loan, and accrued but unpaid interest thereon, are
      to be
      repaid in one payment on October 2, 2006 (the “Maturity Date”). The Note further
      provides the Company with the right to acquire 10% of the issued and outstanding
      capital stock of SOLX on a fully diluted basis under certain conditions,
      including if the principal amount of the loan remains outstanding and owing
      after the Maturity Date.





Based
      on
      the current stage of this acquisition, the fair value of the acquired assets
      and
      liabilities is not determinable.





b.
            Effective
                April 13, 2006, the Company further amended its employment agreement
                with
                Mr. Cornish such that his annual base salary was decreased to $68,660
                in
                consideration of his devoting 50% of his time to the business and
                affairs
                of the Company. Mr. Cornish continues to participate in the Company’s
                bonus plan*(see
                note 7).*








19





**ITEM
      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. The RHEOTM
System is used to perform the RheopheresisTM procedure, a procedure that
      selectively removes molecules from plasma, which is designed to treat Dry AMD,
      the most common form of the disease.





We
      conducted a pivotal clinical trial, called MIRA-1, or Multicenter Investigation
      of Rheopheresis for AMD, which, if successful, was expected to support our
      application to the U.S. Food and Drug Administration, or FDA, to obtain approval
      to market the RHEOTM System in the United States. On February 3, 2006, we
      announced that, based on a preliminary analysis of the data from MIRA-1, MIRA-1
      did not meet its primary efficacy endpoint as it did not demonstrate a
      statistically significant difference in the mean change of Best
      Spectacle-Corrected Visual Acuity applying the Early Treatment Diabetic
      Retinopathy Scale, or ETDRS BCVA, between the treated and placebo groups in
      MIRA-1 at 12 months post-baseline. As expected, the treated group demonstrated
      a
      positive result. An anomalous response of the control group is the principal
      reason why the primary efficacy endpoint was not met.





Subsequent
      to the February 3, 2006 announcement, the Company completed an in-depth analysis
      of the MIRA-1 study data identifying subjects that were included in the
      intent-to-treat, or ITT, population but who deviated from the MIRA-1 protocol
      as
      well as those patients who had documented losses or gains in vision for reasons
      not related to retinal disease such as cataracts that were not specifically
      excluded by the protocol. Those subjects in the ITT population who met the
      protocol requirements, and who did not exhibit opthalmic changes unrelated
      to
      retinal disease, comprised the modified per-protocol population. In the modified
      per-protocol analysis, eyes treated with RHEOTM Therapy demonstrated a mean
      vision gain of 0.8 lines of ETDRS BCVA at 12 months post-baseline, compared
      to a
      mean vision loss of 0.1 lines of ETDRS BCVA in the eyes in the placebo group.
      The result was statistically significant (repeated measure p value = 0.0099).
      The following table presents a summary of the ETDRS BCVA changes observed 12
      months post-baseline in the modified per-protocol analysis of
      MIRA-1:





Treatment
                Group
              (n=69)
            Placebo
                Group
              (n=46)Vision
                improvement greater or equal to:1
                line
            47%
            18%2
                lines
            28%
            9%3
                lines
            9%
            2%Vision
                loss greater or equal to:1
                line
            10%
            24%2
                lines
            6%
            7%3
                lines
            3%
            2%





Within
      the modified per-protocol population with pre-treatment vision worse than 20/40,
      47% of RHEOTM Therapy-treated eyes improved, after treatment, to 20/40 or better
      and would be able to qualify for a driver’s license 12 months post-baseline,
      compared to 12% of placebo eyes.





MIRA-1
      data supports historical clinical and commercial experience with respect to
      the
      safety of RHEOTM Therapy, with observed treatment side effects generally being
      mild, transient and self-limiting.





In
      light
      of MIRA-1’s failure to meet its primary efficacy endpoint, it is more likely
      than not that we will be required to conduct a follow-up clinical trial of
      the
      RHEOTM System in order to support our Pre-Market Approval, or PMA, application to
      the FDA. However, until we have discussions with the FDA, we will not know
      the
      nature, size, scope or duration of any follow-up clinical trial. Nor, until
      such
      time, will we be able to anticipate when we will receive





20





FDA
      approval, if ever, or when we can expect to commercialize the RHEOTM System in
      the United States and to begin to generate revenues there. Currently, we are
      planning to have discussions with the FDA during the second quarter of
      2006.





