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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                    FORM 10-K

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

        FOR THE TRANSITION PERIOD FROM JUNE 1, 2002 TO DECEMBER 31, 2002

                         COMMISSION FILE NUMBER: 0-29302

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                             TLC VISION CORPORATION
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                                          <C>
           NEW BRUNSWICK, CANADA                                            980151150
         (State or jurisdiction of                            (I.R.S. Employer Identification No.)
       incorporation or organization)

        5280 SOLAR DRIVE, SUITE 300                                          L4W 5M8
            MISSISSAUGA, ONTARIO                                           (Zip Code)
  (Address of principal executive offices)

Registrant's telephone, including area code:                             (905) 602-2020
</Table>

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. [ ]

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

    As of June 30, 2002, the aggregate market value of the registrant's Common
Shares held by non-affiliates of the registrant was approximately $152.4
million.

    As of March 31, 2003, there were 64,595,226 shares of the registrant's
Common Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

     Definitive Proxy Statement for the Company's 2003 annual shareholders
meeting (incorporated in Part III to the extent provided in Items 10, 11, 12 and
13).

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This Annual Report on Form 10-K (herein, together with all amendments, exhibits
and schedules hereto, referred to as the "Form 10-K") contains certain forward
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, which statements
can be identified by the use of forward looking terminology, such as "may",
"will", "expect", "anticipate", "estimate", "plans" or "continue" or the
negative thereof or other variations thereon or comparable terminology referring
to future events or results. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth elsewhere in this Form
10-K. See the "Item 1. Business - Risk Factors" 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 Vision" shall mean TLC Vision Corporation and its
subsidiaries. The Company has changed its fiscal year end from May 31 to
December 31. Therefore, references in this Form 10-K to "fiscal 2002" shall mean
the 12 months ended on May 31, 2002 and "transitional period 2002" shall mean
the seven months ended on December 31, 2002. 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 Vision Corporation (formerly TLC Laser Eye Centers Inc.) and its
subsidiaries ("TLC Vision" or the "Company") is a diversified healthcare service
company focused on working with physicians to provide high quality patient care
primarily in the eye care segment. The Company's core business revolves around
refractive surgery, which involves using an excimer laser to treat common
refractive vision disorders such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. The Company's business models include
arrangements ranging from owning and operating fixed site centers to providing
access to lasers through fixed site and mobile service relationships. The
Company also furnishes independent surgeons with mobile or fixed site access to
cataract surgery equipment and services through its Midwest Surgical Services,
Inc. ("MSS") subsidiary. In addition, the Company owns a 51% majority interest
in Vision Source, which provides franchise opportunities to independent
optometrists. Through its OR Partners and Aspen Healthcare divisions, TLC Vision
develops, manages and has equity participation in single-specialty eye care
ambulatory surgery centers and multi-specialty ambulatory surgery centers. In
2002, the Company formed a joint venture with Vascular Sciences Corporation to
create OccuLogix, L.P., a partnership focused on the treatment of a specific eye
disease known as dry age-related macular degeneration, via rheopheresis, a
process for filtering blood.

     In accordance with an Agreement and Plan of Merger with Laser Vision
Centers, Inc. ("LaserVision"), the Company completed a business combination with
LaserVision on May 15, 2002. LaserVision is a leading access service provider of
excimer lasers, microkeratomes and other equipment and value and support
services to eye surgeons. The Company believes that the combined companies can
provide a broader array of services to eye care professionals to ensure these
individuals may provide superior quality of care and achieve outstanding
clinical results. The Company believes this will be the long-term determinant of
success in the eye surgery services industry.

    The Company continues to focus on maximizing revenues, controlling costs,
providing superior quality of care and clinical results and pursuing additional
growth opportunities.

    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



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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

    Eyeglasses or contact lenses historically have been the primary treatment
for refractive disorders. 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 making
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. A variation of RK,
Astigmatic Keratotomy, is used to correct astigmatism.

    LASER CORRECTION PROCEDURES

    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 (removal of tissue) 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 treat vision disorders by changing the curvature of the cornea. There
are currently two procedures that use the excimer laser to treat vision
disorders: Photorefractive Keratectomy ("PRK") and Laser In-Situ Keratomileusis
("LASIK"). In the case of both PRK and LASIK, prior to the procedure, the doctor
makes an assessment of the exact correction required and programs the excimer
laser. The software of the excimer laser then calculates the optimal number of
pulses needed to achieve the intended corneal correction using a specially
developed algorithm. Both PRK and LASIK are performed on an outpatient basis
without general anesthesia, using only topical anesthetic eye drops. An eyelid
holder is inserted to prevent blinking while the eye drops eliminate the reflex
to blink. The patient reclines in a chair; his or her eye focused on a fixation
target, and the surgeon positions the patient 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"). An FDA PMA is specific for each
laser manufacturer and model and sets out a range of approved indications.
However, the FDA is not authorized to regulate the practice of medicine.
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 or an
indication not specifically approved by the FDA, if that doctor determines that
it is in the best interest of the patient. The initial FDA PMA approval for the
sale of an excimer laser for refractive procedures was granted in 1995 for the
laser of Summit Autonomous, Inc. (now Alcon Laboratories Inc. division of
Nestle, S.A.) ("Alcon") for the treatment of myopia. To date the FDA has
approved for sale excimer lasers from approximately seven different
manufacturers for LASIK and from approximately eight different manufacturers for
PRK. 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").

    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



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cornea maintains its original strength. A clear 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. Clinical trials conducted by
Alcon 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 Alcon 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 seven 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 flipped 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 95% of the excimer laser procedures currently performed at
the Company's eye care centers are LASIK.

    CUSTOM LASIK

    Custom LASIK involves measuring the eye from front to back, using what's
called "wavefront" technology, to create a three dimensional corneal map. The
information contained in the map guides the laser in customizing the treatment
to an individual's visual irregularities, beyond myopia hyperopia and
astigmatism. Wavefront technology is groundbreaking because it has the potential
to improve not only how much a person can see, visual acuity measured by the
standard 20/20 eye chart, but also how well an individual can see, in terms of
contrast sensitivity and fine detail. This translates into a reduced risk of
post-LASIK complications, such as glares, halos and difficulty with night
vision.

    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, Market Scope's
2001 U.S. LASIK Patient Profile Report estimates that approximately 56.8% of the
U.S. population or 160 million people suffer from some form of refractive
disorder requiring vision correction including myopia (nearsightedness),
hyperopia (farsightedness) and astigmatism. To date, based on Market Scope's
estimate of the number of people who have had procedures, only an estimated two
to three percent of this target population has actually had laser vision
correction.

    Estimates by Market Scope indicate that 480,000 laser vision correction
procedures were performed in the U.S. in 1998, 948,000 were performed in 1999,
1.4 million were performed in 2000, 1.3 million were performed in 2001, 1.2
million were performed in 2002, and an estimated 1.2 million will be performed
in 2003. The Company believes that the profitability and growth of its
refractive business will depend upon continued increasing acceptance of laser
vision correction in the United States and, to a lesser extent, Canada, and upon
consumer confidence and the condition of the U.S. economy.



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    There can be no assurance that laser vision correction will be more widely
accepted by eye care doctors 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 fully or at all by government
insurers or other third party payors and, therefore, must be paid for primarily
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 procedures
also could adversely affect its acceptance whether or not the procedures are
performed at TLC Vision eye care centers. Market acceptance also could be
affected by regulatory developments. The failure of laser vision correction to
achieve continued increased market acceptance would have a material adverse
effect on the Company's business, financial condition and results of operations.

    MARKET FOR CATARACT SURGERY

    According to the American Academy of Ophthalmology, cataract surgery
currently is the most frequently performed surgical procedure in the United
States with more than 2.5 million people having cataract surgery each year.
Medicare pays approximately $3.4 billion per year for 1.7 million patients
having cataract surgery each year. U.S. Census Bureau data indicates that there
are currently approximately 35 million Americans who are age 65 or older.
According to the American Academy of Ophthalmology, individuals between the ages
of 52 and 64 have a 50% chance of having a cataract. By age 75, almost everyone
has a cataract. Fifty percent of the people between the ages of 75 and 85 with
cataracts have lost some vision as a result. The National Eye Institutes of
Health Cataracts indicates that cataracts are the leading cause of blindness in
the world, and cataracts affects more than 20 million Americans aged 65 and
older.

TLC VISION CORPORATION

    TLC Vision was originally incorporated by articles of incorporation under
the Business Corporations Act (Ontario) on May 28, 1993. By articles of
amendment dated October 1, 1993, the name of the Company was changed to TLC The
Laser Center Inc., and by articles of amendment dated March 22, 1995, certain
changes were effected in the issued and authorized capital of the Company with
the effect that the authorized capital of the Company became an unlimited number
of Common Shares. On September 1, 1998, TLC The Laser Center, Inc. amalgamated
under the laws of Ontario with certain wholly owned subsidiaries. By Articles of
Amendment filed November 5, 1999, the Company changed its name to TLC Laser Eye
Centers Inc. On May 13, 2002, the Company filed articles of continuance with the
province of New Brunswick and changed its name to TLC Vision Corporation. On May
15, 2002, the Company completed its business combination with LaserVision, a
leading U.S. provider of access to excimer lasers, microkeratomes and related
support services.

BUSINESS STRATEGY

      The primary focus of TLC Vision's business strategy is to operate its
laser vision correction business effectively. In addition, TLC Vision's strategy
involves becoming a diversified eye care services provider by leveraging our
relationships with ophthalmologists and optometrists throughout North America.
The Company's diversification strategy is composed of the following four
principal parts: (1) increase diversification through pursuing new growth
opportunities in the eye care industry by leveraging relationships with eye care
doctors and capitalize on existing assets; (2) continue expansion of surgeon
relationships to work within the TLC Vision branded center model or laser access
model; (3) increase surgical volume through developing programs to support eye
doctors in patient education and clinical support; and (4) continue to implement
initiatives designed to improve operational effectiveness, including
standardizing operations to minimize operating costs and increase efficiencies
without compromising the Company's commitment to assist its affiliated doctors
in providing the highest levels of patient care and clinical results.

    DIVERSIFICATION BEYOND REFRACTIVE LASER BUSINESSES

    The first component of TLC Vision's diversification strategy is to expand
into a broader eye care services company through internal business development
and complementary acquisitions. The Company believes it can continue to leverage
its relationships with a large number of ophthalmologists and optometrists to
create new business opportunities. The primary



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focus of the Company's diversification strategy is in the United States, where
the Company continues to position itself to benefit from the growing market for
eye care services.

    TLC Vision plans to further diversify its business in four ways:

        o   continuing to expand the Company's existing cataract service
            business through focused growth strategies and acquisitions of
            existing mobile cataract businesses;

        o   continuing to develop the Company's optometric practice franchising
            organization, Vision Source, through increasing the number of
            affiliated practice franchises; and

        o   continuing to develop, acquire or gain management service agreements
            with single-specialty ophthalmic ambulatory surgery centers through
            the Company's OR Partners and Aspen subsidiaries;

        o   developing new eye care related businesses that evolve from
            strategic technology investments, such as Rheo Clinics, a
            rheopheresis joint venture for treating age related macular
            degeneration.

    EXPANSION OF SURGEON RELATIONSHIPS

    TLC Vision believes that its existing relationships with a large number of
eye doctors represent an important competitive strength. TLC Vision's business
model will continue to focus on implementing new services and business
opportunities, which result in increased revenue.

    INCREASE SURGICAL VOLUME

    The primary tactic in increasing surgical volume will be through supporting
refractive growth initiatives with ophthalmologists and optometrists. To
accomplish this, TLC Vision will focus on:

        o   commitment to a co-management model, which allows optometrists to
            provide the best clinical outcomes for their patients while
            retaining them in their practice;

        o   continuing clinical education to ophthalmologists and optometrists;

        o   quality patient outcomes support through the TLC Vision quality
            assurance and improvement system;

        o   practice development education and tools focused on educating the
            staff of the ophthalmologists and optometrists;

        o   co-operative marketing programs to build awareness for the
            procedure; and

        o   access to custom LASIK technology through the availability of
            required equipment, both fixed and transportable, and training.

    CONTROLLING COSTS

    TLC Vision has reviewed, and continues to review, its cost structure with a
view to significantly increase efficiencies and leveraging economies of scale
without compromising the delivery of quality services to doctors and their
patients. Through this review, TLC Vision seeks to achieve a comprehensive
approach to reducing corporate and centers costs on a day-to-day operations
level and refine the Company's operating models.

DESCRIPTION OF BRANDED TLC VISION LASER EYE CENTERS

    The Company currently owns and manages 61 TLC Vision branded laser eye
centers in the United States and five centers in Canada. Each TLC Vision branded
laser eye center has a minimum of one excimer laser with many of the centers
having two or more lasers. The majority of the Company's excimer lasers are
manufactured by VISX Incorporated ("VISX").



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    A typical TLC Vision branded laser eye center has between 3,000 and 5,000
square feet of space and is located in a medical or general office building.
Although the legal and payment structures can vary from state to state depending
upon local law and market conditions, the Company generally receives revenues in
the form of management and facility fees paid by doctors who use the TLC Vision
branded laser eye 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. Most TLC Vision branded laser eye
centers have a clinical director, who is an optometrist and oversees the
clinical aspects of the center and builds and supports the network of affiliated
eye care doctors. Most centers also have a business manager, a receptionist,
ophthalmic technicians and patient consultants. The number of staff depends on
the activity level of the center. One senior staff person, who is designated as
the executive director of the center, assists in preparation of the annual
business plan and supervises the day-to-day operations of the center.

    TLC Vision has developed proprietary management and administrative software
and systems that are designed to permit eye care centers to provide high levels
of patient care. The software permits TLC Vision branded laser eye centers to
provide a potential candidate with current information on affiliated doctors
throughout North America, to direct a candidate to the closest TLC Vision
branded laser eye center, to permit tracking of calls and procedures, to
coordinate patient and doctor scheduling and to produce financial and surgical
outcome reporting and analysis. The software has been installed in all TLC
Vision branded laser eye centers. TLC Vision also has introduced a new on-line
consumer consultation site on TLC Vision's website (www.tlcvision.com). This
consumer consultation site allows consumers to book their consultation with the
Company online. TLC Vision also maintains a call center (1-800-CALL TLC VISION),
which is staffed seven days a week.

    PRICING

    At TLC Vision branded laser eye centers in the United States, patients are
typically charged between $1,500 and $2,500 per eye for LASIK (or on average
approximately $1,800 per eye). At TLC Vision branded laser eye centers in
Canada, patients are typically charged approximately C$1,700 per eye for LASIK.
Their primary care eye doctor also charges patients an average of $400 for pre-
and post-operative care, though the total procedure costs to the patients are
often included in a single invoice. See "Item 1 - Business - Risk Factors -
Procedure Fees." Although competitors in certain markets continue to charge less
for these procedures, the Company believes that important factors affecting
competition in the laser vision correction market, other than price, are quality
of service, reputation and skill of surgeon, customer service reputation, and
that the TLC Vision branded laser eye center's competitiveness is enhanced by
its relationships with 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. However, the Company believes it has positioned itself well in
the private insurance and employer market through its Corporate Advantage
program, which is now available to more than 80 million individuals.

    CO-MANAGEMENT MODEL

    The Company has developed and implemented a co-management model under which
it not only establishes, manages and operates TLC Vision branded laser eye care
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 in affiliation with the local TLC Vision branded laser eye
care center. The primary care doctors assess whether patients are candidates for
laser vision correction and provide pre- and post-operative care, including an
initial eye examination and follow-up visits. The co-management model permits
the surgeon to focus on providing laser vision correction surgery while the
primary care doctor provides pre- and post-operative care. In addition, each TLC
Vision branded laser eye care center has an optometrist on staff who works to
support and expand the local 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."



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    TLC Vision believes that its strong relationships with its affiliated eye
care doctors, though non-exclusive, represent an important competitive advantage
for the TLC Vision branded laser eye care centers.

    The Company believes that primary care doctors' relationships with TLC
Vision and the doctors' acceptance of laser vision correction enhances 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 follow-up visits.
The primary care doctor's potential revenue loss from sales of contact lenses
and eyeglasses may be offset by professional fees earned from both laser vision
correction pre- and post-operative care and examinations required under the
Company's "Lifetime Commitment" program.

    MARKETING PROGRAM

    The Company's "Lifetime Commitment" program, established in 1997 and offered
through TLC Vision branded laser eye centers, entitles patients within a certain
range of vision correction to have certain enhancement procedures for further
correction at no cost at any time during their lifetime, if necessary. To remain
eligible for the program, patients are required to have an annual eye exam, at
the patient's expense, with a TLC Vision affiliated doctor. The purpose of the
program is to respond to a patient's concern that the patient's sight might
regress over time, requiring an enhancement procedure. In addition, the program
responds to the doctors' concern that patients may not return for their annual
eye examination once their eyes are treated. The Company believes that this
program has been well received by both patients and doctors.

    The Company also seeks to increase its procedure volume and its market
penetration through other innovative marketing programs for the TLC Vision
branded laser eye care centers, particularly in developing stronger
relationships with optometrists.

    TLC Vision has also developed marketing programs directed primarily at large
employers and third party providers to provide laser vision correction to their
employees and participants through a TLC Vision branded laser eye center.
Participating employers may partially subsidize the cost of an employee's laser
vision correction at a TLC Vision branded laser eye care center and the
procedure may be provided at a discounted price. The Company has more than 1,500
participating employers. In addition, more than 80 million individuals qualify
for the program through arrangements between TLC Vision and third party
providers. See "Item 1 - Business - Risk Factors - Inability to Execute
Strategy; Management of Growth."

    SALES AND MARKETING

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

    The Company 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 Company provides doctors with brochures, videos, posters
and other materials that help them educate their patients about laser vision
correction. Those doctors who wish to market directly to their patients or the
public may receive support from the Company in the development of marketing
programs.

    The Company believes that the most effective way to market to doctors is to
be perceived as a leader in the eye care industry. To this end, the Company
strives to be affiliated with clinical leaders, educate doctors on laser vision
and refractive correction and remain current with new procedures, technology and
techniques. See "Item 1 - Business - 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.

    The Company believes that as market acceptance for laser vision correction
increases, competition among surgical providers will continue to grow and
candidates for laser vision correction will increasingly select a provider based
on factors other than solely price.



                                       8
<PAGE>
    OWNERSHIP OF BRANDED EYE CARE CENTERS

    The Company's branded laser eye centers are typically owned and operated by
subsidiaries of the Company. The Company has no ownership interest in the
doctors' practices or professional corporations that TLC Vision manages on
behalf of doctors or that have access to a TLC Vision branded laser eye center
to perform laser vision correction services.

    CONTRACTS WITH EYE DOCTORS

    In each market where the Company operates a branded laser eye center, the
Company has formed a network of eye care doctors (mostly optometrists) who
perform the pre-operative and post-operative care for patients who have had
laser vision correction. Those doctors then "co-manage" their patients with
affiliated surgeons in 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 the Company collect
the fees on their behalf.

    Most surgeons performing laser vision correction procedures through a TLC
Vision branded laser eye center owned, managed or operated by the Company 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 eye care center within a specified area. However, although certain
affiliated surgeons performing laser vision correction at the Company's branded
laser eye centers have agreed to certain restrictions on competing with, or
soliciting patients or employees associated with the Company, there can be no
assurance that such agreements will be enforceable. See "Item 1 - Business -
Risk Factors - Dependence on Affiliated Doctors."

    Surgeons must meet the credentialing requirements of the state or province
in which they practice and must receive training approved by the manufacturer of
the laser on which they perform procedures. 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 eye care centers and affiliating with other health care
providers. Affiliated doctors provide a significant source of patients for laser
vision correction at the Company's centers. 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 and eye care doctors, 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 or maintain 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.

DESCRIPTION OF EYE CARE CENTERS

    The Company has an investment in two secondary care entities in the United
States. 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.

DESCRIPTION OF LASER ACCESS BUSINESS

    OVERVIEW

    LaserVision, TLC Vision's wholly owned subsidiary, provides access to
excimer laser platforms, microkeratomes, other equipment and value-added support
services such as training, technical support and equipment maintenance to eye
surgeons for the treatment of nearsightedness, farsightedness and astigmatism
primarily in the United States. LaserVision's delivery system utilizes both
mobile equipment, which is routinely moved from site to site in response to
market demand, and fixed site locations. LaserVision believes that its flexible
delivery system enlarges the pool of potential locations, eye surgeons and



                                       9
<PAGE>

patients that it can serve, and allows it to effectively respond to changing
market demands. LaserVision also provides a broad range of support services to
the eye surgeons who use its equipment, including arranging for training of
physicians and staff, technical support and equipment maintenance, industry
updates, and marketing advice, clinical advisory support, patient financing,
partnership opportunities and practice satelliting. As of December 31, 2002,
LaserVision was utilizing approximately 88 excimer lasers and 219 microkeratomes
in connection with its laser access businesses.

    Eye surgeons pay LaserVision a fee for each procedure the surgeon performs
using LaserVision's equipment and services. LaserVision typically provides each
piece of equipment to many different eye surgeons, which allows LaserVision to
more efficiently use the equipment and offer it at an affordable price.
LaserVision refers to its practice of providing equipment to multiple eye
surgeons as shared access.

    LaserVision's shared access and flexible delivery system benefits eye
surgeons in a variety of ways, including the ability to:

        o   avoid a large capital investment;

        o   reduce the risks associated with buying high-technology equipment
            that may rapidly become obsolete;

        o   obtain technical support provided by LaserVision's laser engineers
            and microkeratome technicians;

        o   use the equipment without responsibility of maintenance or repair;

        o   cost-effectively serve small to medium-sized markets and remote
            locations; and

        o   serve satellite locations even in large markets.

    FLEXIBLE DELIVERY SYSTEM

    LaserVision seeks to maximize the number of locations, eye surgeons and
patients that can utilize its access and related services and respond quickly to
changing market demand by utilizing a flexible delivery system that features
both mobile and fixed site locations.

    LaserVision's mobile access systems are typically used by eye surgeons who
perform fewer than 30 procedures per month or are in markets where they are able
to offer consolidated surgery days to patients. A certified technician
accompanies each excimer laser from location to location. If an eye surgeon uses
LaserVision's microkeratomes, LaserVision generally supplies one microkeratome,
one accessory kit and a second LaserVision employee, who is certified by the
microkeratome manufacturer and acts as a surgical technician.

    Mobile laser equipment is provided by means of a proprietary
"Roll-On/Roll-Off" laser system. The Roll-On/Roll-Off laser system, elements of
which have been patented, consists of an excimer laser mounted on a motorized
air suspension platform. The Roll-On/Roll-Off laser system is transported
between locations in a specifically modified truck and allows an excimer laser
to be easily moved upon reaching its destination. Due to the design of the
Roll-On/Roll-Off system, the laser usually requires only minor adjustments and
minimal set-up time at each destination. As of December 31, 2002, LaserVision
had 39 Roll-On/Roll-Off systems in operation, all but two of which were located
in the U.S.

