SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              --------------------
                                    FORM 10-K

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

                     FOR THE FISCAL YEAR ENDED MAY 31, 1999
                         COMMISSION FILE NUMBER: 0-29302

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

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

      5600 Explorer Drive, Suite 301
          Mississauga, Ontario                                L4W 4Y2
  (Address of principal executive offices)                  (Zip Code)

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

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

            None

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

            Common Shares, No Par Value

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes  |_| No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |_|

      As of July 30, 1999, the aggregate market value of the registrant's Common
Shares held by non-affiliates of the registrant was approximately $1,148
million.

      As of July 30, 1999, there were 37,393,974 of the registrant's Common
Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

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

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TLC THE LASER CENTER INC.

This Annual Report on Form 10-K (herein, together with all amendments, exhibits
and schedules hereto, referred to as the "Form 10-K") contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, which statements can be identified by the use of forward looking
terminology, such as "may", "will", "expect", "anticipate", "estimate", "plans"
or "continue" or the negative thereof or other variations thereon or comparable
terminology referring the future events or results. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth elsewhere
in this Form 10-K. See the "Risk Factors" section of Item 1 "Business" for
cautionary statements identifying important factors with respect to such forward
looking statements, including certain risks and uncertainties, that could cause
actual results to differ materially from results referred to in forward looking
statements. Unless the context indicates or requires otherwise, references in
this Form 10-K to the "Company" or "TLC" shall mean TLC The Laser Center Inc.
and its subsidiaries. The Company's fiscal year ends on May 31. Therefore,
references in this Form 10-K to a particular fiscal year shall mean the 12
months ended on May 31 in that year. References to "$" or "dollars" shall mean
U.S. dollars unless otherwise indicated. References to "C$" shall mean Canadian
dollars. References to the "Commission" shall mean the U.S. Securities and
Exchange Commission

                                     PART I

ITEM 1. BUSINESS

Overview

      TLC The Laser Center Inc. ("TLC" or the "Company") is the largest provider
of laser vision correction services in North America. TLC owns and manages
refractive centers which, together with TLC's network of over 10,000
optometrists and ophthalmologists, provide laser vision correction of common
refractive vision disorders such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. TLC, which commenced operations in September
1993, currently has 55 refractive centers in 25 states and provinces throughout
the United States and Canada. The Company has 15 centers currently in various
stages of development and plans to open 10 to 15 centers within the next 12
months.

      TLC is pursuing a strategy designed to expand its position as the leader
in the North American market for laser vision correction. The major focus of the
Company's expansion strategy is the United States, where the Company continues
to position itself to take advantage of the growing market for laser vision
correction. TLC has begun implementing its strategy by: (i) identifying
locations of new refractive centers; (ii) entering into discussions to acquire
existing refractive centers; (iii) entering into a strategic alliance with a
subsidiary of Kaiser Permanente, one of the largest health maintenance
organizations ("HMOs") in the United States; and (iv) enhancing marketing
programs through initiatives such as the Corporate Advantage program and the TLC
branding campaign.

      TLC restructured its investments in managed care and secondary care. In
May 1999, TLC sold Partner Provider Health Inc. ("PPH") and took a charge of
$2.6 million. In addition, TLC restructured its secondary care operations in May
1999 and incurred a charge of $10.3 million, resulting in a total restructuring
charge of $12.9 million.


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TLC THE LASER CENTER INC.

Industry Background

Refractive Disorders

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

Surgical Procedures

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

Laser Vision Correction

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

      Excimer laser procedures are designed to reshape the outer layers of the
cornea to correct vision disorders by changing the curvature of the cornea.
There are currently two procedures that use the excimer laser to correct vision
disorders: Photorefractive Keratectomy ("PRK") and Laser In-Situ Keratomileusis
("LASIK"). In the case of both PRK and LASIK, prior to the procedure, the doctor
makes an assessment of the exact correction required and programs the excimer
laser.


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TLC THE LASER CENTER INC.

The software of the excimer laser then calculates the optimal number of pulses
needed to achieve the intended corneal correction using a specially developed
algorithm. Both PRK and LASIK are performed on an outpatient basis without
general anesthesia, using only topical anesthetic eye drops. An eyelid holder is
inserted to prevent blinking while the eye drops eliminate the reflex to blink.
The patient reclines in a chair, his or her eye focused on a fixation target,
and the surgeon positions the patient's cornea for the procedure. The surgeon
uses a foot pedal to apply the excimer laser beam, which emits a rapid
succession of excimer laser pulses. The typical procedure takes 10 to 15
minutes, from set-up to completion, with the length of time of the actual
excimer laser treatment lasting 15 to 90 seconds.

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

      The FDA has only approved the Summit and VISX excimer lasers for PRK
procedures. LASIK came into commercial use in Canada in 1994 and, while to date
the Summit and VISX excimer lasers have not been approved in the United States
for LASIK procedures, surgeons in the United States have performed LASIK since
1996 using their discretion as a practice of medicine matter. FDA regulations
require the laser to be approved, not the procedure. The FDA has stated that it
considers the decision by doctors to use the excimer laser for LASIK to be a
practice of medicine decision, which the FDA is not authorized to regulate.
Therefore, in the same way that doctors often prescribe drugs for "off-label"
uses (i.e., uses for which the FDA did not originally approve the drug), a
doctor may use a device such as the excimer laser for a procedure not
specifically approved by the FDA if that doctor determines that it is in the
best interest of the patient. In addition, on August 3, 1998, the FDA approved
the commercial sale and use of an excimer laser for LASIK procedures. The rights
to commercially produce and distribute such laser are owned by LaserSight
Incorporated ("LaserSight"). Currently, the majority of laser vision correction
procedures being performed in the United States and Canada are LASIK. See "Item
1 - Business -- Potential Side Effects and Long Term Results of Laser Vision
Correction" and "--Government Regulation-Regulation of Health Care Industry -
United States - U.S. Food and Drug Administration."


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TLC THE LASER CENTER INC.

Photorefractive Keratectomy

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

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

Laser In-Situ Keratomileusis

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

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


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TLC THE LASER CENTER INC.

The Refractive Market

      While estimates of market size should not be taken as projections of
revenues or of the Company's ability to penetrate that market, an industry
source estimates that approximately 50% of the United States population or 145
million people suffer from some form of refractive disorder requiring vision
correction including myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism.

      Industry sources also estimate that 105,000 laser vision correction
procedures were performed in the United States in 1996, 215,000 were performed
in 1997 and 480,000 were performed in 1998. It is forecast by industry sources
that more than 800,000 laser vision correction procedures will be performed
during 1999. If, each year, only two percent of the myopic population in the
United States (estimated to be three million people) had laser vision correction
performed on both eyes, then, based on current prices, the U.S. market would be
more than $12 billion annually. The Company believes that its profitability and
growth will depend upon broad acceptance of laser vision correction in the
United States and, to a lesser extent, Canada. There can be no assurance that
laser vision correction will be more widely accepted by ophthalmologists,
optometrists or the general population as an alternative to existing methods of
treating refractive disorders. The acceptance of laser vision correction may be
affected adversely by its cost (particularly since laser vision correction is
typically not covered by government insurers or other third party payors and,
therefore, must be paid for by the individual receiving treatment), concerns
relating to its safety and effectiveness, general resistance to surgery, the
effectiveness of alternative methods of correcting refractive vision disorders,
the lack of long term follow-up data and the possibility of unknown side
effects. There can be no assurance that long term follow-up data will not reveal
complications that may have a material adverse effect on the acceptance of laser
vision correction. Many consumers may choose not to have laser vision correction
due to the availability and promotion of effective and less expensive
nonsurgical methods for vision correction. Any future reported adverse events or
other unfavorable publicity involving patient outcomes from laser vision
correction could also adversely affect its acceptance whether or not the
procedures are performed at TLC refractive centers. Market acceptance could also
be affected by regulatory developments and by the ability of the Company and
other participants in the laser vision correction market to train a broad
population of ophthalmologists in performing the procedure. Acceptance of laser
vision correction by ophthalmologists could also be affected by the cost of
excimer laser systems. The failure of laser vision correction to achieve broad
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations.

TLC The Laser Center Inc.

      The Company owns and manages eyecare centers throughout North America and,
together with its network of over 10,000 eyecare doctors, specializes in laser
vision correction to correct common refractive vision disorders such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. The Company is
the largest provider of laser vision correction services in North America. The
Company also develops and manages regional networks of eye doctors who refer
patients to refractive centers and secondary care centers.


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TLC THE LASER CENTER INC.

      TLC began operations in September 1993 when it opened a refractive center
in Windsor, Ontario. TLC currently has 55 refractive centers in 25 states and
provinces throughout the United States and Canada. Two refractive centers were
opened in fiscal 1995, two centers were opened in fiscal 1996, 22 refractive
centers were opened or acquired in fiscal 1997 (one of which has been closed)
and 19 refractive centers were opened or acquired in fiscal 1998. In fiscal year
1999, TLC has opened or acquired six refractive centers and combined four
centers into two. The Company has 19 refractive centers currently in various
stages of development and plans to open 10 to 15 centers within the next 12
months.

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

      TLC was incorporated by articles of incorporation under the Business
Corporations Act (Ontario) on May 28, 1993. By articles of amendment dated
October 1, 1993, the name of the Company was changed to its present form, and by
articles of amendment dated March 22, 1995, certain changes were effected in the
issued and authorized capital of the Company with the effect that the authorized
capital of the Company became an unlimited number of Common Shares. On September
1, 1998, TLC amalgamated under the laws of Ontario with certain wholly-owned
subsidiaries.

Expansion Plans

Overview

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

Co-Management Model

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

      TLC believes that its relationship with its more than 10,000 affiliated
optometrists and ophthalmologists represents an important competitive strength.
The Company believes that its


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TLC THE LASER CENTER INC.

affiliated doctor network, which includes approximately 25% of the licensed
practicing optometrists in the United States, is the largest such network in the
laser vision correction field.

      TLC believes that a primary care doctor's relationship with TLC and the
doctor's acceptance of laser vision correction helps build the doctors'
practices. The affiliated eye doctors (usually optometrists) charge fees to
assess candidates for laser vision correction and provide pre- and
post-operative care, including an initial eye examination and a minimum of six
follow-up visits. In most cases, the primary care doctor's potential revenue
loss from sales of contact lenses and eyeglasses is more than offset by
professional fees both from laser vision correction co-management and
examinations required under the Company's "Lifetime Commitment" program.

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

Increased Market Penetration and Strategic Acquisitions

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

      TLC plans to expand its business in three ways:

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

      o     by opening new centers; and

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

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

      TLC's senior executive team regularly examines acquisition and development
opportunities in the refractive market. The Company is in discussions with
several leading practitioners and has identified many opportunities in the
United States to form strategic relationships with additional practitioners. In
opening a new center or acquiring an existing


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TLC THE LASER CENTER INC.

center or business that operates refractive centers, TLC generally requires
three criteria to be met. First, the potential TLC center must be supported by a
core group of local co-managing doctors, traditionally more than 50 doctors.
Second, there must be one or two highly skilled surgeons who are trained in
laser vision correction, are supported by the local network doctors and
subscribe to the co-management model. Finally, the center must be expected to
provide TLC with a satisfactory return on investment. Wherever possible, TLC
will seek to establish its position as the leader in laser vision correction in
an area or region and then seek to expand in areas contiguous to its existing
centers. See "Item 1 - Business - Risk Factors -- Risk of Inability to Execute
Acquisition Strategy; Management of Growth."

Marketing Programs

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

      TLC is developing innovative marketing programs directed at large
employers, HMOs and employee associations, to provide TLC with preferred access
to large employee groups. TLC has developed the "Corporate Advantage" program in
which TLC markets directly to large employers, health maintenance organizations
("HMOs") or employee associations to provide laser vision correction to their
employee groups. Participating employers may partially subsidize the cost of an
employee's excimer laser surgery at a TLC refractive center and the procedure
may be provided at a discounted price. The costs to the employer of the subsidy
may be offset by reductions in the ongoing cost of providing eye glasses or
other conventional vision correction. Participating employers include Office
Depot, Inc., Ernst & Young LLP and Duracell Batteries (Canada). See "Item 1 -
Business -Risk Factors -- Risk of Inability to Execute Acquisition Strategy;
Management of Growth."

Strategic Ancillary Businesses and Support Programs

      The final component of TLC's strategy is to develop or acquire strategic
ancillary businesses and programs that support its core refractive business. TLC
has developed Web sites which link the Company's refractive centers, affiliated
optometrists and ophthalmologists and potential patients. TLC has also developed
The Eye Care Network, an e-commerce division, which links the Company's
refractive centers and affiliated optometrists and ophthalmologists with third
party suppliers of goods and services. See "-- Strategic Ancillary Business and
Support Programs". TLC has also invested in other businesses such as The Vision
Source, Inc. ("Vision Source") to further develop the practices of affiliated
optometrists and ophthalmologists.


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TLC THE LASER CENTER INC.

Description of Refractive Centers

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

      TLC has developed sophisticated management and administrative software and
systems that are designed to permit refractive centers to provide high levels of
patient care. The software permits any TLC center to provide a potential
candidate with current information on affiliated doctors, throughout North
America, to direct a candidate to the closest refractive center, to permit
tracking of calls and procedures, to coordinate patient and doctor scheduling
and to produce financial and outcome reporting and analysis. The software has
been installed in almost all of the Company's refractive centers as of the end
of fiscal 1999.

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

      The Company owns and manages 47 refractive centers in the United States
and eight refractive centers in Canada. Each refractive center has one excimer
laser with the exception of the Windsor, Toronto, Fairfax and Rockville centers,
which have two lasers each. In the United States, the majority of the Company's
excimer lasers are manufactured by VISX Incorporated ("VISX") with a small
number manufactured by Summit. In Canada, the majority of the Company's excimer
lasers are manufactured by Chiron Vision Corporation (owned by Bausch & Lomb
Inc.) ("Chiron").

Pricing

      At TLC refractive centers, Canadian residents are typically charged
approximately C$2,400 per eye for LASIK and United States residents are
typically charged approximately $2,400 to $2,750 per eye for LASIK. For
procedures performed in Canada, the Company is not required to pay any license
fees for the use of the excimer lasers, and therefore, the cost of performing
the procedure is lower. See "Item 1 - Business - Risk Factors Procedure Fees".
Although competitors in certain markets charge less for these procedures, the
Company believes that the primary factors affecting


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TLC THE LASER CENTER INC.

competition in the laser vision correction market are quality of service,
reputation, brand recognition and price, and that its competitiveness is
enhanced by a strong network of affiliated doctors. See "Item 1 - Business Risk
Factors - Competition."

      The cost of laser vision correction procedures is not covered by
provincial health care plans in Canada or reimbursable under Medicare or
Medicaid in the United States. These procedures are not covered by most HMOs or
third party payors under managed care contracts or by other insurers.

Procedure Fees

      In the United States, TLC is typically required to pay a per procedure
royalty fee to the manufacturer of the excimer laser which is used for the
procedure. The majority of the excimer lasers used by TLC in the United States
are manufactured by VISX. The royalty fee for laser vision correction on VISX's
excimer laser is currently $250 per eye. There can be no assurance that payments
made by the Company to a manufacturer of an excimer laser in the United States
will preclude a patent dispute with another manufacturer of an excimer laser or
a patentholder with respect to technology or activities purported to be covered
by the relevant patents or the Company's equipment or method will not infringe
patents held by other parties. See "Item 1 Business - Risk Factors -
Intellectual Property/Proprietary Technology."

Description of Secondary Care Centers

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

      TLC has restructured its investment in secondary care centers and does not
intend to make any future investments in, or provide additional management
services to, secondary care centers. This restructuring resulted from the growth
in TLC's network of affiliated optometrists and ophthalmologists and the
increasing acceptance of laser vision correction procedures. The Company
recorded a one-time, non-cash charge in the fourth quarter of fiscal 1999 to
reflect the restructuring.

Ownership of Refractive Centers

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

Sales and Marketing

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


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TLC THE LASER CENTER INC.

on eyeglasses or contact lenses. To that end, the Company aggressively markets
to both doctors and the public.

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

      The Company believes that the most effective way to market to doctors is
to be perceived as the leading provider of quality eye care. To this end, the
Company strives to be the clinical leader, educates doctors on laser vision and
refractive correction and remains current with new procedures and techniques.
See "Item 1 - Business - Strategic Ancillary Businesses and Support Programs."
The Company also promotes its services to doctors in Canada and the United
States through conferences, advertisements in journals, direct marketing, its
Web sites and newsletters.

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

Surgeon Contracts

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

      Most surgeons performing excimer laser procedures at TLC refractive
centers do so under one of three types of standard agreements (which have been
modified for use in the various U.S. states as required by state law). Each
agreement typically prohibits surgeons from disclosing confidential information
relating to the center, soliciting patients or employees of the center, or
participating in any other refractive center within a specified area. See "Item
1 - Business -Competition." However, although surgeons performing laser vision
correction at the Company's refractive centers have agreed to certain
restrictions on competing


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TLC THE LASER CENTER INC.

with, or soliciting doctors associated with, the Company, there can be no
assurance that such agreements will be enforceable. See "Item 3 - Legal
Proceedings."