As
      a
      result of the announcement on February 3, 2006, the share price of our stock
      as
      traded on the NASDAQ National Market System decreased from $12.75 on February
      2,
      2006 to close at $4.10 on February 3, 2006. The 10-day average price of the
      stock immediately following the announcement was $3.65 and reflected a decrease
      in our market capitalization from $536.6 million on February 2, 2006 to $153.6
      million based on the 10-day average share price subsequent to the announcement.
      The resulting decrease in the share price was identified as an indicator of
      impairment leading to an analysis of our intangible assets and goodwill and
      resulting in our reporting an impairment charge to goodwill of $147,451,758
      in
      the fourth quarter of 2005. We believe that the announcement made it unlikely
      that we would be able to collect on amounts outstanding from Veris Health
      Sciences Inc. (“Veris”), resulting in a provision for bad debts of $1,049,297,
      of which $518,852 related to revenue recognized prior to December 2005 and
      $530,445 related to goods shipped to Veris, in December 2005, and for which
      revenue was not recognized. We also recognized an inventory loss of $252,071,
      representing the cost of goods shipped to Veris in December 2005 which we do
      not
      anticipate will be returned by Veris. **** We
      have
      also fully expensed the $165,661 advance paid to Veris in connection with
      clinical trial services to be provided by Veris for MIRA-PS, one of our clinical
      trials. We evaluated our ending inventories as at December 31, 2005 on the
      basis
      that Veris may not be able to increase its commercial activities in Canada
      in
      line with our initial expectations. Accordingly, we have set up a provision
      for
      obsolescence of $1,990,830 for treatment sets that will unlikely be utilized
      prior to their expiration dates.





In
      April
      2006, we sold a number of treatment sets, with a negotiated discount, to
      Veris at a
      price lower than our cost. Accordingly, the price which we charged to Veris,
      net
      of a negotiated discount, represents the current net realizable value; therefore
      we wrote down the value of our treatment sets to reflect this current net
      realizable value as at March 31, 2006.





As
      at
      March 31, 2006 and December 31, 2005, we had inventory reserves of
      $3,615,830 and $1,990,830, respectively. During the three months ended March
      31,
      2006, we recognized a provision related to inventory of $1,625,000 related
      to
      inventory based on the above analysis (2005 - nil).





Our
      results of operations for the three months ended March 31, 2006 were impacted
      by
      our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R
      (revised 2004), “Share-Based Payments” (“SFAS No. 123R”), which requires us to
      recognize a non-cash expense related to the fair value of our stock-based
      compensation awards. We elected to use the modified prospective transition
      method of adoption requiring us to include this stock-compensation charge in
      our
      results of operations beginning on January 1, 2006 without restating prior
      periods to include stock-based compensation expense. This method also requires
      us to estimate forfeitures as of the effective date of adoption of SFAS No.
      123R
      and to eliminate any compensation cost previously recognized in income for
      periods before the effective date of adoption. This income should be recognized
      as the cumulative effect of a change in accounting principle as of the required
      effective date. Of the $292,906 stock-based compensation expense recognized
      in
      the first quarter of 2006, $169,349 is included in general and administrative
      expenses, $27,433 in clinical and regulatory expenses and $96,124 in sales
      and
      marketing expenses. We also recognized $107,045
      as the cumulative effect of a change in accounting principle reflecting the
      impact of our estimated forfeitures of outstanding awards as of January 1,
      2006.





Prior
      to
      the adoption of SFAS No. 123R we  applied
      the provisions of SFAS No. 123, “Accounting
      for Stock-Based Compensation” (“SFAS No. 123”), which
      allowed companies either to expense the estimated fair value of employee stock
      options or to follow the intrinsic value method set forth in Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB No. 25”), but
      required companies to disclose the pro forma effects on net loss as if the
      fair
      value of the options had been expensed. We elected to apply APB No. 25
      in accounting for employee stock options. As required by SFAS No.123, prior
      to
      the adoption of SFAS No. 123R, we provided pro forma net loss and pro forma
      net
      loss per share disclosures for stock-based awards as if the fair value of
      the options had been expensed.