     LaserVision's fixed site lasers are dedicated to single locations where eye
surgeons typically perform more than 40 cases per month over several surgery
days to maintain a competitive offering for patients. As of December 31, 2002,
LaserVision had approximately 52 U.S. fixed sites and one European fixed site.
Some fixed sites exclusively serve single practice groups and others are located
in ambulatory surgery centers where they can be used by any qualified eye
surgeon.

    VALUE-ADDED SERVICES

    LaserVision provides eye surgeons value-added support services that
distinguish us from our competitors, enhance the Company's ability to compete
for business and enable us to grow with our customers by offering them various
service and


                                       10
<PAGE>

support arrangements. The following value-added services help LaserVision's eye
surgeon customers to expand their practices thereby increasing the use of
LaserVision's equipment and services:

        o   Technical Support and Equipment Maintenance - As of December 31,
            2002, LaserVision employed 43 certified laser engineers and 26
            microkeratome technicians. The laser engineers perform most required
            laser maintenance and help ensure rapid response to most laser
            repair or maintenance needs.

        o   Staff Training and Development - Through both field and corporate
            based practice development support, LaserVision provides its eye
            surgeon customers with a comprehensive menu of options to enhance
            patient education, staff knowledge, and patient recruitment. Starts
            up services include our centralized "Right Start" seminars and kits,
            refractive coordinator training programs and access to our patient
            financing program. These centralized training programs and
            field-based support provide eye surgeon staff an opportunity to
            learn best practices with respect to patient conversion, patient
            flow and marketing programs. Extended services, such as corporate
            programs, database management and networking techniques, enable eye
            surgeon customers to experience continued growth in their practice.

        o   Building Relationships - LaserVision works to form relationships
            between eye surgeons and optometrists. These optometric networks are
            valuable in referring patients to eye surgeons who use LaserVision's
            equipment and services. LaserVision helps to form these referral
            networks by training optometrists, who are then able to provide
            pre-operative screenings as well as post-surgical follow-up to their
            patients. LaserVision also provides eye surgeon customers with
            marketing advice designed to foster these referrals and generate new
            patients.

        o   Clinical Advisors - TLC Vision maintains a Clinical Advisory Group
            which conducts regular conference calls with TLC Vision's eye
            surgeon customers. Our clinical advisors, who are eye surgeons and
            optometrists with extensive clinical experience, chair these
            conference calls. In addition, TLC Vision conducts clinical advisory
            meetings at major industry conferences each year. TLC Vision's
            clinical advisors also make themselves available to consult with eye
            surgeon customers in addition to regularly scheduled conference
            calls and meetings.

        o   Practice Satelliting - LaserVision assists eye surgeons with
            high-volume practices who desire to serve smaller markets through
            satellite surgical locations. This program allows eye surgeon
            customers to leverage their time performing eye surgery.

    SALES AND MARKETING

    LaserVision's business development personnel develop sales leads, which come
from sources such as customer contact through trade shows and professional
organizations. After identifying a prospective eye surgeon customer, the
regional manager guides the eye surgeon through the contract process. Once an
eye surgeon is prepared to initiate surgeries using our services and equipment,
LaserVision's operations department and business development personnel assume
primary responsibility for the ongoing relationship.

    MOBILE AND FIXED ACCESS AGREEMENTS

    Under LaserVision's standard refractive mobile access agreements with
physicians, LaserVision provides some or all of the following: laser platform
and microkeratome equipment, certain related supplies for the equipment (such as
laser gases, per procedure cards and microkeratome blades), laser operator,
microkeratome technician, maintenance and certain technology upgrades. In
addition, LaserVision may provide practice development, marketing assistance,
coordination of surgeon training and other support services. This access is
provided on agreed upon dates at either the surgeons' offices or a third party's
facility. In return, the surgeons pay a per procedure fee for LaserVision's
services and generally agree to exclusively use LaserVision's equipment for
refractive surgery. LaserVision does not provide medical services to the
patients or any administrative services to the access customers.

    Under LaserVision's standard refractive fixed access agreements with
physicians, LaserVision generally provides the following: a fixed based laser
platform and microkeratome equipment, certain related supplies for the equipment
(such as laser gases, per procedure cards and microkeratome blades), periodic
maintenance and certain technology upgrades. In return, the surgeons pay either
a per procedure fee and guarantee a minimum number of procedures per month, or a
flat monthly fee


                                       11
<PAGE>

plus the cost of per procedure cards and blades. In addition, the surgeons
generally agree to use exclusively LaserVision's equipment for refractive
surgery. LaserVision does not provide a laser operator, microkeratome
technician, medical services to the patients or any administrative services to
the access customers.

    Under LaserVision's joint venture arrangements, LaserVision directly or
indirectly provides either mobile or fixed based laser access and the following:
microkeratome equipment, certain related supplies for the equipment (such as
laser gases, per procedure cards and microkeratome blades), laser operator,
microkeratome technician, maintenance and certain technology upgrades, the laser
facility, management services which includes administrative services such as
billing and collections, staffing for the refractive practice, practice
development, marketing assistance and funds and other support services.
LaserVision receives an access fee and management services fees in addition to
being reimbursed for the direct costs paid by LaserVision for the laser facility
operations. In return, the surgeons generally agree to exclusively use
LaserVision's equipment for refractive surgery and/or not to compete with the
LaserVision within a certain area. Neither LaserVision nor the joint ventures
provide medical services to the patients.

DESCRIPTION OF CATARACT BUSINESS

    Through its Midwest Surgical Services, Inc. division ("MSS"), TLC Vision
provides mobile and fixed site cataract equipment and related services in 37
states. As of December 31, 2002, MSS employed 45 cataract equipment technicians
and operated 45 mobile cataract systems. A MSS certified surgical technician
transports the mobile equipment from one surgery location to the next and
prepares the equipment at each stop so that the operating room is ready for
cataract surgery.

    Cataract patients, the majority of whom are elderly, typically prefer to
receive treatment near their homes. MSS focuses on developing relationships
between local hospitals, referring optometrists and eye surgeons in small- to
medium-sized markets where MSS's shared-access approach and mobile systems make
it economically feasible for optometrists and surgeons to provide cataract
surgical services which are "close to home."

    The MSS sales staff for our cataract division focuses on identifying small-
to medium sized markets, which usually do not have convenient access to the
services of a cataract eye surgeon. After identifying such a market, MSS' sales
staff will contact the local hospital and local optometrists to develop interest
in "close to home" cataract surgery services. When there is sufficient interest,
the sales staff brings the hospital and optometrists in contact with an eye
surgeon who is willing to provide services to that local market. By bringing
these various parties into contact, MSS seeks to increase demand for our mobile
cataract services and increase convenience for cataract patients.

DESCRIPTION OF AMBULATORY SURGICAL CENTER BUSINESS

    As a natural extension of its existing eye care businesses, TLC Vision has
organized OR Partners, Inc. as a wholly-owned subsidiary to develop, acquire and
manage single specialty ophthalmology ambulatory surgery centers ("ASCs") in
partnership with ophthalmic surgeons. As of December 31, 2002, TLC Vision
operated one ASC and anticipates that more ASCs will be opened during 2003.

    ASCs provide outpatient eye surgery services to the partner surgeons and
other non-affiliated surgeons in a less institutional and more efficient,
productive and cost efficient setting than traditional surgical hospitals. The
two primary procedures performed in the ASCs are cataract extraction with IOL
implantation and YAG capsulotomies. However, the ASCs will have the capability
to accommodate additional ophthalmic surgical procedures such as occuloplastic,
cornea, glaucoma and retina.

    OR Partners' focus is seeking partnerships with eye surgeons who are already
performing a sufficient number of cataract surgeries to support the ASCs. In a
typical ASC partnership, OR Partners and the surgeon partners contribute enough
capital to cover the start up costs and initial operations. The partnership
formed is jointly owned by OR Partners and the surgeons, with OR Partners owning
an equity interest and receiving a management fee for assuming overall
administrative management of the facility. As manager, OR Partners manages the
clinical services, marketing, administration, business operations and staffing,
licensing and certification, facility accreditation and financial reporting of
the ASC, which allows surgeon partners to focus on providing high levels of
quality patient care.

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



                                       12
<PAGE>

ANCILLARY BUSINESSES AND SUPPORT PROGRAMS

    TLC Vision has made investments in other businesses with the primary
objective of diversification with other vision care businesses and the secondary
objective of capitalizing on its management and marketing skills and
relationships with eye care providers.

    OTHER BUSINESSES

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

    The Company continues to work to maximize its return on investments in
non-core businesses and focuses on ensuring that non-core businesses are
self-sustaining.

    SUPPORT PROGRAMS

    CLINICAL ADVISORY GROUP

    The Company's Clinical Advisory Group is comprised of refractive surgeons
and optometrists selected based upon clinical experience and previous
involvement with TLC Vision. The Clinical Advisory Group acts as both a clinical
and business resource to the Company by providing an eye care professional's
perspective on market competition, proposed policies and operational strategies.
Additionally, the Clinical Advisory Group also acts as a resource to the
Company's employees and affiliated doctors. The Clinical Advisory Group holds
scheduled meetings throughout the year and meets as necessary to consider
clinical issues as they arise.

    EMERGING TECHNOLOGIES

    The Company considers itself a leader in the provision of vision correction
technology. The Company's medical directors continually evaluate new vision
correction technologies and procedures to seek to ensure that affiliated doctors
have access to state of the art technology to provide the highest level of care.
TLC Vision's branded eye care centers in Ontario are state of the art facilities
that are used to examine and evaluate new technologies for TLC Vision. The
Company's Clinical Advisory Group monitors emerging technologies and procedures
being developed by third party equipment and device manufacturers to address
whether these technologies may complement or improve our service offerings.

    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 eye care doctors in Canada and
the United States.

    The Company provides educational programs to doctors in all aspects of
clinical study, including programs in conjunction with several of the major
optometry schools in the United States. In addition, the Company has an
education and training relationship with the University of Waterloo, the only
English language optometry school in Canada.

    WEBSITE

    TLC Vision has linked its branded eye care centers, network doctors and
potential patients through its website www.tlcvision.com which provides a
directory of TLC Vision affiliated eye care providers and contains questions and
answers about laser vision correction. TLC Vision's website also contains other
useful information for shareholders and investors.



                                       13
<PAGE>

    TLC Vision makes available free of charge on or through its website its
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such material is
made available through the Company's website as soon as reasonably practicable
after such material is electronically filed with or furnished to the Commission.

EQUIPMENT AND CAPITAL FINANCING

    The Company utilizes the VISX, Alcon, and Bausch & Lomb excimer lasers. See
"Industry Background - Laser Vision Correction".

    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
U.S. 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.

    A new excimer laser costs up to $300,000. However, the industry trend in the
sale of excimer lasers is moving away from a flat purchase price to the
alternative of charging the purchaser a per procedure fee.

    As available technology improves and the FDA approves additional procedures,
the Company expects to upgrade the capabilities of its lasers. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

COMPETITION

    CONSUMER MARKET FOR VISION CORRECTION

    Within the consumer market, excimer laser procedures performed at the
Company's centers compete with other surgical and non-surgical treatments for
refractive disorders, including eyeglasses, contact lenses, other types of
refractive surgery and technologies currently under development such as corneal
rings, intraocular lenses and surgery with different types of lasers. Although
the Company believes that eyeglass and contact lens use will continue to be the
most popular form of vision correction in the foreseeable future, as market
acceptance for laser vision correction continues to increase, competition within
this market will grow. There can be no assurance that the Company's management,
operations and marketing plans are or will be successful in meeting this variety
of competition. Further, there can be no assurance that the Company's
competitors' access to capital, financing or other resources or their market
presence will not give these competitors an advantage against the Company. In
addition, other surgical and non-surgical techniques to treat vision disorders
are currently in use and under development and may prove to be more attractive
to consumers than laser vision correction.

    MARKET FOR LASER VISION CORRECTION

    Within the consumer market for laser vision correction, the Company
continues to face increasing competition from other service providers. As market
acceptance for laser vision correction continues to increase, competition within
this market will grow. Laser vision correction providers are divided into three
major segments: corporate owned centers; independent surgeon owned centers; and
institution owned centers. According to Market Scope, as of June 30, 2001,
independent surgeon owned centers accounted for the largest percentage of total
procedure volume in the industry with a 54.6% market share. Corporate owned
centers accounted for 31.5% of total procedures performed. The remaining 13.9%
of laser vision correction procedures were performed at institution owned
centers, such as hospitals or universities.

    Although some competitors continue to charge less for laser vision
correction than the Company's branded eye care center and its affiliated
doctors, the Company believes that the important factors affecting competition
in the laser vision correction market are quality of service, surgeon skill and
reputation, and price and that its competitiveness is enhanced by a strong
network of affiliated doctors. Suppliers of conventional vision correction
(eyeglasses and contact lenses), such as optometric chains, also compete with
the Company either by marketing alternatives to laser vision correction or by
purchasing excimer lasers and offering refractive surgery to their customers.
These service providers may have greater marketing and financial resources and
experience than the Company and may be able to offer laser vision correction at
lower rates. Competition has also increased in part due to the greater
availability and lower costs of excimer lasers.



                                       14
<PAGE>

    During the past several years, the laser vision correction industry
experienced financial stress due to the number of providers who employed
dramatically reduced pricing in an effort to gain market share. TLC Vision
refused to participate in the price war and maintained its premium-pricing model
with superior quality of care and outcomes. In April 2001, LasikVision
Corporation and Lasik Vision Canada Inc., subsidiaries of ICON Laser Eye
Centers, Inc., made assignments in bankruptcy. In June, 2001, ICON Laser Eye
Centers, Inc. was placed in receivership and Vision America also declared
bankruptcy during fiscal 2002. The Company believes that these filings, together
with related media reports, had a negative impact on procedure volumes by
generating a great deal of short-term concern and confusion among prospective
patients. A series of negative news stories focusing on patients with
unfavorable outcomes from procedures performed at competing centers further
adversely affected procedure volumes. In addition, being an elective procedure,
laser eye surgery volumes may have been further depressed by weak economic
conditions in 2001 and 2002.

    TLC Vision competes in fragmented geographic markets. The Company's
principal corporate competitors include LCA-Vision Inc. and Lasik Vision
Institute, Inc. On May 15, 2002, the Company completed its merger with
LaserVision. See "Item 1 - Business - Overview."

GOVERNMENT REGULATION

    EXCIMER LASER REGULATION

    UNITED STATES

    Medical devices, such as the excimer lasers used in the Company's U.S.
centers, are subject to stringent regulation by the FDA and cannot be marketed
for commercial use in the United States until the FDA grants pre-market approval
("PMA") for the device. To obtain a PMA for a medical device, excimer laser
manufacturers must file a PMA application that includes clinical data and the
results of pre-clinical and other testing sufficient to show that there is a
reasonable assurance of safety and effectiveness of their excimer lasers. Human
clinical trials must be conducted pursuant to Investigational Device Exemptions
issued by the FDA in order to generate data necessary to support a PMA. See
"Item 1 - Business - Industry Background - Laser Vision Correction."

    The FDA is not authorized to regulate the practice of medicine, and
ophthalmologists, including those affiliated with TLC Vision eye care centers,
may perform the LASIK procedure, using lasers with a PMA for PRK only (off-label
use) in an exercise of professional judgement in connection with the practice of
medicine.

    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 the Company's branded eye care
centers, widely perform bilateral treatment in an exercise of professional
judgement in connection with the practice of medicine. There can be no assurance
that the FDA will not seek to challenge this practice in the future.

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

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

    The marketing and promotion of laser vision correction in the United States
is subject to regulation by the FDA and the Federal Trade Commission ("FTC").
The FDA and FTC have released a joint communique on the requirements for
marketing laser vision correction in compliance with the laws administered by
both agencies. The FTC staff also issued more detailed



                                       15
<PAGE>

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 eye care centers. Pursuant
to the regulations prescribed under the Canadian 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 cancelled where the HPB determines that its use endangers the
health of patients or users or where the regulations have been violated. 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 eye care 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. Approximately 42 states in which the Company currently does
business limit or prohibit corporations from practicing medicine and employing
or engaging physicians to practice medicine.

    The Company has reviewed these laws and regulations with its health care
counsel and, although there can be no assurance, the Company believes that its
operations currently comply with applicable laws in all material respects. Also,
the Company expects that doctors affiliated with TLC Vision will comply with
such laws in all material respects, although it cannot assure 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 eye care centers but the Company is subject to
similar state laws.

    Doctors affiliated with the Company's ambulatory surgery company, OR
Partners, Inc., the Company's mobile cataract services business, MSS, or 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



                                       16
<PAGE>

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 for the Department of
Health and Human Services, 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 ambulatory surgery business, mobile cataract business and
secondary care centers also triggers potential application of the Stark Law. The
co-management model could establish a financial relationship, as defined in the
Stark Law, between the ophthalmologist and the optometrist. Similarly, to the
extent that the Company provides any designated health services, as defined in
the statute, the Stark Law could be triggered as a result of any of the several
financial relationships between the Company and ophthalmologists. Based on its
current interpretation of the Stark Law as set forth in the final rule published
in 2000, 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 operations.

    Subtitle F of the Health Insurance Portability and Accountability Act of
1996 was enacted to improve the efficiency and effectiveness of the healthcare
system through the establishment of standards and requirements for the
electronic transmission of certain health information. To achieve that end, the
Act requires the Secretary of the U.S. Department of Health and Human Services
to promulgate a set of interlocking regulations establishing standards and
protections for health information systems, including standards for the
following:

        o   the development of electronic transactions and code sets to be used
            in those transactions;

        o   the development of unique health identifiers for individuals,
            employers, health plans and healthcare providers;

        o   the security of protected health information in electronic form;

        o   the transmission and authentication of electronic signatures; and

        o   the privacy of individually identifiable health information.

    Final rules have been published setting forth standards for electronic
transactions and code sets, the privacy of individually identifiable health
information, and for the security of protected health information in electronic
form. All of these regulations apply to health plans, healthcare clearinghouses
and healthcare providers who transmit any healthcare information in electronic
form in connection with certain administrative and billing transactions.
Proposed rules that include standards for unique health identifiers for
employers and healthcare providers, as well as standards related to the security
of individual healthcare information and the use of electronic signatures have
also been published.

    The Company has reviewed the final rules and through the efforts of our
company-based task force have taken steps to institute new policies and
procedures to meet this regulation at various locations throughout the Company.
Included in these changes has been the implementation of a company-wide training
effort for affected employees on how the regulations apply to their job role.

    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.



                                       17
<PAGE>

    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 eye care doctors in connection with the
operation of eye care 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. The Company'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 these arrangements do not violate any of the prohibitions in any
material respects, there can be no assurance that one or more states will not
interpret this structure as violating the state fee-splitting prohibition,
thereby requiring the Company to change its procedures in connection with
billing and collecting for services. Violation of state fee-splitting
prohibitions may subject the ophthalmologists and optometrists to sanctions, and
may result in the Company incurring legal fees, as well as being subjected to
fines or other costs, and this could have a material adverse effect on the
Company's business, financial condition, and results of operations.

    Just as in the case of the federal anti-kickback statute, while the Company
believes that it is conforming to 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 that
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 eye care centers in Canada are owned and managed by a subsidiary in
which affiliated doctors own a minority interest. The Company expects that
ophthalmologists and optometrists affiliated with TLC Vision will comply with
the applicable regulations, although it cannot assure 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 Vision centers will
comply with such laws, although it cannot assure 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



                                       18
<PAGE>

lawful scope of practice. In Canada, laser vision correction is not within the
permitted scope of practice of optometrists. Accordingly, TLC Vision does not
allow optometrists to perform the procedure at TLC Vision 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 eye care centers. There can be no assurance that the Company will be able
to obtain facility licenses in all states which may require facility licensure.

    Some states require the permission of the 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. 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 is not aware of any Canadian health regulations, which impose
facility-licensing requirements on the operation of eye care 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 Vision expects that
affiliated doctors will comply with such laws in all material respects, although
it cannot assure 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 names "TLC The Laser Center" and slogan "See the Best" are registered
United States service marks of TLC Vision and registered trademarks in Canada.
TLC Vision has registered "TLC Laser Eye Centers" with the TLC Vision eye design
as a trademark in the United States and Canada. "Laser Vision," "Laser Vision
Centers and Design," "Laser Vision Centers," "LVC," and "LVCI," are registered
trademarks in the United States utilized by LaserVision. LaserVision has secured
a patent for certain aspects of its Roll-On/Roll-Off system. In addition, TLC
Vision 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, patents and other
intellectual property may offer the Company a competitive advantage in the
marketplace and could be important to the success of the Company. One or all of
the registrations of the service marks may be challenged, invalidated or
circumvented in the future.

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



                                       19
<PAGE>

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
continued 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 December 31, 2002, the Company had approximately 880 employees. The
Company, through its subsidiaries, contracts with approximately 93 optometrists
to furnish non-clinical services, including management and administrative
functions and, in some states, clinical services. Additionally, the Company,
through its subsidiaries, contracts with approximately five ophthalmologists to
furnish non-clinical services, consistent with those of a medical director, and
in some states clinical services. 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 eye care 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

    LOSSES FROM OPERATIONS; UNCERTAINTY OF FUTURE PROFITABILITY

    TLC Vision reported net losses of $43.3 million, $161.9 million, $37.8
million, and $5.9 for the transitional period ended December 31, 2002, fiscal
2002, fiscal 2001 and fiscal 2000, respectively. As of December 31, 2002, TLC
Vision reported an accumulated deficit of $285.4 million. TLC Vision may not
become profitable and if it does become profitable, its profitability may vary
significantly from quarter to quarter. TLC Vision's profitability will depend on
a number of factors, including:

        o   the Company's ability to increase demand for its services and
            control costs;

        o   the Company's ability to execute its strategy and effectively
            integrate acquired businesses and assets;

        o   the Company's ability to obtain adequate insurance against
            malpractice claims;

        o   economic conditions in the Company's markets, including the
            availability of discretionary income;

        o   concerns about the safety and effectiveness of laser vision
            correction;

        o   competitive factors;

        o   regulatory developments;

        o   the Company's ability to achieve expected cost savings and
            synergies; and

        o   the Company's ability to retain and attract qualified personnel.

See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations."

    CHANGES IN GENERAL ECONOMIC CONDITIONS MAY CAUSE FLUCTUATIONS IN TLC
    VISION'S REVENUES AND PROFITABILITY.

    The cost of laser vision correction procedures is typically not reimbursed
by health care insurance companies or other third party payors. Accordingly, the
operating results of TLC Vision may vary based upon the impact of changes in
economic conditions on the disposable income of consumers interested in laser
vision correction. A significant decrease in consumer disposable income in a
weakening economy may result in decreased procedure levels and revenues for TLC
Vision. For example, the recent downturn in the North American economy has
contributed to a 17% decline in the number of paid



                                       20
<PAGE>

procedures at TLC Vision's branded centers and a 22% decline in total revenues
for the seven months ended December 31, 2002 compared to the corresponding
period in 2001. In addition, weakening economic conditions may result in an
increase in the number of TLC Vision's customers, who experience financial
distress or declare bankruptcy, which may negatively impact TLC Vision's
accounts receivable collection experience.

    THE MARKET FOR LASER VISION CORRECTION IS INTENSELY COMPETITIVE AND
    COMPETITION MAY INCREASE.