      Surgeons must meet the credentialing requirements of the FDA and the TLC
refractive center in which they perform procedures and must complete training
provided by the Company unless the Company is otherwise satisfied that the
surgeon has been properly trained. Surgeons are responsible for maintaining
appropriate malpractice insurance and most agree to indemnify the Company and
its affiliates for any losses incurred as a result of the surgeon's negligence
or malpractice. See "Item 1 - Business - Risk Factors Potential Liability and
Insurance."

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

Strategic Ancillary Businesses and Support Programs

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

Information Technology

      TLC has linked its refractive centers, network doctors and potential
patients by two Web sites. The information technology systems are designed to
support TLC's network of affiliated doctors. TLC has also linked its refractive
centers, and network doctors with third party suppliers through the Eye Care
Network, its e-commerce division. TLC has invested significant resources in the
development of these systems, which it views as critical to its affiliated
doctor network.

      o     Web Sites: TLC's Web sites at www.tlcvision.com,
            www.1888calltlc.com, and www.lzr.com provide a directory of TLC eye
            care providers, contain questions and answers about laser vision
            correction and provide co-management information for local
            optometrists and ophthalmologists.

      o     The Eye Care Network: The Eye Care Network is an Internet based
            e-commerce system designed to link affiliated optometrists and
            ophthalmologists with the Company, each other and third party
            suppliers. Vision Corporation, owned 50.1% by TLC, operates The Eye
            Care Network. Vision Corporation, has negotiated contracts with
            several optometric and ophthalmic suppliers that provide discounts
            to the more than 10,000 doctors in the TLC network. Vision
            Corporation earns a per transaction fee through The Eye Care
            Network.


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TLC THE LASER CENTER INC.

Other Businesses

      Partner Provider Health Care Inc. ("PPH") was developed to negotiate and
administer vision care contracts. TLC sold its investment in PPH in the fourth
quarter of fiscal 1999 and recorded a one-time loss on the transaction.

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

Support Programs

      National Medical Board

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

      Emerging Technologies

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

      National Advisory Council

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


                                       14
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TLC THE LASER CENTER INC.

      Training

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

      Education

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

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

Equipment and Capital Financing

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


                                       15
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TLC THE LASER CENTER INC.

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

      A new excimer laser costs approximately $300,000 to $575,000. Excimer
lasers require periodic servicing, generally after 300 procedures. As
manufacturers' warranties expire, the Company typically enters into service
contracts with manufacturers.

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

Competition

Consumer Market for Vision Correction

      Within the consumer market, excimer laser procedures performed by the
Company's centers compete with other surgical and non-surgical treatments for
refractive disorders, including eyeglasses, contact lenses, other types of
refractive surgery, and technologies currently under development such as corneal
implants and intraocular implants and surgery with different types of lasers.
Although the Company believes that eyeglass and contact lens use will


                                       16
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TLC THE LASER CENTER INC.

continue to be the most popular form of vision correction in the foreseeable
future, as market acceptance for laser vision correction continues to increase,
competition within this market will grow. There can be no assurance that the
Company's management, operations and marketing plans are or will be successful
in meeting this variety of competition. Further, there can be no assurance that
the Company's competitors' access to capital, financing or other resources or
their market presence will not give these competitors an advantage against the
Company. In addition, other surgical and non-surgical techniques to treat vision
disorders are currently in use and under development and may prove to be more
attractive to consumers than laser vision correction.

Market for Laser Vision Correction

      Within the consumer market for laser vision correction, the Company faces
competition from other service providers. As market acceptance for laser vision
correction continues to increase, competition within this market will grow. The
market for laser vision correction is divided into three major segments:
corporate owned centers; surgeon owned centers; and institution owned centers.
In the United States, for the fourth quarter of calendar 1998, the corporate
owned segment which refers to companies, such as TLC that own or operate
refractive centers, accounted for the largest percentage of total procedure
value with a 42% market share according to an industry source. The surgeon owned
centers, which refer to ophthalmologists who have a laser and perform laser
vision correction procedures, accounted for 39% of total procedures performed.
The remaining 19% of laser vision correction procedures were performed at
institution owned centers, such as hospitals or universities.

      Although competitors in certain regions charge less for laser vision
correction than TLC and its affiliated doctors, the Company believes that the
primary factors affecting competition in the laser vision correction market are
quality of service, reputation, brand recognition and price and that
competitiveness is enhanced by a strong network of co-managing doctors. TLC
believes that industry experience suggests that price has been a less important
factor in the patient decision process. Suppliers of conventional vision
correction (eyeglasses and contact lenses), such as optometric chains, may also
compete with the Company either by marketing alternatives to laser vision
correction or by purchasing excimer lasers and offering refractive surgery to
their customers. These service providers may have greater marketing and
financial resources and experience than the Company and may be able to offer
laser vision correction at lower rates.

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

Government Regulation

Excimer Laser Regulation

      United States

      Medical devices, such as the excimer lasers used in the Company's United
States centers, are subject to stringent regulation by the FDA and cannot be
marketed for commercial sale in the United States until the FDA grants
pre-market approval ("PMA") for the device. To obtain a PMA for a medical
device, excimer laser manufacturers must file a PMA application that includes


                                       17
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TLC THE LASER CENTER INC.

clinical data and the results of pre-clinical and other testing sufficient to
show that there is a reasonable assurance of safety and effectiveness of their
excimer lasers. Human clinical trials must be conducted pursuant to
Investigational Device Exemptions issued by the FDA in order to generate data
necessary to support a PMA.

      In the United States, Summit, VISX, Autonomous and Nidek Incorporated
("Nidek") have obtained a PMA for their respective excimer lasers to treat
varying degrees of myopia. In addition, Summit, VISX and Autonomous have
obtained a PMA for their respective excimer lasers to treat varying degrees of
astigmatism, and VISX has also obtained a PMA for its excimer laser to treat
hyperopia. Currently, Chiron and LaserSight are in clinical trials or have filed
an application seeking FDA approval of their excimer lasers. LaserSight recently
completed the Quality System/Good Manufacturing Practices Inspection following
the FDA's field inspection of LaserSight's manufacturing facilities. This is the
final step in the PMA process for LaserSight and sale of its excimer laser in
the United States.

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

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

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

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

      Failure to comply with applicable FDA requirements could subject the
Company, its affiliated doctors or laser manufacturers to enforcement action,
including product seizure, recalls, withdrawal of approvals and civil and
criminal penalties, any one or more of which could have a


                                       18
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TLC THE LASER CENTER INC.

material adverse effect on the Company's business, financial condition and
results of operations. Further, failure to comply with regulatory requirements,
or any adverse regulatory action, including a reversal of the FDA's current
position that the "off-label" use of excimer lasers by doctors outside the FDA
approved guidelines is a practice of medicine decision, which the FDA is not
authorized to regulate, could result in a limitation on or prohibition of the
Company's use of excimer lasers which in turn could have a material adverse
effect on the Company's business, financial condition and results of operations.

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

      Canada

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

Regulation of Optometrists and Ophthalmologists

      United States

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

      The Company has reviewed these laws and regulations with its health care
counsel and, although there can be no assurance, the Company believes that its
operations currently comply with applicable laws in all material respects. Also,
the Company expects that doctors affiliated


                                       19
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TLC THE LASER CENTER INC.

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

      Federal Law. A federal law (known as the "anti-kickback statute")
prohibits the offer, solicitation, payment or receipt of any remuneration which
is intended to induce, or is in return for, the referral of patients for, or the
ordering of, items or services reimbursable by Medicare or any other federally
financed health care program. This statute also prohibits remuneration intended
to induce the purchasing of, or arranging for, or recommending the purchase or
order of any item, good, facility or service for which payment may be made under
federal health care programs. This statute has been applied to otherwise
legitimate investment interests if one purpose of the offer to invest is to
induce referrals from the investor. Safe harbor regulations provide absolute
protection from prosecution for certain categories of relationships. In
addition, a recent law broadens the government's anti-fraud and abuse
enforcement responsibilities to include all health care delivery systems
regardless of payor.

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

      Laser vision correction is not reimbursable by Medicare, Medicaid or other
federal programs. As a result, neither the anti-kickback statute nor the Stark
Law applies to the Company's refractive centers but the Company is subject to
similar state laws.

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

      The provision of services covered by the Medicare and Medicaid programs in
the Company's secondary care centers also triggers potential application of the
Stark Law. The co-


                                       20
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TLC THE LASER CENTER INC.

management model could establish a financial relationship, as defined in the
Stark Law, between the ophthalmologist and the optometrist. Similarly, to the
extent that the Company provides any designated health services, as defined in
the statute, the Stark Law could be triggered as a result of any of the several
financial relationships between the Company and ophthalmologists. Based on its
current interpretation of the Stark Law as set forth in the proposed regulations
published in January 1998, the Company believes that the referrals from
ophthalmologists and optometrists either will be for services which are not
designated health care services as defined in the statute or will be covered by
an exception to the Stark Law. There can be no assurance, however, that the
government will agree with the Company's position or that there will not be
changes in the government's interpretation of the Stark Law. In such case, the
Company may be subject to civil penalties as well as administrative exclusion
and would likely be required to revise the structure of its legal arrangements
or curtail its activities, any of which could have a material adverse effect on
the Company's business, financial condition, and results of operation.

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

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

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


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TLC THE LASER CENTER INC.

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

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

      Canada

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

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

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

Facility Licensure and Certificate of Need

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


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TLC THE LASER CENTER INC.

licensure, the Company has no reason to believe that in such states, it will be
not able to obtain such a license without unreasonable expense or delay.

      Some states require the permission of the State Department of Health or a
division thereof, such as a Health Planning Commission, in the form of a
Certificate of Need ("CON") prior to the construction or modification of an
ambulatory care facility, such as a laser center, or the purchase of certain
medical equipment in excess of an amount set by the state. While there can be no
assurance that the Company will be able to acquire a CON in all states where a
CON is required, the Company has no reason to believe that in those states that
require a CON, it will not be able to do so.

      The Company is not aware of any Canadian health regulations which impose
licensing requirements on the operation of refractive centers.

Risk of Non-Compliance

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

Intellectual Property

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


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TLC THE LASER CENTER INC.

      The medical device industry, including the ophthalmic laser sector, has
been characterized by substantial litigation in the United States and Canada
regarding patents and proprietary rights. There are a number of patents
concerning methods and apparatus for performing corneal procedures with excimer
lasers. In the event that the use of an excimer laser or other procedure
performed at any of the Company's refractive or secondary care centers is deemed
to infringe a patent or other proprietary right, the Company may be prohibited
from using the equipment or performing the procedure that is the subject of the
patent dispute or may be required to obtain a royalty bearing license, which may
not be available on acceptable terms, if at all. The costs associated with any
such licensing arrangements may be substantial and could include ongoing royalty
payments. In the event that a license is not available, the Company may be
required to seek the use of products which do not infringe the patent. The
unavailability of such products may cause the Company to cease operations in the
United States or Canada or delay the Company's expansion into the United States.
If the Company is prohibited from performing laser vision correction at any of
its laser centers, the Company's business, financial condition and results of
operations will be materially adversely affected.

Employees

      As of July 31, 1999, the Company had more than 745 employees, as compared
to more than 590 employees a year ago. The Company's progress to date has been
highly dependent upon the skills of its key technical and management personnel
both in its corporate offices and in its refractive centers, some of whom would
be difficult to replace. There can be no assurance that the Company can retain
such personnel or that it can attract or retain other highly qualified personnel
in the future. No employee of the Company is represented by a collective
bargaining agreement, nor has the Company experienced a work stoppage. The
Company considers its relations with its employees to be good. See "Item 1 -
Business - Risk Factors Dependence on Key Personnel."

Risk Factors

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

      The Company had net losses of $9.6 million, $9.5 million and $3.7 million
for fiscal 1997, 1998 and 1999, respectively. As of May 31, 1999, the Company
had an accumulated deficit of $29.6 million. The Company's ability to maintain
profitability will depend in part on its ability to increase demand for its
services and control costs, its ability to execute its expansion strategy and
effectively integrate acquired businesses and assets, economic conditions in the
Company's markets, competitive factors and regulatory developments. Accordingly,
the extent of future profits, if any, and the time required to achieve sustained
profitability is uncertain. Moreover, the level of such profitability cannot be
predicted and may vary significantly from quarter to quarter. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Uncertainty of Market Acceptance

      The Company believes that its profitability and growth will depend upon
broad acceptance of laser vision correction in the United States and, to a
lesser extent, Canada. There can be no assurance that laser vision correction
will be more widely accepted by ophthalmologists, optometrists or the general
population as an alternative to existing methods of treating refractive
disorders. The acceptance of laser vision correction may be affected adversely
by its cost (particularly since laser vision correction is typically not covered
by government insurers or other third party payors and, therefore, must be paid
for by the individual receiving treatment), concerns


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TLC THE LASER CENTER INC.

relating to its safety and effectiveness, general resistance to surgery, the
effectiveness of alternative methods of correcting refractive vision disorders,
the lack of long term follow-up data and the possibility of unknown side
effects. There can be no assurance that long term follow-up data will not reveal
complications that may have a material adverse effect on the acceptance of laser
vision correction. Many consumers may choose not to have laser vision correction
due to the availability and promotion of effective and less expensive
nonsurgical methods for vision correction. Any future reported adverse events or
other unfavorable publicity involving patient outcomes from laser vision
correction could also adversely affect its acceptance whether or not the
procedures are performed at TLC refractive centers. Market acceptance could also
be affected by regulatory developments and by the ability of the Company and
other participants in the laser vision correction market to train a broad
population of ophthalmologists in performing the procedure. Acceptance of laser
vision correction by ophthalmologists could also be affected by the cost of
excimer laser systems. The failure of laser vision correction to achieve broad
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 1 - Business
- The Refractive Market".

Dependence on Affiliated Doctors

      Most states prohibit the Company from practicing medicine, employing
physicians to practice medicine on the Company's behalf or employing
optometrists to render optometric services on the Company's behalf. Because the
Company does not practice medicine or optometry, its activities are limited to
owning and managing centers and affiliating with other health care providers.
Affiliated doctors provide a significant source of patients for the Company.
Accordingly, the success of the Company's operations depends upon its ability to
enter into agreements on acceptable terms with a sufficient number of health
care providers, including institutions, ophthalmologists and optometrists, to
render surgical and other professional services at facilities owned or managed
by the Company. There can be no assurance that the Company will be able to enter
into agreements with optometrists and ophthalmologists or other health care
providers on satisfactory terms or that such agreements will be profitable to
the Company. Failure to enter into or maintain such agreements with a sufficient
number of qualified optometrists and ophthalmologists will have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Item 1 - Business - Surgeon Contracts".

Competition

      Laser vision correction is subject to intense competition. The Company
competes with other entities, including hospitals, individual ophthalmologists,
other laser centers and certain manufacturers of excimer laser equipment, in
offering laser vision correction. The Company's refractive centers compete on
the basis of quality of service, reputation, brand recognition and price. There
can be no assurance that competitors with substantially greater financial,
technical, managerial, marketing and other resources and experience than the
Company will not compete more effectively than the Company. If more providers
offer laser vision correction in a given geographic market, the price charged
for such procedures may decrease. Competitors have, from time to time, in some
markets, offered laser vision correction at prices considerably lower than TLC's
prices. At TLC centers, Canadian residents are typically charged C$2,400 per eye
for LASIK procedures and United States residents are typically charged from
$2,400 to $2,750 per eye for LASIK procedures, while competitors in some markets
have from time to time advertised LASIK procedures for as low as C$749 per eye.
Market conditions may compel the Company to lower its prices to remain
competitive in some markets. There can be no assurance that any


                                       25
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TLC THE LASER CENTER INC.

reduction in prices charged will be compensated for by an increase in procedure
volume or decreases in the Company's costs. A decrease in either the fees for
procedures performed at TLC's refractive centers or in the number of procedures
performed at TLC's centers could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, laser
vision correction competes with other surgical and non-surgical treatments for
refractive disorders, including eyeglasses, contact lenses, other types of
refractive surgery, corneal rings, intraocular lenses and other technologies
currently under development. Suppliers of conventional vision correction
alternatives (eyeglasses and contact lenses), such as optometry chains, with
substantially greater financial, technical, managerial, marketing and other
resources and experience than the Company may compete with the Company by
promoting alternatives to laser vision correction or by purchasing laser systems
and offering laser vision correction to their customers. There can be no
assurance that the Company's management, operations and marketing plans are or
will be successful in meeting this variety of competition. Further, there can be
no assurance that the Company's competitors' access to capital, financing or
other resources or their market presence will not give these competitors an
advantage against the Company.

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

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

Quarterly Fluctuations in Operating Results

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


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TLC THE LASER CENTER INC.

relied upon as indications of likely future performance or annual operating
results. Reductions in revenues or net income between quarters or the failure of
the Company to achieve expected quarterly earnings per share could have a
material adverse effect on the market price of the Common Shares.