21





In
      December 2005, our Board of
      Directors approved accelerating the vesting of unvested stock options granted
      prior to December 31, 2004 to employees, officers and directors. As a result
      of
      the vesting acceleration, options to purchase 438,561 shares of our common
      stock
      became exercisable immediately, including 308,611 held by executive officers,
      48,958 held by non-employee directors and 80,992 held by other employees. These
      accelerated stock options represent approximately 30% of the total employee
      stock options that would not have been vested as at December 31, 2005. The
      weighted average per share exercise price of the options that were accelerated
      was $11.78. The purpose of the acceleration was to avoid recognizing
      compensation expense associated with these options of $1,532,203 and $1,466,253
      during the years ending December 31, 2006 and 2007, respectively, in our
      consolidated statements of operations resulting from the adoption of SFAS No.
      123R on January 1, 2006. In accordance with APB No. 25, we recorded a
      compensation expense of $53,295 for the year ended December 31, 2005 as 9,033
      of
      the total options, of which the vesting was accelerated, were “in-the-money” as
      at the date of the accelerated vesting. With respect to SFAS No. 123, we
      recognized, for purposes of pro forma disclosures, the incremental increase
      in
      fair value and the remaining balance of unrecognized compensation cost for
      the
      affected options at the time of acceleration.





As
      at
      March 31, 2006, $3,365,821 of total unrecognized compensation cost related
      to
      stock options is expected to be recognized over a weighted-average period of
      2.97 years.





**RECENT
      DEVELOPMENTS**





On
      April
      4, 2006 ,
      we
      announced our planned acquisition of SOLX, Inc. (“SOLX”), subject
      to the Company completing its due diligence satisfactorily. If
      successfully consummated, the acquisition would represent an expansion of the
      Company’s ophthalmic product portfolio beyond the RHEOTM procedure for Dry AMD.
      This expansion or diversification has been a long-term corporate objective,
      and
      in light of the possible delay in the U.S. commercial launch of the RHEOTM
System, we have accelerated these plans, focusing on age-related eye diseases
      like AMD and glaucoma as they are expected to be the fastest growing segments
      of
      eye care over the next 10 years.




Based
      at
      the Boston University Photonics Center, SOLX is a privately held company that
      has developed a system for the treatment of glaucoma. The DeepLight® Glaucoma
      Treatment System ("DeepLight® System") includes the DeepLight® 790 Titanium
      Sapphire Laser, the DeepLight® Gold Micro-Shunt and the DeepLight® Gold
      Micro-Shunt Plus, which can be used to provide physicians with multiple options
      to manage intraocular pressure. The components of SOLX's DeepLight® System have
      received approval from Intertek Certification Services, a European agency for
      the evaluation of medicinal products, and are currently the subject of two
      randomized, multi-center studies in the United States. SOLX is seeking to obtain
      510K approval to market the components of the DeepLight® System in the United
      States before the end of 2007.





The
      Company anticipates that the consideration for the acquisition of SOLX, which
      is
      yet to be determined, will be primarily in common stock of the Company. Based
      on
      the current stage of this acquisition, the fair value of the acquired assets
      and
      liabilities is not determinable.





In
      connection with the proposed acquisition of SOLX, we have advanced to it a
      convertible unsecured loan in the principal amount of $2,000,000 at an annual
      interest rate equal to the prime rate, as announced from time to time by Bank
      of
      America, N.A. or its successor, plus 2%, to be accrued on a daily basis from
      the
      date of advance. The Convertible Unsecured Promissory Note of SOLX dated April
      4, 2006 (the “Note”), governing the terms of the loan, provides that the
      principal amount of the loan, and accrued but unpaid interest thereon, are
      to be
      repaid in one payment on October 2, 2006 (the “Maturity Date”). The Note further
      provides us with the right to acquire 10% of the issued and outstanding capital
      stock of SOLX on a fully diluted basis under certain conditions, including
      if
      the principal amount of the loan remains outstanding and owing after the
      Maturity Date.





In
      connection with our new strategic direction, we have made a number of structural
      and management changes designed both to support the continued development of
      our
      existing Dry AMD program and to execute our accelerated diversification strategy
      within ophthalmology.







22





Nozhat
      Choudry, Ph.D., recently joined us as Vice President, Clinical Research. Dr.
      Choudry joined the Company from Boehringer Ingelheim, where she worked for
      the
      past nine years, most recently as Director of the National Medicine Department.
      From March 1993 to August 1996, Dr. Choudry worked at Ciba-Geigy (now Novartis
      Corporation) where she held increasingly senior roles in drug development and
      clinical trial management. Dr. Choudry earned her Ph.D. in Clinical Pharmacology
      at the Royal Postgraduate Medical School in London, England and has done
      extensive post-graduate research and publishing in both pharmacology and
      medicine. She has served on several committees in the National Science and
      Engineering Research Committee of Canada and has an appointment at the
      University of Toronto as lecturer.