    Some of the Company's competitors or companies that may choose to enter the
industry in the future, including laser manufacturers themselves, may have
substantially greater financial, technical, managerial, marketing and/or other
resources and experience than the Company and may compete more effectively than
TLC Vision. TLC Vision competes with hospitals, individual ophthalmologists,
other corporate laser centers and manufacturers of excimer laser equipment in
offering laser vision correction services and access to excimer lasers. TLC
Vision's principal corporate competitors will include LCA-Vision Inc. and Lasik
Vision Institute, Inc.

    Competition in the market for laser vision correction could increase as
excimer laser surgery becomes more commonplace and the number of
ophthalmologists performing the procedure increases. In addition, competition
would increase if state laws were amended to permit optometrists, in addition to
ophthalmologists, to perform laser vision correction. TLC Vision will compete on
the basis of quality of service, surgeon skill and reputation, and price. If
more providers offer laser vision correction in a given geographic market, the
price charged for such procedures may decrease. In recent years, competitors
have offered laser vision correction at prices considerably lower than TLC
Vision's prices. The laser vision correction industry has been significantly
affected by reductions in the price for laser vision correction, including the
failure of many businesses that provided laser vision correction. Market
conditions may compel TLC Vision to lower prices to remain competitive and any
reduction in its prices may not be offset by an increase in its procedure volume
or decreases in its costs. A decrease in either the fees or procedures performed
at TLC Vision's eye care centers or in the number of procedures performed at its
centers could cause TLC Vision's revenues to decline and its business and
financial condition to weaken.

    Laser vision correction competes with other surgical and non-surgical means
of correcting refractive disorders, including eyeglasses, contact lenses, other
types of refractive surgery and other technologies currently under development,
such as intraocular lenses and surgery with different types of lasers. TLC
Vision's management, operations and marketing plans may not be successful in
meeting this competition. Optometry chains and other suppliers of eyeglasses and
contact lenses may have substantially greater financial, technical, managerial,
marketing and other resources and experience than the Company and may promote
alternatives to laser vision correction or purchase laser systems and offer
laser vision correction to their customers.

    If the price of excimer laser systems decreases, additional competition
could develop. The price for excimer laser systems could decrease for a number
of reasons, including technological innovation and increased competition among
laser manufacturers. Further reductions in the price of excimer lasers could
reduce demand for TLC Vision's laser access services by making it economically
more attractive for eye surgeons to buy excimer lasers rather than utilize TLC
Vision's services.

    Although doctors performing laser vision correction at TLC Vision's eye care
centers and significant employees of TLC Vision have agreed to restrictions on
competing with TLC Vision, or soliciting patients or employees associated with
their facilities, these non-competition agreements may not be enforceable.

    THE MARKET ACCEPTANCE OF LASER VISION CORRECTION IS UNCERTAIN.

    TLC Vision believes that the profitability and growth of TLC Vision will
depend upon broad acceptance of laser vision correction in the United States
and, to a lesser extent, Canada. TLC Vision may have difficulty generating
revenue and growing its business if laser vision correction does not become more
widely accepted by eye care doctors or the general population as an alternative
to existing methods of treating refractive vision disorders. Laser vision
correction may not become more widely accepted due to a number of factors,
including:

        o   its cost, particularly since laser vision correction typically is
            not covered by government or private insurers;

        o   general resistance to surgery;



                                       21
<PAGE>

        o   effective and less expensive alternative methods of correcting
            refractive vision disorders are widely available;

        o   the lack of long-term follow-up data;

        o   the possibility of unknown side effects; and

        o   reported adverse events or other unfavorable publicity involving
            patient outcomes from laser vision correction.

    CONCERNS ABOUT POTENTIAL SIDE EFFECTS AND LONG-TERM RESULTS OF LASER VISION
    CORRECTION MAY NEGATIVELY IMPACT MARKET ACCEPTANCE OF LASER VISION
    CORRECTION AND PREVENT TLC VISION FROM GROWING ITS BUSINESS.

    Concerns have been raised with respect to the predictability and stability
of results and potential complications or side effects of laser vision
correction. Any complications or side effects of laser vision correction may
call into question the safety and effectiveness of laser vision correction,
which in turn may damage the likelihood of market acceptance of laser vision
correction. Complications or side effects of laser vision correction could lead
to product liability, malpractice or other claims against TLC Vision. Also,
complications or side effects could jeopardize the approval by the U.S. Food and
Drug Administration of the excimer laser for sale for laser vision correction.
Although results of a study showed that the majority of patients experienced no
serious side effects six years after laser vision correction using the
Photorefractive Keratectomy procedure, known as PRK, complications may be
identified in further long-term follow-up studies of PRK or Laser In-Situ
Keratomileusis, known as LASIK, the procedure more often performed in recent
years.

    There is no independent industry source for data on side effects or
complications from laser vision correction. In addition, TLC Vision does not
track side effects. Some of the possible side effects of laser vision correction
are:

        o   foreign body sensation,

        o   pain or discomfort,

        o   sensitivity to bright lights,

        o   blurred vision,

        o   dryness or tearing,

        o   fluctuation in vision,

        o   night glare,

        o   poor or reduced visual quality,

        o   overcorrection or undercorrection,

        o   regression, and

        o   corneal flap or corneal healing complications.

    TLC Vision believes that the percentage of patients who experience serious
side effects as a result of laser vision correction at its centers is likely
less than one percent. However, there is no study to support this belief. In
addition, rates of complications in the industry may be higher than those
experienced by TLC Vision.

    Laser vision correction may also involve the removal of "Bowman's membrane,"
an intermediate layer between the outer corneal layer and the middle corneal
layer of the eye. Although several studies have demonstrated no significant
adverse reactions to excimer laser removal of Bowman's membrane, the effect of
the removal of Bowman's membrane on patients is unclear.



                                       22
<PAGE>

    TLC VISION MAY BE UNABLE TO ENTER INTO OR MAINTAIN AGREEMENTS WITH DOCTORS
    OR OTHER HEALTH CARE PROVIDERS ON SATISFACTORY TERMS.

    TLC Vision will have difficulty generating revenue if it is unable to enter
into or maintain agreements with doctors or other health care providers on
satisfactory terms. Most states prohibit TLC Vision, from practicing medicine,
employing doctors to practice medicine on TLC Vision's behalf or employing
optometrists to render optometric services on TLC Vision's behalf. In most
states TLC Vision may only own and manage centers and enter into affiliations
with doctors and other health care providers. Also, affiliated doctors have
provided a significant source of patients for TLC Vision and are expected to
provide a significant source of patients for TLC Vision. Accordingly, the
success of TLC Vision's business depends upon its ability to enter into
agreements on acceptable terms with a sufficient number of health care
providers, including institutions and eye care doctors to render or arrange
surgical and other professional services at facilities owned or managed by TLC
Vision.

    QUARTERLY FLUCTUATIONS IN OPERATING RESULTS MAKE FINANCIAL FORECASTING
    DIFFICULT.

    TLC Vision may experience future quarterly losses, which may exceed prior
quarterly losses. TLC Vision's expense levels will be based, in part, on its
expectations as to future revenues. If actual revenue levels were below
expectations, TLC Vision's operating results would deteriorate. Historically,
the quarterly results of operations of TLC Vision have varied, and future
results may continue to fluctuate significantly from quarter to quarter.
Accordingly, quarter-to-quarter comparisons of TLC Vision's operating results
may not be meaningful and should not be relied upon as indications of its future
performance or annual operating results. Quarterly results will depend on
numerous factors, including economic conditions in TLC Vision's geographic
markets, market acceptance of its services, seasonal factors and other factors
described in this Form 10-K.

    THE MARKET PRICE OF TLC VISION'S COMMON SHARES MAY BE VOLATILE.

    Historically, the market price of TLC Vision's common shares has been very
volatile. For example, the market price of TLC Vision's common shares decreased
from a high of $53.50 to a low of $.79 between July 1999 and March 2003. TLC
Vision's common shares will likely be volatile in the future due to industry
developments and business-specific factors such as:

        o   the Company's ability to effectively penetrate the laser vision
            correction market;

        o   the Company's ability to execute its business strategy;

        o   new technological innovations and products;

        o   changes in government regulations;

        o   adverse regulatory action;

        o   public concerns about the safety and effectiveness of laser vision
            correction;

        o   loss of key management;

        o   announcements of extraordinary events such as acquisitions or
            litigation;

        o   variations in its financial results;

        o   fluctuations in competitors' stock prices;

        o   the issuance of new or changed stock market analyst reports and
            recommendations concerning its common shares or competitors' stock;

        o   changes in earnings estimates by securities analysts;



                                       23
<PAGE>

        o   the Company's ability to meet analysts' projections;

        o   changes in the market for medical services; or

        o   general economic, political and market conditions.

    In addition, in recent years the prices and trading volumes of publicly
traded shares, particularly those of companies in health care related markets,
have been extremely volatile. This volatility has substantially affected the
market prices of many companies' securities for reasons frequently unrelated or
disproportionate to their operating performance. Following the terrorist attacks
in the United States in September 2001, stock markets have experienced extreme
volatility and stock prices have declined, in some cases substantially.
Continued volatility may reduce the market price of the common shares of TLC
Vision.

    TLC VISION MAY BE UNABLE TO EXECUTE ITS BUSINESS STRATEGY.

    TLC Vision's business strategy will be to focus on:

        o   maximizing revenues through a co-management model and innovative
            marketing programs;

        o   controlling costs without compromising superior quality of care or
            clinical outcomes; and

        o   pursuing additional growth opportunities outside of its laser vision
            correction business

    If TLC Vision does not successfully execute this strategy or if the
strategy is not effective, TLC Vision may be unable to maintain or grow its
revenues or achieve profitability.

    TLC VISION MAY MAKE INVESTMENTS THAT MAY NOT BE PROFITABLE.

    TLC Vision has made investments that are intended to support its core
business, such as TLC Vision's investment in LaserSight Inc. These investments
have generally been made in companies in the laser vision correction business or
that own emerging technologies that TLC Vision believes will support the
company's core business. TLC Vision took a charge of approximately $26.1 million
and $2.1 million in the fiscal year ended May 31, 2002 and the seven-month
period ended December 31, 2002, respectively, primarily as a result of the
decline in the value of its investments, including the investment in LaserSight.
TLC Vision may make similar investments in the future, some of which may be
material or may become material over time. If TLC Vision is unable to manage
these investments, or if these investments are not profitable or do not generate
the expected returns, then future operating results may be adversely impacted.

    THE GROWTH STRATEGY OF TLC VISION DEPENDS ON ITS ABILITY TO MAKE
    ACQUISITIONS OR ENTER INTO AFFILIATION ARRANGEMENTS.

    The success of the growth strategy of TLC Vision will be dependent on
increasing the number of procedures at its eye care centers, increasing the
number of eye care centers through internal development or acquisitions and
entering into affiliation arrangements with local eye care professionals in
markets not large enough to justify a corporate center.

    The addition of new centers will present challenges to management, including
the integration of new operations, technologies and personnel. The addition of
new centers also present special risks, including:

        o   unanticipated liabilities and contingencies;

        o   diversion of management attention; and

        o   possible adverse effects on operating results resulting from:

            o   possible future goodwill impairment;



                                       24
<PAGE>

            o   increased interest costs;

            o   the issuance of additional securities; and

            o   increased costs resulting from difficulties related to the
                integration of the acquired businesses.

    TLC Vision's ability to achieve growth through acquisitions will depend on a
number of factors, including:

            o   the availability of attractive acquisition opportunities;

            o   the availability of capital to complete acquisitions;

            o   the availability of working capital to fund the operations of
                acquired businesses; and

            o   the effect of existing and emerging competition on operations.

    TLC Vision may not be able to successfully identify suitable acquisition
candidates, complete acquisitions on acceptable terms, if at all, or
successfully integrate acquired businesses into its operations. TLC Vision's
past and possible future acquisitions may not achieve adequate levels of
revenue, profitability or productivity or may not otherwise perform as expected.

    TLC VISION MAY HAVE SUBSTANTIAL FUTURE CAPITAL REQUIREMENTS, AND ITS ABILITY
    TO OBTAIN ADDITIONAL FUNDING IS UNCERTAIN.

    TLC Vision is unable to predict with certainty the timing or the amount of
its future capital requirements. Continued operating losses or changes in TLC
Vision's operations, expansion plans or capital requirements may consume
available cash and other resources more rapidly than TLC Vision anticipates and
more funding may be required before TLC Vision becomes profitable. TLC Vision's
capital needs depend on many factors, including:

        o   the rate and cost of acquisitions of businesses, equipment and other
            assets;

        o   the rate of opening new centers or expanding existing centers;

        o   market acceptance of laser vision correction; and

        o   actions by competitors.

    TLC Vision may not have adequate resources to finance the growth in its
business, and it may not be able to obtain additional capital through subsequent
equity or debt financings on terms acceptable to TLC Vision or at all. If TLC
Vision does not have adequate resources and cannot obtain additional capital,
TLC Vision will not be able to implement its expansion strategy successfully,
TLC Vision's growth could be limited and its net income and financial condition
could be adversely affected.

    TLC VISION MAY BE UNABLE TO SUCCESSFULLY IMPLEMENT AND INTEGRATE NEW
    OPERATIONS AND FACILITIES.

    The success of TLC Vision depends on its ability to manage its existing
operations and facilities and to expand its businesses consistent with the
Company's business strategy. In the past, TLC Vision has grown rapidly in the
United States. TLC Vision's future growth and expansion will increase its
management's responsibilities and demands on operating and financial systems and
resources. TLC Vision's business and financial results are dependent upon a
number of factors, including its ability to:

        o   implement upgraded operations and financial systems, procedures and
            controls;



                                       25
<PAGE>

        o   hire and train new staff and managerial personnel;

        o   adapt or amend TLC Vision's business structure to comply with
            present or future legal requirements affecting its arrangements with
            doctors, including state prohibitions on fee-splitting, corporate
            practice of optometry and medicine and referrals to facilities in
            which doctors have a financial interest; and

        o   obtain regulatory approvals, where necessary, and comply with
            licensing requirements applicable to doctors and facilities
            operated, and services offered, by doctors.

    TLC Vision's failure or inability to successfully implement these and other
factors may adversely affect the quality and profitability of its business
operations.

    TLC VISION DEPENDS ON KEY PERSONNEL WHOSE LOSS COULD ADVERSELY AFFECT ITS
    BUSINESS.

    TLC Vision's success and growth depends in part on the active participation
of key medical and management personnel, including Mr. Vamvakas and Mr.
Wachtman. TLC Vision maintains key person insurance for each of Mr. Vamvakas,
Mr. Wachtman and several key ophthalmologists. Despite having this insurance in
place, the loss of any one of these key individuals could adversely affect the
quality, profitability and growth prospects of TLC Vision's business operations.

    TLC Vision will have employment or similar agreements with the above
individuals and other key personnel. The terms of these agreements will include,
in some cases, entitlements to substantial severance payments in the event of
termination of employment by either TLC Vision or the employee.

    TLC VISION MAY BE SUBJECT TO MALPRACTICE AND OTHER SIMILAR CLAIMS AND MAY BE
    UNABLE TO OBTAIN OR MAINTAIN ADEQUATE INSURANCE AGAINST THESE CLAIMS.

    The provision of medical services at TLC Vision's centers entails an
inherent risk of potential malpractice and other similar claims. As of May 31,
2002, medical malpractice insurance coverage for TLC Vision locations, other
than former LaserVision sites, had a $250,000 deductible per claim. Through
September 30, 2002, former LaserVision sites had a $25,000 deductible per claim.
As of October 1, 2002, all of TLC Vision's professional malpractice insurance
had a $250,000 deductible per claim. Patients at TLC Vision's centers execute
informed consent statements prior to any procedure performed by doctors at TLC
Vision's centers, but these consents may not provide adequate liability
protection. Although TLC Vision does not engage in the practice of medicine or
have responsibility for compliance with regulatory and other requirements
directly applicable to doctors and doctor groups, claims, suits or complaints
relating to services provided at TLC Vision's centers may be asserted against
TLC Vision in the future, and the assertion or outcome of these claims could
result in higher administrative and legal expenses, including settlement costs
or litigation damages.

    TLC Vision currently maintains malpractice insurance coverage that it
believes is adequate both as to risks and amounts covered. In addition, TLC
Vision requires the doctors who provide medical services at its centers to
maintain comprehensive professional liability insurance and most of these
doctors have agreed to indemnify TLC Vision against certain malpractice and
other claims. TLC Vision's insurance coverage, however, may not be adequate to
satisfy claims, insurance maintained by the doctors may not protect TLC Vision
and such indemnification may not be enforceable or, if enforced, may not be
sufficient. TLC Vision's inability to obtain adequate insurance or an increase
in the future cost of insurance to TLC Vision and the doctors who provide
medical services at the centers may have a material adverse effect on its
business and financial results.

    The excimer laser system uses hazardous gases which if not properly
contained could result in injury. TLC Vision may not have adequate insurance for
any liabilities arising from injuries caused by the excimer laser system or
hazardous gases. While TLC Vision believes that any claims alleging defects in
TLC Vision's excimer laser systems would be covered by the manufacturers'
product liability insurance, the manufacturers of TLC Vision's excimer laser
systems may not continue to carry adequate product liability insurance.

    TLC VISION MAY FACE CLAIMS FOR FEDERAL, STATE AND LOCAL TAXES.

         TLC Vision operates in 48 states and two Canadian provinces, and is
subject to various federal, state and local income, payroll, unemployment,
property, franchise, capital, sales and use tax on its operations, payroll,
assets and services.



                                       26
<PAGE>

TLC Vision endeavors to comply with all such applicable tax regulations, many of
which are subject to different interpretations, and has hired outside tax
advisors to assist in the process. Many states and other taxing authorities are
experiencing financial difficulties and have been interpreting laws and
regulations more aggressively to the detriment of taxpayers such as TLC Vision
and its customers. Although TLC Vision cannot predict the outcome of all past
and future tax assessments, it believes that it has adequate provisions and
accruals in its financial statements for tax liabilities.

    Tax authorities in four states have contacted TLC Vision and issued proposed
sales tax adjustments in the aggregate amount of approximately $2.2 million for
various periods through 2002 on the basis that certain of TLC Vision's laser
access arrangements constitute a taxable lease or rental rather than an exempt
service. If it is determined that any sales tax is owed, TLC Vision believes
that, under applicable laws and TLC Vision's contracts with its eye surgeon
customers, each customer is ultimately responsible for the payment of any
applicable sales and use taxes in respect of TLC Vision's services. However, TLC
Vision may be unable to collect any such amounts from its customers, and in such
event would remain responsible for payment. TLC Vision cannot yet predict the
outcome of these assessments, or any other assessments or similar actions which
may be undertaken by other state tax authorities. The Company is currently
conducting an evaluation of its sales tax reporting in various other states. The
Company believes that it has adequate provisions in its financial statements
with respect to these matters.

    COMPLIANCE WITH INDUSTRY REGULATIONS IS COSTLY AND ONEROUS.

    TLC Vision's operations are subject to extensive federal, state and local
laws, rules and regulations. TLC Vision's efforts to comply with these laws,
rules and regulations may impose significant costs, and failure to comply with
these laws, rules and regulations may result in fines or other charges being
imposed on TLC Vision.

    Many state laws limit or prohibit corporations from practicing medicine and
optometry and many federal and state laws extensively regulate the solicitation
of prospective patients, the structure of TLC Vision's fees, and its contractual
arrangements with hospitals, surgery centers, ophthalmologists and optometrists,
among others. Some states also impose licensing requirements. Although TLC
Vision has tried to structure its business and contractual relationships in
compliance with these laws in all material respects, if any aspect of its
operations were found to violate applicable laws, TLC Vision could be subject to
significant fines or other penalties, required to cease operations in a
particular state, prevented from commencing operations in a particular state or
otherwise be required to revise the structure of its business or legal
arrangements. Many of these laws and regulations are ambiguous, have not been
definitively interpreted by courts or regulatory authorities and vary from
jurisdiction to jurisdiction. Accordingly, TLC Vision may not be able to predict
how these laws and regulations will be interpreted or applied by courts and
regulatory authorities, and some of its activities could be challenged.

    Numerous legislative proposals to reform the U.S. health care system have
been introduced in Congress and in various state legislatures over the past
several years. TLC Vision cannot predict whether any of these proposals will be
adopted and, if adopted, what impact this legislation would have on its
business. To respond to any such changes, TLC Vision 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 some of its business
activities, reducing the potential profit of some of its arrangements.

    State medical boards and state boards of optometry generally set limits on
the activities of ophthalmologists and optometrists. In some instances, issues
have been raised as to whether participation in a co-management program violates
some of these limits. If a state authority were to find that TLC Vision's
co-management program did not comply with state licensing laws, TLC Vision would
be required to revise the structure of its legal arrangements, and affiliated
doctors might terminate their relationships with TLC Vision.

    Federal and state civil and criminal statutes impose penalties, including
substantial civil and criminal fines and imprisonment, on health care providers
and persons who provide services to health care providers, including management
businesses such as TLC Vision, for fraudulently or wrongfully billing government
or other insurers. In addition, the federal law prohibiting false
Medicare/Medicaid billings allows a private person to bring a civil action in
the name of the U.S. government for violations of its provisions and obtain a
portion of the damages if the action is successful. TLC Vision each believes
that it is in material compliance with these billing laws, but its business
could be adversely affected if governmental authorities were to scrutinize or
challenge its activities or private parties were to assert a false claim or
action against us in the name of the U.S. government.

    Although TLC Vision believes that it has obtained the necessary licenses or
certificates of need in states where such licenses are required and that TLC
Vision is not required to obtain any licenses in other states, some of the state
regulations governing the need for such licenses are unclear, and there is no
applicable precedent or regulatory guidance to help resolve



                                       27
<PAGE>

these issues. A state regulatory authority could determine that TLC Vision is
operating a center inappropriately without a required license or certificate of
need, which could subject TLC Vision to significant fines or other penalties,
result in TLC Vision being required to cease operations in a state or otherwise
jeopardize its business and financial results. If TLC Vision expands to a new
geographic market, TLC Vision may be unable to obtain any new license required
in that jurisdiction.

    COMPLIANCE WITH ADDITIONAL HEALTH CARE REGULATION IN CANADA IS COSTLY AND
    BURDENSOME.

    Some Canadian provinces have adopted conflict of interest regulations that
prohibit optometrists, ophthalmologists or corporations they own or control from
receiving benefits from suppliers of medical goods or services to whom they
refer patients. The laws of some Canadian provinces also prohibit health care
professionals from splitting fees with non-health care professionals and
prohibit non-licensed entities such as TLC Vision from practicing medicine or
optometry and from directly employing doctors or optometrists. TLC Vision
believes that it is in material compliance with these requirements, but a review
of TLC Vision's operations by Canadian regulators or changes in the
interpretation or enforcement of existing Canadian legal requirements or the
adoption of new requirements could require TLC Vision to incur significant costs
to comply with laws and regulations in the future or require TLC Vision to
change the structure of its arrangements with doctors.