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

      Concerns with respect to the safety and efficacy of laser vision
correction include predictability and stability of results and potential
complications or side effects, including the following: post-operative pain;
corneal haze during healing (an increase in light-scattering properties of the
cornea); glare/halos (disturbed night vision); decrease in contrast sensitivity
(reduced visual quality of sharpness); temporary increases in intraocular
pressure in reaction to post-procedure medication; modest fluctuations in
astigmatism and modest decreases in best corrected vision (i.e., with
eyeglasses); loss of fixation during the procedure; unintended over- or
under-correction; instability, reversion or regression of effect; corneal scars
(blemishing marks left on the cornea); corneal ulcers (inflammatory lesions
resulting in loss of corneal tissue); and corneal healing disorders (compromised
or weakened immune system or connective tissue disease which causes poor
healing). Laser vision correction may involve the removal of "Bowman's layer,"
an intermediate layer between the epithelium (outer corneal layer) and the
stroma (middle corneal layer). Although several studies conducted to date have
demonstrated no significant adverse reactions to excimer laser removal of
Bowman's layer, it is unclear what effect this may have on the patient. Although
recently released results of a study showed that the majority of patients
experienced no serious side effects six years after laser vision correction
using the PRK procedure, there can be no assurance that complications will not
be identified in further long-term follow-up studies. Any such complications or
side effects may call into question the safety and effectiveness of laser vision
correction, which in turn may negatively affect the approval by the FDA of the
excimer laser for sale for laser vision correction and the market acceptance of
such procedures and lead to product liability, malpractice or other claims
against the Company. Any such occurrence could have a material adverse effect on
the Company's business, financial condition and results of operations.

Potential Liability and Insurance

      The provision of medical services entails an inherent risk of potential
malpractice and other similar claims. Although patients at the Company's centers
execute informed consent statements prior to any procedure performed by doctors
at the Company's centers, there can be no assurance that such consents will
provide adequate liability protection. In addition, although the Company does
not engage in the practice of medicine or have responsibility for compliance
with certain regulatory and other requirements directly applicable to doctors
and doctor groups, there can be no assurance that claims, suits or complaints
relating to services provided at the Company's centers will not be asserted
against the Company in the future. The Company currently maintains malpractice
insurance coverage that it believes is adequate both as to risks and amounts, in
the amount of C$5,000,000 for each occurrence in respect of each refractive
center in Canada, subject to maximum annual aggregate coverage of C$5,000,000,
and $25,000,000 per occurrence in respect of each center in the United States,
subject to maximum annual aggregate coverage of $25,000,000. Such insurance
extends to professional liability claims that may be asserted against employees
of the Company that work on site at the centers. In addition, the doctors who
provide medical services at the Company's centers are required to


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TLC THE LASER CENTER INC.

maintain comprehensive professional liability insurance, although there can be
no assurance that any such insurance will be adequate to satisfy claims or that
insurance maintained by the doctors will protect the Company.

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

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

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

Management of Growth

      The Company's success will depend on its ability to expand and manage its
operations and facilities. The Company is in a period of rapid growth, with the
major focus of its expansion being the United States. The Company's growth and
expansion has resulted in and may continue to result in new and increased
responsibilities for management and additional demands on management, operating
and financial systems and resources. In particular, the Company will need to
successfully hire, train and retain management for each of its refractive
centers. There can be no assurance that the Company will be able to hire, train
or retain qualified managers. The Company's ability to continue to expand in the
United States is dependent upon factors such as its


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TLC THE LASER CENTER INC.

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

Inability to Execute Acquisition Strategy

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

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

      There can be no assurance that the Company will have adequate resources to
finance acquisitions. If the Company does not have adequate resources, its
growth could be limited, and its existing operations impaired, unless it is able
to obtain additional capital through subsequent equity or debt financings. There
can be no assurance that the Company will be able to obtain such financing or
that, if available, such financing will be on terms acceptable to the Company.
As a result, there can be no assurance that the Company will be able to
implement its expansion strategy successfully. Failure by the Company to
successfully implement its acquisition strategy


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TLC THE LASER CENTER INC.

and integrate and operate the acquired businesses efficiently would have a
material adverse effect on the Company's business, financial condition and
results of operations.

Future Capital Requirements; Uncertainty of Additional Funding

      It is not possible to predict with certainty the timing or the amount of
future capital requirements. However, the Company may require significant
additional funding to expand in the future. Such additional funding may be
raised through additional public or private equity or debt financings or other
sources and may, if obtained by way of subsequent equity financing, result in
dilution to the holders of the Common Shares. The Company believes that the net
proceeds of its recent public offering, together with existing cash balances and
funds expected to be generated from operations should be sufficient to fund its
anticipated level of operations and its current expansion and acquisition plans
for at least the next 18 months. There can be no assurance that the Company's
operations, expansion plans or capital requirements will not change in a manner
that would consume available resources more rapidly than anticipated, or that
substantial additional funding will not be required before the Company can
maintain profitable operations. The Company's capital needs depend on many
factors, including the rate and cost of acquisitions of businesses, equipment
and other assets, the rate of opening new centers or expanding existing centers,
market acceptance of laser vision correction and actions by competitors.
Further, additional funding may not be available on terms satisfactory to the
Company, if at all. If adequate funds are not available, the Company may be
required to cut back or abandon its expansion plans and curtail operations
significantly, which would have a material adverse effect on the Company's
business, financial condition and results of operations.

Reimbursement

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

Government Regulation and Supervision

Regulation of Health Care Industry

United States

      The Company and its operations are subject to extensive federal, state and
local laws, rules and regulations, including those prohibiting corporations from
practicing medicine and optometry, prohibiting unlawful rebates and division of
fees, and limiting the manner in which prospective patients may be solicited.
Further, contractual arrangements with hospitals, surgery centers,
ophthalmologists and optometrists, among others, are extensively regulated by
federal and state laws. Many of these laws and regulations are ambiguous in
nature and have not been definitively interpreted by courts and regulatory
authorities. Moreover, state and local laws vary from jurisdiction to
jurisdiction. Accordingly, the Company may not always be able to predict clearly
how such laws and regulations will be interpreted or applied by courts and
regulatory authorities and some of the Company's activities could be challenged
by regulators, competitors or others. In addition, there can be no assurance
that the regulatory environment in which the


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TLC THE LASER CENTER INC.

Company operates will not change significantly in the future. In response to new
or revised laws, regulations or interpretations, the Company could be required
to revise the structure of its legal arrangements or the structure of its fees,
incur substantial legal fees, fines or other costs, or curtail its business
activities, reducing the potential profit to the Company of some of its legal
arrangements, any of which may have a material adverse effect on the Company's
business, financial condition and results of operations. Among the laws and
regulations that affect the Company's operations are anti-kickback laws,
fee-splitting laws, corporate practice of medicine restrictions, self-referral
laws and professional licensing rules.

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

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


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TLC THE LASER CENTER INC.

Corporate Practice of Medicine and Optometry. The laws of many states in the
United States prohibit business corporations, such as the Company, from
practicing medicine and employing or engaging physicians to practice medicine
and some states prohibit business corporations from practicing optometry or
employing or engaging optometrists to practice optometry. Such laws preclude
companies that are not owned entirely by eye care professionals from employing
eye care professionals, having control over clinical decision-making or engaging
in other activities that are deemed to constitute the practice of optometry or
ophthalmology. This prohibition is generally referred to as the prohibition
against the corporate practice of medicine or optometry. Violation of a state's
corporate practice of medicine or optometry prohibition may result in civil or
criminal fines, as well as sanctions imposed against the professional through
licensing proceedings. Although the Company has endeavored to structure its
contractual relationships in compliance with these laws in all material
respects, if any aspect of the Company's operations were found to violate
applicable state corporate practice of medicine or optometry prohibitions, the
Company would be required to revise the structure of its legal arrangements
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

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

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

State Licensing Limitations. State medical boards and state boards of optometry
generally set the limits of the activities in which the professional may engage.
In some instances, issues have been raised as to whether participation in a
co-management program violates a physician's responsibility to provide adequate
care to the patient, constitutes an abandonment of the patient, or constitutes
conspiring to promote the unlicensed practice of medicine by an optometrist. The


                                       32
<PAGE>

TLC THE LASER CENTER INC.

conclusions of these regulatory bodies often are not consistent. The issue is
further complicated by the dual jurisdiction exercised by boards of medicine and
boards of optometry. While a board of medicine generally has no jurisdiction
over optometrists, it could hold an ophthalmologist culpable for conspiracy to
promote the unlicensed practice of medicine by an optometrist. Yet, in the same
state, the board of optometry may hold that the post-operative services rendered
by the optometrist are within the scope of the practice of optometry.
Participation in the Company's co-management program may place ophthalmologists
and optometrists at risk of violating state licensing laws. Such a finding could
require the Company to revise the structure of its legal arrangements and may
result in affiliated doctors terminating their relationships with the Company,
either of which could have a material adverse effect on the Company's business,
financial condition, and results of operations.

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

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

      Some states require the permission of the State Department of Health or a
division thereof, such as a Health Planning Commission, in the form of a
Certificate of Need ("CON") prior to the construction or modification of an
ambulatory care facility, or the purchase of certain medical equipment in excess
of an amount set by the state. The Company believes that it has obtained the
necessary CONs in states where a CON is required and that it is not required to
obtain CONs in other states. However, some of the regulations governing the need
for CONs are unclear and there is no applicable precedent or regulatory guidance
to cover certain interpretative issues. Therefore,


                                       33
<PAGE>

TLC THE LASER CENTER INC.

it is possible that a state regulatory authority could determine that the
Company is operating a center inappropriately without a CON, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. While there can be no assurance that the Company will be
able to acquire a CON in all states where a CON is required, the Company has no
reason to believe that in those states that require a CON, it will not be able
to do so.

Canada

      Conflict of interest regulations in certain Canadian provinces prohibit
optometrists, ophthalmologists or corporations owned or controlled by them from
receiving benefits from suppliers of medical goods or services to whom the
optometrist or ophthalmologist refers his or her patients. In addition, the laws
of certain Canadian provinces prohibit health care professionals from splitting
fees with non-health care professionals and prohibit non-licensed entities (such
as the Company) from practicing medicine or optometry and, in certain
circumstances, from employing physicians or optometrists directly. Although the
Company is not aware of any Canadian health regulations which impose licensing
restrictions on the operation of its centers, there can be no assurance that
such restrictions will not be adopted. Changes in the interpretation or
enforcement of existing regulatory requirements or the adoption of new
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will not be required to incur significant costs to comply with laws
and regulations in the future or that laws and regulations will not have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, many of the Company's operations have not
been subject to review by regulators and there can be no assurance that a review
of the Company's operations or the operations of its affiliated doctors will not
result in a determination that could have a material adverse effect on the
Company's business, financial condition and results of operations.

United States Food and Drug Administration

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

      Also, the use of an excimer laser to treat both eyes on the same day
(bilateral treatment) has not been approved by the FDA. The FDA has stated that
it considers the use of the excimer laser for bilateral treatment to be a
practice of medicine decision, which the FDA is not authorized to regulate.
Ophthalmologists, including those affiliated with TLC refractive centers, widely
perform bilateral treatment in an exercise of professional judgment in
connection with the practice of medicine.

      Failure to comply with applicable FDA requirements could subject the
Company, its affiliated doctors or laser manufacturers to enforcement action,
including product seizure, recalls,


                                       34
<PAGE>

TLC THE LASER CENTER INC.

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

      Most of the Company's refractive centers in the United States use VISX
excimer lasers. The failure of VISX or other excimer laser manufacturers to
comply with applicable federal, state or foreign regulatory requirements, or any
adverse action against or involving such manufacturers, could limit the supply
of lasers, substantially increase the cost of excimer lasers, limit the number
of patients that can be treated at the Company's centers and limit the ability
of the Company to use the lasers, which could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Item
1 - Business - Governmental Regulation."

Technological Change

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

Dependence on Key Personnel

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

Intellectual Property/Proprietary Technology

      The medical device industry, including the ophthalmic laser sector, has
been characterized by substantial litigation in the United States and Canada
regarding patents and proprietary rights. There are a number of patents
concerning methods and apparatus for performing corneal


                                       35
<PAGE>

TLC THE LASER CENTER INC.

procedures with excimer lasers. In the event that the use of an excimer laser or
other procedure performed at any of the Company's centers is deemed to infringe
a patent or other proprietary right, the Company may be prohibited from using
the equipment or performing the procedure that is the subject of the patent
dispute or may be required to obtain a royalty bearing license, which may not be
available on acceptable terms, if at all. The costs associated with any such
licensing arrangements may be substantial and could include ongoing royalty
payments. In the event that a license is not available, the Company may be
required to seek the use of products which do not infringe the patent. The
unavailability of such products may cause the Company to cease operations in the
United States or Canada or delay the Company's expansion. If the Company is
prohibited from performing laser vision correction at its refractive centers,
the Company's business, financial condition and results of operations will be
materially adversely affected. See "Item 1 - Business - Intellectual
Property/Proprietary Technology".

Potential Volatility of Stock Price

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

Year 2000 Compliance

      The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The Company has completed
a comprehensive study of the possible effects of the Year 2000 issue on its
systems and results of operations. No significant concerns have been identified
as far as the Company's internal operations. However, there can be no assurance
that Year 2000-related issues will not have a material adverse effect on the
Company's business, financial condition and results of operations. Suppliers of
goods and services of the Company may not be Year 2000 compliant.

      Some private insurance companies provide partial or full coverage for
laser vision correction. In the event private insurance companies that cover the
laser vision procedure have difficulty processing and paying claims because of
Year 2000 issues, this could cause accounts receivable for refractive procedures
performed at the Company's refractive centers to increase, or the patient volume
in the refractive centers operated by the Company to decrease, which could


                                       36
<PAGE>

TLC THE LASER CENTER INC.

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

      The Company cannot predict the impact that the Year 2000 issue will have
on its potential patients or the economy generally. If the Year 2000 issue were
to have a significant adverse impact on the economy or potential patients
perception of the economy, this could have a material adverse impact on the
number of procedures performed, particularly with respect to elective procedures
such as refractive surgery, and on the Company's business, financial condition
and results of operations until the economy and consumer confidence recover.
"See Item 7 -- Management's Discussion and Analysis -- Year 2000 Compliance."


                                       37
<PAGE>

TLC THE LASER CENTER INC.

ITEM 2. PROPERTIES

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

<TABLE>
<CAPTION>
                                              Refractive Centers
                     United States                                                        Canada
                     -------------                                                        ------
Location             Opened              Location              Opened            Location             Opened
<S>                  <C>                 <C>                   <C>               <C>                  <C>
California                               New York                                British Columbia
Brea(4)              September, 1996     Garden City(2)        May 1996          Vancouver            August 1996
Fresno(4)            July 1999
Irvine(1)(4)         June, 1997          New York(2)           January 1996      New Brunswick
Newport Beach(4)     July, 1999          White Plains(2)       April 1996        Moncton              September 1997
Ontario(4)           July, 1999          North Carolina                          Ontario
Colorado                                 Charlotte             June 1997         London               November 1994
Denver               August, 1996        Raleigh               August 1997       Richmond Hill(1)     September 1997
Denver(1)            August, 1996        Winston-Salem         March 1997        Toronto              December 1994
Florida                                  Ohio                                    Toronto(1)           May 1995
Boca Raton(2)        January, 1996       Cleveland             November 1997     Waterloo             May 1999
Fort Lauderdale(1)   January, 1997       Columbus              October 1998      Windsor              September 1993
Tampa(1)             January, 1997       Oklahoma
Georgia                                  Oklahoma City         October 1996
Atlanta(1)           August, 1996        Tulsa                 October 1995
Illinois                                 Pennsylvania
Westchester          March, 1997         Plymouth Meeting(2)   April 1996
Indiana                                  Pittsburgh            June 1998
Indianapolis         March, 1996         South Carolina
Maryland                                 Greenville            June 1996
Annapolis            July 1999           Tennessee
Baltimore            June 1999           Johnson City          April 1997
Rockville(2)         January, 1996       Texas
Massachusetts                            Austin(1)             June 1996
Scituate             September 1997      Arlington(1)          June 1996
Michigan                                 Houston(1)            August 1996
Detroit              November 1997       San Antonio(1)        June 1996
Kalamazoo            April 1999          Virginia
Lansing(3)           May 1998            Fairfax(2)            April 1996
Montana                                  Washington
Billings             March 1997          Lynnwood              July 1996
New Jersey                               Wisconsin
Elmwood Park(2)      March 1996          Green Bay             April 1999
Mount Laurel(2)      June 1997           Madison               October 1996
                                         Milwaukee             April 1999
</TABLE>

(1)   Beacon center. On May 27, 1998, the Company completed its acquisition of
      Beacon.
(2)   Acquired February 1997 in the acquisition of 20/20.
(3)   Also contains a secondary care center.
(4)   TLC California center. On July 2, 1999, the Company acquired 50.1% of the
      operating assets and liabilities of California LLC for cash consideration,
      certain operating assets and liabilities of its California refractive
      centers and additional cash amounts.


                                       38
<PAGE>

TLC THE LASER CENTER INC.

The Company owns and manages one secondary care practice, which maintains five
satellite locations in the State of Michigan.(1)

The Company also leases office space for two corporate offices. The
International Headquarters is located in Mississauga, Ontario in Canada, and the
U.S. Corporate Office is located in Bethesda, Maryland.

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


ITEM 3. LEGAL PROCEEDINGS

      On January 18, 1998, TLC and its subsidiary, TLC Midwest Eye Laser Center
Inc., filed a suit in the Circuit Court of Cook County Illinois, Chancery
Department, against Midwest Eye Institute II, Ltd., Midwest Eye Physicians, PC,
Herman D. Sloane, MD, Allen M. Pielet, MD, Floyd W. Woods, OD, Ronald J. Carr,
OD, and Dominick L. Opitz, OD. The suit seeks injunctive relief and compensatory
damages against certain defendants for breach of an administrative services
agreement and seeks an injunction to prevent the defendant doctors from
competing with TLC. The court of appeals recently denied the Company's request
for an injunction preventing the defendant doctors from competing with TLC.
However, the Company intends to appeal this decision.