Steve
      Westing, Ph.D., has been appointed our Vice President, Medical & Scientific
      Development. Dr. Westing will be primarily responsible for identifying and
      developing relationships with key opinion leaders within ophthalmology and
      for
      managing the recruitment of trial sites and patients to participate in our
      clinical studies. Dr. Westing has joined us from Genentech, Inc, where he most
      recently served as Associate Director - Advisory and Thought Leader Services.
      In
      that role, Dr. Westing helped establish the thought leader development program
      for Genentech's Lucentis franchise, and he served as a member of Genentech's
      ophthalmology commercial strategy team. Before joining Genentech in May 1996,
      Dr. Westing worked at Loredan Biomedical, Inc. since May 1990 where he held
      increasingly senior roles in product sales and development. Dr. Westing earned
      his Ph.D. in Muscle Physiology at The Karolinska Institute, Stockholm, Sweden.




Mr.
      William (Bill) G. Dumencu, CA, has been appointed as our interim Chief Financial
      Officer and Treasurer, effective April 10, 2006. Mr. Dumencu had been serving
      as
      our Vice President, Finance since June 2005 and had been previously our Chief
      Financial Officer and Treasurer from September 2003 until June 2005.





**CRITICAL
      ACCOUNTING POLICIES**





Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of these
      consolidated 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.





We
      believe that there have been no significant changes during the three months
      ended March 31, 2006 to the items disclosed as our critical accounting policies
      and estimates in our discussion and analysis of financial condition and results
      of operations in our 2005 Form 10-K, except as noted below.





*Inventory
      valuation*





Management
      must make estimates about future customer demand for our products when
      establishing the appropriate provisions for inventory and also determine whether
      market demand has had any impact on our inventory’s net realizable value. When
      making these estimates, we consider general economic conditions and growth
      prospects, including the impact of us receiving FDA approval for the RHEOTM
System.





With
      respect to our provisioning policy, in general, we fully reserve for surplus
      inventory in excess of our demand forecast, taking into consideration the expiry
      date of our filters. In addition, we assess whether recent transactions provide
      indicators as to whether the net realizable value of our inventory is below
      our
      cost.





As
      at
      March 31, 2006 and December 31, 2005, we had inventory reserves of
      $3,615,830 and $1,990,830, respectively. During the three months ended March
      31,
      2006, we recognized a provision related to inventory of $1,625,000 related
      to
      inventory based on the above analysis (2005 - nil).








23





*Stock
      based compensation*





In
      December 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS
      No. 123R, which revised SFAS No. 123 and APB No. 25. SFAS No. 123R requires
      all
      share-based payments to employees, including grants of employee stock
      options to be
      recognized in the consolidated financial statements based on their fair values.
      The pro forma disclosures previously permitted under SFAS No. 123 is no longer
      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, we
      adopted SFAS No. 123R beginning January 1, 2006. We have selected the
      Black-Scholes option-pricing model as our method of determining the fair value
      for all our awards and will recognize compensation cost on a straight-line
      basis
      over the awards’ vesting periods.





**RESULTS
      OF OPERATIONS**





**Three
      Months Ended March 31, 2006 and 2005**





***Revenues.*** There
      were no sales in the three months ended March 31, 2006. Our sole customer,
      Veris, halted purchases while the Company completed its in-depth analysis of
      the
      MIRA-1 study data subsequent to the Company’s February 3, 2006 announcement that
      MIRA-1 had not met its primary efficacy endpoint. Revenues for the three months
      ended March 31, 2005 were $403,739 due to the sales of treatment sets and pumps
      to Veris under the product purchase agreement that we had entered into with
      Veris in September 2004. Included in revenues for the three months ended March
      31, 2005 are sales made to RHEO Clinic Inc., a subsidiary of TLC Vision
      Corporation and a related party, for which we reported revenues of $63,539
      in
      the period. RHEO
      Clinic Inc. has since ceased the treatment of commercial patients and is
      therefore no longer a source of revenue.