    COMPLIANCE WITH U.S. FOOD AND DRUG ADMINISTRATION REGULATIONS REGARDING THE
    USE OF EXCIMER LASER SYSTEMS FOR LASER VISION CORRECTION IS COSTLY AND
    BURDENSOME.

    To date, the FDA has approved excimer laser systems manufactured by some
manufacturers for sale for the treatment of nearsightedness, farsightedness and
astigmatism up to stated levels of correction. Failure to comply with applicable
FDA requirements with respect to the use of the excimer laser could subject TLC
Vision, TLC Vision's affiliated doctors or laser manufacturers to enforcement
action, including product seizure, recalls, withdrawal of approvals and civil
and criminal penalties.

    The FDA has adopted guidelines in connection with the approval of excimer
laser systems for laser vision correction. The FDA, however, has also stated
that decisions by doctors and patients to proceed outside the FDA approved
guidelines are a practice of medicine decision, which the FDA is not authorized
to regulate. Failure to comply with FDA requirements, or any adverse FDA action,
including a reversal of its interpretation with respect to the practice of
medicine, could result in a limitation on or prohibition of TLC Vision's use of
excimer lasers.

    Discovery of problems, violations of current laws or future legislative or
administrative action in the United States or elsewhere may adversely affect the
laser manufacturers' ability to obtain regulatory approval of laser equipment.
Furthermore, the failure of 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
excimer lasers, substantially increase the cost of excimer lasers, limit the
number of patients that can be treated at its centers and limit TLC Vision's
ability to use excimer lasers.

    Most of TLC Vision's eye care centers in the United States use VISX and/or
Alcon Laboratories Inc. excimer lasers and most of LaserVision's lasers are VISX
excimer lasers. If VISX, Alcon or other excimer laser manufacturers fail to
comply with applicable federal, state or foreign regulatory requirements, or if
any adverse regulatory action is taken against or involves such manufacturers,
the supply of lasers could be limited and the cost of excimer lasers could
increase.

    The Roll-On/Roll-Off laser system consists of an excimer laser mounted on a
motorized, air suspension platform and transported in a specially modified
truck. TLC Vision believes that use of this transport system does not require
FDA approval; the FDA has taken no position in regard to such approval. The FDA
could, however, take the position that excimer lasers are not approved for use
in this transport system. Such a view by the FDA could lead to an enforcement
action against TLC Vision, which could impede TLC Vision's ability to maintain
or increase its volume of excimer laser surgeries. This could have a material
adverse effect on TLC Vision's business and financial results. Similarly, TLC
Vision believes that FDA approval is not required for its mobile use of
microkeratomes or the cataract equipment transported by its cataract operations.
The FDA, however, could take a contrary position that could result in an
enforcement action.




                                       28
<PAGE>
    DISPUTES WITH RESPECT TO INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT TLC
    VISION'S BUSINESS.

    There has been substantial litigation in the United States and Canada
regarding the patents on ophthalmic lasers. If the use of an excimer laser or
other procedure performed at any of TLC Vision's centers is deemed to infringe a
patent or other proprietary right, TLC Vision 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 involve
substantial costs, including ongoing royalty payments. If a license is not
available on acceptable terms, TLC Vision may be required to seek the use of
products, which do not infringe the patent. The unavailability of alternate
products could cause TLC Vision to cease operations in the United States or
Canada or delay TLC Vision's expansion. If TLC Vision is prohibited from
performing laser vision correction at any of its laser centers, TLC Vision's
ability to carry on its business will be jeopardized.

    TLC Vision, through the acquisition of LaserVision, has also secured patents
for portions of the equipment it uses to transport TLC Vision's mobile lasers.
LaserVision's patents and other proprietary technology are important to TLC
Vision's success. TLC Vision's patents could be challenged, invalidated or
circumvented in the future. Litigation regarding intellectual property is common
and TLC Vision's patents may not adequately protect its intellectual property.
Defending and prosecuting intellectual property proceedings is costly and
involves substantial commitments of management time. If TLC Vision fails to
successfully defend its rights with respect to TLC Vision's intellectual
property, TLC Vision may be required to pay damages.

    TLC VISION MAY NOT HAVE THE CAPITAL RESOURCES NECESSARY IN ORDER TO KEEP UP
    WITH RAPID TECHNOLOGICAL CHANGES.

    Modern medical technology changes rapidly. New or enhanced technologies and
therapies may be developed with better performance or lower costs than the laser
vision correction currently provided at TLC Vision's centers. TLC Vision may not
have the capital resources to upgrade its excimer laser equipment, acquire new
or enhanced medical devices or adopt new or enhanced procedures at the time that
any advanced technology or therapy is introduced.

    THE REPRICING OF TLC VISION STOCK OPTIONS COULD HAVE A MATERIAL ADVERSE
    IMPACT ON TLC VISION'S REPORTED EARNINGS IN THE FUTURE AND COULD MAKE ITS
    REPORTED EARNINGS VOLATILE.

    As approved by the shareholders of TLC Vision at its 2002 annual meeting, in
2002 TLC Vision allowed the holders of outstanding TLC Vision stock options with
an exercise price greater than $8.688 to elect to reduce the exercise price of
their options to $8.688, in some cases by surrendering existing options for a
greater number of shares than the number of shares issuable on exercise of each
repriced option. If the price of TLC Vision's common shares rises above the new
exercise price of $8.688, the repricing of the options could have a material
adverse impact on TLC Vision's reported earnings and could make its reported
earnings more volatile. Under current U.S. generally accepted accounting
principles, the repriced options will be subject to variable accounting
treatment. Variable accounting requires that the difference between the price of
TLC Vision's common shares at the end of each financial quarter and the new
exercise price be charged to income as compensation over the remaining vesting
period of the outstanding options. If the price of TLC Vision common shares
rises above $8.688, variable accounting will require TLC Vision to re-measure
total compensation at the end of each quarter and take an appropriate charge to
income. This charge may be material to future quarterly and annual results. TLC
Vision is unable to estimate at this point the total amount of compensation
expense, if any, or the period to which the charge to income will be made.

    THE ABILITY OF TLC VISION'S SHAREHOLDERS TO EFFECT CHANGES IN CONTROL OF TLC
    VISION IS LIMITED.

    TLC Vision has a shareholder rights plan which enables the board of
directors to delay a change in control of TLC Vision. This could discourage a
third party from attempting to acquire control of TLC Vision, even if an attempt
would be beneficial to the interests of the shareholders. In addition, since TLC
Vision is a Canadian corporation, investments in TLC Vision may be subject to
the provisions of the Investment Canada Act. In general, this act provides a
system for the notification to the Investment Canada agency of acquisitions of
Canadian businesses by non-Canadian investors and for the review by the
Investment Canada agency of acquisitions that meet thresholds specified in the
act. To the extent that a non-Canadian person or company attempted to acquire
33% or more of TLC Vision's outstanding common stock, the threshold for a
presumption of control, the transaction could be reviewable by the Investment
Canada agency. These factors, and others, could have the effect of delaying,
deferring or preventing a change of control of TLC Vision supported by
shareholders but opposed by TLC Vision's board of directors.



                                       29
<PAGE>
ITEM 2. PROPERTIES

    The Company's 66 branded centers are located in leased premises. The leases
are negotiated on market terms and typically have a term of five to ten years.

    The Company also maintains investment interests in two secondary care
practices located in Michigan and Oklahoma. The secondary care practice in
Michigan has five satellite locations and the secondary care practice in
Oklahoma has two satellite locations. The terms of the Company's leases provide
for total aggregate monthly lease obligations of approximately $0.7 million.

    TLC Vision's International Headquarters are located in premises in
Mississauga, Ontario, Canada. See "Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion of the
Company's sale and leaseback transaction involving that facility. TLC Vision's
U.S. Corporate Office is located in approximately 20,500 square feet of leased
office space in St. Louis, Missouri under a lease that will expire in 2006. TLC
Vision also maintains approximately 7,000 square feet of office/warehouse space
in Bloomington, Minnesota for its cataract operations. The Bloomington facility
lease expires in 2009.

ITEM 3. LEGAL PROCEEDINGS

    On February 9, 2001, Joseph Dello Russo, M.D. filed a lawsuit against the
Company and certain physicians associated with the Company in the United States
District Court, Eastern District of New York alleging false description, false
advertising and deceptive trade practices based upon certain advertisements of a
doctor with substantially the same name as the plaintiff. The complaint alleged
compensatory damages to be no less than $30 million plus punitive damages. This
lawsuit was settled on October 31, 2002, no payment was made by any party to any
of the other parties.

    In the fourth quarter fiscal 2001, an arbitration award was issued against
TLC Network Service Inc. for $2.1 million that has been fully accrued for in
fiscal 2002. The arbitration award was extended to the Company. The Company has
filed an appeal but no hearing date has been set at this time. Payment of this
liability has been deferred until final resolution of the appeal and all other
legal alternatives have been explored.

    In April 2002, Lesa K. Melchor, Richard D. and Lee Ann Dubois and Major Gary
D. Liebowitz filed a lawsuit in the U.S. District Court, Southern District of
Texas, Houston Division against Laser Vision Centers, Inc. This is a securities
claim seeking damages for losses incurred in trading in LaserVision stock and
options in the period from November 1999 to December 2001. In their Complaint,
the plaintiffs allege that LaserVision's Director of Investor Relations gave
them false and misleading information. This lawsuit was settled on January 14,
2002, and while admitting no liability, the Company paid $25,000 to the
plaintiffs in full settlement of all claims.

    On October 21, 2002 the Company was served with a lawsuit filed by Thomas S.
Tooma, M.D. and TST Acquisitions, LLC in the Superior Court of the State of
California in Orange County, California. Dr. Tooma and certain entities
controlled by him have entered into a joint business venture with TLC Vision in
the State of California since July 1999. The lawsuit seeks damages and
injunctive relief based on the plaintiffs' allegation that the Company's merger
with Laser Vision Centers, Inc. violated certain exclusivity provisions of its
agreements with the plaintiffs, thereby giving plaintiffs the right to exercise
a call option to purchase TLC Vision's interest in the joint venture. Since the
lawsuit has only recently been served, the Company is still evaluating its
position.

    Tax authorities in four states have contacted TLC Vision and issued proposed
sales tax adjustments in the aggregate amount of approximately $2.2 million for
various periods through 2002 on the basis that certain of TLC Vision's laser
access arrangements constitute a taxable lease or rental rather than an exempt
service. If it is determined that any sales tax is owed, TLC Vision believes
that, under applicable laws and TLC Vision's contracts with its eye surgeon
customers, each customer is ultimately responsible for the payment of any
applicable sales and use taxes in respect of TLC Vision's services. However, TLC
Vision may be unable to collect any such amounts from its customers, and in such
event would remain responsible for payment. TLC Vision cannot yet predict the
outcome of these assessments, or any similar assessments or similar actions
which may be undertaken by other state tax authorities. The Company is currently
conducting an evaluation of its sales tax reporting in various other states. The
Company believes that it has recorded adequate provisions in its financial
statements with respect to these matters.

    In March 2003, the Company and its subsidiary, OR Providers, Inc., were
served with subpoenas issued by the U.S. Attorney's Office in Cleveland, Ohio.
The subpoenas appear to relate to business practices of OR Providers prior to
its acquisition by LasrVision in December 2001. OR Providers is a provider of
mobile cataract services in the eastern part of the U.S. The Company is aware
that other entities and individuals have also been served with similar
subpoenas. The subpoenas



                                       30
<PAGE>

seek documents related to certain business activities and practices of OR
Providers. The Company will cooperate fully to comply with the subpoenas.
Pursuant to the purchase agreement for the Company's purchase of OR Providers,
the selling shareholders of OR Providers agreed to indemnify the Company with
respect to the liability and accordingly the Company does not believe this
matter will have a material adverse effect on the Company.

    The Company is subject to various claims and legal actions in the ordinary
course of its business, which may or may not be covered by insurance. These
matters include, without limitation, professional liability, employee-related
matters and inquiries and investigations by governmental agencies. While the
ultimate results of such matters can not be predicted with certainty, the
Company believes that the resolution of these matters will not have material
adverse effect on its consolidated financial position or results of operations.

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

None






                                       31
<PAGE>

                                     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:

<Table>
<Caption>
                                                         THE
                                                       TORONTO                            NASDAQ
                                                        STOCK                            NATIONAL
                                                       EXCHANGE                           MARKET
                                             -----------------------------     -----------------------------
                                                 HIGH             LOW              HIGH             LOW
                                             ------------     ------------     ------------     ------------
<S>                                          <C>              <C>              <C>              <C>
Fiscal 2001
First Quarter August 31, 2000 ..........     C$     12.20     C$      7.70     $      8.313     $       5.00
Second Quarter November 30, 2000 .......             8.20             3.55             5.50             2.25
Third Quarter February 28, 2001 ........            12.00             1.67            7.875            1.125
Fourth Quarter May 31, 2001 ............            14.20             7.11             9.25             4.64

Fiscal 2002
First Quarter August 31, 2001 ..........     C$      8.48     C$      5.76     $       5.54     $       3.72
Second Quarter November 30, 2001 .......             6.09             3.00             3.86             1.87
Third Quarter February 28, 2002 ........             5.77             3.15             3.60             2.04
Fourth Quarter May 31, 2002 ............             5.95             3.50             3.72             2.13

Transitional 2002
Month ended June 30, 2002 ..............     C$      5.20     C$      3.47     $       3.25     $       2.30
Third Quarter September 30, 2002 .......             4.20             1.30             2.77              .80
Fourth Quarter December 31, 2002 .......             3.39             1.28             2.20              .79
</Table>

RECORD HOLDERS

    As of March 31, 2003, there were approximately 979 record holders of the
Common Shares.

DIVIDENDS

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

ITEM 6. SELECTED FINANCIAL DATA

    In May 2002, the Company completed the acquisition of LaserVision, a leading
laser access service provider. The transaction was effected as an all-stock
merger in which each outstanding common share of LaserVision was exchanged for
0.95 shares of the Company, which resulted in the issuance of 26.6 million
Common Shares. In addition, in connection with the transaction the Company
assumed all of the outstanding options and warrants of LaserVision and exchanged
them for options to acquire approximately 8.0 million Common Shares. See Note 3
to the Consolidated Financial Statements of the Company included in Item 8 of
this Report.

    The following tables set forth selected historical consolidated financial
data of TLC Vision for the seven-month transitional period ended December 31,
2002, and each of the fiscal years ended May 31, 2002, 2001, and 2000, 1999 and
1998, which have been derived from the consolidated financial statements of the
Company included elsewhere in this Form 10-K, and the consolidated financial
statements of the Company included in the Company's May 31, 2000 Annual Report
on Form 10-K, and the unaudited seven-month period ended December 31, 2001.



                                       32
<PAGE>
The following table should be read in conjunction with the Company's financial
statements, the related notes thereto, and the information contained in "Item 7
- Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<Table>
<Caption>

                                                                                                              SEVEN-MONTH
                                                                                                              PERIOD ENDED
                                                              YEAR ENDED MAY 31,                              DECEMBER 31,
                                           ---------------------------------------------------------   ---------------------------
                                             1998       1999(6)      2000       2001(3)     2002(2)      2001(4)       2002(5)
                                           ---------   ---------   ---------   ---------   ---------   ------------   ------------
                                                                                                        UNAUDITED
<S>                                        <C>         <C>         <C>         <C>          <C>        <C>            <C>
(U.S. dollars, in thousands except
per share amounts and operating data)

STATEMENT OF OPERATIONS DATA

Net revenues............................   $ 59,121    $ 146,910   $ 201,223   $ 174,006   $ 134,751   $   70,300     $ 100,154
Cost of revenues........................     29,669       92,383     129,234     110,016      97,789       53,451        80,825

    Gross margin........................     29,452       54,527      71,989      63,990      36,962       16,849        19,329
General and administrative..............     28,875       29,126      44,341      44,464      36,382       21,464        24,567
Loss before cumulative effect of
  accounting change.....................    (10,280)      (4,556)     (5,918)    (37,773)   (146,675)     (45,287)      (43,343)

Loss per share before cumulative
  effect of accounting change...........      (0.37)       (0.13)      (0.16)      (1.00)      (3.74)       (1.19)        (0.68)

Weighted average number of Common
  Shares outstanding....................     28,035       34,090      37,778      37,779      39,215       38,064        63,407
</Table>

<Table>
<Caption>
                                                                                                              SEVEN-MONTH
                                                                                                              PERIOD ENDED
                                                              YEAR ENDED MAY 31,                              DECEMBER 31,
                                           ---------------------------------------------------------   ---------------------------
                                             1998       1999(6)      2000       2001(3)     2002(2)      2001(4)       2002(5)
                                           ---------   ---------   ---------   ---------   ---------   ------------   ------------
<S>                                        <C>         <C>         <C>         <C>          <C>        <C>            <C>
OPERATING DATA (unaudited)
Number of eye care centers
  (at end of period)
Owned centers..........................           36          40          36          30          33             30             30
Managed centers........................            9          15          26          29          32             32             36
Number of access service sites(1)
  Refractive...........................           --          --          --          --         336             --            304
  Cataract.............................           --          --          --          --         280             --            274
Number of secondary care centers.......           15          14           5           5           5              5              6

Number of laser vision correction
 procedures:
  Owned centers........................       24,222      52,506      62,000      55,600      37,600         19,800         26,100
  Managed centers......................       11,637      38,094      72,000      67,200      57,400         27,600         23,600
  Access...............................           --          --          --          --          --             --         43,200
  Cataract.............................           --          --          --          --          --             --         23,300
Total procedures.......................       38,859      90,600     134,000     122,800      95,000         47,400        116,200
</Table>

<Table>
<Caption>
                                         MAY 31,        MAY 31,        MAY 31,        MAY 31,        MAY 31,      DECEMBER 31,
                                          1998           1999           2000           2001           2002           2002
                                         -------       --------        -------        -------        -------      ------------
<S>                                      <C>           <C>             <C>            <C>            <C>          <C>
BALANCE SHEET DATA
Cash and cash equivalents............    $  1,895      $125,598        $78,531        $47,987        $45,074           $36,081
Working capital......................      53,153       146,884         59,481         42,366         23,378            12,523
Total assets.........................     164,212       295,675        289,364        238,438        245,515           196,056
Total debt, excluding current
  portion............................      17,911        11,030          6,728          8,313         14,643            15,760
SHAREHOLDERS' EQUITY
Common stock.........................     143,554       269,454        269,953        276,277        387,701           388,769
Warrants and options.................                        --            532            532         11,755            11,035
Accumulated Deficit..................     (22,421)      (31,267)       (42,388)       (80,161)      (242,010)         (285,353)
Accumulated other comprehensive
  income (loss)......................         407         5,936         (4,451)        (9,542)            --                --
Total shareholders' equity...........     121,540       244,123        223,646        187,106        155,014           111,828
</Table>


                                       33
<PAGE>

(1) An access service site is a site where service has been provided in the
    preceding 90 days.

(2) In fiscal 2002, the selected financial data of the Company included:

    (a) an impairment of intangibles charge of $81.7 million;

    (b) a write down in the fair value of investments and long-term receivables
        of $26.1 million;

    (c) a cumulative effect of change in accounting principle of $15.2 million;

    (d) a restructuring charge of $8.8 million; and

    (e) a reduction in the carrying value of fixed assets of $2.6 million.

(3) In fiscal 2001, the selected financial data of the Company included a
    restructuring charge of $19.1 million.

(4) In the seven months ended December 31, 2001, the selected financial data of
    the Company included:

    (a) a write down in the fair value of investments and long-term receivables
        of $26.1 million; and

    (b) a restructuring charge of $1.8 million.

(5) In the seven months ended December 31, 2002, the selected financial data of
    the Company included:

    (a) an impairment of intangibles charge of $22.1 million;

    (b) a write down in the fair value of investments and long-term receivables
        of $2.1 million;

    (c) other income of $6.8 million for settlement of class action lawsuit with
        laser manufacturers;

    (d) a restructuring charge of $4.6 million; and

    (e) a reduction in the carrying value of fixed assets of $1.0 million.

(6) In fiscal 1999, the selected financial data of the Company included a
    restructuring charge of $12.9 million.


                                       34
<PAGE>
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 U.S. generally accepted accounting principles. Unless otherwise specified,
all dollar amounts are U.S. dollars. See Note 1 to the Consolidated Financial
Statements of the Company included in Item 8 of this Report.

OVERVIEW

    TLC Vision Corporation (formerly TLC Laser Eye Centers Inc.) and its
subsidiaries ("TLC Vision" or the "Company") is a diversified healthcare service
company focused on working with physicians to provide high quality patient care
primarily in the eye care segment. The Company's core business revolves around
refractive surgery, which involves using an excimer laser to treat common
refractive vision disorders such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. The Company's business model includes
arrangement ranging from owning and operating fixed site centers to providing
access to lasers through fixed site and mobile service relationships. The
Company also furnishes independent surgeons with mobile or fixed site access to
cataract surgery equipment and services through its Midwest Surgical Services,
Inc. ("MSS") subsidiary. In addition, the Company owns a 51% majority interest
in Vision Source, which provides optometric franchise opportunities to
independent optometrists. Through its OR Partners and Aspen Healthcare
divisions, TLC Vision develops, manages and has equity participation in
single-specialty eye care ambulatory surgery centers and multi-specialty
ambulatory surgery centers. In 2002, the Company formed a joint venture with
Vascular Sciences Corporation ("Vascular Sciences") to create OccuLogix, L.P., a
partnership focused on the treatment of an eye disease, known as dry age-related
macular degeneration, via rheopheresis, a process for filtering blood.

    Effective June 1, 2002, the Company changed its fiscal year-end from May 31
to December 31.

    In accordance with an Agreement and Plan of Merger with LaserVision, the
Company completed a business combination with LaserVision on May 15, 2002, which
resulted in LaserVision becoming a wholly-owned subsidiary of TLC Vision.
Accordingly, LaserVision's results are included in the Company's statement of
operations beginning on the date of acquisition. LaserVision is a leading access
service provider of excimer lasers, microkeratomes and other equipment and value
and support services to eye surgeons. The Company believes that the combined
companies can provide a broader array of services to eye care professionals to
ensure these individuals may provide superior quality of care and achieve
outstanding clinical results. The Company believes this will be the long-term
determinant of success in the eye surgery services industry.

    The Company serves surgeons who performed over 116,200 refractive and
cataract procedures at the Company's centers or using the Company's laser access
services during the seven months ended December 31, 2002.

    The Company is assessing patient, optometric and ophthalmic industry trends
and developing strategies to improve laser vision correction procedure volumes
and increased revenues. Cost reduction initiatives continue to target the
effective use of funds and our growth initiative is focusing on future
development opportunities for the Company in the eye care industry.

    The Company recognizes revenues at the time procedures are performed or
services are rendered. Revenues include amounts charged patients for procedures
performed at owned laser centers, amounts charged physicians for laser access
and service fees, and management fees from managing refractive and secondary
care practices. Under the terms of management service agreements, the Company
provides non-clinical services, which include facilities, staffing, equipment
lease and maintenance, marketing and administrative services to refractive and
secondary care practices in return for management fees. The management fees are
typically addressed as a per procedure fee. For third party payor programs and
corporations with arrangements with TLC Vision, the Company's management fee and
the fee charged by the surgeon are both discounted in proportion to the discount
afforded to these organizations. While the Company does not direct the manner in
which the surgeons practice medicine, the Company does direct the day-to-day
non-clinical operations of the centers. The management service agreements
typically are for an extended period of time, ranging from five to 15 years.
Management fees are equal to the net revenue of the physician practice, less
amounts retained by the physician groups.