      In July, 1998, Lasik Vision of Canada, Inc. filed a lawsuit against the
Company in the Supreme Court of British Columbia and certain of its officers
alleging libel and slander. In September, 1998, Lasik Vision of Canada, Inc.
also filed a lawsuit in the State of Washington alleging defamation, commercial
disparagement, unfair and deceptive trade practices, and tortious interference
with economic relations. Both of these lawsuits are in the early stages, and in
neither of these lawsuits has the plaintiff quantified an amount of damages. The
Company intends to vigorously defend these lawsuits. Although there can be no
assurance, the Company does not expect either of these suits to have a material
adverse effect on its business, financial condition or results of operations.

      On February 1, 1999, CPC of America, Inc. ("CPC") filed a lawsuit in the
Superior Court of California, Orange County, against the Company, PPH and
HeartMed LLC ("HeartMed") alleging breach of contract, breach of the implied
covenant of good faith and fair dealing, intentional misrepresentation,
negligent misrepresentation, fraud and deceit, intentional and negligent
interference with prospective economic advantage, breach of fiduciary duty, and
fraudulent inducement to enter into contract. The complaint alleges damages to
CPC in the


                                       39
<PAGE>

TLC THE LASER CENTER INC.

amount of US$25 million. The complaint also alleges, as a shareholder derivative
claim, damages to HeartMed in the amount of US$25 million. HeartMed is a
cardiology managed care joint venture between PPH and CPC. The lawsuit is in the
very early stage and the Company intends to vigorously defend it. Although there
can be no assurance, the Company does not expect this lawsuit to have a material
adverse effect on its business, financial condition or results of operations.

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

      Not applicable.


                                       40
<PAGE>

TLC THE LASER CENTER INC.

                                     PART II

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

Market Information

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

                                  The
                                 Toronto                    Nasdaq
                                  Stock                    National
                                 Exchange                   Market
                                -----------------------    ---------------------
                                      High          Low         High         Low
                                ----------    ---------    ---------  ----------
Fiscal 1998

First Quarter(1)                   C$13.05      C$10.60        $9.25       $8.25

Second Quarter                       12.80        10.75         9.00        7.75

Third Quarter                        20.00        11.10        14.00       7.813

Fourth Quarter                       25.00        17.90       17.234      12.688

Fiscal 1999

First Quarter                      C$27.50      C$16.95      $18.875      10.375

Second Quarter                       30.00        16.90        20.00      10.625

Third Quarter                        34.25        27.30       22.375      18.078

Fourth Quarter                       72.50        30.30        49.50      19.875

Record Holders

As of July 30, 1999, there were approximately 425 record holders of the Common
Shares.

Dividends

The Company has never declared or paid cash dividends on the Common Shares. It
is the policy of the Board of Directors of the Company to retain earnings to
finance growth and development of its business and, therefore, the Company does
not anticipate paying cash dividends on its Common Shares in the near future.

----------

(1)   The Company has been listed on the Nasdaq National Market since July 2,
      1997.


                                       41
<PAGE>

TLC THE LASER CENTER INC.

ITEM 6. SELECTED FINANCIAL DATA

      Set forth in the following pages are selected historical consolidated
financial data as of and for each of the fiscal years in the five-year period
ended May 31, 1999, which have been derived from and should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Form 10-K. See note 1 to the
Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                         Year Ended May 31,
                                1995(2)         1996           1997           1998          1999
                                -------         ----           ----           ----          ----
<S>                              <C>            <C>           <C>            <C>           <C>
Income Statement Data

Amounts under Canadian
GAAP(1)

Net revenues(3)                  3,152          6,426         20,112         59,122        146,910

Expenses
Operating and doctor
  compensation                   2,314          5,562         21,074         54,763        115,599

Interest and other                 110            675            752            692          2,245

Depreciation and
  amortization                     236            601          3,463          9,460         14,934

Start-up and development         1,034          1,584          4,292          3,267          3,606
expenses

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

Loss before income taxes
and non-controlling
interest                          (542)        (1,996)        (9,469)        (9,060)        (2,398)

Income taxes

Current                             31             72             95          1,071            816

Deferred                            --            (89)            10             --             --
                                ------------------------------------------------------------------
                                    31            (17)           105          1,071            816

Loss before
non-controlling interest          (573)        (1,979)        (9,574)       (10,131)        (3,214)

Non-controlling interest            --             --             --            593           (448)
                                ------------------------------------------------------------------
</TABLE>


                                       42
<PAGE>

TLC THE LASER CENTER INC.

<TABLE>
<S>                             <C>            <C>            <C>           <C>             <C>
Net loss for the period --
Canadian GAAP                     (573)        (1,979)        (9,574)        (9,538)        (3,662)
                                ------------------------------------------------------------------

Loss per share --
Canadian GAAP                    (0.06)         (0.16)         (0.47)         (0.34)         (0.11)
                                ------------------------------------------------------------------

Weighted average number
of Common Shares
outstanding (in thousands)      10,134         12,797         20,617         28,035         34,090
                                ------------------------------------------------------------------

Amounts under U.S.
GAAP(1)                           (609)        (3,329)        (9,574)       (10,280)        (4,556)

Net loss for the period --
U.S. GAAP
                                ------------------------------------------------------------------

Loss per share --
U.S. GAAP                        (0.06)         (0.26)         (0.47)         (0.37)         (0.13)
                                ------------------------------------------------------------------

</TABLE>


                                       43
<PAGE>

TLC THE LASER CENTER INC.

<TABLE>
<CAPTION>
                                                                  Year Ended May 31,
                                                                  ------------------
                                                           1995         1996          1997           1998             1999
                                                           ----         ----          ----           ----             ----
  <S>                                                     <C>          <C>         <C>             <C>             <C>
  Operating Data

  Number of refractive centers (at end of period)              3            5           27              45              55

  Number of secondary care centers (at end of period)          0            4            7              15              14

  Number of laser vision correction procedures             2,176        3,685       11,026(4)       35,859(5)       90,600
</TABLE>

<TABLE>
<CAPTION>
                                                                              As of May 31,
                                                              1995           1996          1997         1998          1999
                                                              ----           ----          ----         ----          ----
<S>                                                          <C>           <C>           <C>          <C>           <C>
Balance Sheet Data

Cash and short-term deposits                                   397          2,844        13,230         1,895         7,548

Working capital                                               (200)         1,656         8,055        53,303       144,262

Total assets                                                 2,027         16,819        73,746       164,212       286,850

Total debt, excluding current portion                          891          3,104        10,935        17,911        11,030

Shareholders' equity

Capital Stock                                                1,002         13,494        63,522       143,554       269,454

Deficit                                                       (588)        (2,568)      (12,141)      (21,679)      (29,631)
                                                        ----------------------------------------------------------------------

                                                               414         10,926        51,381       121,875       239,823
                                                        ----------------------------------------------------------------------
</TABLE>

      (1)   In certain respects, Canadian GAAP differs from U.S. GAAP.
            Accordingly, certain line items with respect to Income Statement
            Data and Balance Sheet Data would differ under U.S. GAAP. For a
            discussion of the principal differences between Canadian GAAP and
            U.S. GAAP, see note 17 to the Consolidated Financial Statements of
            the Company.

      (2)   Certain comparative figures have been reclassified to conform to the
            presentation for fiscal 1999.

      (3)   Includes primarily those revenues pertaining to the operation of
            refractive centers, the management of refractive and secondary care
            centers and The Vision Source Inc.

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

      (5)   Includes six weeks of procedures performed at Beacon Centers.


                                       44
<PAGE>

TLC THE LASER CENTER INC.

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

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, which are included in Item 8
of this Form 10--K. The following discussion is based upon the Company's results
under Canadian GAAP. In certain respects, Canadian GAAP differs from U.S. GAAP.
For a discussion of the principal differences between Canadian GAAP and U.S.
GAAP, see note 17 to the Consolidated Financial Statements of the Company. The
Company is now reporting in U.S. dollars. Unless otherwise specified, all dollar
amounts are U.S. dollars. See Note 1 to the Consolidated Financial Statements of
the Company.

Overview

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Overview

TLC is the largest provider of laser vision correction services in North
America. TLC owns and manages refractive centers which, together with TLC's
network of over 10,000 optometrists and opthamologists, provide laser vision
correction of common refractive disorders such as myopia (nearsightednesss),
hyperopia (farsightedness) and astigmatism. Laser vision correction is an
outpatient procedure which, is designed to change the curvature of the cornea to
reduce or eliminate a patient's reliance on eyeglasses or contact lenses. TLC,
which commenced operations in 1993, currently has 55 Refractive centers in 25
states and provinces throughout the United States and Canada. Surgeons performed
over 90,000 procedures at the Company's centers during the fiscal year 1999.

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

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

The Company continues to pursue a growth strategy in its core refractive laser
surgery business, which accounts for more than 90% of net revenues. It is
expected that in addition to same store growth, 10--15 new clinics are expected
to be built or acquired during the year to increase procedure volume and
position the Company for continuing growth. The Company's continuing growth and
future profitability are affected by the extent to which laser vision correction
becomes more widely accepted in North American markets. The Company anticipates
that the percentage of revenue derived from the core refractive business will
continue to increase as the market for laser vision correction grows.


                                       45
<PAGE>

TLC THE LASER CENTER INC.

<TABLE>
<CAPTION>
1999                                                   Refractive   Secondary Care          Other           1999 Total
                                                       ---------------------------------------------------------------
<S>                                                    <C>               <C>               <C>               <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics        $ 163,913         $  41,270         $   3,084         $ 208,267
Amounts retained by doctor group                         (24,644)           (8,190)              (43)          (32,877)
Contractual allowances and adjustments                    (6,841)          (21,691)               52           (28,480)
                                                       ---------------------------------------------------------------
Net revenues                                             132,428            11,389             3,093           146,910
Doctor compensation                                       12,824                --                --            12,824
                                                       ---------------------------------------------------------------
Net revenue after doctor compensation                    119,604            11,389             3,093           134,086
                                                       ---------------------------------------------------------------
Expenses
Operating                                                 90,185             8,972             3,618           102,775
Interest and other                                         2,343              (125)               27             2,245
Depreciation and amortization                             12,350             2,187               397            14,934
Start-up and development expenses                             --                --             3,606             3,606
Restructuring charges                                         --            10,298             2,626            12,924
                                                       ---------------------------------------------------------------
                                                         104,878            21,332            10,274           136,484
                                                       ---------------------------------------------------------------
Income (loss) from operations                          $  14,726         $  (9,943)        $  (7,181)        $  (2,398)
Income taxes                                                (616)               --              (200)             (816)
Non-controlling interest                                    (800)             (376)              728              (448)
                                                       ---------------------------------------------------------------
Net income (loss)                                      $  13,310         $ (10,319)        $  (6,653)        $  (3,662)
                                                       ===============================================================

Total assets                                           $ 266,021         $  16,678         $   4,151         $ 286,850
                                                       ===============================================================
Total capital and intangible expenditures              $  25,803         $   7,707         $   2,026         $  35,536
                                                       ===============================================================

<CAPTION>
1998                                                   Refractive   Secondary Care          Other           1999 Total
                                                       ---------------------------------------------------------------
<S>                                                    <C>               <C>               <C>               <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics        $  65,297         $  23,869         $   1,413         $  90,579
Amounts retained by doctor group                         (10,566)           (4,711)              (11)          (15,288)
Contractual allowances and adjustments                    (3,652)          (12,517)               --           (16,169)
                                                       ---------------------------------------------------------------
Net revenues                                              51,079             6,641             1,402            59,122
Doctor compensation                                        5,242                --                --             5,242
                                                       ---------------------------------------------------------------
Net revenue after doctor compensation                  $  45,837         $   6,641         $   1,402         $  53,880
                                                       ===============================================================
Expenses
Operating                                                 41,620             6,294             1,607            49,521
Interest and other                                           416                87               189               692
Depreciation and amortization                              7,107             2,185               168             9,460
Start-up and development expenses                             --                --             3,267             3,267
Restructuring charges                                         --                --                --                --
                                                       ---------------------------------------------------------------
                                                          49,143             8,566             5,231            62,940
                                                       ---------------------------------------------------------------
Income (loss) from operations                          $  (3,306)        $  (1,925)           (3,829)        $  (9,060)
Income taxes                                                (994)              (71)               (6)           (1,071)
Non-controlling interest                                      78              (116)              631               593
                                                       ---------------------------------------------------------------
Net income (loss)                                      $  (4,222)        $  (2,112)        $  (3,204)        $  (9,538)
                                                       ===============================================================

Total assets                                           $ 137,736         $  23,887         $   2,599         $ 164,212
                                                       ===============================================================
Total capital and intangible expenditures              $  30,542         $  12,626         $   1,750         $  44,919
                                                       ===============================================================
</TABLE>


                                       46
<PAGE>

TLC THE LASER CENTER INC.

Results of Operations

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

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

Net revenues from refractive centers for the fiscal 1999 year were $132.4
million, which is 159% higher than last year's $51.1 million total. More than
90,600 procedures were performed in fiscal 1999 compared to 35,800 procedures in
fiscal 1998. Industry estimates are that procedure growth for the entire
industry will be approximately 125% in calendar year 1999 over the previous
year. The increasing revenues reflects strong growth in the number of procedures
at existing sites, the development of new centers and the acquisition of centers
from competitors.

Net revenues from secondary care centers increased to $11.4 million from $6.6
million in fiscal 1998. The acquisition of TLC Michigan in February 1998
accounted for the revenue growth. Net revenues from this business segment will
decrease reflecting the divestiture of certain secondary care practices in the
fourth quarter of fiscal year 1999.

Operating expenses and doctor compensation increased to $115.6 million in the
fiscal year 1999 from $54.8 million in fiscal 1998. This increase is a result
of: (i) increased variable expenses associated with the increase in the number
of laser vision correction procedures performed at existing refractive centers,
and (ii) increased fixed and variable costs from the addition of new refractive
centers, and (iii) higher corporate costs which are necessary to support the
higher level of business activity. Operating expenses and doctor compensation as
a percentage of net revenues were 79% of net revenues as compared to 93% of net
revenues in fiscal year 1998. This decrease is attributed to the higher average
number of procedures being performed at almost all of centers.

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

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

Start up and development expenses are costs incurred to develop the eye care
specialty managed care business. During fiscal 1999 start up and development
costs were incurred by Partner Provider Health ("PPH") for the development of
the managed care business. TLC sold PPH in May of 1999. The Company does not
expect to incur these costs in the future.


                                       47
<PAGE>

TLC THE LASER CENTER INC.

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

Income tax expense decreased to $0.8 million in 1999 from $1.1 million in 1998.
This decrease is a result of existing Canadian centers being amalgamated with
former Canadian Beacon centers and the ability to apply the profits from these
existing centers against loss carry forwards from Beacon centers.

The net income before restructuring charge for fiscal 1999 was $9.3 million or
$0.27 per share, compared to a loss of $9.5 million or $0.34 cents a share the
previous year. This net income is a result of the much higher procedure volume
in the refractive business. After restructuring charges the loss was $3.7
million or $0.11 cents a share.

Year Ended May 31, 1998 compared to Year ended May 31, 1997

Net revenues for the fiscal 1998 year were $59.1 million, which is a 194%
increase over prior year's $20.1 million total. More than 86% of total net
revenues were derived from refractive surgery as compared to 75 % in fiscal 1997
demonstrating the increasing significance of the Company's core business.

Net revenues from refractive centers for the fiscal 1998 year were $51.1
million, which is an increase of 238% over fiscal 1997 $15.1 million total. More
than 35,800 procedures were performed in fiscal 1998 compared to 11,000
procedures in fiscal 1997. The increasing revenues reflects strong growth in the
number of procedures at existing sites, the development of new centers and the
April 1998 acquisition of the Beacon centers.

Net revenues from secondary care centers increased to $6.6 million from $5.0
million in fiscal 1997. Slightly higher revenues from TLC Northwest Eye Inc. and
the acquisition of TLC Michigan in February 1998 accounted for the revenue
growth.

Operating expenses and doctor compensation increased to $54.8 million in the
fiscal year 1998 from $21.1 million in fiscal 1997. This increase is a result
of: (i) increased variable expenses associated with the increase in the number
of laser vision correction procedures performed at existing refractive centers,
and (ii) increased fixed and variable costs from the addition of new refractive
centers. Operating expenses and doctor compensation as a percentage of net
revenues was 93% of net revenues as compared to 105% of net revenues in fiscal
year 1997. This reduction reflects the impact of having reached contribution
margin levels which exceed the fixed costs at most of its refractive centers.

Interest expense and other of $0.7 million includes higher interest expenses on
long term debt and capital leases which was offset by higher interest income and
foreign exchange gains.


                                       48
<PAGE>

TLC THE LASER CENTER INC.

Depreciation and amortization expense increased from $3.5 million in 1997 to
$9.5 million in fiscal year 1998. This is a result of a full year's depreciation
expense on 23 centers, which were built during the fiscal year 1997. In addition
amortization of goodwill increased from $0.5 million in 1997 to $1.7 in fiscal
1998 resulting primarily from the full year amortization of the 20/20
acquisition goodwill. Goodwill is amortized on a straight-line basis over
fifteen years.

Start up and development expenses are costs incurred to research and develop
potential businesses in North America. During fiscal 1998 the majority of start
up and development costs were incurred by PPH for the development of an eye
specialty managed care business.