***Cost
      of Sales and Gross Margin.*** Cost
      of
      sales increased by 450% to $1,650,000 for the three months ended March 31,
      2006
      from $299,934 for the three months ended March 31, 2005. In
      April
      2006, we sold treatment sets to Veris at a price, net of negotiated discounts,
      which was lower than our cost. Currently, Veris is our sole customer.
      Accordingly, we believe that the price at which we sold the treatment sets
      to
      Veris represents our inventory’s current net realizable value, and therefore, we
      have written down the value of the treatment sets to reflect this net realizable
      value. Included in cost of sales for the three months ended March 31, 2006
      is
      $1,625,000 which reflects the write-down of the treatment sets to its net
      realizable value. There was no comparable expense in the three months ended
      March 31, 2005.





Gross
      margin on sales was a loss of $1,650,000 for the three months ended March 31,
      2006 from a profit of $103,805 during the comparative prior year period due
      to
      the write-down of our inventory to its net realizable value. In addition, there
      were no sales in the three months ended March 31, 2006.





***General
      and Administrative Expenses.*** General
      and administrative expenses were $1,996,585 for the three months ended March
      31,
      2006, a decrease of 8% from $2,180,713 for the comparative prior year
      period. This decrease is


due
      primarily to a decrease in professional fees and a decrease in fees associated
      with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. These
      decreases were partially offset by stock-based compensation expense recorded
      in
      the period in accordance with SFAS No. 123R. We adopted SFAS No. 123R beginning
      January 1, 2006.





***Clinical
      and Regulatory Expenses.*** Clinical
      and regulatory expenses were $1,475,387 for the three months ended March 31,
      2006, an increase of 10% from $1,344,026 for the three months ended March 31,
      2005, as a result of increased activities associated with the LEARN, or
      Long-term Efficacy in AMD from Rheopheresis in North America, and other clinical
      trials.








24





***Sales
      and Marketing Expenses.*** Sales
      and
      marketing expenses were $425,986 for the three months ended March 31, 2006,
      an
      increase of 10% from $385,846 for the three months ended March 31, 2005. This
      increase is due mainly to stock-based compensation expense recorded in the
      period in accordance with SFAS No. 123R. This increase in cost was partially
      offset by reduced employee travel costs during the three months ended March
      31,
      2006.





***Restructuring
      Charges*** .  In
      accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or
      Disposal Activities” (“SFAS No. 146”), we recognized a total of $819,642 and nil
      in restructuring charges in the three months ended March 31, 2006 and 2005,
      respectively. The Company implemented a number of structural and management
      changes designed both to support the continued development of the RHEOTM System
      and to execute the Company’s accelerated diversification strategy within
      ophthalmology. The restructuring charge of $819,642 recorded in the three months
      ended March 31, 2006, of which $398,923 was paid by April 28, 2006, consists
      solely of severance and benefit costs related to the termination of a total
      of
      12 employees at both the Company’s Mississauga and Palm Harbor offices. The
      severance and benefit costs are expected to be fully paid by November 30,
      2006.





***Other
      Income (Expenses).*** Other
      income was $370,545 for the three months ended March 31, 2006, an increase
      of 1%
      from $366,624 for the three months ended March 31, 2005. Other income consists
      primarily of interest income earned in the current period and the corresponding
      prior period as a result of the Company’s cash and short-term investment
      position following the raising of capital in the Company’s initial public
      offering.





***Income
      Tax Recovery.*** Income
      tax recovery of $158,058 and $158,792 for the three months ended March 31,
      2006
      and 2005, respectively, 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.





***Cumulative
      Effect of a Change in Accounting Principle.*** The
      cumulative effect of a change in accounting principle for the three months
      ended
      March 31, 2006 of $107,045 reflects the impact
      of
      our estimated forfeitures of outstanding stock option awards as of January
      1,
      2006.  On
      January 1, 2006, the effective date of adopting SFAS No. 123R, we were required
      to estimate the number of forfeitures of our outstanding awards as of the
      effective date. Consolidated balance sheet amounts related to any compensation
      cost for these estimated forfeitures previously recognized in prior periods
      before the adoption of SFAS No. 123R have to be eliminated and recognized in
      income as the cumulative effect of a change in accounting principle as of the
      effective date. The compensation cost previously recognized in prior periods
      before the adoption of SFAS No. 123R relates to compensation expense associated
      with non-employee stock options.





**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 of shares of its
      common stock. Immediately prior to the offering, the primary source of the
      Company’s liquidity was cash raised through the issuance of
      debentures.