    Procedure volumes represent the number of laser vision correction procedures
completed for which the amount that the patient has been invoiced for the
procedure exceeds a predefined company wide per procedure revenue threshold.
Procedures may be invoiced less than the threshold amounts primarily for
promotional or marketing purposes and are not included in the procedure volume
numbers reported.

    Doctors' compensation as presented in the financial statements represents
the cost to the Company of engaging ophthalmic professionals to perform laser
vision correction services at the Company's owned laser centers and fees paid to
optometrists for



                                       35
<PAGE>

pre- and post-operative care. Where the Company manages laser centers, the
professional corporations or physicians performing the professional services at
such centers engage ophthalmic professionals. As such, the costs associated with
arranging for these professionals to furnish professional services are reported
as a cost of the professional corporation and not of the Company.

    Included in costs of revenue are the laser fees payable to laser
manufacturers for royalties, use and maintenance of the lasers, variable
expenses for consumables, and facility fees, as well as center costs associated
with personnel, facilities and depreciation of center assets.

    In Company owned centers, the Company engages doctors to provide laser
vision correction services and the amounts paid to the doctors also are reported
as a cost of revenue.

    Selling, general and administrative expenses include expenses that are not
directly related to the provision of laser correction services or cataract
services.

    In the transitional period ended December 31, 2002, the Company's procedure
volume increased by 68,800 compared to the corresponding period of 2001. The
seven-month contribution of LaserVision accounted for an increase of 76,700
while the TLC Vision procedures decreased by 7,900 to 39,500. The Company
believes that the reduction in procedure volume is indicative of overall
conditions in the laser vision correction industry. The laser vision correction
industry has experienced uncertainty resulting from a number of issues. Being an
elective procedure, laser vision correction volumes have been depressed by
economic and stock market conditions, rising employment and the uncertainty
associated with the war on terrorism currently being experienced in North
America which is reflected in a weakening of the consumer confidence index. Also
contributing to the decline in procedure volume is a wide range of consumer
prices for laser vision correction procedures, the bankruptcies of a number of
deep discount laser vision correction companies, the ongoing safety and
effectiveness concerns arising from the lack of long-term follow-up data and
negative news stories focusing on patients with unfavorable outcomes from
procedures performed at centers competing with the Company.

DEVELOPMENTS DURING TRANSITIONAL PERIOD

    GOODWILL IMPAIRMENT

    The Company adopted the accounting standard of Statement of Financial
Accounting Standard No. 142, Goodwill and Other Intangible Assets effective June
1, 2001. Under the new standard, TLC Vision is required to test of goodwill for
impairment at least annually, but more frequently if indicators of impairment
exist. An impairment analysis was conducted by TLC Vision as of November 30,
2002. To determine the amount of the impairment the Company used a fair value
methodology based on present value of expected future cash flows. The Company
determined that goodwill was impaired and recorded an impairment charge of $22.1
million in the seven-month period ended December 31, 2002. This charge was
comprised of $21.8 million that relates to the goodwill attributable to
reporting units acquired in the LaserVision acquisition and $0.3 million
relating to goodwill attributable to reporting units acquired in prior years.

    MANUFACTURER SETTLEMENT

    In July 2001, two laser manufacturers reported settling a class action
antitrust case. In August 2002, LaserVision received $8.0 million in cash as a
result of the settlement and TLC Vision received $7.1 million in cash. The cash
received by LaserVision reduced the receivable recorded in the LaserVision
purchase price allocation. The cash received by TLC Vision was recorded as a
gain of $6.8 million (net of $0.3 million for its obligations to be paid to the
minority interests).

    ACQUISITIONS

    On August 1, 2002, the Company acquired a 55% ownership interest in an
ambulatory surgery center (ASC) in Mississippi for $7.6 million in cash. The
Company also has a contingent obligation to purchase an additional 5% ownership
interest per year for $0.7 million in cash during each of the next four years.
This ASC specializes in cataract surgery, and the acquisition was accounted for
under the purchase method of accounting. Net assets acquired were $7.6 million,
which included $7.4 million of goodwill and $0.2 million of other intangible
assets.



                                       36
<PAGE>
    RESTRUCTURING

    During the transitional period ended December 31, 2002, the Company recorded
a $4.7 million restructuring charge for the closure of 13 centers and the
elimination of 36 full-time equivalent positions primarily at the Company's
Toronto headquarters. The total restructuring expense for the transitional
period of $4.2 million consists of $4.7 million offset by the reversal into
income of $0.5 million of restructuring charges related to prior year accruals
that were no longer needed as of December 31, 2002. All restructuring costs will
be financed through the Company's cash and cash equivalents. A total of $2.3
million of this provision related to non-cash costs of writing down fixed
assets, $1.0 million related to severance, and $1.0 million related to the net
future cash costs for lease commitments and costs to sublet available space
offset by sub-lease income. The lease costs will be paid out over the remaining
term of the lease.

    RESEARCH AND DEVELOPMENT

    The Company entered into a joint venture with Vascular Sciences for the
purpose of pursuing commercial applications of technologies owned or licensed by
Vascular Sciences applicable to the evaluation, diagnosis, monitoring and
treatment of age related macular degeneration. According to the terms of the
agreement, the Company purchased $3.0 million in preferred stock and has the
obligation to purchase an additional $7.0 million of preferred stock in Vascular
Sciences if Vascular Sciences attains certain milestones in the development and
commercialization of the product. If Vascular Science fails to achieve a
milestone, TLC Vision shall have no further obligations to purchase additional
shares. The Company expensed a total of $1.0 million of the investment during
the fiscal year ended May 31, 2002, and the remaining $2.0 million of the
investment was expensed as research and development expense during the seven
months ended December 31, 2002.

    DIVESTITURE

    In July 1997, TLC Vision acquired 100% interest in Vision Source, Inc.
("Vision Source") for share consideration. Vision Source is a franchiser of
private optometric practitioners. In fiscal 2002, the Company signed a
restricted stock incentive plan and related agreements which will allow the
current management of Vision Source to be awarded up to 49% of the common shares
of Vision Source provided certain performance requirements are achieved by May
31, 2005. As of May 31, 2002, 26% of the performance requirement was achieved,
resulting in a charge to income of $0.8 million, which was reported as cost of
revenues in the other healthcare services segment. In December 2002, the Company
awarded the remaining 23% of common stock to the Vision Source management before
all performance requirements were met resulting in a charge to income of $0.4
million. In return for the early award of the remaining 23% interest, Vision
Source converted the Company's $7.0 million of preferred stock to a $7.0 million
note payable accruing interest at 7% annually.

    INVESTMENTS

     In December 2002, the Company wrote down by $2.1 million its investment in
a privately held company that develops an implantable product that corrects and
maintains vision. That company is actively seeking additional funding at this
time and has received a term sheet from a venture capital firm that indicates
significant dilution to the existing shareholders. The Company wrote down the
investment to $0.5 million to reflect the estimated market value of the
investment.

CRITICAL ACCOUNTING POLICIES

    IMPAIRMENT OF GOODWILL

     The Company accounts for its goodwill in accordance with SFAS 142, which
requires the Company to test goodwill for impairment annually and whenever
events occur or circumstances change that would more likely than not reduce the
fair value of the reporting unit below its carrying value. SFAS No. 142 requires
the Company to determine the fair value of its reporting units. Because quoted
market prices do not exist for the Company's reporting units, the Company uses
the present value of expected future cash flows to estimate fair value.
Management must make significant judgments and estimates about future conditions
to estimate future cash flows. Unforeseen events and changes in circumstances
and market conditions including general economic and competitive conditions,
could result in significant changes in those estimates and material charges to
income. During the transitional period ended December 31, 2002 and the fiscal
year ended May 31, 2002, the Company determined that significant impairments in
the value of the goodwill had occurred and recorded a charge to earnings in
both periods.



                                       37
<PAGE>

     IMPAIRMENT OF LONG-LIVED ASSETS

     The Company accounts for its long-lived assets in accordance with SFAS 144,
which requires the Company to assess the recoverability of these assets when
events or changes in circumstances indicate that the carrying amount of the
long-lived asset (group) might not be recoverable. If impairment indicators
exist, the Company determines whether the projected undiscounted cash flows will
be sufficient to cover the carrying value of such assets. This requires the
Company to make significant judgements about the expected future cash flows of
the asset group. The future cash flows are dependent on general and economic
conditions and are subject to change. A change in these assumptions could result
in material charges to income. During the fiscal year ended May 2002, the
Company determined that a significant impairment in the value of its intangible
assets and certain of its fixed assets had occurred and recorded a charge to
earnings.

     INVESTMENTS

    Periodically the Company invests in marketable and non-marketable equity
securities. The Company accounts for its marketable equity available for sale
securities in accordance with SFAS 115, which requires the Company to record
these investments at market value as of the end of each reporting period.
Changes in market value are recorded as other comprehensive income except when
declines in market value below cost are considered to be other than temporary.
The Company accounts for its non-marketable equity securities under the cost
method of accounting as the Company does not exercise significant influence over
the investees. For these investments the Company assesses the value of the
investment by using information acquired from industry trends, the management of
these companies, and other external sources as well as recent stock
transactions. Based on the information acquired, an impairment charge is
recorded when management believes an investment has experienced a decline in
value that is other than temporary. The determination of whether a decline in
market value is considered other than temporary involves making significant
judgments considering factors such as the length of duration of the decline and
factors specific to each investment. During the fiscal year ended May 31, 2002
and the transitional period ended December 31, 2002, the Company determined an
other than temporary decline had occurred in certain investments and recorded a
significant charge to income.

RISK FACTORS

     See "Item 1 -  Business - Risk Factors."

SEVEN MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE SEVEN MONTHS ENDED DECEMBER
31, 2001

     As used herein, "existing TLC Vision" refers to TLC Vision locations in
existence prior to the merger with LaserVision in May 2002.

     Revenues for the seven months ended December 31, 2002 were $100.2 million,
a $29.9 million increase over revenues of $70.3 million for the seven months
ended December 31, 2001. The contribution of LaserVision during the seven-month
period ended December 31, 2002 added $44.9 million of revenues while the
existing TLC Vision revenue decreased by $15.2 million or 22%. Approximately 76%
of total revenues for the seven months ended December 2002 were derived from
refractive services compared to 87% during the seven months ended December 31,
2001.

     Revenues from the refractive segment for the seven months ended December
31, 2002 were $76.2 million, an increase of $14.9 million or 24%, over revenues
of $61.3 million from refractive activities for the seven months ended December
31, 2001. LaserVision added $30.7 million of refractive revenues, while the
existing TLC Vision refractive revenue decreased by $15.8 million, or 26%.

     Revenues from owned centers for the seven months ended December 31, 2002
were $29.8 million, an increase of $3.1 million, or 11%, from the revenues of
$26.7 million for the seven months ended December 31, 2001. LaserVision
accounted for $5.9 million of such revenues, while the existing TLC Vision
revenue decreased by $2.8 million, or 10%.

     Revenues from managed centers for the seven months ended December 31, 2002
were $25.0 million, a decrease of $9.6 million, or 28%, from the revenues of
$34.6 million for the seven months ended December 31, 2001. As LaserVision does
not have a managed service product, there was no contribution from LaserVision
for the seven months ended December 2002.

     Revenues from access services for the seven months ended December 31, 2002
were $21.5 million. Because access revenues are a product offering of
LaserVision only, the Company did not report any associated access revenue in
the seven months ended December 31, 2001 for the existing TLC Vision business.



                                       38
<PAGE>
     Approximately 92,900 refractive procedures were performed for the seven
months ended December 31, 2002, compared to approximately 47,400 procedures for
the seven months ended December 31, 2001. LaserVision accounted for 53,400
procedures while the TLC Vision procedures decreased by 7,900 to 39,500. The
Company believes that the reduction in procedure volume was indicative of
overall conditions in the laser vision correction industry. The laser vision
correction industry has experienced uncertainty resulting from a number of
issues. Being an elective procedure, laser vision correction volumes have been
depressed by economic and stock market conditions, rising unemployment and the
uncertainty associated with the war on terrorism currently being experienced in
North America which is reflected in the consumer confidence index. Also
contributing to the decline was a wide range in consumer prices for laser vision
correction procedures, the bankruptcies of a number of deep discount laser
vision correction companies, the ongoing safety and effectiveness concerns
arising from the lack of long-term follow-up data and negative news stories
focusing on patients with unfavorable outcomes from procedures performed at
centers competing with the Company.

     The cost of refractive revenues from eye care centers for the seven months
ended December 31, 2002 was $64.6 million, an increase of $17.0 million, or 36%,
over the cost of refractive revenues of $47.6 million for the seven months ended
December 31, 2001. LaserVision cost of revenue for 2002 was $24.0 million while
the existing TLC Vision's cost of revenue decreased by $7.1 million, or 15%.

     The cost of revenues from owned centers for the seven months ended December
31, 2002 was $27.0 million, an increase of $4.8 million, or 22%, from the cost
of revenues of $22.2 million from the seven months ended December 31, 2001.
LaserVision cost of revenue for 2002 was $5.3 million while the existing TLC
Vision cost of revenue decreased $0.5 million, or 2%.

     The cost of revenues from managed centers for the seven months ended
December 31, 2002 was $22.2 million, a decrease of $3.2 million, or 13%, from
the cost of revenues of $25.4 million from the seven months ended December 31,
2001. As LaserVision does not have a managed service product, the Company did
not report any additional cost from LaserVision for the seven months ended
December 31, 2002.

     The cost of revenues from access services for the seven months ended
December 31, 2002 was $15.4 million. Access services are a product offering of
LaserVision only, therefore, there was no associated access cost of revenue in
the seven months ended December 31, 2001 from the existing TLC Vision business.

     Reductions in cost of revenue were consistent with reduced doctors
compensation resulting from lower procedure volumes, reductions in royalty fees
on laser usage and reduced personnel costs. The cost of revenues for refractive
centers include a fixed cost component for infrastructure of personnel,
facilities and minimum equipment usage fees which has resulted in cost of
revenues decreasing at a slower rate than the decrease in the associated
revenues.

     Revenues from other healthcare services for the seven months ended December
31, 2002, were $23.9 million, an increase of $14.9 million from revenues of $9.0
million for the seven months ended December 31, 2001. LaserVision accounted for
$14.2 million of the increase while the existing TLC Vision revenue increased by
$0.7 million, or 6%. Approximately 24% of the total revenues for the seven
months ended December 31, 2002 were derived from other healthcare services
compared to 13% during the seven months ended December 31, 2001.

     The cost of revenues from other healthcare services for the seven months
ended December 31, 2002 was $16.2 million, an increase of $11.4 million, from
cost of revenues of $4.8 million for the seven months ended December 31, 2001.
LaserVision accounted for $9.2 million of the increase while the existing TLC
Vision cost of revenues increased by $2.2 million.

     General and administrative expenses increased to $24.6 million for the
seven months ended December 31, 2002 from $22.8 million for the seven months
ended December 31, 2001. The seven months ended December 31, 2002 included a
$1.3 million charge for potential medical malpractice claims. Although the
Company has reduced overhead and infrastructure cost as part of the Company's
cost reduction initiatives, the combined infrastructure cost of TLC Vision and
LaserVision was higher than TLC Vision incurred by itself during the seven
months ended December 31, 2001.

     Marketing expenses decreased to $8.3 million for the seven months ended
December 31, 2002 from $9.2 million for the seven months ended December 31,
2001. This reflected decreased spending on marketing programs identified in
conjunction with the Company's cost-reduction initiatives.



                                       39
<PAGE>
     Amortization expenses decreased to $4.1 million for the seven months ended
December 31, 2002 from $6.0 million for the seven months ended December 31,
2001. The decrease in amortization expense was largely a result of the
significant impairment charge in May 2002, which reduced the fair value of PMA's
and the related ongoing amortization.

     Research and development expenses reflected $2.0 million invested in
Vascular Sciences. Since the technology was in the development stage and was not
available commercially and had not received Food and Drug Administration
approval, the Company accounted for this investment as a research and
development arrangement whereby investments were expensed as Vascular Sciences
expends amounts. If the product becomes commercially available, incremental
investments may be recorded as long-term assets.

     The Company determined its goodwill was impaired and recorded a charge of
$22.1 million during the transitional period. This charge was comprised of $21.8
million that relates to the goodwill attributable to reporting units acquired in
the LaserVision acquisition and $0.3 million relating to goodwill attributable
to reporting units acquired in prior years.

     In December 2002, TLC Vision wrote down its investment in a privately held
company by $2.1 million. That company, which develops an implantable product
that corrects and maintains vision is actively seeking additional funding at
this time and has received a term sheet from a venture capital firm that
indicates significant dilution to the existing shareholders. TLC Vision wrote
down the investment to $0.5 million to reflect the estimated market value of the
investment.

     During the transitional period ended December 31, 2002, the Company
recorded a $4.7 million restructuring charge for the closure of 13 centers and
the elimination of 36 full time equivalent positions primarily at the Company's
Toronto headquarters. The total restructuring expense for the transitional
period was $4.2 million which consists of the $4.7 million offset by the
reversal into income of $0.5 million of restructuring charges related to prior
year accruals that were no longer needed as of December 31, 2002. All
restructuring costs will be financed through the Company's cash and cash
equivalents. A total of $2.3 million of this provision related to non-cash costs
of writing down fixed assets, $1.0 million related to severance, and $1.0
million related to the net future cash costs for lease commitments and costs to
sublet available space offset by sub-lease income. The lease costs will be paid
out over the remaining term of the lease.

     The following table details restructuring charges recorded during the
transitional period ended December 31, 2002:

<Table>
<Caption>
                                                                                           ACCRUAL BALANCE
                                                                                                 AS OF
                                        RESTRUCTURING        CASH            NON-CASH        DECEMBER 31,
                                          CHARGES          PAYMENTS         REDUCTIONS           2002
                                        ------------     ------------      ------------    ---------------
<S>                                     <C>              <C>               <C>             <C>

   Severance                            $      1,120     $       (466)     $         --      $        654
   Lease commitments, net of
      sub-lease income                           978               --                --               978
   Write-down of fixed assets                  2,266               --            (2,266)               --
   Sale of center to third party                 342               --                --               342
                                        ------------     ------------      ------------      ------------
Total restructuring charges             $      4,706     $       (466)     $     (2,266)     $      1,974
                                        ============     ============      ============      ============
</Table>

     The Company is currently reviewing its space for its international
headquarters near Toronto. No restructuring charge has been made relating to
this facility as no decision has been made with regard to the use or disposal of
this facility and the Company continues to use this facility for certain
functions. Any costs associated with exiting or renegotiating the lease on this
facility, which could be material, would be charged against income in future
periods.

     Other income and expense for the seven months ended December 31, 2002
consisted of $6.8 million of income from the settlement of an antitrust lawsuit.
In August 2002, LaserVision received $8.0 million from its portion of the
settlement and TLC Vision received $7.1 million from its portion of the
settlement. The $8.0 million relating to the activities of LaserVision
represented a contingent asset acquired by the Company and was included in the
purchase price allocation at May 15, 2002 as an other asset. The $7.1 million
settlement received related to TLC Vision has been recorded as a gain of $6.8
million (net of $0.3 million for its obligations to be paid to the minority
interests) in other income and expense for the period.

     During the transitional period, the Company recorded $0.9 million of income
from the termination of the Surgicare agreement to purchase Aspen Healthcare
from the Company. On May 16, 2002, the Company agreed to sell the capital stock
of its Aspen Healthcare ("Aspen") subsidiary to SurgiCare Inc. ("SurgiCare") for
a purchase price of $5.0 million in cash and warrants for



                                       40
<PAGE>
103,957 shares of common stock of SurgiCare with an exercise price of $2.24 per
share. On June 14, 2002, the purchase agreement for the transaction was amended
due to the failure of Surgicare to meet its obligations under the agreement. The
amendment established a new closing date of September 14, 2002 and required
SurgiCare to issue 38,000 shares of SurgiCare common stock and to pay $0.8
million to the Company, prior to closing, all of which was non-refundable.
SurgiCare failed to perform under the purchase agreement, as amended, and as a
result, the purchase agreement was terminated and the Company recorded the gain
in other income and expense for the period.

     During the transitional period, the Company recorded a reduction in the
carrying value of capital assets of $1.0 million, within the refractive segment,
reflecting the disposal of certain of the Company's lasers. The amount is
included in other income and expense. These lasers do not represent the most
current technology available and the Company has made the decision to dispose of
them below their carrying cost.

     Interest (expense) income, net reflects interest revenue from the Company's
cash position offset by interest expense from debt and lease obligations. An
increase to debt in the second quarter of fiscal 2002 from the corporate
headquarters sale-leaseback arrangement resulted in additional increases to
interest costs. Interest revenues have decreased since the Company has reduced
cash and cash equivalent balances during the seven months ended December 31,
2002 compared to the corresponding period in the prior year. In addition
interest yields on cash balances have been lower, offset by a gain in foreign
currency translation to U.S. dollars related to the Company's Canadian
operations.

     Income tax expense increased to $0.9 million for the seven-month period
ended December 31, 2002 from $0.5 million for the seven months ended December
31, 2001. The $0.9 million tax expense consisted of state taxes of $0.6 million
for certain of the Company's subsidiaries where a consolidated state tax return
cannot be filed and $0.3 million of foreign taxes for one of the Company's
foreign subsidiaries.

     The loss for the seven months ended December 31, 2002 was $43.4 million or
$0.68 per share compared to a loss of $44.8 million or $1.19 per share for the
seven months ended December 31, 2001. This decreased loss primarily reflected
the positive impact of the antitrust settlement and cost-cutting initiatives
partially offset by the reduction in refractive procedures and revenues. As a
result of the LaserVision acquisition in May 2002, there were more common shares
outstanding during the seven months ended December 31, 2002.

FISCAL YEAR ENDED MAY 31, 2002 COMPARED TO FISCAL YEAR ENDED MAY 31, 2001

     Revenues for fiscal 2002 were $134.8 million, which was a 23% decrease over
$174.0 million for the prior fiscal year. Approximately 86% of total revenues
were derived from refractive services in fiscal 2002 compared to 93% in fiscal
2001.

     Revenues from refractive activities for fiscal 2002 were $115.9 million,
which is 28.1% lower than the prior fiscal year's $161.2 million. Approximately
95,000 procedures were performed in fiscal 2002 compared to approximately
122,800 procedures in fiscal 2001. Management believes that the decrease in
procedure volume and the associated reduction of revenue was indicative of the
overall condition of the laser vision correction industry. The laser vision
correction industry has experienced uncertainty resulting from a wide range in
consumer prices for laser vision correction procedures, the recent bankruptcies
of a number of deep discount laser vision correction companies, the ongoing
safety and effectiveness concerns arising from the lack of long-term follow-up
data and negative news stories focusing on patients with unfavorable outcomes
from procedures performed at centers competing with TLC Vision centers. In
addition, as an elective procedure, laser vision correction volumes have been
further depressed by economic conditions currently being experienced in North
America. The Company maintains its stated objective of being a premium provider
of laser vision correction services in an industry that has faced significant
pricing pressures. Despite pricing pressures in the industry, the Company's net
revenue after doctor compensation per procedure, for fiscal 2002 increased by 5%
in comparison to fiscal 2001. The increase was largely a result of deep discount
surgery providers filing for bankruptcy thus relieving some of the price
pressures that have occurred in prior fiscal years.