Income tax expense increased from $0.1 million in 1997 to $1.1 million in 1998.
This increase is a result of Canadian center profits being taxed in Canada where
U.S. losses cannot be applied to offset taxable income.

The net loss for fiscal 1998 was $9.5 million or $0.34 per share, compared to a
loss of $9.6 million or $0.47 cents a share the previous year. The similar loss
is a result of a $2.0 million smaller operating loss before start-up and
development expenses from refractive surgery being entirely offset by $2.1
million poorer operating performance from secondary care operations which
include $1.5 million of non-recurring charges at the Chicago and Seattle
secondary care clinics. The loss from refractive operations includes $0.9
million in losses from Beacon, which was acquired six weeks before the fiscal
year end.

Liquidity and Capital Resources

The Company has financed its operations to date through cash flow, the issuance
of Common Shares, borrowings and capital lease financing. At current levels of
operations, the Company is able to finance operations and a portion of its
expansion plan.

On May 12, 1999, the Company completed a public offering in the United States of
2,990,000 Common Shares at $43.00 per share (the "Offering"). Net proceeds to
the Company, after deducting underwriting discounts and commissions, were
approximately $122.1 million. The proceeds of this offering are being used to
finance primarily the acquisition and development of additional refractive
surgery centers. In July, TLC purchased a 50.1% interest in the refractive
surgery practice of Dr. Thomas Tooma a leading refractive surgeon in the state
of California. The Company has also funded its investment in TLC USA LLC, a
venture with Kaiser Permanente, whereby TLC and Kaiser will work together to
bring Kaiser patients and doctors to TLC facilities throughout the United
States.

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

Working capital increased from $53.2 million at May 31, 1998 to $146.9 million
at May 31, 1999, primarily due to the public offering completed on May 12, 1999.

At May 31, 1999, unrestricted cash and marketable securities totaled $151.8
million, an increase of $96.6 million from the $55.2 million balance on May 31,
1998. Net cash provided by operating activities for the year ended May 31, 1999
amounted to $21.0 million, as compared to a use of


                                       49
<PAGE>

TLC THE LASER CENTER INC.

$11.8 million for the year ended May 31, 1998. The increase in cash from
operating activities is a result of the higher earnings before restructuring
charges. Cash from financing activities was $113.5 million. This increase was a
result of the May public share issue. Cash was used to prepay high cost debt and
reduce the overall cost of capital to the Company.

The Company continued to invest in assets to develop and expand its refractive
procedure capacity in anticipation of continued growth, through the development
of new centers and acquisition of refractive practices. At the current time, TLC
has more than 15 centers under development. In addition, the Company is actively
pursuing other acquisition opportunities.

Forward-Looking Information:

This annual report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which statements can be identified by the use
of forward looking terminology, such as "may", "will", "expect", "anticipate",
"estimate", "predict", "plans" or "continue" or the negative thereof or other
variations thereon or comparable terminology referring to future events or
results. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of numerous factors,
including the timing of acquisitions and expansion opportunities, any of which
could cause actual results to vary materially from current results or TLC's
anticipated future results. See Risk Factors and the Company's reports filed
with The Toronto Stock Exchange and the U.S. Securities and Exchange Commission
from time to time for cautionary statements identifying important factors with
respect to such forward looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from results
referred to in forward looking statements. TLC assumes no obligation to update
the information contained in this annual report.

Outlook

Market

The continuing growth of the laser vision correction industry is fueled by the
increasing acceptance of the procedure in North American society. The increasing
consumer acceptance is a result of wider awareness and broader public
understanding of the procedure and its safety and benefits.

Business Development Strategy

TLC will continue to work with local optometrists to continue to expand the
co-management model, which been a successful strategy for the Company and the
optometric community over the last few years. The Company expects to continue to
open new facilities and acquire existing practices. Finally the Company has
developed new marketing strategies to capitalize on the broader public
acceptance of the procedure.

As the market acceptance of laser vision correction continues to increase, TLC
believes competition among service providers will continue and candidates for
laser vision correction will increasingly select a provider based on factors
other than solely the advice of a patient's doctor. Brand recognition will be a
key factor for provider selection, and, consequently, TLC is developing a strong
reputation and brand recognition. TLC has dedicated greater resources towards
enhancing its marketing programs directed at the public to increase TLC's brand
recognition.

TLC is developing innovative marketing programs including the "Corporate
Advantage" program, which is directed at vision plans, large employers, and
employee associations to provide TLC with preferred access to large employee
groups. Participating employers may subsidize the cost of an employee's
refractive surgery at a TLC center and the procedure may be provided at a
discounted price. Any price discounting offered by TLC must be in conjunction
with a high expectation that volumes and therefore overall profitability would
be substantially increased. The cost to the employer of the subsidy may be
offset by reductions in the ongoing cost of providing eyeglasses or other
conventional vision correction. In addition many employees see the availability
of laser vision correction as a significant enhancement to an employer's benefit
plan.

Competition

TLC faces competition in many of its markets. TLC's brand stategy and strong
reputation for high level of service and quality of care allows TLC to command a
higher price. TLC believes we have the best and most experienced doctors, the
most advanced equipment, and best staff, which commands a price premium that the
company believes patients are willing to pay.

Other Business Segments

The company has divested itself of several secondary care investments and does
not expect to make further investments in secondary care facilities. TLC
believes it is now able to develop and maintain strong relationships with
ophthalmologists without managing their secondary care practices. TLC Capital
Corporation was established as a wholly owned subsidiary to make passive
strategic investments in refractive surgery and related businesses. In fiscal
1999 TLC Capital invested $10 million into Lasersight Incorporated a leading
developer of excimer Laser technology who is currently seeking FDA approval in
the United States, Aspen HealthCare, Vision Corporation and Vision Source.

Stock Price Fluctuation

The stock prices of emerging high technology stocks are subject to significant
fluctuations. The stock price may be affected by a number of factors including
but not limited to lower than expected growth in procedure volume, lower
pricing, and higher costs associated with the high growth and market expansion.
In addition, if revenues or earnings in any quarter fail to meet the investment
community's expectations, there could be an immediate adverse impact on the
Company's stock price.


                                       50
<PAGE>

TLC THE LASER CENTER INC.

Year 2000 Compliance

The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000 problem"
is pervasive and complex. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.

The Company completed a comprehensive study of the possible affects of the Year
2000 issue on its systems and results of operations and a detailed plan of
action including projected costs and contingency plans. In August of 1999, the
Company expects to complete a total company-wide upgrade of its financial,
operational systems and relevant hardware. This upgrade will provide significant
additional systems functionality and integration as well as enhanced internal
communication tools to the whole organization. As part of this upgrade the
Company believes that it has prepared its computer systems and related
applications to accommodate date-sensitive information relating to the Year
2000. The Company's systems constitute primarily desktop computers most of which
are linked by a local area network server at individual locations. The Company
has determined that its software applications for all essential functions, such
as all financial applications, scheduling, center management and communications,
are already Year 2000 compliant. Any upgrades still to be done, mostly replacing
some older desktop computers and relevant operating software, will not be
material to the financial condition or results of operations of the Company.
Such costs will be expensed as incurred.

The Company is continuing to monitor the Y2K compliance of its suppliers. To
date, no significant concerns have been identified. However, there can be no
assurance that Year 2000-related issues with the providers of good and services
will not have a material adverse affect on the financial condition or the
results of operations of the Company.

The Company's core business is operating refractive laser surgery centers that
are equipped with a computer-controlled excimer laser as the primary essential
piece of equipment. VISX Incorporated ("VISX") manufactured approximately 85% of
the excimer lasers owned by the Company. Representatives from VISX have informed
the Company that it has tested its lasers for Year 2000 compliance and that the
lasers will function without any affect on safety or efficacy upon a change of
date to the Year 2000. However, without any upgrade, some VISX lasers might
print out patient reports with an incorrect date on them. VISX has developed a
software upgrade to correct this problem and has installed the upgrade in the
Company's VISX lasers at no cost to the Company. The Company's refractive
centers are equipped with other computer-controlled ophthalmic equipment, but
none are essential to the laser vision correction procedure. The Company does
not expect that the cost of any replacements or upgrades required for other
ophthalmic equipment in its laser centers for the Year 2000 will be material to
the financial condition or results of operations of the Company.

Laser vision correction is an elective procedure, which is not covered by
Medicare, Medicaid or other governmental reimbursement programs. There are some
private insurance companies that provide partial or full coverage for the
procedure, which the Company estimates accounts for approximately 8% of its
revenues for the period from June 1, 1998 to May 31, 1999. In the event private
insurance companies that cover the laser vision procedure have difficulty
processing and paying claims because of Year 2000 issues, this could cause
accounts receivable for refractive procedures performed at the Company's
refractive centers to increase, or the patient volume in the


                                       51
<PAGE>

TLC THE LASER CENTER INC.

refractive centers operated by the Company to decrease, which could have a
material adverse effect on the financial condition or results of operations of
the Company until such Year 2000 problems are corrected. Most secondary care
procedures are covered by governmental reimbursement programs, such as Medicare
or Medicaid, and by private insurance companies. In the event such third party
payers have difficulty processing and paying claims because of Year 2000 issues,
this could cause delays in such payments and an increase in accounts receivable
for procedures performed in secondary care in which the Company has an
investment.

Further, the Company cannot predict the impact that the Year 2000 issue will
have on its potential patients or the economy generally. If the Year 2000 issue
were to have a significant adverse impact on the economy or potential patients
perception of the economy, this could have a material adverse impact on the
number of procedures performed, particularly with respect to elective procedures
such as refractive surgery, and on the Company's financial results until the
economy and consumer confidence recover.

New Accounting Pronouncements

Under SEC Staff Accounting Bulletin 74, the Company is required to disclose
certain information related to new accounting standards which have not yet been
adopted due to delayed effective dates. In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning after
June 15, 2000. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company.

During 1998, The American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, and Statement of Position No. 98-5,
Reporting on the Costs of Start-Up Activities, which are required to be adopted
in years beginning after December 15, 1998. The Company does not believe that
pronouncements Nos. 98-1 and 98-5 will have a material effect on its
consolidated financial statements.

ITEM 7A. MARKET RISK

      Not Applicable.


                                       52
<PAGE>

TLC THE LASER CENTER INC.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

RESPONSIBILITY FOR FINANCIAL STATEMENTS

The accompanying consolidated financial statements of TLC The Laser Center Inc.
have been prepared by management in accordance with accounting principles
generally accepted in Canada consistently applied. The most significant of these
accounting policies have been set out in Note 1 to the financial statements.
These statements are presented on the accrual basis of accounting. Accordingly,
a precise determination of many assets and liabilities is dependent upon future
events. Therefore, estimates and approximations have been made using careful
judgment. Recognizing that the Company is responsible for both the integrity and
objectivity of the financial statements, management is satisfied that these
financial statements have been prepared within reasonable limits of materiality.

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

The financial information throughout the text of this annual report is
consistent with the information presented in the financial statements.

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

External Auditors

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

Ernst & Young LLP, Chartered Accountants, having been appointed by the
shareholders to serve as the Company's external auditors, have examined the
consolidated financial statements of the Company for the years ended May 31,
1999 and 1998, and have reported thereon in their July 13, 1999 report.


                                       53
<PAGE>

TLC THE LASER CENTER INC.

AUDITORS' REPORT

To the Shareholders of TLC The Laser Center Inc.

We have audited the consolidated balance sheet of TLC The Laser Center Inc. as
at May 31, 1999 and 1998 and the consolidated statements of income (loss),
deficit and changes in financial position for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 1999 and
1998 and the results of its operations and the changes in its financial position
for the years then ended in accordance with accounting principles generally
accepted in Canada.

The financial statements as at May 31, 1997 and for the year then ended, prior
to the change in reporting currency described in Note 1, were audited by other
auditors who expressed an opinion without reservation on those statements in
their report dated August 8, 1997. We have examined the restatement of such
financial statements for the change in reporting currency and, in our opinion,
such restatement is appropriate and has been properly applied.

Toronto, Canada                                      (Signed) ERNST & YOUNG LLP
July 13, 1999                                             Chartered Accountants


                                       54
<PAGE>

TLC THE LASER CENTER INC.

TLC THE LASER CENTER INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

<TABLE>
<CAPTION>
                                                                        Years Ended May 31,
                                                          ------------------------------------------------
                                                              1999              1998              1997
                                                          ------------      ------------      ------------
<S>                                                       <C>               <C>               <C>
Net revenues

         Refractive                                       $    132,428      $     51,079      $     15,130

         Secondary care                                         11,389             6,641             4,982

         Other                                                   3,093             1,402                --
                                                          ------------      ------------      ------------
Net revenues (Note 14)                                         146,910            59,122            20,112
                                                          ------------      ------------      ------------

Expenses

         Doctor compensation

                  Refractive                                    12,824             5,242             1,476

         Operating                                             102,775            49,521            19,598

         Interest and other (Note 11)                            2,245               692               752

         Depreciation and amortization (Note 11)                14,934             9,460             3,463

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

         Restructuring charges (Note 17)                        12,924                --                --
                                                          ------------      ------------      ------------
                                                               149,308            68,182            29,581
                                                          ------------      ------------      ------------
LOSS BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST           (2,398)           (9,060)           (9,469)
                                                          ------------      ------------      ------------

Income taxes

         Current (Note 12)                                         816             1,071                95

         Deferred                                                   --                --                10
                                                          ------------      ------------      ------------
                                                                   816             1,071               105
                                                          ------------      ------------      ------------
LOSS BEFORE NON-CONTROLLING INTEREST                            (3,214)          (10,131)           (9,574)

Non-controlling interest                                          (448)              593                --
                                                          ------------      ------------      ------------
NET LOSS FOR THE YEAR                                           (3,662)     $     (9,538)     $     (9,574)
                                                          ============      ============      ============
LOSS PER SHARE                                            $      (0.11)     $      (0.34)     $      (0.47)
                                                          ============      ============      ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES                    34,090,316        28,034,741        20,617,104
                                                          ============      ============      ============
</TABLE>


                                       55
<PAGE>

TLC THE LASER CENTER INC.

TLC THE LASER CENTER INC.
CONSOLIDATED STATEMENTS OF DEFICIT

(U.S. dollars, in thousands)
<TABLE>
<CAPTION>
                                                          Years ended May 31,
                                                 ------------------------------------
                                                   1999          1998          1997
                                                 --------      --------      --------
<S>                                              <C>           <C>           <C>
Balance, beginning of year                       $(21,679)     $(12,141)     $ (2,567)

Net loss for the year                              (3,662)       (9,538)       (9,574)
Excess of buyback price over average cost of
common shares purchased for cancellation           (4,290)           --            --
                                                 --------      --------      --------
Balance, end of year                             $(29,631)     $(21,679)     $(12,141)
                                                 ========      ========      ========
</TABLE>


                                       56
<PAGE>

TLC THE LASER CENTER INC.

   TLC THE LASER CENTER INC.
CONSOLIDATED BALANCE SHEETS

(U.S. dollars, in thousands)

<TABLE>
<CAPTION>
                                                                          May 31
                                                                 ------------------------
                                                                    1999          1998
                                                                 ---------      ---------
<S>                                                              <C>            <C>
ASSETS
Current assets:
     Cash and short-term deposits (Note 2)                       $   7,548      $   1,895
     Marketable securities (Note 15)                               144,262         53,303
     Accounts receivable (Note 15)                                  15,359         10,282
     Prepaids and sundry assets                                      6,602          4,632
                                                                 ---------      ---------
     Total current assets                                          173,771         70,112
Restricted cash (Note 2)                                             1,730          2,086
Investments and other assets (Note 3)                               14,359          2,594
Intangibles (Note 4)                                                47,441         47,189
Capital assets (Note 5)                                             38,993         31,049
Assets under capital lease (Note 6)                                 10,556         11,182
                                                                 ---------      ---------
Total assets                                                     $ 286,850      $ 164,212
                                                                 =========      =========

LIABILITIES
Current liabilities
     Accounts payable and accrued liabilities                       19,512      $   9,214
     Income taxes payable                                              477            613
     Current portion of long-term debt                               2,181          2,861
     Current portion of obligations under capital lease              4,717          3,951
     Deferred compensation (Note 9)                                     --            320
                                                                 ---------      ---------
     Total current liabilities                                      26,887         16,959
Long-term debt (Note 7)                                              4,620          8,378
Obligations under capital lease (Note 8)                             6,410          9,533
Deferred rent (Note 9)                                                 959          1,110
                                                                 ---------      ---------
     Total liabilities                                              38,876         35,980
                                                                 ---------      ---------
Non-controlling interest                                             8,151          6,357
                                                                 ---------      ---------
Commitments and contingencies (Notes 13 and 20)

SHAREHOLDERS' EQUITY
Capital stock (issued: 1999 -- 37,362;1998 -- 33,668) (Note 10)    269,454        143,554
Deficit                                                            (29,631)       (21,679)
                                                                 ---------      ---------
     Total shareholders' equity                                    239,823        121,875
                                                                 ---------      ---------
Total liabilities and shareholders' equity                       $ 286,850      $ 164,212
                                                                 =========      =========
</TABLE>

Approved on behalf of the Board:

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


                                       57
<PAGE>

TLC THE LASER CENTER INC.