To
      date,
      cash has been primarily utilized to finance increased infrastructure costs,
      to
      accumulate inventory and to fund costs of the MIRA-1 clinical trial and, more
      recently, the LEARN and other
      clinical trials. We expect that, in the future, we will use our cash resources
      to fund our diversification strategy, the development of our infrastructure
      and
      to conduct clinical trials. It is possible that we will be required to conduct
      a
      clinical trial of the RHEOTM System, following up MIRA-1, in order to support our
      PMA application to the FDA. Cash and cash equivalents and short-term investments
      as at March 31, 2006 were $36,525,672, compared to $41,262,795 as at December
      31, 2005. Working capital as of March 31, 2006 was $39,360,799, a decrease of
      $5,054,148 from $44,414,947 as at December 31, 2005.





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 until the latter half of 2007.








25





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
                costs of acquiring and operating businesses that are in line with
                the
                Company’s diversification strategy;


·
            the
                cost and results of any follow-up clinical trial of the RHEOTM System to
                support our PMA application to the
                FDA;


·
            the
                rate of progress, cost and results of the LEARN and other 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, if
                any;


·
            our
                ability to continue to sell the RHEOTM System in
                Canada;


·
            whether
                government and third-party payors agree to reimburse treatments using
                the
                RHEOTM System;


·
            the
                costs and timing of building the infrastructure 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.





We
      cannot
      begin commercialization in the United States until we receive FDA approval
      for
      the RHEOTM System. Until we have discussions with the FDA, we will not be able to
      anticipate when, if ever, we will receive FDA approval. Accordingly, at this
      time, we do not know when we can expect to begin to generate revenues from
      the
      RHEOTM System in the United States. 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.





**Cash
      Used in Operating Activities**





Net
      cash
      used in operating activities was $4,872,848 for the three months ended March
      31,
      2006. Changes in net cash provided by operating activities in the period reflect
      a net loss of $5,731,952, adjusted for non-cash items of $2,141,579 and netted
      against changes in working capital of $1,282,475. Non-cash items are made up
      primarily of the write-down of inventory, the amortization of intangible assets,
      fixed assets, patents and trademarks and the premium/discounts on short-term
      investments of $2,114,510, netted by applicable deferred income taxes of
      $158,792. Additional non-cash items result from stock-based compensation expense
      in the period of $292,906, netted by the cumulative effect of a change in
      accounting principle of $107,045. Changes in working capital in the period
      reflect a $26,037 decrease in amounts receivable primarily from the receipt
      of
      accrued interest receivable on investments, a $957,270 increase in inventory
      as
      we maintain our order level in line with supplier expectations and a $13,532
      decrease in prepaid expenses. Amounts due to related parties increased by
      $21,861 primarily due to the amount owed to RHEO Clinic Inc. for
      50%
      of the losses incurred for assets that it was not able to dispose of as at
      the
      agreed date, being December 31, 2005 .
      Amounts
      due to stockholders also increased by $27,332 and are made up of royalty fees
      payable to Mr. Stock. Accounts payable and accrued liabilities decreased by
      $407,544 as payments are being made for costs associated with the Company’s
      activities.





**Cash
      Provided by Investing Activities**





Net
      cash
      provided by investing activities was $9,853,514 for the three months ended
      March
      31, 2006, resulting from the net sale of short-term investments of $9,925,000,
      offset by cash used to protect and maintain patents and trademarks in the amount
      of $71,486.





26








**Cash
      Provided by Financing Activities**





Net
      cash
      provided by financing activities was $233,710 for the three months ended March
      31, 2006 from the exercise of options to purchase shares of common stock of
      the
      Company.





**RECENT
      ACCOUNTING PRONOUNCEMENT**





In
      December 2004, the FASB issued SFAS No. 123R which revised SFAS No. 123 and
      supersedes APB No. 25. SFAS No.
      123R requires all share-based payments to employees, including grants of
      employee stock options to be recognized in the financial statements based on
      their fair values. The pro forma disclosures previously permitted under SFAS
      No.
      123 is no longer 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, we adopted SFAS No. 123R beginning January 1, 2006. We have
      selected the Black-Scholes option-pricing model as our method of determining
      the
      fair value for our awards and will recognize compensation cost on a
      straight-line basis over the awards’ vesting periods.





The
      adoption of the following recent accounting pronouncements in the first quarter
      of fiscal 2006 did not have a material impact on our results of operations
      and
      financial condition:





·
            SFAS
                No. 151, “Inventory Costs — An Amendment of ARB No. 43, Chapter
                4”;


·
            SFAS
                No. 153, “Exchanges of Nonmonetary Assets — An Amendment of APB Opinion
                No. 29”; and


·
            SFAS
                No. 154, “Accounting Changes and Error Corrections” which replaces APB No.
                20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in
                Interim Financial Statements — An Amendment of APB Opinion No.
                28”.