     Revenues from other healthcare services was $18.8 million in fiscal 2002,
an increase of over 47% in comparison to $12.8 million in fiscal 2001.
Approximately 14% of total revenues were derived from other healthcare services
in fiscal 2002 compared to 7% in fiscal 2001. The increase in revenues reflected
revenue growth in the network marketing and management and the professional
healthcare facility management subsidiaries, while revenues in the secondary
care management, and asset management subsidiaries reflected little or moderate
growth.



                                       41
<PAGE>

    Cost of revenues from other healthcare services was $11.5 million in fiscal
2002, an increase of over 14% in comparison to $10.1 million in fiscal 2001. The
increase in cost of revenue reflected the increase in revenue growth in the
network marketing and management and the professional healthcare facility
management subsidiaries. The cost of revenues for other healthcare services
centers in fiscal 2001 included the cost of TLC Visions eyeVantange.com
subsidiary. EyeVantage.com incurred a significant amount of cost without
offsetting revenue, thereby resulting in cost of revenues increasing at a lesser
rate than the increase in the associated revenues in fiscal 2002.

    Net loss from other healthcare services was $13.8 million in fiscal 2002, in
comparison to a net loss of $18.6 million for 2001. The loss for fiscal 2002
included $12.0 million for the impairment of goodwill and $2.0 million for the
write down of investments in other healthcare services. The loss for fiscal 2001
included the activities of eyeVantage.com, Inc., which generated losses of $5.6
million. Net loss for fiscal 2002 does not reflect the activities of
eyeVantage.com, Inc. due to the decision by the Company in fiscal 2001 to cease
material funding of this subsidiary and the resulting decision by
eyeVantage.com, Inc. to abandon its e-commerce enterprise. The profit from other
healthcare services for fiscal 2002 of $0.2 million excluding the impairment and
investment write downs, reflected an increase from the loss of $1.3 million for
fiscal 2001 (excluding eyeVantage.com, Inc. and restructuring costs). The
improved profitability for 2002 was due primarily to increased revenues while
managing the cost structure thus increasing gross margins.

    In the final quarter of fiscal 2000 and during fiscal 2001, the Company
entered into practice management agreements with a number of surgeons resulting
in an increase in intangible assets to reflect the value assigned to these
agreements. These intangible assets are amortized over the term of the
applicable agreements. These agreements have resulted, either directly or
indirectly, in lower per procedure fees being paid to the applicable surgeons
and a corresponding reduction in doctors' compensation to offset the increased
amortization costs. The result was an increase to the net revenue after doctors'
compensation per procedure ratio. The Company's operating results for fiscal
2002 included a non-cash pre-tax charge of $31.0 million to record the
impairment in the carrying value of certain practice management agreements on
which the carrying value exceeded the fair value as of May 31, 2002.

    The cost of refractive revenues from eye care centers for fiscal 2002 was
$86.3 million, 13.6% less than cost of refractive revenues of $99.9 million in
fiscal 2001. These reductions were in-line with reduced doctors compensation
resulting from lower procedure volumes, reductions in royalty fees on laser
usage and reduced personnel costs. These reductions were offset by a reduction
in the carrying value of capital assets of $2.6 million reflecting a reduction
of the Company's LaserSight lasers to $0 and two VISX lasers to $75,000 each.
These lasers do not represent the most current technology available and the
Company has made the decision to write the lasers down to current market value
and will evaluate the best option for utilization or upgrade of these lasers.
The cost of revenues for refractive centers include a fixed cost component for
infrastructure of personnel, facilities and minimum equipment usage fees which
has resulted in cost of revenues decreasing at a lesser rate (13.6% for fiscal
2002, as compared to fiscal 2001) than the decrease in the associated revenues.
Cost of revenues of owned centers include the cost of doctor compensation. Cost
of doctor compensation varies in relation to revenues. Accordingly, when
combined with the conversion of a number of owned centers to managed centers,
the cost of revenues of owned centers reflect a much larger variance in the
decrease in the costs of revenues in comparison to managed centers.

    Selling, general and administrative expenses decreased to $52.5 million in
fiscal 2002 from $67.8 million in fiscal 2001, a decrease of $15.3 million or
22.6%. This decrease was primarily attributable to decreased marketing costs,
decreased infrastructure costs and reductions associated with Corporate
Advantage and Third Party Payer programs, each identified in conjunction with
the Company's cost reduction initiatives.

    Interest (income)/expense reflects interest revenue from the Company's net
cash and cash equivalent position. Interest revenue has been consistently
decreasing throughout the year as a result of the Company's declining cash
position and a decrease on the interest yields throughout the year. This
decrease also includes an increase in interest expense resulting from additional
long-term debt and as a result of the sale-leaseback transaction of the
corporate international headquarters in Canada in the second quarter.

    Depreciation and amortization expense decreased to $11.4 million in the
current fiscal year from $14.8 million in fiscal 2001, primarily as the result
of the Company's early adoption of SFAS No. 142, thus eliminating the
requirement for the goodwill amortization. The adoption of this statement
resulted in decreased amortization expense of approximately $2.8 million for
fiscal 2002. Depreciation and amortization expense has also decreased due to
fewer capital additions resulting from limited development of new centers and
the closure of certain existing centers.



                                       42
<PAGE>

    The Company's adoption of SFAS 142 resulted in a transitional impairment
loss of $15.2 million, which was recorded as a cumulative effect of a change in
accounting principle in the seventh quarter. In addition, the Company's
operating results for fiscal 2002 included a non-cash pretax charge of $50.7
million to reduce the carrying value of goodwill for which the carrying value
exceeded the fair value as of May 31, 2002, including $45.9 million related to
the impairment of goodwill from the acquisition of LaserVision and $4.8 million
for the impairment of goodwill from prior acquisitions.

    Intangible assets whose useful lives are not indefinite are amortized on a
straight-line basis over the term of the applicable agreement to a maximum of 15
years. Current amortization periods range from 5 to 15 years. In establishing
these long-term contractual relationships with the Company, key surgeons in many
cases have agreed to receive reduced fees for laser vision correction procedures
performed. The reduction in doctors' compensation offsets in part the increased
amortization of the intangible practice management agreements.

    Statement of Financial Accounting Standard No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
requires long-lived assets included within the scope of the Statement be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of those long-lived assets might not be recoverable -
that is, information indicates that an impairment might exist. Given the
significant decrease in the trading price of the Company's common stock, current
period operating or cash flow loss combined with its history of operating or
cash flow losses, the Company identified certain practice management agreements
where the recoverability was impaired. As a result, the Company recorded an
impairment charge of $31 million in 2002.

    TLC Vision made its first investment in Lasersight Incorporated
("Lasersight") prior to the beginning of fiscal 2000. Lasersight is a company
involved in the research and development of new laser technology. From the time
of purchase through the third quarter of fiscal 2000, the market value of the
investment exceeded the carrying value at each quarter end. However, by November
31, 2001, the Company believed that the impairment should be considered other
than temporary for a number of reasons including: the impairment is very
substantial relative to the original purchase price, the impairment has
persisted for more than nine months; sufficient time has passed to determine
that the market place has not reacted well to FDA approval of Lasersight's new
technology. As a result, the Company recorded a total impairment charge of $20.1
million during fiscal 2002.

    With respect to its investment in LaserVision TLC Vision wrote down its
investment in LaserVision by $1.8 million in the period prior to the merger, due
to an other than temporary decline in its value. Finally, the Company has
recorded impairment charges of $2.0 million on its investment in Britton Vision
Associates and of $2.2 million on other investments.

    During fiscal 2002, the Company implemented a restructuring program to
reduce employee costs in line with current revenue levels, close certain under
performing centers and eliminating duplicate functions caused by the merger with
LaserVision. By May 31, 2002, this program resulted in total cost for severance
and office closures of $8.8 million of which $2.3 million was paid out in cash
prior to May 31, 2002. All restructuring costs will be financed through the
Company's cash and cash equivalents.

(a) The Company continued its objective of reducing employee costs in line with
    revenues. This activity occurred in two stages with total charges of $2.8
    million. The first stage of reductions were identified in the second and
    third quarters of fiscal 2002 and resulted in restructuring charges of $2.2
    million, all of which had been paid out in cash or options by the end of the
    fiscal year. This reduction impacted 89 employees of whom 35 were working in
    laser centers with the remaining 54 working within various corporate
    functions. The second stage of the cost reduction required the Company to
    identify the impact of its acquisition of LaserVision on May 15, 2002 and
    eliminate surplus positions resulting from the acquisition. The majority of
    these costs were paid by the end of December 2002.

(b) As part of the Company restructuring subsequent to its acquisition of
    LaserVision in May 2002, six centers were identified for closure: such
    centers were identified based on managements earning criteria, earnings
    before interest, taxes, depreciation and amortization. These closures
    resulted in restructuring charges of $4.9 million reflecting a write-down of
    fixed assets of $1.9 million and cash costs of $3.0 million which include
    net lease commitments (net of costs to sublet and sub-lease income) of $2.7
    million, ongoing laser commitments of $0.7 million, termination costs of a
    doctor's contract of $0.1 million and severance costs impacting 21 center
    employees of $0.1 million. The lease costs will be paid out over the
    remaining term of the lease.



                                       43
<PAGE>

(c) The Company also identified seven centers where management determined that
    given the current and future expected procedures, the centers had excess
    leased capacity or the lease arrangements were not economical. The Company
    assessed these seven centers to determine whether the excess space should be
    subleased or whether the centers should be relocated. The Company provided
    $1.0 million related to the costs associated with sub-leasing the excess or
    unoccupied facilities. A total of $0.3 million of this provision related to
    non-cash costs of writing down fixed assets and $0.7 million represented net
    future cash costs for lease commitments and costs to sublet available space
    offset by sub-lease income that is projected to be generated. The lease
    costs will be paid out over the remaining term of the lease.

    The following table details restructuring charges incurred for the year
ended May 31, 2002:

<Table>
<Caption>
                                                                                  ACCRUAL                                 ACCRUAL
                                                                                  BALANCE                                 BALANCE
                                                                                    AT                                      AT
                                     RESTRUCTURING     CASH        NON-CASH       MAY 31,       CASH        NON-CASH    DECEMBER 31,
                                       CHARGES       PAYMENTS     REDUCTIONS       2002       PAYMENTS     REDUCTIONS       2002
                                     -------------   ---------    ----------    ----------   ----------    ----------   ------------
<S>                                    <C>          <C>           <C>           <C>          <C>           <C>          <C>

   Severance.........................  $    2,907   $   (2,219)   $     (222)   $      466   $     (235)   $     (212)   $       19
   Lease commitments, net of
   sublease income...................       2,765           --            --         2,765         (897)           85         1,953
   Termination costs of doctors
     contracts.......................         146          (80)           --            66          (66)           --            --
   Laser commitments.................         652           --            --           652           --          (352)          300
   Write-down of fixed assets........       2,280           --        (2,280)           --           --            --            --
                                       ----------   ----------    ----------    ----------   ----------    ----------    ----------

Total restructuring and other
  charges...........................   $    8,750   $   (2,299)   $   (2,502)   $    3,949   $   (1,198)   $     (564)   $    2,272
                                       ==========   ==========    ==========    ==========   ==========    ==========    ==========
</Table>

    Income tax expense decreased to $1.8 million in fiscal 2002 from $2.2
million in fiscal 2001. This decrease reflected the Company's losses incurred in
fiscal 2002 offset by the impact of the tax liabilities associated with the
Company's investments in profitable subsidiaries that are less than 80% owned
and the requirement to reflect minimum tax liabilities relevant in Canada,
United States and certain other jurisdictions. As of May 31, 2002, the Company
had net operating losses available for carry forward for income tax purposes of
approximately $81.2 million, which were 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 $23.9 million expire as follows:

<Table>
<S>                                                <C>
         May 31,
         2003..................................      $   2,290
         2004..................................          1,509
         2005..................................            831
         2006..................................            315
         2007..................................            580
         2008..................................          9,724
         2009..................................          8,647
</Table>

    The United States losses of $58.0 million expire between 2012 and 2022. The
Canadian and United States losses include amounts of $3.2 million and $14.7
million respectively relating to the acquisitions of 20/20 and BeaconEye, the
availability and timing of utilization of which may be restricted.

    The loss for fiscal 2002 was $161.8 million, or $4.13 per share, compared to
a loss of $37.8 million or $1.00 per share for fiscal 2001. This increased loss
primarily reflected the impact of reduced refractive revenues, the reduction in
carrying values of capital and intangible assets, the reduction in the carrying
value of goodwill and the write down of investments offset partially by reduced
costs and decreased depreciation and amortization. The Company has undertaken
initiatives intended to address patient, optometric and ophthalmic industry
trends and expectations to improve laser vision correction procedure and revenue
volumes. Cost initiatives are targeting effective use of funds and a growth
initiative is focusing on the future development opportunities for the Company
in the laser vision eye care service industry.





                                       44
<PAGE>
FISCAL YEAR ENDED MAY 31, 2001 COMPARED TO FISCAL YEAR ENDED MAY 31, 2000

    Revenues for fiscal 2001 were $174.0 million, which was a 13.5% decrease
compared to revenues of $201.2 million for fiscal 2000. Approximately 93% of
total revenues were derived from refractive services as compared to 95% in
fiscal 2000.

    Revenues from eye care centers for fiscal 2001 were $161.2 million, which
was 15.2% lower than revenues of $190.2 million for fiscal 2000. Approximately
122,800 procedures were performed in fiscal 2001 compared to 134,200 procedures
in fiscal 2000. The decrease in procedure volume and the associated reduction of
revenue reflects the condition of the laser vision correction industry, which
had experienced uncertainty due to a wide range in consumer prices for laser
vision correction procedures, the bankruptcies of a number of deep discount
laser vision correction companies and the ongoing safety and effectiveness
concerns arising from the lack of long-term follow-up data and negative news
stories focusing on patients with unfavorable outcomes from procedures performed
at competing centers. Due to the pricing pressures in the industry and the lower
procedure prices offered pursuant to discounts associated with the Company's
Corporate Advantage Program, the Company's net revenue after doctor
compensation, per procedure, for fiscal 2001 declined by 8% in comparison to
fiscal 2000.

    In the final quarter of fiscal 2000 and during fiscal 2001, the Company
completed practice management agreements with a number of surgeons resulting in
an increase in intangible assets to reflect the value assigned to these
agreements. These intangible assets are being amortized over the term of the
applicable agreements. These agreements have resulted, either directly or
indirectly, in lower per procedure fees being paid to the applicable surgeons
and a corresponding reduction in doctors' compensation to offset the increased
amortization costs. The result was an increase to the net revenue after doctors'
compensation per procedure ratio.

    The cost of refractive revenues from eye care centers for fiscal 2001 was
$99.9 million, which was 16.8% lower than fiscal 2000's cost of refractive
revenues of $120.0 million. This reduction was primarily due to reduced doctors
compensation resulting from lower procedure volumes, lower royalty fees on laser
usage and lower personnel costs.

    Selling, general and administrative expenses increased to $67.8 million in
fiscal 2001 from $66.6 million in fiscal 2000. This reflected increased
marketing costs aimed at raising consumer awareness of TLC Vision's brand. In
addition, the increased expense was due to increased consulting costs, legal
costs and infrastructure costs incurred to support our growth strategy. These
costs were partially offset by reductions associated with Corporate Advantage
and Third Party Payer programs identified in conjunction with the Company's cost
reduction initiatives.

    Interest (income)/expense and other expenses reflected interest revenue from
the Company's cash position which resulted from positive cash flow from
operations and the result of a public offering in the fourth quarter of fiscal
1999. The lack of any material additions to long-term debt and capital leases on
equipment resulted in reducing interest costs on debt, as the various debt
instruments approach maturity. Reduced cash and cash equivalent balances during
the year combined with lower interest yields resulted in lower interest
revenues.

    The increase in depreciation expense was largely a result of new centers and
the additional depreciation and amortization associated with the Company's
acquisitions during fiscal 2000 and 2001. The significant increase in the
amortization of intangibles was the result of successfully establishing
long-term contractual relationships with a number of surgeons during the final
quarter of fiscal 2000 and during fiscal 2001. Goodwill and intangibles are
amortized on a straight-line basis over the term of the applicable agreement to
a maximum of fifteen years. Amortization periods used during fiscal 2001 range
from five to fifteen years. In establishing the long-term contractual
relationships with these key surgeons, the surgeon in many cases had agreed to
receive reduced fees for laser vision correction procedures performed. The
reduction in doctors' compensation partially offsets the increased amortization
of the intangible practice management agreements.

    Restructuring and other charges (see "Note 20 - Restructuring and Other
Charges") in fiscal 2001, reflect decisions that were made to:

        a)  Ease support of the Company's e-commerce enterprise eyeVantage.com,
            Inc. ("eyeVantage"). The decision to close activities at eyeVantage
            was the result of a number of factors including:

            (i)   Increased difficulty by dotcom enterprises to obtain funding
                  due to concerns within the investment community regarding
                  perceived value;

            (ii)  eyeVantage was not able to obtain required financing to
                  continue operations;



                                       45
<PAGE>

            (iii) eyeVantage was not able to meet expectations on the
                  development of its products and services;

            (iv)  eyeVantage had not established a revenue base sufficient to
                  meet operating requirements or to attract outside investment;
                  and

            (v)   The operating costs on a monthly basis were in excess of $1.0
                  million and the Company did not feel there was sufficient
                  future value to continue to support eyeVantage operations.

    The decision to close activities resulted in a restructuring charge of $11.7
million which reflected the estimated impact of the write-down of goodwill of
$8.7 million, the write-down of fixed assets of $2.1 million, employee
termination costs of $1.7 million representing the termination costs of 29
employees, accounts receivable losses of $0.4 million and $1.1 million of costs
incurred in the closing process which included legal, administrative and lease
commitment costs. These losses were offset by a gain of $2.3 million resulting
from the reduction in the purchase obligation associated with the Optical
Options, Inc. acquisition (see "Note 2- Acquisitions - 2001 Transactions -
iii").

        a)  Reflect potential losses from an equity investment in secondary care
            activities of $1.0 million. Due to a deteriorating relationship with
            the operations management team and the Company's strategic decision
            to withdraw from the management of secondary care practices where
            possible, the Company transferred its investment to an equity
            investment in return for a future earnings percentage. The equity
            investment has not acknowledged a liability to the Company for this
            investment, and the Company had not received any funds from the
            equity investment's earnings from the transferred investment. As a
            result the Company deemed it prudent to provide against the
            potential loss resulting from the inability to recover value of the
            investment transferred to the equity investment.

        b)  Close three eye care centers for which the Company recorded costs of
            $1.4 million, sell its ownership in another eye care center, which
            created a loss of $0.3 million and incurred a cost of $0.1 million
            to terminate plans to open another eye care center. During fiscal
            2001, the Company had undertaken to restructure its operations to
            eliminate those centers, which were identified as not capable of
            being profitable. These centers had been impacted by a number of
            challenges such as:

            (i)   proximity to existing centers managed by the Company;

            (ii)  local marketplace heavily impacted by discount laser vision
                  correction providers which impaired the ability to compete as
                  a premium laser vision correction provider;

            (iii) expectations of optometric network to generate sufficient
                  interest in laser vision correction were not met; and

            (iv)  the occupancy costs of a center (acquired as part of a
                  multi-center acquisition) impacting the ability to lower costs
                  in line with revenues.

        c)  Undertake an extensive review of its internal structures, its
            marketplace, its resources and its strategies for the future. The
            review resulted in the restructuring of the Company's goals and
            structures to meet its future needs. The Company utilized the
            services of a national consulting firm to facilitate this internal
            restructuring process, whose participation was completed in the
            third quarter of fiscal 2001 with an associated cost of $1.6
            million.

        d)  Fully provide for its $0.9 million portfolio investment in Vision
            America. This investment was deemed to be permanently impaired
            during fiscal 2001. Subsequent to this decision Vision America filed
            for bankruptcy and is currently in the process of liquidating its
            assets. The Company will reflect any amounts recovered from this
            investment if and when the amount and timing of any amounts to be
            recovered becomes determinable.

        e)  Accrue for, in the fourth quarter, an award from an arbitration
            hearing involving TLC Vision Network Services Inc. that was issued
            against the Company. The cumulative liability arising from the award
            was $2.1 million, which was fully provided for, in the fourth
            quarter of fiscal 2001. Payment of this liability was deferred until
            explorations of all legal alternatives have been completed.



                                       46
<PAGE>

    The $19.1 million for losses from restructuring and other charges consisted
of $4.7 million of cash payments for severance, lease costs, consulting services
and closure costs and $14.4 million of non-cash charges.

    Income tax expense decreased to $2.2 million in fiscal 2001 from $3.5
million in fiscal 2000. This decrease reflected the Company's losses incurred in
fiscal 2001 while including the impact of the tax liabilities associated with
the Company's partners in profitable subsidiaries and the requirement to reflect
minimum tax liabilities relevant in Canada, United States and certain other
jurisdictions.

    Revenues from Other healthcare services activities were $12.8 million in
fiscal 2001, an increase of more than 16% in comparison to $11.0 million in
fiscal 2000. Approximately 7% of total revenues were derived from other
healthcare services in fiscal 2001 compared to 5% in fiscal 2000. The increase
in revenues reflected revenue growth of greater then 25% in the network
marketing and management, professional healthcare facility management and hair
removal subsidiaries, while revenues in the secondary care management and asset
management subsidiaries reflected moderate growth.

    The net loss from other healthcare services was $18.6 million in fiscal
2001, an increase of over 280% in comparison to a net loss of $4.9 million in
fiscal 2000. The loss in fiscal 2001 included a restructuring charge of $11.7
million resulting from the decision made by the Company to no longer support the
activities of its e-commerce subsidiary eyeVantage.com, Inc. Excluding the
impact of the restructuring charge, eyeVantage.com, Inc., generated losses of
$5.6 million (2000 - $3.8 million). The loss from the remaining non-refractive
activities was $1.3 million, an increase from the loss in fiscal 2000 of $1.1
million. The increased loss in fiscal 2001 was due primarily to increased
amortization of intangibles of $0.4 million at the Company's network marketing
and management subsidiary resulting from increased goodwill arising from the
finalization of the earn-out calculations arising from the Company's 1997
acquisition of this entity (see "Note 14 - Capital Stock - a) Common Stock" and
"Note 2 - Acquisition - 2001 Transactions - ii and 2000 Transactions v.").