TLC THE LASER CENTER CONSOLIDATED STATEMENTS OF CHANGES IN
FINANCIAL POSITION

(U.S. dollars, in thousands)

<TABLE>
<CAPTION>
                                                       1999          1998           1997
                                                    ---------      ---------      ---------
<S>                                                 <C>            <C>            <C>
Operating activities
Net loss for the year                               $  (3,662)     $  (9,538)     $  (9,574)
Items not affecting cash
     Depreciation and amortization                     14,934          9,460          3,463
     Non-cash restructuring costs                      11,167             --             --
     Non-controlling interest                             448           (593)            --
     Other                                               (348)            22            323
Changes in non-cash operating items
     Accounts receivable                               (9,247)        (6,964)            56
     Prepaids and sundry assets                        (2,208)        (2,129)        (1,226)
     Accounts payable and accrued liabilities          10,350         (2,480)          (500)
     Income taxes payable (net)                          (162)           647           (105)
     Deferred rent and compensation                      (275)          (234)           698
                                                    ---------      ---------      ---------
Cash provided by (used in) operating activities        20,997        (11,809)        (6,865)
                                                    ---------      ---------      ---------
Financing activities
Restricted cash                                           356            463           (961)
Long-term debt                                         (5,905)         1,313          2,751
Term bank loan                                             --            (43)           (27)
Obligations under capital lease                        (2,657)         1,490          4,771
Shares received on disposition of subsidiaries         (4,047)            --             --
Non-controlling interest                                   72            412             98
Capital stock issued, net                             125,657         80,032         50,028
                                                    ---------      ---------      ---------
Cash provided by financing activities                 113,476         83,667         56,660
                                                    ---------      ---------      ---------
Investing activities
Capital assets                                        (16,790)        (4,460)       (12,782)
Assets under capital lease                             (1,469)        (2,196)        (4,480)
Acquisitions and investments, net of cash             (23,891)       (22,492)       (21,717)
Proceeds from disposition of subsidiaries               4,047             --             --
Marketable securities                                 (90,959)       (53,303)            --
Other                                                     242           (742)          (224)
                                                    ---------      ---------      ---------
Cash used in investing activities                    (128,820)       (83,193)       (39,203)
                                                    ---------      ---------      ---------
Increase (decrease) in cash                             5,653        (11,335)        10,592
Cash and short-term deposits, beginning of year         1,895         13,230          2,638
                                                    ---------      ---------      ---------
Cash and short-term deposits, end of year           $   7,548      $   1,895      $  13,230
                                                    =========      =========      =========
</TABLE>


                                       58
<PAGE>

TLC THE LASER CENTER INC.

TLC THE LASER CENTER INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

Nature of Operations

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

The Company currently owns and manages a secondary eye care business with
multiple offices in the state of Michigan. These centers provide all necessary
clinical equipment and infrastructure and provide all related management and
support services to physician practices treating a wide range of vision
disorders. During the year, the Company has restructured certain of its
secondary care investments and does not expect to make further investment in
secondary care facilities.

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

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

The industry in which the Company operates is subject to extensive federal,
state and local laws, rules and regulations. Many of these laws and regulations
are ambiguous in nature and have not been definitively interpreted by courts and
regulatory authorities. Moreover, they vary from jurisdiction to jurisdiction.
Accordingly, the Company may not always be able to predict clearly how such laws
and regulations will be interpreted or applied and some of the Company's
activities could be challenged. In addition, there can be no assurance that the
regulatory environment in which the Company operates will not change
significantly in the future.

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

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


                                       59
<PAGE>

TLC THE LASER CENTER INC.

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

1. Summary of Significant Accounting Policies

These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. Significant differences
between Canadian and United States generally accepted accounting principles
affecting the determination of shareholders' equity at May 31, 1999 and 1998 and
the determination of net income (loss) for each of the years in the three-year
period ended May 31, 1999 are summarized in Note 19.

Basis of Presentation

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

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

Reporting Currency

Prior to May 31, 1998, the Company's consolidated financial statements have been
expressed in Canadian dollars. As a result of increased business activity in the
United States ("U.S.") resulting principally from recent U.S. acquisitions, the
opening of new centers in the U.S. and the Company's growing U.S. shareholder
base, the U.S. dollar has become the unit of measure of a large majority of the
Company's operations. Accordingly, the U.S. dollar has been adopted as the
Company's reporting currency effective May 31, 1998. The consolidated financial
statements and the notes thereto have been restated in U.S. dollars for all
periods ending on May 31, 1998 or prior, in accordance with Canadian generally
accepted accounting principles, using the May 31, 1998 exchange rate of Canadian
$1.4570 per U.S. $1.00.

For periods up to May 31, 1998, the U.S. dollar denominated assets and
liabilities of the Company's Canadian operations and its integrated U.S.
operations were translated into Canadian dollars at exchange rates prevailing at
the balance sheet date for monetary items and at exchange rates prevailing at
the transaction dates for non-monetary items. U.S. dollar denominated income and
expenses were translated into Canadian dollars at average exchange rates
prevailing during the year with the exception of depreciation and amortization,
which were translated at historical


                                       60
<PAGE>

TLC THE LASER CENTER INC.

exchange rates. Exchange gains and losses were included in earnings, except for
unrealized gains and losses on translation of U.S. dollar denominated debt which
were deferred and amortized over the remaining term of the related obligation.
The Canadian dollar consolidated financial statement amounts so derived have
been restated in U.S. dollars using the May 31, 1998 exchange rate described
above.

For periods after May 31, 1998, the unit of measure of the parent holding
company is the U.S. dollar. In addition, the Company's Canadian operations are
considered integrated and are translated into U.S. dollars using the temporal
method. Accordingly, the assets and liabilities of the Company's Canadian
operations are translated into U.S. dollars at exchange rates prevailing at the
balance sheet date for monetary items and at exchange rates prevailing at the
transaction dates for non-monetary items. Income and expenses are translated
into U.S. dollars at average exchange rates prevailing during the year with the
exception of depreciation and amortization, which are translated at historical
exchange rates. Exchange gains and losses are included in earnings, except for
unrealized gains and losses on translation of Canadian dollar denominated debt
which are deferred and amortized over the remaining term of the related
obligation.

Capital Assets and Assets Under Capital Lease

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

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

Intangibles

Goodwill represents the excess of the purchase price over the fair value of the
identifiable net assets acquired, and is being amortized on a straight line
basis over 15 years. On an ongoing basis, management reviews the valuation and
amortization period of goodwill, taking into consideration any events and
circumstances which might have impaired its carrying value. Goodwill is written
down to net recoverable value when declines in value are considered to be other
than temporary based upon expected undiscounted cash flows of the related
acquired business.

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


                                       61
<PAGE>

TLC THE LASER CENTER INC.

Start-up and Development Expenses

Start-up and development expenses represent costs incurred to research and
develop potential businesses in North America, including salaries and benefits,
professional fees, advertising, promotion and travel, and costs incurred by
businesses during the period prior to commencement of commercial operations.
Start-up and development expenses are expensed as incurred.

Revenues

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

Management service revenue is equal to the net revenue of the physician
practices, less amounts retained by the physician groups. Net revenue of the
physician practices is recorded by the physician groups at established rates
reduced by provision for doubtful accounts, contractual adjustments and amounts
retained by physician groups. Contractual adjustments arise due to the terms of
certain reimbursement and managed care contracts. Such adjustments represent the
difference between the charges at established rates and estimated recoverable
amounts and are recognized in the period the services are rendered. Any
differences between estimated contractual adjustments and actual final
settlements under reimbursement contracts are recognized as contractual
adjustments in the year final settlements are determined.

Deferred Income Taxes

The Company follows the tax allocation method of providing for income taxes.
Under this method, deferred income taxes result from the recording of certain
income or expenses for accounting purposes in periods other than those in which
they are reported for income tax purposes.

Cash and Short-term Deposits

Cash and short-term deposits include short-term investments with original
maturities of 90 days or less.

Marketable Securities

Marketable securities, which consist principally of corporate bonds, are carried
at the lower of cost or market value.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of


                                       62
<PAGE>

TLC THE LASER CENTER INC.

the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
These estimates are reviewed periodically, and, as adjustments become necessary,
they are reported in earnings in the period in which they become known.

2. Cash and Short-term Deposits

                                                  1999             1998
                                                 ------           ------
Cash and short-term deposits                     $7,548           $1,895
                                                 ======           ======

The Company has a banking facility of approximately $927,000 (CDN$1,367,000)
(1998 -- $1,167,000 [CDN $1,700,000]) available for posting letters of
guarantee, under terms whereby the Company must maintain a similar minimum
amount in its bank account. At May 31, 1999, $678,000 of this facility has been
utilized ($692,000 at May 31, 1998). In addition, the Company has posted cash
collateral deposits in respect of certain lease commitments, which amount to
$1,052,000 at May 31, 1999 ($1,394,000 at May 31, 1998). These restricted cash
amounts have been excluded from cash and short-term deposits.

3. Investments and Other Assets

                                                          1999             1998
                                                         ------           ------
Portfolio investments (1)                                10,907              931
Deferred foreign exchange gain                              432              742
Long-term receivables (2)                                 1,115               --
Other                                                     1,905              921
                                                         ------           ------
                                                         14,359            2,594
                                                         ======           ======

(1) On June 8, 1998 the Company made a portfolio investment of $8.0 million in
cash through the purchase of 2,000,000 preference shares in LaserSight
Incorporated. These preference shares are convertible to LaserSight Incorporated
common shares at $4.00. On March 24, 1999, the Company made an additional $2.0
million investment to purchase 500,000 common shares in LaserSight Incorporated.
This investment maintained the Company's investment percentage in LaserSight
Incorporated. LaserSight Incorporated is a publicly traded United States
manufacturer of excimer lasers, microkeratomes and microkeratome blades with an
approval for its excimer laser pending from the United States Food and Drug
Administration. The Company's fully-diluted ownership interest in LaserSight
Incorporated is 15.2%.

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

4. Intangibles

                                                             1999         1998
                                                           -------       -------
Goodwill (net of amortization of $5,013,000
(1998 - $2,164,000))                                       $35,810       $32,401
Practice management agreements (net of
amortization of $1,626,000 [1998 - $2,174,000])             11,631        14,788
                                                           -------       -------
                                                           $47,441       $47,189
                                                           =======       =======


                                       63
<PAGE>

TLC THE LASER CENTER INC.

<TABLE>
<CAPTION>
5. Capital Assets

                                                     1999                            1998
                                             --------------------------       --------------------------
                                                           Accumulated                      Accumulated
                                               Cost        Depreciation        Cost         Depreciation
                                             -------       ------------       -------       ------------
<S>                                          <C>                 <C>          <C>                 <C>
Land and buildings                           $ 1,634                492            --                 --

Computer equipment and software                9,403              4,911         6,356              2,766

Furniture, fixtures and equipment              6,278              2,522         5,678              1,628

Laser equipment                               13,615              4,208         8,640              2,837

Leasehold Improvements                        18,117              5,952        14,911              3,380

Medical equipment                             10,458              3,305         7,762              1,943

Vehicles and other                             1,193                315           311                 55
                                             -------            -------       -------            -------
                                              60,698             21,705        43,658             12,609
Less:  accumulated depreciation               21,705                           12,609
                                             =======            -------       =======            -------
Net book value                                38,993                          $31,049
                                             =======                          =======
</TABLE>

6. Assets under Capital Lease

<TABLE>
<CAPTION>
                                                                                1999               1998
                                                                              -------            -------
<S>                                                                           <C>                <C>
Computer equipment and software                                               $   116            $   177

Furniture, fixtures and equipment                                                 392                393

Laser equipment                                                                13,691             12,082

Leasehold Improvements                                                             60                 --

Medical equipment                                                               2,398              2,325
                                                                              -------            -------
                                                                               16,657             14,977
Accumulated depreciation                                                        6,101              3,795
                                                                              -------            -------
                                                                               10,556            $11,182
                                                                              =======            =======
</TABLE>


                                       64
<PAGE>

TLC THE LASER CENTER INC.

7. Long-Term Debt

                                                              1999       1998
                                                            -------    -------
Participating loans
Interest at 18%, due December 1999 to February 2001,
  collateralized by equipment                                    --    $ 3,903

Term loans
Interest at 8%, due July 2000 to September 2001,
  payable to affiliated physicians                              716        584
Interest ranging from 5.75% to 12%, due July 1999
  to March 2007, (1998 - Libor plus 2.25% to 8.5%,
  due December 2000 to February 2003) collateralized
  by equipment                                                6,085      6,752
                                                            -------    -------
                                                              6,801     11,239

Less current portion                                          2,181      2,861
                                                            -------    -------
                                                            $ 4,620    $ 8,378
                                                            =======    =======

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

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

      2000                                                        $2,181
      2001                                                        $1,931
      2002                                                        $1,702
      2003                                                        $  692
      2004                                                        $  295

8. Obligations Under Capital Leases

The leases expire between 2000 and 2003 and include imputed interest at rates
ranging from 6% to 14%. The majority of capital leases are denominated in U.S.
dollars. The capitalized lease obligations represent the present value of future
minimum annual lease payments as follows:

                                                        1999               1998
                                                       ------             ------
      1999                                                 --              5,946
      2000                                              5,141              5,821
      2001                                              4,429              5,009
      2002                                              2,890              4,002
      2003                                                816                809
                                                       ------             ------
                                                       13,276             21,587
      Less interest portion                             2,149              8,103
                                                       ------             ------
                                                       11,127             13,484
      Less current portion                              4,717              3,951
                                                       ------             ------
                                                       $6,410             $9,533
                                                       ======             ======

9. Deferred Compensation and Rent

Deferred compensation represents a plan to compensate certain key managerial
executives and was included as part of the acquisition of 20/20 Laser Centers,
Inc. ("20/20") (Note 16). The plan vested 100% on the earlier of February 15,
1999 or termination of employment, as defined. On


                                       65
<PAGE>

TLC THE LASER CENTER INC.

May 31, 1998, $320,000 was accrued on potential deferred compensation of
$320,000. During fiscal 1999, outstanding options were exercised resulting in
the elimination of the outstanding liability.

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


                                       66
<PAGE>

TLC THE LASER CENTER INC.

10. Capital Stock

a) Common Stock

                                                             1999         1998
                                                           --------     --------

Common-authorized, unlimited number of shares

Issued:  37,361,629 (1998 - 33,667,843) shares             $269,454     $143,554
                                                           ========     ========

      Changes in common shares and special warrants for the period May 31, 1996
      to May 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                                        Common Shares                Special Warrants
                                                                        -------------                ----------------
                                                                  # of Shares      $ Value       # of Warrants      $ Value
                                                                  -----------      -------       -------------      -------
<S>                                                                  <C>          <C>                <C>            <C>
May 31, 1996                                                         16,589          13,494              --              --
Exercise of agent's compensation warrants related to the IPO            158             486
Public offering, net of issue costs                                   4,025          18,015
Shares issued to acquire 20/20                                        4,364          21,717
Exercise of stock options                                                43              86
Issuance of special warrants, net of issue costs                                                      1,818         $ 9,664
Other                                                                    10              60              --              --
                                                                  ---------------------------------------------------------
May 31, 1997                                                         25,189          53,858           1,818           9,664
Conversion of special warrants                                        1,818           9,664          (1,818)         (9,664)
Additional special warrant issue costs                                                  (40)
Shares issued for acquisition (1) (Note 16)                           1,604          16,417
Exercise of agent's compensation warrants related to the IPO            138             447
Exercise of stock options                                               179             786
Public offering, net of issue costs                                   4,740          62,422              --              --
                                                                  ---------------------------------------------------------
May 31, 1998                                                         33,668       $ 143,554              --              --
Shares issued for acquisitions (Note 16)                                 50             837
Shares issued to acquire other assets                                    50             728
Shares cancelled during the year (2)                                   (256)         (1,095)
Exercise of stock options                                               773           3,073
Shares issued as remuneration                                            40             600
Shares issued as part of the employee share savings plan (3)             47             750
Public offering, net of issue costs                                   2,990         121,007              --              --
                                                                  ---------------------------------------------------------
May 31, 1999                                                         37,362         269,454              --              --
                                                                  =========================================================
</TABLE>

(1) This includes approximately 421,804 shares issued in connection with the
acquisition of The Vision Source, Inc. The Common Shares issued are held in
escrow. Release of approximately 210,902 of these shares is subject to an earn
out formula. These shares represent contingent purchase consideration and,
therefore, they will not be valued until completion of the earn out period and
the outcome of the contingency is known. The remaining approximately 210,902
shares were released from escrow within 15 months from the issue date (see Note
16).
(2) On September 24, 1998, the Company exercised a contractual option to
purchase 116,771 common shares from the Goldstein Family Trust for $1,264,411 in
cash. The common shares were then cancelled and capital stock was reduced using
the average value of common shares as of November 30, 1998 of CDN$6.20 per
share. The remaining allocation of the cash paid for the shares was reflected as
a reduction in retained earnings. In addition, shares were retired in connection
with a divestiture (Note 17)
(3) During fiscal 1999, the Company introduced an employee share purchase plan
to facilitate the ownership of Company common shares by its employees. Employee
purchases are supplemented annually by an additional 25% contribution by the
Company.