In
      November 2005, the FASB issued FASB Staff Position FAS 115-1 and FAS 124-1,
“The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments” (“FSP 115-1”), which provides guidance on determining when
      investments in certain debt and equity securities are considered impaired,
      on
      whether that impairment is other-than-temporary and on measuring such impairment
      loss. FSP 115-1 also includes accounting considerations subsequent to the
      recognition of an other-than-temporary impairment and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. FSP 115-1 is required to be applied to
      reporting periods beginning after December 15, 2005. The adoption of FSP 115-1
      in the first quarter of fiscal 2006 did not have a material impact on our
      results of operations and financial condition.





27





**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 would be 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.





I **TEM
      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 three-month period ended March 31, 2006, 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 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.





(c)  Changes
      in Internal Control over Financial Reporting .
      During
      the three-month period ended March 31, 2006, 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.





28











PART
      II.
      OTHER INFORMATION





ITEM
      1.
      LEGAL PROCEEDINGS





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





ITEM
      2.
      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





On
      January 3, 2006, we issued an aggregate of 20,926 shares of Common Stock to
      Donald Sanders as a result of the exercise of options to purchase common shares
      at an exercise price per share of $0.13 in consideration for cash.





On
      January 18, 2006, we issued an aggregate of 25,000 shares of Common Stock to
      Ramon Gonzales 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
      January 18, 2006, we issued an aggregate of 50,000 shares of Common Stock to
      Ramon Gonzales as a result of the exercise of options to purchase common shares
      at an exercise price per share of $4.00 in consideration for cash.





On
      March
      22, 2006, we issued an aggregate of 4,800 shares of Common Stock to Karen Coyle
      as a result of the exercise of options to purchase common shares at an exercise
      price per share of $1.30 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.





ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES





There
      has
      not been any default upon our senior securities.





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





None.





ITEM
      5.
      OTHER INFORMATION





None.








29











ITEM
      6.
      EXHIBITS





Index
      to Exhibits




10.1
            Employment
                Agreement between Nozhat Choudry and the Registrant dated as of February
                10, 2006.10.2
            Release
                Agreement between John Caloz and the Registrant, dated as of April
                13,
                2006, terminating the Employment Agreement between the Registrant
                and John
                Caloz dated May 18, 2006.10.3
            Release
                Agreement between Irving Siegel and the Registrant, dated as of April
                13,
                2006, terminating the Employment Agreement between the Registrant
                and
                Irving Siegel dated as of August 3, 2003, as amended by the Amending
                Agreement between the Registrant and Irving Siegel dated as of September
                1, 2005.10.4
            Termination
                Agreement among the Registrant, AMD Medical Services Inc., Irving
                Siegel,
                OccuLogix Canada Corp., Rheo Clinic Inc. and TLC Vision Corporation
                dated
                as of April 13, 2006, terminating, among other things, the Consulting
                Agreement among the Registrant, AMD Medical Services Inc. and Irving
                Siegel dated September 1, 2005.10.5
            Amending
                Agreement between the Registrant and William G. Dumencu, dated as
                of April
                14, 2006, amending the Employment Agreement between the Registrant
                and
                William G. Dumencu dated as of August 1, 2003, as amended by the
                Amendment
                between the Registrant and William G. Dumencu dated August 1, 2003
                and
                effective September 30, 2003.10.6
            Amending
                Agreement between the Registrant and Nozhat Choudry, dated as of
                April 1,
                2006, amending the Employment Agreement between the Registrant and
                Nozhat
                Choudry dated as of February 10, 2006.10.7
            Amending
                Agreement between the Registrant and John Cornish, dated as of April
                13,
                2006, amending the Employment Agreement between the Registrant and
                John
                Cornish dated as of April 1, 2005, as amended by the Amending Agreement
                between the Registrant and John Cornish dated as of June 1,
                2005.10.8
              
              31.1
            Convertible
                Unsecured Promissory Note of SOLX, Inc., dated April 1, 2006, in
                the
                principal amount of $2,000,000.
              
              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.








30





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:May
                10, 2006
            By:
            /s/ Elias
                VamvakasChief
                Executive Officer