    The loss for fiscal 2001 was $37.8 million or $1.00 per share, compared to a
loss of $5.9 million or $0.16 cents per share for fiscal 2000. This increased
loss reflected the impact of extensive losses from the activities in the eye
care e-commerce subsidiary, restructuring and other charges, reduced revenues,
increased amortization in intangibles and the continuing investment in staff,
information systems and marketing.

LIQUIDITY AND CAPITAL RESOURCES

    During the seven months ended December 31, 2002, the Company continued to
focus its activities primarily on seeking to increase procedure volumes at its
centers and reducing operating costs. Cash and cash equivalents, short-term
investments and restricted cash were $41.6 million at December 31, 2002 compared
to $52.2 million at May 31, 2002. Working capital at December 31, 2002 decreased
to $12.5 million from $23.4 million at May 31, 2002.

    The Company's principal cash requirements have included normal operating
expenses, debt repayment, distributions to minority partners, capital
expenditures, investment in Vascular Sciences and the purchase of an ambulatory
surgery center. Normal operating expenses include doctor compensation, procedure
royalty fees, procedure medical supply expenses, travel and entertainment,
professional fees, insurance, rent, equipment maintenance, wages, utilities and
marketing.

    During the seven months ended December 31, 2002, the Company invested $3.7
million in fixed assets.

    The Company does not expect to purchase additional lasers during the next 12
to 18 months, however existing lasers may need to be upgraded. The Company has
access to vendor financing at fixed interest rates or on a per procedure fee
basis and expects to continue to have access to these financing options for at
least the next 12 months.

    As of December 31, 2002, the Company had employment contracts with 11
officers of TLC Vision or its subsidiaries to provide for base salaries, the
potential to pay certain bonuses, medical benefits and severance payments. Nine
officers have agreements providing for severance payments ranging from 12 to 24
months of base or total compensation under certain circumstances. Two officers
have agreements providing for severance payments equal to 36 months of total
compensation and future medical benefits (totaling about $2.0 million) at their
option until November 2003, and 24-month agreements thereafter.



                                       47
<PAGE>
    As of December 31, 2002 the Company has commitments relating to operating
leases for rental of office space and equipment and long-term marketing
contracts, which require future minimum payments aggregating to approximately
$34.7 million. Future minimum payments over the next five years and thereafter
are as follows:

<Table>
<S>                                                 <C>
2003.........................................       $ 9,690
2004.........................................         8,824
2005.........................................         7,731
2006.........................................         3,651
2007.........................................         2,761
Thereafter...................................         2,025
</Table>

    As of December 31, 2002 the Company had a commitment with a major laser
manufacturer ending November 30, 2004 for the use of that manufacturer's lasers
which require future minimum lease payments aggregating $5.1 million. Future
minimum lease payments in aggregate and over the remaining two years are as
follows:

<Table>
<S>                                      <C>
2003..............................       $ 2,040
2004..............................         3,060
</Table>

    One of the Company's subsidiaries, together with other investors, has
jointly and severally guaranteed the obligations of an equity investee. Total
liabilities of the equity investee under guarantee amount to approximately $2.1
million at December 31, 2002.

    In July 2001, two excimer laser manufacturers reported settling a class
action antitrust case. In August 2002, LaserVision received approximately $8.0
million from their portion of the settlement which reduced other current assets
and TLC Vision received approximately $7.1 million of which $6.8 million was
recorded in other income and expense.

    On August 1, 2002, the Company acquired a 55% ownership interest in an
ambulatory surgery center (ASC) in Mississippi for $7.6 million in cash. The
Company also has a contingent obligation to purchase an additional 5% ownership
interest per year for $0.7 million in cash during each of the next four years.
This ASC specializes in cataract surgery, and the acquisition was accounted for
under the purchase method of accounting. Net assets acquired were $7.6 million,
which included $7.4 million of goodwill and $0.2 million of other intangible
assets.

    On July 25, 2002, the Company entered into a joint venture with Vascular
Sciences for the purpose of pursuing commercial applications of technologies
owned or licensed by Vascular Sciences applicable to the evaluation, diagnosis,
monitoring and treatment of age-related macular degeneration. According to the
terms of the agreement, the Company purchased $2.0 million in preferred stock in
August 2002, which was subsequently recorded as research and development
expense.

    The Company estimates that existing cash balances and short-term
investments, together with funds expected to be generated from operations and
credit facilities, will be sufficient to fund the Company's anticipated level of
operations and expansion plans for the next 12 to 18 months.

CASH PROVIDED BY OPERATING ACTIVITIES

    Net cash provided by operating activities was $8.8 million for the seven
months ended December 31, 2002. The cash flows provided by operating activities
during the seven months ended December 31, 2002 are primarily due to the
reductions in net operating assets of $6.4 million as the net loss of $43.3
million in the period was offset by non-cash items including depreciation and
amortization of $13.8 million, impairment of goodwill of $22.1 million, loss on
sale of fixed assets of $1.8 million, the non-cash write off of investments and
research and development arrangements of $4.1 million, and $2.2 million of
non-cash write-offs related to restructuring charges. The reduction in net
operating assets related to a $7.2 million decrease in prepaid expenses as the
cash received from the LaserVision portion of the antitrust settlement was
partially offset by higher prepaid insurance balances and a $3.8 million
decrease in accounts receivable due primarily to lower procedure volume and
timing differences related to collection of accounts receivable from
professional corporations, offset by a $4.6 million decrease in accounts payable
and accrued liabilities due to timing differences of paying certain obligations,
lower business volume from May 31, 2002 and a settlement of disputed invoices
with a major vendor.



                                       48
<PAGE>
CASH USED FOR INVESTING ACTIVITIES

    Net cash used for investing activities was $13.8 million for the seven
months ended December 31, 2002. Cash used in investing during the seven-month
period ended December 31, 2002 included $9.7 million for business acquisitions,
$3.6 million for the acquisition of equipment and $2.0 million for an investment
in a research and development arrangement, offset by $0.7 million from the sale
of capital assets, $0.5 million from the sale of short-term investments, and
$0.3 million from the sale of investments and subsidiaries.

CASH USED FOR FINANCING ACTIVITIES

    Net cash used for financing activities was $4.0 million for the seven months
ended December 31, 2002. Net cash used for financing activities during the seven
months ended December 31, 2002 was primarily utilized during the period for
repayment of certain notes payable and capitalized lease obligations of $5.1
million, distribution to minority interests of $1.6 million, offset by
restrictions removed from cash balances of $1.0 million, and proceeds from
equipment lease financing of $1.8 million.

NEW ACCOUNTING PRONOUNCEMENTS

    For a discussion on recent pronouncements, see Note 1, "Summary of
Significant Accounting Policies" in the accompanying audited consolidated
financial statements and notes thereto set forth in Item 8 of this Report.

SUBSEQUENT EVENTS

    On March 3, 2003, Midwest Surgical Services, Inc. a subsidiary of TLC
Vision, entered into a purchase agreement to acquire 100% of American Eye
Instruments, Inc., which provides access to surgical and diagnostic equipment to
perform cataract surgery in hospitals and ambulatory surgery centers. The
Company paid $2.0 million in cash and 100,000 common shares of TLC Vision. The
Company also agreed to make additional cash payments over a three-year period up
to $1.9 million, if certain financial targets are achieved.

QUARTERLY FINANCIAL DATA (UNAUDITED)

                           (Thousands of U.S. dollars
                            except per share amounts)

<Table>
<Caption>
                                                     THREE MONTHS ENDED             THREE MONTHS ENDED
                                                          MARCH 31,                      JUNE 30,
                                                 --------------------------     --------------------------
                                                    2002            2001          2002(3)          2001
                                                 ----------      ----------     ----------      ----------
<S>                                              <C>             <C>            <C>             <C>

Revenues                                         $   36,942      $   49,099     $   42,657      $   38,361
Gross Margin                                         12,256          20,896         12,080          13,959

Income (loss) before cumulative effect of
  accounting change                                  (3,689)          4,254        (97,699)         (8,448)
Cumulative effect of accounting change                   --              --        (15,174)             --
Net income (loss)                                    (3,689)          4,254       (112,873)         (8,448)
Basic and diluted income (loss) per share
  before cumulative effect of accounting
  change                                              (0.10)           0.11          (1.82)          (0.22)
Basic and diluted income (loss) per share
  cumulative effect of accounting change                 --              --          (0.28)             --
Basic and diluted income (loss) per
  share                                               (0.10)           0.11          (2.10)          (0.22)

<Caption>
                                                    THREE MONTHS ENDED              THREE MONTHS ENDED
                                                       SEPTEMBER 30,                    DECEMBER 31,
                                                 --------------------------      --------------------------
                                                    2002            2001           2002(2)         2001(1)
                                                 ----------      ----------      ----------      ----------
<S>                                              <C>             <C>             <C>             <C>

Revenues                                         $   43,802      $   30,575      $   44,754      $   27,064
Gross Margin                                          9,307           8,159           6,151           3,998

Income (loss) before cumulative effect of
  accounting change
Cumulative effect of accounting change
Net income (loss)                                    (2,532)         (8,394)        (39,727)        (35,321)
Basic and diluted loss per share before
  cumulative effect of accounting change              (0.04)          (0.22)          (0.63)          (0.93)
Basic and diluted loss per share
  cumulative effect of accounting change                 --              --              --              --
Basic and diluted loss per common share               (0.04)          (0.22)          (0.63)          (0.93)
</Table>

        (1) In the three months ended December 31, 2001, the selected financial
            data of the Company included:

            (a) a write down in the fair value of investments and long-term
                receivables of $26.1 million; and

            (b) a restructuring charge of $1.8 million.

        (2) In the three months ended December 31, 2002, the selected financial
            data of the Company included:

            (a) an impairment of intangibles charge of $22.1 million;

            (b) a write down in the fair value of investments and long-term
                receivables of $2.1 million; and



                                       49
<PAGE>

            (c) a restructuring charge of $3.6 million.

        (3) In the three months ended June 2002, the selected financial data of
            the Company included:

            (a) an impairment of intangibles charge of $81.7 million;

            (b) a write down in the fair value of investments and long-term
                receivables of $26.1 million;

            (c) a restructuring charge of $8.8 million; and

            (d) a reduction in the carrying value of fixed assets of $2.6
                million.





                                       50
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    In the ordinary course of business, the Company is exposed to interest rate
risks and foreign currency risks, which the Company does not currently consider
to be material. These interest rate exposures primarily relate to having
short-term investments earning short-term interest rates and to having fixed
rate debt. The Company views its investment in foreign subsidiaries as long-term
commitments, and does not hedge any translation exposure.






                                       51
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

RESPONSIBILITY FOR FINANCIAL STATEMENTS

    The accompanying consolidated financial statements of TLC Vision Corporation
have been prepared by management in conformity with accounting principles
generally accepted in the United States. The significant 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
under United States generally accepted accounting principles.

    During the transitional period ended December 31, 2002, the Board of
Directors had an Audit Committee consisting of four non-management directors.
The committee met with management and the auditors to review any significant
accounting, internal control and auditing matters, 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.




                                       52
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders of TLC Vision Corporation

We have audited the consolidated balance sheets of TLC Vision Corporation
(formerly TLC Laser Eye Centers Inc.) as of December 31, 2002, May 31, 2002, and
May 31, 2001 and the consolidated statements of operations, cash flows, and
stockholders' equity for the seven-month period ended December 31, 2002 and for
each of the years in the three-year period ended May 31, 2002. Our audits also
included the financial statement schedule listed in the index at Item 15. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TLC
Vision Corporation as of December 31, 2002, May 31, 2002, and May 31, 2001 and
the results of its operations and its cash flows for the seven-month period
ended December 31, 2002 and for each of the years in the three-year period ended
May 31, 2002 in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, on June 1,
2001, the Company changed its method of accounting for goodwill.

St. Louis Missouri                                    /s/ ERNST & YOUNG LLP
March 25, 2003                                       ----------------------



                                       53
<PAGE>

TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share amounts)

<Table>
<Caption>
                                                                 SEVEN-MONTH
                                                                 PERIOD ENDED                     YEAR ENDED MAY 31,
                                                                 DECEMBER 31,      ------------------------------------------------
                                                                     2002              2002              2001              2000
                                                                 ------------      ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>               <C>

Revenues:
     Refractive:
          Owned centers ....................................     $     29,834      $     50,252      $     78,470      $     97,608
          Managed centers ..................................           24,959            62,657            82,749            92,625
          Access fees ......................................           21,495             2,999                --                --
     Other healthcare services .............................           23,866            18,843            12,787            10,990
                                                                 ------------      ------------      ------------      ------------
Total revenues (Note 16) ...................................          100,154           134,751           174,006           201,223
                                                                 ------------      ------------      ------------      ------------

Cost of revenues:
     Refractive:
          Owned centers ....................................           27,001            38,877            55,226            68,439
          Managed centers ..................................           22,223            43,034            44,684            51,549
          Access fees ......................................           15,356             1,826                --                --
          Impairment of fixed assets (Note 10) .............               --             2,553                --                --
     Other healthcare services .............................           16,245            11,499            10,106             9,246
                                                                 ------------      ------------      ------------      ------------
Total cost of revenues .....................................           80,825            97,789           110,016           129,234
                                                                 ------------      ------------      ------------      ------------
     Gross margin ..........................................           19,329            36,962            63,990            71,989
                                                                 ------------      ------------      ------------      ------------
General and administrative .................................           24,567            36,382            44,464            44,341
Marketing ..................................................            8,321            15,296            25,600            24.202
Amortization of intangibles ................................            4,074            10,227            12,543             7,396
Impairment of goodwill and other intangible assets
   (Note 8 and 9) ..........................................           22,138            81,720                --                --
Research and development (Note 7) ..........................            2,000             2,000                --                --
Write-down in the fair value of investments and
   long-term receivables (Note 7) ..........................            2,095            26,082                --                --
Restructuring and other charges (Note 18) ..................            4,227             8,750            19,075                --
                                                                 ------------      ------------      ------------      ------------
                                                                       67,422           180,457           101,682            75,939
                                                                 ------------      ------------      ------------      ------------
Operating loss .............................................          (48,093)         (143,495)          (37,692)           (3,950)
Other income and (expense):
   Other income, net (Note 12) .............................            6,996                --                --                --
   Interest (expense) income and other .....................             (243)             (761)            2,543             4,492
   Minority interest .......................................           (1,152)             (635)             (385)           (3,006)
                                                                 ------------      ------------      ------------      ------------
Loss before income taxes and cumulative
   effect of accounting change .............................          (42,492)         (144,891)          (35,534)           (2,464)
Income tax expense (Note 14) ...............................             (851)           (1,784)           (2,239)           (3,454)
                                                                 ------------      ------------      ------------      ------------
Loss before cumulative effect of
   accounting change .......................................          (43,343)         (146,675)          (37,773)           (5,918)
Cumulative effect of accounting change (Note 2) ............               --           (15,174)               --                --
                                                                 ------------      ------------      ------------      ------------
Net loss ...................................................     $    (43,343)     $   (161,849)     $    (37,773)     $     (5,918)
                                                                 ============      ============      ============      ============

Loss before cumulative effect of accounting
   change per share  - basic and diluted ...................     $      (0.68)     $      (3.74)     $      (1.00)     $      (0.16)
Cumulative effect of accounting change per share -
   basic and diluted .......................................               --             (0.39)               --                --
                                                                 ------------      ------------      ------------      ------------
Net loss per share  - basic and diluted ....................     $      (0.68)     $      (4.13)     $      (1.00)     $      (0.16)
                                                                 ============      ============      ============      ============

Weighted-average number of common shares outstanding -
   basic and diluted .......................................           63,407            39,215            37,779            37,778
                                                                 ============      ============      ============      ============
</Table>

See notes to consolidated financial statements.


                                       54
<PAGE>

TLC VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

<Table>
<Caption>
                                                                                               MAY 31,
                                                                 DECEMBER 31,      ------------------------------
                                                                     2002              2002              2001
                                                                 ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>

ASSETS
Current assets:
     Cash and cash equivalents .............................     $     36,081      $     45,074      $     47,987
     Short-term investments ................................            1,557             2,113             6,063
     Accounts receivable (Note 6) ..........................           14,155            17,991             9,950
     Prepaid expenses and other current assets .............            9,820            17,006             4,501
                                                                 ------------      ------------      ------------
     Total current assets ..................................           61,613            82,184            68,501
Restricted cash (Notes 5) ..................................            3,975             4,988             1,619
Investments and other assets (Note 7) ......................            2,442             4,505            23,171
Goodwill (Note 8) ..........................................           40,697            53,192            32,752
Other intangible assets  (Note 9) ..........................           29,326            32,513            60,050
Fixed assets (Note 10) .....................................           58,003            68,133            52,345
                                                                 ------------      ------------      ------------
Total assets ...............................................     $    196,056      $    245,515      $    238,438
                                                                 ============      ============      ============

LIABILITIES
Current liabilities:
     Accounts payable ......................................     $     13,857      $     17,625      $      3,849
     Accrued liabilities ...................................           28,911            31,748            15,517
     Current portion of long-term debt (Note 11) ...........            6,322             9,433             6,769
                                                                 ------------      ------------      ------------
     Total current liabilities .............................           49,090            58,806            26,135
Other long-term liabilities ................................            9,630             7,401             6,146
Long-term debt, less current maturities (Note 11) ..........           15,760            14,643             8,313
Minority interests .........................................            9,748             9,651            10,738

STOCKHOLDERS' EQUITY
Common stock, no par value; unlimited number authorized ....          388,769           387,701           276,277
Option and warrant equity ..................................           11,035            11,755               532
Treasury stock .............................................           (2,623)           (2,432)               --
Accumulated deficit ........................................         (285,353)         (242,010)          (80,161)
Accumulated other comprehensive loss .......................               --                --            (9,542)
                                                                 ------------      ------------      ------------
Total stockholders' equity .................................          111,828           155,014           187,106
                                                                 ------------      ------------      ------------
Total liabilities and stockholders' equity .................     $    196,056      $    245,515      $    238,438
                                                                 ============      ============      ============
</Table>

See notes to consolidated financial statements.

Approved on behalf of the Board:

/s/ ELIAS VAMVAKAS                               /s/ WARREN S. RUSTAND
-------------------------------                  ------------------------------
Elias Vamvakas, Director                         Warren S. Rustand, Director




                                       55
<PAGE>

TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<Table>
<Caption>
                                                                     SEVEN-MONTH
                                                                     PERIOD ENDED                  YEAR ENDED MAY 31,
                                                                     DECEMBER 31,      ------------------------------------------
                                                                         2002               2002            2001            2000
                                                                     ------------      ----------      ----------      ----------
<S>                                                                  <C>               <C>             <C>             <C>
OPERATING ACTIVITIES
Net loss .......................................................     $    (43,343)     $ (161,849)     $  (37,773)     $   (5,918)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
     Depreciation and amortization .............................           13,862          21,352          27,593          21,688
     Cumulative effect of accounting change ....................               --          15,174              --              --
     Impairment of goodwill and other intangibles assets .......           22,138          81,720              --             489
     Loss on sale of fixed assets ..............................            1,770           1,136           1,946           1,099
     Write-off of investment in research and
       development arrangement .................................            2,000           2,000              --              --
     Deferred income taxes .....................................               --              --              --           1,320
     Impairment of fixed assets and write down of investments ..            2,095          28,635              --              --
     Non-cash restructuring and other costs ....................            2,266           2,503          14,395              --
     Compensation expense ......................................              445             866              --              --
     Minority interest and other ...............................            1,152             107             677           3,786
     CHANGES IN OPERATING ASSETS AND LIABILITIES
          Accounts receivable ..................................            3,836           1,592           5,232             (15)
          Prepaid expenses and current other assets ............            7,168             417           1,891           1,047
          Accounts payable and accrued liabilities .............           (4,574)          6,321           1,042            (465)
                                                                     ------------      ----------      ----------      ----------
Cash provided by (used in) operating activities ................            8,815             (26)         15,003          23,031
                                                                     ------------      ----------      ----------      ----------
INVESTING ACTIVITIES
Restricted cash movement .......................................               --          (3,000)             --              --
Purchase of fixed assets .......................................           (3,668)         (2,297)        (10,656)        (26,153)
Proceeds from sale of fixed assets .............................              751              89           2,491             185
Proceeds from the sale of investments and subsidiaries .........              259             777           1,117             227
Investment in research and development arrangement .............           (2,000)         (2,000)             --              --
Acquisitions and investments ...................................           (9,695)         (5,424)        (17,345)        (56,496)
Cash acquired in Laser Vision Centers, Inc. acquisition ........               --           7,319              --              --
Short-term investments .........................................              556           6,058          (6,063)         26,212
Other ..........................................................              (32)             56             (68)            (24)
                                                                     ------------      ----------      ----------      ----------
Cash (used in) provided by investing activities ................          (13,829)          1,578         (30,524)        (56,049)
                                                                     ------------      ----------      ----------      ----------
FINANCING ACTIVITIES
Restricted cash movement .......................................            1,013            (369)            103               8
Proceeds from debt financing ...................................            1,750           5,788             226             826
Principal payments of  debt financing and capital leases .......           (5,140)         (7,098)         (7,097)         (7,698)
Payments of accrued purchase obligations .......................               --              --          (3,620)             --
Contributions from minority interest ...........................               --              --              --           2,365
Distributions to minority interests ............................           (1,532)         (3,092)         (4,865)         (1,569)
Purchase of treasury stock .....................................             (191)             --            (481)        (10,365)
Proceeds from issuance of common stock .........................              121             306             711           2,384
                                                                     ------------      ----------      ----------      ----------
Cash used in financing activities ..............................           (3,979)         (4,465)        (15,023)        (14,049)
                                                                     ------------      ----------      ----------      ----------
Net decrease in cash and cash equivalents during the period ....           (8,993)         (2,913)        (30,544)        (47,067)
Cash and cash equivalents, beginning of period .................           45,074          47,987          78,531         125,598
                                                                     ------------      ----------      ----------      ----------
Cash and cash equivalents, end of period .......................     $     36,081      $   45,074      $   47,987      $   78,531
                                                                     ============      ==========      ==========      ==========
</Table>

See notes to consolidated financial statements.



                                       56
<PAGE>

TLC VISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

<Table>
<Caption>
                                                  COMMON STOCK                                TREASURY STOCK
                                            --------------------------                  --------------------------
                                                                            OPTION
                                                                              AND
                                                                            WARRANT
                                              SHARES         AMOUNT         EQUITY        SHARES         AMOUNT
                                            -----------    -----------    -----------   -----------    -----------
<S>                                         <C>            <C>            <C>           <C>            <C>

Balance, May 31, 1999 ...................        37,362    $   269,454    $        --            --    $        --
Warrants issued .........................                                         532
Shares issued for acquisition ...........           302            728
Value determined for shares
     issued contingent on meeting
     earnings criteria ..................            --          1,397
Shares purchased for cancellation .......          (710)        (5,162)
Exercise of stock options ...............            87          1,314
Shares issued as remuneration ...........            44            387
Shares issued as part of the
     employee share purchase plan .......            65          1,696
Reversal of IPO costs, over accrual .....            --            139
Comprehensive loss
     Net loss ...........................
     Other comprehensive loss
     Unrealized gains/losses on
        available for-sale securities ...
Total comprehensive loss ................
                                            -----------    -----------    -----------   -----------    -----------
Balance May 31, 2000 ....................        37,150        269,953            532            --             --
                                            -----------    -----------    -----------   -----------    -----------
Shares issued for acquisition ...........           832          6,059
Shares purchased for cancellation .......          (108)          (481)
Exercise of stock options ...............            40            125
Shares issued as remuneration ...........             5             35
Shares issued as part of the
     employee share purchase plan .......           112            586
Comprehensive loss
     Net loss ...........................
     Unrealized gains/losses on
       available for-sale securities ....
Total comprehensive loss ................