                                       67
<PAGE>

TLC THE LASER CENTER INC.

b) Options

At May 31, 1999, the Company has reserved 4,116,000 Common Shares for issuance
under its stock option plan for corporate employees and certain other
individuals. Options granted have terms ranging from 5 to 8 years. Vesting
provisions on options granted to date include options that vested immediately,
options that vest in equal amounts annually over the first four years of the
option term and options that vest entirely on the first anniversary from the
grant date. Those exercise prices, which are denominated in Canadian dollars,
for options outstanding as of May 31, 1999 range as follows:

                   Number of Options               Price Range
                   -----------------               -----------
                      1,595,758               CDN$2.50 - CDN$7.25
                       332,070               CDN$11.45 - CDN$17.90
                       492,704               CDN$20.75 - CDN$29.90
                        9,175                CDN$32.18 - CDN$70.65

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

                    Number of Options              Price Range
                    -----------------              -----------
                       254,346                   $18.63 - $23.50
                        7,500                    $27.38 - $38.62

<TABLE>
<CAPTION>
                                                                  Weighted            Weighted
                                                               Average Strike          Average
                                                                  Price Per          Strike Price
                                          Options                  Share              Per Share
                                          -------             ----------------     ---------------
<S>                                         <C>                       <C>                  <C>
May 31, 1996                                1,766                     CDN$3.19             US$2.19
Granted                                       320                         7.25                4.98
Exercised                                    (20)                         1.50                1.03
                                             (23)                         4.11                2.82
Forfeited                                    (74)                         6.65                4.56
                                          -------             ----------------     ---------------
May 31, 1997                                1,969                     CDN$3.73             US$2.56
Granted                                       518                        11.79                8.09
Exercised                                    (71)                         6.12                4.20
                                          -------             ----------------     ---------------
May 31, 1998                                2,416                     CDN$5.39             US$3.70
Granted                                       783                        26.71               17.65
Exercised                                   (507)                         7.21                4.77
                                          -------             ----------------     ---------------
May 31, 1999                                2,692                    CDN$11.12             US$7.54
                                          -------             ----------------     ---------------

Exercisable at May 31, 1999                 1,916                     CDN$4.83             US$3.27
                                          =======             ================     ===============
</TABLE>

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

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


                                       68
<PAGE>

TLC THE LASER CENTER INC.

11. Interest and Other and Depreciation and Amortization

                                           1999           1998           1997
                                         --------       --------       --------
Interest and other
Interest on long-term debt               $    810       $  1,200       $    655
Interest on capital leases                  1,540          1,177            266
Interest and bank charges, net              1,992            586            320
Interest income                            (2,097)          (937)          (325)
Foreign exchange gains                         --         (1,334)          (164)
                                         --------       --------       --------
                                            2,245       $    692       $    752
                                         ========       ========       ========
Depreciation and amortization
Capital assets                              8,643       $  4,394       $  1,925
Assets under capital lease                  2,409          1,709            598
Goodwill                                    3,060          1,694            470
Practice management agreements                822          1,663            470
                                         --------       --------       --------
                                           14,934       $  9,460       $  3,463
                                         ========       ========       ========

12. Income Tax

      As at May 31, 1999, the Company has non-capital losses carried forward for
      income tax purposes of approximately $44,315,000, which are available to
      reduce taxable income of future years.

      The Canadian losses can only be utilized by the source company whereas the
      United States losses are utilized on a United States consolidated basis.
      The Canadian losses of $13,002,000 expire between 2001 and 2006. The
      United States losses of $31,313,000 expire between 2008 and 2013. Included
      in the Canadian losses are $9,208,000 of losses and in the United States
      losses are $20,618,000 of losses from the acquisitions of 20/20 and
      Beacon, of which the availability and timing of utilization may be
      restricted.

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

<TABLE>
<CAPTION>
                                                                   1999         1998
                                                                 -------      -------
<S>                                                              <C>          <C>
Income tax recovery based on the Canadian statutory
  income tax rate of 44.6% (1998 - 43%)                          $(1,070)     $(3,896)

      o  Current year losses not utilized                            263        2,196
      o  Expenses not deductible for income tax purposes           4,203        2,339
      o  Adjustments of cash vs. accrual tax deductions for
           U.S. income tax purposes                                  223        1,545
      o  Utilization of prior year losses                         (3,559)      (1,225)
      o  Corporate Minimum Tax, Large Corporations Tax, and
           foreign taxes                                           1,129          200
      o  Other                                                      (373)         (88)
                                                                 -------      -------
Income tax provision                                             $   816      $ 1,071
                                                                 =======      =======
</TABLE>

                     The income tax provision is as follows:

                                                             1999         1998
                                                           -------      -------
Current
         Canada                                            $    34      $   940
         United States - federal                               237           --
         United States - state                                 545          131
                                                           -------      -------
                                                           $   816      $ 1,071
                                                           =======      =======


                                       69
<PAGE>

TLC THE LASER CENTER INC.

13. Commitments and Contingencies

At May 31, 1999, the Company has entered into operating leases for rental office
space and equipment, which require future minimum lease payments aggregating
$23,633,000. Future minimum lease payments over the next five years are as
follows:

               2000                           $6,032
               2001                           $5,397
               2002                           $4,832
               2003                           $4,061
               2004                           $3,311

One of the Company's subsidiaries, together with other investors, have jointly
and severally guaranteed the obligations of an equity investee. Total
liabilities of the equity investee under guarantee amount to approximately
$2,551,000 at May 31, 1999.

14. Segmented Information

TLC The Laser Center Inc. has three reportable segments: refractive, secondary
care and other. The refractive segment is the core focus of the Company which
reflects the provision of laser vision correction. The secondary care segment
reflects the management of secondary care centers which provide advanced levels
of eyecare. The other segment includes an accumulation of non-core business
activities including managed care.

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

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

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


                                       70
<PAGE>

TLC THE LASER CENTER INC.

The Company's business segments are as follows:

<TABLE>
<CAPTION>
                                                                 Secondary
1999                                               Refractive       Care         Other      1999 Total
                                                   ---------------------------------------------------
<S>                                                <C>           <C>           <C>           <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics    $ 163,913     $  41,270     $   3,084     $ 208,267
Amounts retained by doctor group                     (24,644)       (8,190)          (43)      (32,877)
Contractual allowances and adjustments                (6,841)      (21,691)           52       (28,480)
                                                   ---------------------------------------------------
Net revenues                                         132,428        11,389         3,093       146,910
Doctor compensation                                   12,824            --            --        12,824
                                                   ---------------------------------------------------
Net revenue after doctor compensation                119,604        11,389         3,093       134,086
                                                   ---------------------------------------------------
Expenses:
Operating                                             90,185         8,972         3,618       102,775
Interest and other                                     2,343          (125)           27         2,245
Depreciation and amortization                         12,350         2,187           397        14,934
Start-up and development expenses                         --            --         3,606         3,606
Restructuring charges (non-cash portion
  -- $11,167)                                             --        10,298         2,626        12,924
                                                   ---------------------------------------------------
                                                     104,878        21,332        10,274       136,484
                                                   ---------------------------------------------------
Income (loss) from operations                      $  14,726     $  (9,943)    $  (7,181)    $  (2,398)
Income taxes                                            (616)           --          (200)         (816)
Non-controlling interest                                (800)         (376)          728          (448)
                                                   ---------------------------------------------------
Net income (loss)                                  $  13,310     $ (10,319)    $  (6,653)    $  (3,662)
                                                   ===================================================

Total assets                                       $ 266,021     $  16,678     $   4,151     $ 286,850
                                                   ===================================================
Total capital and intangible expenditures          $  25,803     $   7,707     $   2,026     $  35,536
                                                   ===================================================

<CAPTION>
                                                                 Secondary
1998                                               Refractive       Care         Other      1998 Total
                                                   ---------------------------------------------------
<S>                                                <C>           <C>           <C>           <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics    $  65,297     $  23,869     $   1,413     $  90,579
Amounts retained by doctor group                     (10,566)       (4,711)          (11)      (15,288)
Contractual allowances and adjustments                (3,652)      (12,517)           --       (16,169)
                                                   ---------------------------------------------------
Net revenues                                          51,079         6,641         1,402        59,122
Doctor compensation                                    5,242            --            --         5,242
                                                   ---------------------------------------------------
Net revenue after doctor compensation              $  45,837     $   6,641     $   1,402     $  53,880
                                                   ===================================================
Expenses:
Operating                                             41,620         6,294         1,607        49,521
Interest and other                                       416            87           189           692
Depreciation and amortization                          7,107         2,185           168         9,460
Start-up and development expenses                         --            --         3,267         3,267
Restructuring charges                                     --            --            --            --
                                                   ---------------------------------------------------
                                                      49,143         8,566         5,231        62,940
                                                   ---------------------------------------------------
Income (loss) from operations                      $  (3,306)    $  (1,925)       (3,829)    $  (9,060)
Income taxes                                            (994)          (71)           (6)       (1,071)
Non-controlling interest                                  78          (116)          631           593
                                                   ---------------------------------------------------
Net income (loss)                                  $  (4,222)    $  (2,112)    $  (3,204)    $  (9,538)
                                                   ===================================================

Total assets                                       $ 137,736     $  23,887     $   2,599     $ 164,212
                                                   ===================================================
Total capital and intangible expenditures          $  30,542     $  12,626     $   1,750     $  44,919
                                                   ===================================================
</TABLE>


                                       71
<PAGE>

TLC THE LASER CENTER INC.

<TABLE>
<CAPTION>
                                                                 Secondary
1997                                               Refractive       Care         Other      1997 Total
                                                   ---------------------------------------------------
<S>                                                <C>           <C>           <C>           <C>
Revenues and physician costs:
Gross revenues of all owned and managed clinics    $  18,548        14,294            --        32,842
Amounts retained by doctor group                      (1,452)       (6,251)           --        (7,703)
Contractual allowances and adjustments                (1,966)       (3,061)           --        (5,027)
                                                   ---------------------------------------------------
Net revenues                                          15,130         4,982            --        20,112
Doctor compensation                                    1,476            --            --         1,476
                                                   ---------------------------------------------------
Net revenue after doctor compensation                 13,654         4,982            --        18,636
                                                   ===================================================
Expenses:
Operating                                             15,637         3,961            --        19,598
Interest and other                                       637           115            --           752
Depreciation and amortization                          2,728           735            --         3,463
Start-up and development expenses                      2,686            --         1,606         4,292
Restructuring charges                                     --            --            --            --
                                                   ---------------------------------------------------
                                                      21,688         4,811         1,606        28,105
                                                   ---------------------------------------------------
Income (loss) from operations                         (8,034)          171        (1,606)       (9,469)
Income taxes                                              83          (188)           --          (105)
Non-controlling interest                                  --            --            --            --
                                                   ---------------------------------------------------
Net income (loss)                                  $  (7,951)    $     (17)    $  (1,606)    $  (9,574)
                                                   ===================================================

Total assets                                       $  65,108         8,676            --     $  73,784
                                                   ===================================================
Total capital and intangible expenditures          $  41,131     $   4,419     $     157     $  45,707
                                                   ===================================================
</TABLE>


                                       72
<PAGE>

TLC THE LASER CENTER INC.

                The Company's geographic segments are as follows:

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

Total capital assets and intangibles          $ 18,895     $ 78,095     $ 96,990
                                              ==================================

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

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

                                                            United
1997                                           Canada       States       Total
                                              ----------------------------------
Revenues and physician costs:
Net revenues                                  $  7,745     $ 12,367     $ 20,112
Doctor compensation                                895          581        1,476
                                              ----------------------------------
Net revenue after doctor compensation         $  6,850     $ 11,786     $ 18,636
                                              ==================================

Total capital assets and intangibles          $  2,110     $ 51,851     $ 53,961
                                              ==================================


                                       73
<PAGE>

TLC THE LASER CENTER INC.

15. Financial Instruments

Fair Value

The carrying amounts of cash and short-term deposits, accounts receivable,
accounts payable and income taxes payable approximates their fair values because
of the short-term maturities of these items.

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

The fair values of the Company's marketable securities are based on quotes from
brokers. The Company's marketable securities portfolio consists substantially of
corporate bonds. The bonds were purchased with the proceeds from the Company's
May 1999 (April 1998) share offerings and at May 31, 1998 and 1999 the bonds had
remaining terms to maturity not exceeding six months with a substantial majority
of the bonds having terms to maturity of less than one month. It is the
Company's intention to hold the bonds to their maturity.

Portfolio investments consist of the Company's investment in the common and
preferred shares of LaserSight Incorporated and the common shares of one other
publicly traded company (1998 - two). These investments are accounted for at the
lower of cost or market. The fair value of the Company's portfolio investments,
excluding the LaserSight Incorporated preferred shares, are based on quotes from
brokers. Fair value information for the LaserSight Incorporated preferred shares
is not readily determinable and therefore the preferred shares have been
included at their cost in the fair value information presented below.

                                                             1999         1998
                                                             ----         ----
Fair values

Marketable securities                                      $143,980     $ 53,171

Portfolio investments (cost: 1999 - 10,907; 1998 - 931)      21,470        1,470

Risk Management

The Company is exposed to credit risk on accounts receivable from its customers.
In order to reduce its credit risk, the Company has adopted credit policies,
which include the analysis of the financial position of its customers and the
regular review of credit limits. At May 31, 1999, the Company had recorded an
allowance for doubtful accounts of $1,479,000 (1998 -- $1,668,000). The Company
does not have a significant exposure to any individual customer, except for
amounts due from those refractive and secondary eye practices which it manages
and which are collateralized by the practice's patient receivables. As at May
31, 1999, there were no significant individual accounts receivable balances. At
May 31, 1998, two accounts receivable balances owing from each of a refractive
and secondary care center represented 64% of total accounts receivable.


                                       74
<PAGE>

TLC THE LASER CENTER INC.

Cash accounts at the Canadian banks are insured by Canadian Depositary Insurance
Corporation for up to $60,000. In the United States, the Federal Depositary
Insurance Corporation insures cash balances up to $100,000. At May 31, 1999,
bank deposits exceeded insured limits by $6,572,530 (1998 -- $3,475,275).

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

16. Acquisitions

1999 Transactions

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

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

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

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

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

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

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


                                       75
<PAGE>

TLC THE LASER CENTER INC.

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

During the year, the Company completed transactions with doctor groups to
enhance the network of optometrists and ophthalmologists in exchange for common
shares with a value of $505,000. Miscellaneous acquisitions were completed in
exchange for cash of $1,407,000. The total consideration on acquisitions was
allocated to net assets acquired on the basis of their fair value as follows:

    Current assets (including cash of $2,428)                          $  2,261
    Capital assets                                                        1,674
    Goodwill                                                              7,648
    Practice management agreement                                         6,060
    Current liabilities                                                    (621)
    Long-term debt                                                       (1,221)
    Non-controlling interest                                               (476)
                                                                       --------
                                                                       $ 15,325
                                                                       ========
Funded by:

    Issuance of common shares                                          $    837
    Issuance of debt                                                        738
    Contribution of cash                                                 13,465
    Acquisition costs                                                       285
                                                                       --------
                                                                       $ 15,325
                                                                       ========

1998 Transactions

BeaconEye Inc.

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

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

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

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


                                       76
<PAGE>

TLC THE LASER CENTER INC.

Wisconsin

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

Practice management agreement                                             $2,881
                                                                          ------
Funded by
Issuance of Common Shares                                                 $2,581
Cash                                                                         300
                                                                          ------
                                                                          $2,881
                                                                          ======

Michigan

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

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

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

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

1997 Transactions

The Vision Source, Inc.

On July 23, 1997, the Company acquired 100% of the common shares of The Vision
Source, Inc. The acquisition was financed through the issuance of 421,804 Common
Shares (see Note 10). The


                                       77
<PAGE>

TLC THE LASER CENTER INC.

purchase price of $1,303,000 was allocated primarily to goodwill. The Common
Shares issued are held in escrow. Release of 210,902 of these shares is subject
to an earn out formula. These shares represent contingent purchase consideration
and, therefore, will not be valued until completion of the earn out period and
the outcome of the contingency is known. The remaining 210,902 shares will be
released from escrow within 15 months from the issue date.

20/20 Laser Centers, Inc.

On February 10, 1997, the Company acquired 99.9% of the common shares of 20/20.
The acquisition was financed through the issuance of Common Shares (see Note
10). The results of operations of 20/20 have been consolidated from the date of
acquisition.

The total cost of the acquisition, using the purchase method of accounting, was
allocated to the net assets acquired on the basis of their book values and then
adjusted for fair values as follows:

Book values
Current assets                                                         $  1,663
Capital assets                                                            1,954
Assets under capital lease                                                3,555
Other assets                                                                268
Current liabilities                                                      (5,443)
Obligations under capital lease                                          (2,380)
Other liabilities                                                          (604)
Non-controlling interest                                                   (220)
                                                                       --------
                                                                         (1,207)
                                                                       ========
Fair value adjustments
Assets under capital lease                                               (1,146)
Goodwill                                                                 24,070
                                                                       --------
                                                                       $ 21,717
                                                                       ========

17. Divestitures and Restructuring Charges

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

      (a)   On May 31, 1999, the Company sold certain assets of NorthWest Eye
            Inc. in exchange for the assumption of certain liabilities by the
            purchaser. In connection with the sale, the Company recorded a
            restructuring charge of $10.3 million relating to the write-off of
            intangibles and amounts due from affiliated physician groups and
            will no longer manage the secondary care operations at this
            location.

      (b)   On April 27, 1999, the Company sold the capital assets and
            intangibles of TLC The Laser Center (Wisconsin Management) Inc. and
            TLC Wisconsin Eye Surgery Center Inc. in exchange for 139,266 common
            shares of the Company. These assets had a net book value of $4.0
            million and no gain or loss was recorded in connection with the
            transaction. The shares received by the Company upon disposition of
            these subsidiaries were cancelled, with capital stock being reduced
            using the average value of common shares as at April 27, 1999 of
            CDN $6.26.


                                       78
<PAGE>

TLC THE LASER CENTER INC.

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

18. Comparative Figures

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

19. Difference Between Canadian and United States Generally Accepted Accounting
    Principles

These consolidated financial statements are prepared in accordance with
accounting principles generally accepted ("GAAP") in Canada. The most
significant differences between Canadian and United States GAAP, insofar as they
affect the Company's consolidated financial statements, are described below.

The following table reconciles results as reported under Canadian GAAP with
those that would have been reported under U.S. GAAP:

<TABLE>
<CAPTION>
                                                                   1999          1998          1997
                                                                 ------------------------------------
<S>                                                              <C>           <C>           <C>
Net loss for the year -- Canadian GAAP                           $ (3,662)     $ (9,538)     $ (9,574)
Deferred foreign exchange gains (losses) (1)                          310          (742)           --
Income tax expense adjustment under the liability method (2)       (1,204)           --            --
                                                                 ------------------------------------
Net loss for the year -- U.S. GAAP                               $ (4,556)     $(10,280)     $ (9,574)
                                                                 ====================================
Loss per share -- U.S. GAAP (3)                                  $  (0.13)     $  (0.37)     $  (0.47)
                                                                 ====================================

Net income (loss) based on US GAAP                                 (4,556)      (10,280)       (9,574)
Unrealized gains on securities available for sale                   5,529           407             0
                                                                 ------------------------------------
Comprehensive income                                                  973        (9,873)       (9,574)
                                                                 ====================================
</TABLE>

(1) The gain or loss on translation of foreign currency denominated long-term
monetary items is deferred and amortized over the remaining life of the item
under Canadian GAAP. Under U.S. GAAP, the gain or loss on translation is
included in income when it arises.

(2) Under U.S GAAP, deferred taxes are recorded based on the difference between
the values assigned for accounting purposes and the tax values of individual
assets acquired in business combinations, except for nondeductible goodwill. The
only such significant differences with respect to the Company are the practice
management agreement assets acquired in prior periods. Under U.S. GAAP, this
deferred tax liability is matched by an equal increase in the value assigned to
the practice management agreement assets. In the statement of income, the
resulting increased annual asset amortization is offset by an equal deferred tax
recovery with no effect on the net income (loss). In addition, the recognition
of operating loss carry-forwards which existed at the acquisition date is
recorded as a reduction of goodwill related to the acquisition and an increase
in the tax provision under U.S. GAAP.

(3) SFAS No. 128, "Earnings Per Share", is effective for fiscal periods ending
after December 15, 1997. This statement has been retroactively applied to all
periods presented and it has no significant effect on the reported U.S. GAAP
earnings per share data for the years ended May 31, 1999, 1998, and 1997. As a
result of the above differences, as at May 31, 1999 under U.S. GAAP, long-term
assets would increase by $10,416,000 (1998 -- $7,393,000), deferred income tax
liabilities would increase by $6,296,000 (1998 -$7,908,000) and total
shareholders' equity would increase by $4,120,000 (1998 - decrease by $515,000).
In addition, other comprehensive income would increase to $5,756,000 (1998 -
$227,000).


                                       79
<PAGE>

TLC THE LASER CENTER INC.

Additional disclosures required related to the reconciliation of the
consolidated financial statements from Canadian to U.S. GAAP are as follows:

(a)  Statement of Changes in Financial Position

Certain of the Company's acquisitions for the year ended May 31, 1999 were
financed in part through the issuance of common shares and debt. These would be
considered non-cash transactions under U.S. GAAP resulting in a reduction in
cash provided by financing activities of $1,575,000 (1998-- $16,417,000, 1997 -
$21,717,000) and a reduction in cash used in investing by the same amount. In
addition, the proceeds for one of the Company's divestitures for the year ended
May 31, 1999 included shares of the Company, which were subsequently retired.
This would be considered a non-cash transaction under U.S. GAAP resulting in an
increase in cash provided by financing activities of $4,047,000 (1998 and 1997 -
nil) and an increase in cash used in investing activities by the same amount.

Certain marketable securities held at May 31, 1999 would be considered cash
equivalents under U.S. GAAP resulting in a decrease in cash used for investing
activities of $118,050,000 (1998 -- $53,303,000; 1997 - nil) and an increase in
cash and short-term deposits at the end of the period by the same amount.

The Company has acquired capital assets financed through capital lease
obligations which would be considered non-cash transactions under U.S. GAAP
resulting in a reduction in cash provided by financing activities and a
corresponding reduction in cash used in investing activities of $1,469,000 for
the year ended May 31, 1999 (1998 -- $2,196,000; 1997 -- $4,480,000).

In summary, as a result of the above-noted items, the Statement of Changes in
Financial Position under U.S. GAAP would be as follows:

<TABLE>
<CAPTION>
                                                      1999        1998         1997
                                                      ----        ----         ----
<S>                                                  <C>        <C>           <C>
Cash provided by (used in) operating activities      20,997     (11,809)      (6,865)
Cash provided by financing activities               114,479      65,054       30,463
Cash used in investing activities                    65,076      11,277       13,006
Cash and short-term deposits                        125,598      55,198       13,230
</TABLE>

Interest paid in cash is not substantially different than interest expense in
all periods presented. Income taxes paid in cash were $978,000 in fiscal 1999
(1998 -- $458,000). Amounts paid in cash in prior years were not significant.

(b)  Stock-based Compensation

SFAS No. 123, "Accounting for Stock-based Compensation", became effective for
the Company's Fiscal 1997 year. The Company continues, for reconciliation to
U.S. GAAP purposes, to account for its outstanding fixed price stock options
under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", which results in the recording of no compensation expense in the
Company's circumstances. Had compensation expense for stock options granted been
determined based upon fair value at the grant date consistent with the
methodology prescribed by SFAS No. 123, the pro forma effects of fiscal 1999,
1998 and 1997


                                       80
<PAGE>

TLC THE LASER CENTER INC.

grants on the net loss and loss per share amounts for the years ended May 31,
1999, 1998, and 1997 would have been as follows:

                                             1999          1998          1997
                                           ------------------------------------
Net loss under U.S. GAAP                     (4,556)     $(10,280)     $ (9,574)
Adjustments for SFAS 123                     (3,784)       (1,195)         (662)
                                           ------------------------------------
Pro forma net loss under U.S. GAAP           (8,340)     $(11,475)     $(10,236)
                                           ------------------------------------
Pro forma loss per share under U.S. GAAP       (.24)     $  (0.41)     $  (0.49)
                                           ====================================

The fair value of the options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest of 5.0% for fiscal 1997 and 1998 and 6.75% for
fiscal 1999; dividend yields of 0%; volatility factors of the expected market
price of the Company's Common Shares of 0.60 for fiscal 1997 and 1998 and 0.66
for fiscal 1999; and a weighted average expected option life of 2.5 years for
fiscal 1997 and 1998 and 3.3 years for fiscal 1999.The Black-Scholes option
valuation model was developed for use in estimating fair value of traded options
which have no vesting restrictions and are fully transferable. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the above pro forma adjustments for SFAS 123 are not necessarily a
reliable single measure of the fair value of the Company's employee stock
options.

(c)  Income Taxes

Deferred income taxes under U.S. GAAP consist of the following temporary
differences:

                                                       1999              1998
                                                     --------          --------
Tax benefit of loss carry forwards
         Pre-acquisition                             $ 11,785          $ 22,132
         Post-acquisition                               6,094             4,446
Start-up costs                                          1,816             1,180
Other                                                   1,556                --
Valuation allowance                                   (21,251)          (27,758)
                                                     --------          --------
                                                     $     --          $     --
                                                     --------          --------
Liabilities:
Practice management agreements                          1,771          $  7,728
Capital assets                                          2,135                --
Other                                                      --               118
                                                     --------          --------
                                                     $  3,906          $  7,846
                                                     ========          ========


                                       81
<PAGE>

TLC THE LASER CENTER INC.

(d)   Pro Forma Effects of Acquisitions

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

If 20/20 had been acquired on June 1, 1996, the pro forma effects on the
statements of income for the fiscal period ended May 31, 1997 would have been
additional net revenues of $3,288,000 and additional net loss of $ $5,344,000,
based on unaudited 20/20 financial statements for that period.

If Beacon had been acquired on June 1, 1996, the unaudited pro forma effects on
the statements of income for the fiscal periods ended May 31, 1997 and 1998
would have been additional net revenues of $7,229,000 and $5,979,000 and
additional net losses of $16,995,000 and $16,143,000, respectively.

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

The above unaudited pro forma information is presented for information purposes
only and may not be indicative of the results of operations as they would have
been if the acquisitions of 20/20 and Beacon had occurred on June 1, 1996, nor
is it necessarily indicative of the results of operations which may occur in the
future. Anticipated efficiencies from the combinations have been excluded from
the amounts included in the pro forma information.

(e)   Reporting Currency

Effective May 31, 1998, the Company adopted the U.S. dollar as its reporting
currency. Prior to this change the Canadian dollar had been used as the
Company's reporting currency. Under Canadian GAAP, the Company's financial
statements for all periods presented through May 31, 1998 have been translated
from Canadian dollars to U.S. dollars using the exchange rate in effect at May
31, 1998. Under U.S. GAAP, the financial statements for periods prior to the
change in reporting currency must be translated to U.S. dollars using the
current rate method, which method uses specific year end or specific annual
average exchange rates as appropriate. The application of the current rate
method to the periods presented did not result in any material differences from
the Canadian GAAP financial statements, and as such, these differences are not
presented in this note.

(f)   Other

Under SEC Staff Accounting Bulletin 74, the Company is required to disclose
certain information related to new accounting standards which have not yet been
adopted due to delayed effective dates. In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning after
June 15, 2000. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company.


                                       82
<PAGE>

TLC THE LASER CENTER INC.

During 1998, The American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, and Statement of Position No. 98-5,
Reporting on the Costs of Start-Up Activities, which are required to be adopted
in years beginning after December 15, 1998. The Company does not believe that
pronouncements Nos. 98-1 and 98-5 will have a material effect on its
consolidated financial statements.

20. Uncertainty due to the Year 2000 Issue

The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.

21. Subsequent Events

Strategic Alliances

On April 7, 1999 the Company entered into an agreement with a subsidiary of
Kaiser Permanente, providing for a national strategic alliance, with the
intention to initially own and operate three refractive centers in California
and to eventually develop additional centers in markets in the United States
where Kaiser Permanente has a significant presence. The agreement also grants
the Kaiser Permanente subsidiary the opportunity to negotiate an ownership
interest in existing and future TLC refractive centers elsewhere in the United
States. On June 30, 1999 the Company made a capital contribution of $1,002,000
representing a 50.1% interest in TLC USA LLC the operating company for
activities of this strategic alliance.

California LLC

On July 8, 1999 the Company acquired 50.1% of the operating assets and
liabilities of California LLC for cash consideration, certain operating assets
and liabilities of the Company's two California refractive centers and
additional amounts contingent upon achieving certain levels of profits. No value
will be assigned to these contingent amounts until completion of the earn-out
period and the outcome of the contingency is known.


                                       83
<PAGE>

TLC THE LASER CENTER INC.

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

      None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Except as set forth below in this Item 10, the information required by this Item
10 is incorporated by reference to the Company's definitive proxy statement to
be filed within 120 days after the end of the Company's fiscal year ended May
31, 1999.

Directors and Executive Officers

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

<TABLE>
<CAPTION>
Name                                       Age    Position with Company
----                                       ---    ----------------------
<S>                                        <C>    <C>
Elias Vamvakas                              40    President, Chief Executive Officer and Chairman
                                                    of the Board of Directors

Dr. Jeffery J. Machat                       37    Co-National Medical Director and Director

Madeline D. Walker                          52    Chief Operating Officer

Dr. David C. Eldridge                       44    Executive Vice President, Clinical Affairs

Kathryn Hughes                              29    Vice President, Marketing

Peter Hertz                                 50    Vice President, Human Resources

Gary F. Jonas                               53    Executive Vice President, Strategic Growth

Peter J. Kastelic                           42    Chief Financial Officer and Treasurer

Ronald J. Kelly                             36    Vice President, Acquisitions and General Counsel

William Leonard                             34    Vice President, Operations

Henry Lynn                                  48    Executive Vice President, Information Systems

John F. Riegert                             69    Secretary and Director

Rochelle Stenzler                           45    President, Intennational Development

James R. Connacher(1)(3)                    62    Director

Howard J. Gourwitz (1)(2)(3)                50    Director

Warren S. Rustand(2)(3)                     56    Director

Dr. William David Sullins, Jr.(1)(2)(3)     56    Director
</TABLE>

(1)   Member of the Company's Compensation Committee.
(2)   Member of the Company's Audit Committee.
(3)   Member of the Company's Corporate Governance Committee.

ITEM 11 EXECUTIVE COMPENSATION

The information required by this Item 11 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed within 120 days after the
end of the Company's fiscal year ended May 31, 1999.


                                       84
<PAGE>

TLC THE LASER CENTER INC.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed within 120 days after the
end of the Company's fiscal year ended May 31, 1999.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed within 120 days after the
end of the Company's fiscal year ended May 31, 1999.

                                     PART IV

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

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

Report of Independent Auditors.

Consolidated Statements of Income-- Years Ended May 31, 1997, 1998 and 1999.

Consolidated Balance Sheets as of May 31, 1998 and 1999.

Consolidated Statements of Deficit -- Years Ended May 31, 1997, 1998 and 1999.

Consolidated Statements of Changes in Financial Position -- Years Ended May 31,
1997, 1998 and 1999.

Notes to Consolidated Financial Statements

(a)(2) Except as provided below, all schedules for which provision is made in
the applicable accounting regulations of the Securities and Exchange Commission
either have been included in the Consolidated Financial Statements or are not
required under the related instructions, or are inapplicable and therefore have
been omitted.

      None


                                       85
<PAGE>

TLC THE LASER CENTER INC.

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

Exhibit Number
                        Description

      3.1               Articles of Incorporation (incorporated by reference to
                        Exhibit 3.1 to the Company's 10-K filed with the
                        Commission on August 28, 1998).

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

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

      10.1              Material Contracts:

                        Certain Material Contracts Not in the Ordinary Course of
                        Business:

                        (a)  Support Agreement with Beacon, Inc. (incorporated
                             by reference to Exhibit 10.1(a) to the Company's
                             10-K filed with the Commission on August 28, 1998).

                        Certain Management Contracts, Compensatory Plans,
                        Contracts or Arrangements:

                        (c)  TLC Amended and Restated Share Option Plan
                             incorporated by reference to Exhibit ( 4(a) to the
                             Company's Registration Statement on Form S-8 filed
                             with the Commission on December 31, 1997 (file no.
                             333-8162))

                        (d)  TLC Share Purchase Plan (incorporated by reference
                             to Exhibit 4(b) to the ( Company's Registration
                             Statement on Form S-8 filed with the Commission on
                             December 31, 1997 (file no. 333-8162)).

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

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

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

                        (h)  Employment Agreement with Gary F. Jonas
                             (incorporated by reference to Exhibit ( 10.1(h) to
                             the Company's 10-K filed with the Commission on
                             August 28, 1998).


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<PAGE>

TLC THE LASER CENTER INC.

                        (j)  Consulting Agreement with Kelmar Corporation
                             (incorporated by reference to ( Exhibit 10.1(j) to
                             the Company's 10-K filed with the Commission on
                             August 28, 1998).

                        (k)  Consulting Agreement with Mainstay Human Resources
                             Corp. (incorporated by reference to Exhibit 10.1(k)
                             to the Company's 10-K filed with the Commission on
                             August 28, 1998).

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

      21.1              List of Registrant's Subsidiaries
      23.1              Consent of Auditors
      27                Financial Data Schedule


                                       87
<PAGE>

TLC THE LASER CENTER INC.

                                   SIGNATURES

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

                                        TLC THE LASER CENTER INC.


                                        By: /s/ Elias Vamvakas
                                            ------------------------------------
                                            Elias Vamvakas
                                            Chief Executive Officer
                                            August 27, 1999

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

<TABLE>
<CAPTION>
          SIGNATURE                TITLE                                 DATE
          ---------                -----                                 ----
<S>                                <C>                                   <C>
/s/  Elias Vamvakas                President, Chief Executive            August 27, 1999
------------------------------     Officer and Chairman of
Elias Vamvakas                     the Board of Directors

/s/ Peter J. Kastelic              Chief Financial Officer and           August 26, 1999
------------------------------     Treasurer (Principal Financial
Peter J. Kastelic                  and Accounting Officer).

/s/  Jeffery J. Machat             Co-National Medical Director and      August 26, 1999
-----------------------------      Director
Dr. Jeffery J. Machat

/s/  Howard J. Gourwitz            Director                              August 27, 1999
-----------------------------
Howard J. Gourwitz

/s/ William David Sullins          Director                              August 26, 1999
-----------------------------
Dr. William David Sullins

     Warren S. Rustand             Director                              August 27, 1999
-----------------------------
Warren S. Rustand

/s/ John F. Riegert                Director                              August 26, 1999
-----------------------------
John F. Riegert

    James R. Connacher            Director                               August 27, 1999
-----------------------------
James R. Connacher
</TABLE>


                                       88