Balance May 31, 2001 ....................        38,031        276,277            532            --             --
Shares issued on acquisition of
     LaserVision ........................        26,617        111,058
Value determined for shares
     issued contingent on meeting
     earnings criteria ..................                           60
Options issued on acquisition ...........                                      11,001
Treasury stock arising from
     acquisition ........................                                                      (583)        (2,432)
Exercise of stock options ...............            10             26
Options issued on termination ...........                                         222
Shares issued as part of the
     employee share purchase plan .......            85            280
Comprehensive loss
     Net loss ...........................
     Unrealized gains/losses on
       available for-sale securities ....
Total comprehensive loss ................
                                            -----------    -----------    -----------   -----------    -----------
Balance May 31, 2002 ....................        64,743        387,701         11,755          (583)        (2,432)
Purchase of  treasury stock .............                                                      (196)          (191)
Shares issued as part of the
     employee share purchase plan .......            46            111
Exercise of stock options ...............             5             10
Options expired .........................                          720           (720)
Dilution gain on stock of subsidiary ....                          227
Net loss and comprehensive loss .........            --             --             --            --             --
                                            -----------    -----------    -----------   -----------    -----------
Balance December 31, 2002 ...............        64,794    $   388,769    $    11,035          (779)   $    (2,623)
                                            ===========    ===========    ===========   ===========    ===========

<Caption>


                                                              OTHER
                                                           ACCUMULATED
                                             ACCUMULATED  COMPREHENSIVE
                                               DEFICIT     INCOME (LOSS)     TOTAL
                                             -----------  --------------  -----------
<S>                                          <C>          <C>             <C>

Balance, May 31, 1999 ...................    $   (31,267)  $      5,936   $   244,123
Warrants issued .........................                                         532
Shares issued for acquisition ...........                                         728
Value determined for shares
     issued contingent on meeting
     earnings criteria ..................                                       1,397
Shares purchased for cancellation .......         (5,203)                     (10,365)
Exercise of stock options ...............                                       1,314
Shares issued as remuneration ...........                                         387
Shares issued as part of the
     employee share purchase plan .......                                       1,696
Reversal of IPO costs, over accrual .....                                         139
Comprehensive loss
     Net loss ...........................         (5,918)                      (5,918)
     Other comprehensive loss
     Unrealized gains/losses on
       available for-sale securities ....                       (10,387)      (10,387)
                                                                          -----------
Total comprehensive loss ................                                     (16,305)
                                             -----------    -----------   -----------
Balance May 31, 2000 ....................        (42,388)        (4,451)      223,646
                                             -----------    -----------   -----------
Shares issued for acquisition ...........                                       6,059
Shares purchased for cancellation .......                                        (481)
Exercise of stock options ...............                                         125
Shares issued as remuneration ...........                                          35
Shares issued as part of the
     employee share purchase plan .......                                         586
Comprehensive loss
     Net loss ...........................        (37,773)                     (37,773)
     Unrealized gains/losses on
       available for-sale securities ....                        (5,091)       (5,091)
                                                                          -----------
Total comprehensive loss ................                                     (42,864)
                                             -----------    -----------   -----------
Balance May 31, 2001 ....................        (80,161)        (9,542)      187,106
Shares issued on acquisition of
     LaserVision ........................                                     111,058
Value determined for shares
     issued contingent on meeting
     earnings criteria ..................                                          60
Options issued on acquisition ...........                                      11,001
Treasury stock arising from
     acquisition ........................                                      (2,432)
Exercise of stock options ...............                                          26
Options issued on termination ...........                                         222
Shares issued as part of the
     employee share purchase plan .......                                         280
Comprehensive income
     Net loss ...........................       (161,849)                    (161,849)
     Unrealized gains/losses on
       available for-sale securities ....                         9,542         9,542
                                                                          -----------
Total comprehensive loss ................                                    (152,307)
                                             -----------    -----------   -----------
Balance May 31, 2002 ....................       (242,010)            --       155,014
Purchase of  treasury stock .............                                        (191)
Shares issued as part of the
     employee share purchase plan .......                                         111
Exercise of stock options ...............                                          10
Options expired .........................                                          --
Dilution gain on stock of subsidiary ....                                         227
Net loss and comprehensive loss .........        (43,343)            --       (43,343)
                                             -----------    -----------   -----------
Balance December 31, 2002 ...............    $  (285,353)   $        --   $   111,828
                                             ===========    ===========   ===========
</Table>

    See notes to consolidated financial statements.



                                       57
<PAGE>

TLC VISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands, except per share amounts)

1. NATURE OF OPERATIONS

TLC Vision Corporation (formerly TLC Laser Eye Centers Inc.) and its
subsidiaries (collectively "TLC Vision" or the "Company") is a diversified
healthcare service company focused on working with physicians to provide high
quality patient care primarily in the eye care segment. The Company's core
business revolves around refractive surgery, which involves using an excimer
laser to treat common refractive vision disorders such as myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. The Company's
business models include arrangements ranging from owning and operating fixed
site centers to providing access to lasers through fixed site and mobile service
relationships. The Company also furnishes independent surgeons with mobile or
fixed site access to cataract surgery equipment and services through its Midwest
Surgical Services, Inc. ("MSS") subsidiary. In addition, the Company owns a 51%
majority interest in Vision Source, which provides optometric franchise
opportunities to independent optometrists. Through its OR Partners and Aspen
Healthcare divisions, TLC Vision develops, manages and has equity participation
in single-specialty eye care ambulatory surgery centers and multi-specialty
ambulatory surgery centers. In 2002, the Company formed a joint venture with
Vascular Science to create OccuLogix, L.P., a partnership focused on the
treatment of a specific eye disease, known as dry age-related macular
degeneration, via rheopheresis, a process for filtering blood.

In 2002, the Company changed its fiscal year end from May 31 to December 31.
References in the consolidated financial statements and notes to the
consolidated financial statements to "transitional period 2002" shall mean the
seven-month period ended December 31, 2002, "fiscal 2002" shall mean the 12
months ended on May 31, 2002, "fiscal 2001" shall mean the 12 months ended May
31, 2001, and "fiscal 2000" shall mean the 12 months ended May 31, 2000. And


On May 15, 2002, the Company merged with Laser Vision Centers, Inc.
("LaserVision"), and the results of LaserVision's operations have been included
in the consolidated financial statements since that date. LaserVision provides
access to excimer lasers, microkeratomes, other equipment and value added
support services to eye surgeons for laser vision correction and the treatment
of cataracts.



                                       58
<PAGE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

These consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in 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.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid short-term investments with
original maturities of 90 days or less.

Short-Term Investments

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

Investments

The Company has certain investments in equity securities. Investments are
accounted for using the equity method if the Company has significant influence,
but not control, over an investee. All other equity investments, in which the
Company does not have the ability to exercise significant influence, are
accounted for under the cost method. Under the cost method of accounting,
investments that do not have a quoted market price (non-marketable equity
securities) are carried at cost and are adjusted only for other than temporary
declines in fair value and additional investment activity. For investments in
public companies (marketable equity securities), the Company classifies its
investments as available-for-sale and, accordingly, records these investments at
fair value with unrealized gain and losses included in accumulated other
comprehensive loss, unless a decline in fair value is determined to be other
than temporary in which case the unrealized loss is recognized in earnings.

Fixed Assets

Fixed assets are recorded at cost or the initial present value of future minimum
lease payments for assets under capital lease. Major renewals or betterments are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation is
provided at rates intended to amortize the assets over their productive lives as
follows:

<Table>
<S>                                                <C>
              Buildings                            - straight-line over 40 years
              Computer equipment and software      - straight-line over three years
              Furniture, fixtures and equipment    - 25% declining balance
              Laser equipment                      - 25% declining balance
              Leasehold improvements               - straight-line over the initial term of the lease
              Medical equipment                    - 25% declining balance
              Vehicles and other                   - 25% declining balance
</Table>

The Company's MSS subsidiary records depreciation on its equipment and vehicles
(with a net book value of $5.9 million at December 31, 2002) on a straight-line
basis over the estimated useful lives (three to ten years) of the equipment.

On June 1, 2002, the Company changed its depreciation policy for furniture,
fixtures and equipment, laser equipment and medical equipment to 25% declining
balance from 20% declining balance. The Company believes this method better
reflects the depreciation over the productive life of the asset. As this is a
change in an accounting estimate it will be reflected



                                       59
<PAGE>

prospectively in the Company's financial statements. This change increased the
net loss by approximately $1.0 million in the transitional period.

Goodwill

Effective June 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," ("SFAS No.
142") which requires that goodwill not be amortized but instead be tested for
impairment at least annually and more frequently if circumstances indicate
possible impairment. In conjunction with its change in year-end, the Company
changed its annual impairment test date from May 31 to November 30.

Other Intangible Assets

Other intangible assets consist primarily of practice management agreements
("PMAs") and deferred contract rights. PMAs represent the cost of obtaining the
exclusive right to manage eye care centers and secondary care centers in
affiliation with the related physician group during the term of the respective
agreements. Deferred contract rights represent the value of contracts with
affiliated doctors to provide basic access and service. PMAs and deferred
contract rights are amortized using the straight-line method over the term of
the related contract.

Long-Lived Assets

Effective June 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." In accordance with SFAS No. 144,
the Company reviews long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of the asset group may not be
recoverable. The adoption had no material impact on the Company's financial
statements.

Revenue Recognition

The Company recognizes refractive revenues when the procedure is performed.
Revenue from owned laser centers represents the amount charged to patients for a
laser vision correction procedure, net of discounts, contractual adjustments in
certain regions and amounts collected as an agent of co-managing doctors.
Revenue from access services represents the amount charged to the
customer/surgeon for access to equipment and technical support based on use.

Revenue from managed laser centers represents management fees for services
provided under management services agreements with professional corporations
("PCs") that provide laser vision correction procedures. The PCs are responsible
for billing the patient directly. Under the terms of the management service
agreements, the Company provides facilities, equipment, technical support and
management, marketing and administrative services to the PCs in return for a per
procedure management fee. Although TLC Vision is entitled to receive the full
per procedure management fee, the Company has made it a business practice to
reduce the management fee for a portion of any discount or contractual allowance
related to the underlying procedure. Net revenue is recognized when the PC
performs the procedure.

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

Approximately 24% of the Company's net revenue is from the Company's other
healthcare services and includes cataract equipment access and service fees on a
per procedure basis, management fees from cataract and secondary care practices
and network marketing and management services and fees for professional
healthcare facility management. Revenues from other healthcare services are
recognized as the service is rendered or procedure performed.

Cost of Revenues

Included in cost of revenues are the laser fees payable to laser manufacturers
for royalties, use and maintenance of the lasers, variable expenses for
consumables, financing costs, facility fees as well as center costs associated
with personnel, facilities amortization and impairment of center assets.



                                       60
<PAGE>

In Company-owned centers, the Company is responsible for engaging and paying the
surgeons who provide laser vision correction services, and such amounts also are
reported as a cost of revenue.

Income Taxes

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

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and its related interpretations. Accordingly, the Company records
expense over the vesting period in an amount equal to the intrinsic value of the
award on the grant date. The Company recorded $0.4 million and $0.8 million of
compensation expense during the transitional period 2002 and fiscal 2002,
respectively. The following table illustrates the pro forma net loss and net
loss per share as if the fair value-based method as set forth under SFAS No. 123
"Accounting for Stock Based Compensation," applied to all awards:

<Table>
<Caption>
                                                       SEVEN-MONTH                      YEAR ENDED MAY 31,
                                                       PERIOD ENDED      ------------------------------------------------
                                                     DECEMBER 31, 2002       2002              2001              2000
                                                     -----------------   ------------      ------------      ------------
<S>                                                  <C>                 <C>               <C>               <C>

Net loss, as reported ............................       $    (43,343)   $   (161,849)     $    (37,773)     $     (5,918)
Adjustments for SFAS No. 123 .....................               (628)         (1,564)           (1,847)           (2,806)
                                                         ------------    ------------      ------------      ------------

Pro forma net loss ...............................       $    (43,971)   $   (163,413)     $    (39,620)     $     (8,724)
                                                         ============    ============      ============      ============

Pro forma loss per share - basic and diluted .....       $      (0.69)   $      (4.17)     $      (1.05)     $      (0.23)
                                                         ============    ============      ============      ============
</Table>

Foreign Currency Exchange

The unit of measure of the Company is the U.S. dollar. The assets and
liabilities of the Company's Canadian operations are maintained in Canadian
dollars and translated into U.S. dollars at exchange rates prevailing at the
consolidated balance sheet date for monetary items and at exchange rates
prevailing at the transaction dates for nonmonetary items. Revenue 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 included in net loss are
not material in any period presented.

Net Loss Per Share

The net loss per share was computed by dividing net loss by the weighted-average
number of common shares outstanding during the period. The calculations exclude
the dilutive effect of stock options and warrants since their inclusion in such
calculation is antidilutive. Average shares outstanding during the transitional
period were reduced by 712,500 shares to exclude the weighted-average effect of
outstanding shares in escrow related to a previous LaserVision acquisition.

Contingent Consideration

When the Company enters into agreements that provide for contingent
consideration based on the certain predefined targets being met, an analysis is
made to determine whether the contingent consideration will be reflected as an
additional purchase price obligation or deemed to be compensation expense. The
accounting treatment if the consideration is deemed to be an additional purchase
price payment is to increase the value assigned to PMAs and deferred contract
rights and amortize this additional amount over the remaining period of the
relevant agreement. Where the contingent consideration is deemed to be
compensation, the expense is reflected as an operating expense in the periods
that the service is rendered.



                                       61
<PAGE>

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates. These
estimates are reviewed periodically, and as adjustments become necessary, they
are reported in income in the period in which they become known.

Reclassifications

Certain amounts in prior periods have been reclassified to conform with the
report classifications of the transitional period.

Recent Pronouncements

In July 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. SFAS 146 nullifies Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in Restructuring)." SFAS No. 146 requires that costs associated with an exit or
disposal activity be recognized when the liability is incurred, whereas EITF No.
94-3 required recognition of a liability when an entity committed to an exit
plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002.

3. CHANGE IN FISCAL YEAR-END

The Company changed its fiscal year-end from May 31 to December 31 effective
June 1, 2002. Accordingly, the accompanying financial statements include the
results of operation and cash flows for the seven-month period ended December
31, 2002, the transitional period. The following unaudited financial information
for the seven-month period ended December 31, 2001 is presented for comparative
purposes only:


<Table>
<Caption>
                                                                          SEVEN-MONTH PERIOD ENDED
                                                                       ------------------------------
                                                                       DECEMBER 31,      DECEMBER 31,
                                                                           2002              2001
                                                                       ------------      ------------
                                                                                          (UNAUDITED)
<S>                                                                    <C>               <C>
Revenues:
     Refractive:
          Owned centers ..........................................     $     29,834      $     26,669
          Managed centers ........................................           24,959            34,636
          Access fees ............................................           21,495                --
     Other healthcare services ...................................           23,866             8,995
                                                                       ------------      ------------
Total revenues ...................................................          100,154            70,300
                                                                       ------------      ------------

Cost of revenues:
       Refractive:
            Owned centers ........................................           27,001            22,213
            Management, facility and access fees .................           22,223            25,396
            Access fees ..........................................           15,356                --
            Impairment of fixed assets ...........................               --             1,066
       Other healthcare services .................................           16,245             4,776
                                                                       ------------      ------------
Total cost of revenues ...........................................           80,825            53,451
                                                                       ------------      ------------
      Gross margin ...............................................           19,329            16,849
                                                                       ------------      ------------
General and administrative .......................................           24,567            22,791
Marketing ........................................................            8,321             9,215
Amortization of other intangibles ................................            4,074             5,950
Impairment of goodwill and other intangible assets ...............           22,138                --
Research and development .........................................            2,000                --
Write-down in the fair value of investments and long-term
   receivables ...................................................            2,095            21,079
</Table>



                                       62
<PAGE>

<Table>
<S>                                                                    <C>               <C>
Restructuring and other charges ..................................            4,227             1,759
                                                                       ------------      ------------
                                                                             67,422            60,794
                                                                       ------------      ------------
Operating loss ...................................................          (48,093)          (43,945)
Other income and (expense):
  Other income, net ..............................................            6,996                --
  Interest expense ...............................................             (243)             (252)
  Minority interest ..............................................           (1,152)             (586)
                                                                       ------------      ------------
Loss before income taxes .........................................          (42,492)          (44,783)
Income tax expense ...............................................             (851)             (504)
                                                                       ------------      ------------
Net loss .........................................................     $    (43,343)     $    (45,287)
                                                                       ============      ============

Net loss per share - basic and diluted ...........................     $      (0.68)     $      (1.19)
                                                                       ============      ============
Weighted-average number of common shares outstanding - basic
  and diluted (in thousands)- ....................................           63,407            38,064
                                                                       ============      ============
</Table>

4. ACQUISITIONS

On August 1, 2002, the Company acquired for $7.6 million in cash a 55% ownership
interest in an ambulatory surgery center (ASC) in Mississippi which specializes
in cataract surgery. The Company also has a contingent obligation to purchase an
additional 5% ownership interest per year for $0.7 million in cash during each
of the next four years. Net assets acquired were $7.6 million, which included
$7.4 million of goodwill and $0.2 million of other intangible assets. The
results of operations have been included in the consolidated statements of
operations of the Company since the acquisition date.

Laser Vision Centers, Inc.

On August 27, 2001, the Company announced that it had entered into an Agreement
and Plan of Merger ("Merger Agreement") with LaserVision. On May 15, 2002,
stockholder and regulatory approvals had been obtained, and the Company
completed the acquisition of 100% of the outstanding common shares of
LaserVision. The merger was effected as an all-stock combination at a fixed
exchange rate of 0.95 of a common share of the Company for each issued and
outstanding share of LaserVision common stock, which resulted in the issuance of
26.6 million common shares of the Company's common stock. The stock
consideration was valued using the average trading price of a TLC Vision share
for the two days prior and subsequent to the announcement date. In addition, the
Company assumed all the options and warrants to acquire stock of LaserVision
outstanding at May 15, 2002 and exchanged them for approximately 8.0 million
options to purchase common shares of the Company.

The results of operations of LaserVision have been included in the consolidated
statement of operations of the Company after May 15, 2002. The total purchase
price of the acquisition was $130.6 million consisting of $108.6 million of TLC
Vision shares issued to LaserVision shareholders; $9.8 million of costs incurred
related to the merger; $1.2 million in LaserVision shares (575,000 shares)
already owned by TLC Vision; and $11.0 million representing the fair value of
TLC Vision options to purchase common shares in exchange for all the outstanding
LaserVision options and warrants as of the effective date of the acquisition.
The purchase price allocation resulted in $87.2 million of acquired goodwill, of
which $65.8 million was assigned to the refractive segment and $21.4 million was
assigned to the cataract surgery segment. The entire $87.2 million of goodwill
is not deductible for tax purposes.

In July 2001, two excimer laser manufacturers reported settling class action
antitrust cases. In August 2002, LaserVision received approximately $8.0
million in cash from the settlement. The Company included the LaserVision
settlement, net of $0.2 million paid to the minority interests in the former
LaserVision subsidiaries, in the purchase price allocation as an other asset.



                                       63
<PAGE>

The Company finalized the allocation of the purchase price on December 31, 2002
as follows:

<Table>
<S>                                                                                         <C>          <C>
         Current assets (includes cash of $7,319).......................................                 $    33,061
         Fixed assets ..................................................................                      30,697
         Other non-current assets.......................................................                         462
         Intangible assets subject to amortization
                  Deferred contract rights (6.2-year weighted average useful life)......         13,658
                  Trade name and service marks (20-year weighted average useful life)...            400       14,058
                                                                                               --------
         Goodwill
                  Refractive............................................................         65,770
                  Other.................................................................         21,440       87,210
                                                                                               --------  -----------
         Total assets acquired..........................................................                     165,488
         Current liabilities............................................................                      29,311
         Long-term debt.................................................................                       2,916
         Capitalized lease obligation...................................................                       1,603
         Minority interest..............................................................                       1,008
                                                                                                         -----------
         Total liabilities assumed......................................................                      34,838
                                                                                                         -----------
         Net assets acquired............................................................                 $   130,650
                                                                                                         ===========
</Table>

If the merger agreement with LaserVision had been completed on June 1, 2000, the
unaudited pro forma effects on the consolidated statements of operations for the
years ended May 31, 2002 and 2001, would have been to increase revenues by $99.7
million and $122.7 million, respectively, and to increase the net loss for the
year, before and after the cumulative effect of an accounting change, by $27.9
million and decrease the net loss of $3.8 million, respectively. As a result,
the impact of the above changes to net loss, combined with the dilutive effect
by the increased number of shares, the loss per share for the years ended May
31, 2002 and 2001, would have been reduced by $1.02 and $0.45 per share,
respectively.

The above unaudited pro forma information is presented for information purposes
only and may not be indicative of the results of operations as they would have
been if the merger had occurred on June 1, 2000, nor is it necessarily
indicative of the results of operations which may occur in the future.
Anticipated efficiencies from the combination have been excluded from the
amounts included in the pro forma information.

On August 21, 2000, the Company purchased 100% of the membership interests in
Eye Care Management Associates, LLC ("Eye Care Mgmt. Assoc., LLC") in exchange
for $4.0 million in cash, 295,165 common shares of the Company with a value of
$1.9 million and amounts contingent upon future events. Contingent amounts are
determined based on fees received by the Company pursuant to the Membership
Purchase Agreement. Contingent amounts have been deemed to be compensation of
the physicians associated with Eye Care Mgmt. Assoc., LLC. In fiscal 2001 and
2002, no expense for contingent amounts has been reflected as the applicable
predetermined targets had not been achieved.

During fiscal 2001, an additional 536,764 common shares of the Company, valued
at $4.2 million, were issued to the sellers of The Vision Source, Inc. to
reflect the final payment of contingent consideration which was determined to be
payable during fiscal 2000 and which had been accrued for at May 31, 2000.

On March 2, 2001, the Company acquired certain assets and liabilities of a
Maryland Professional Corporation ("Maryland PC") for $10.0 million in cash and
notes payable of a further $10.0 million to be paid in four equal installments
of $2.5 million on the first four anniversary dates of the transaction. These
notes payable do not carry an interest rate and as such have been



                                       64
<PAGE>

discounted at a rate of 9% with the resulting $8.1 million being reported as
long-term debt for financial reporting purposes. The first installment was paid
in 2002.

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

<Table>
<Caption>
                                                                 EYE CARE
                                                  MARYLAND        MGMT.
                                                     PC         ASSOC., LLC      OTHER            TOTAL
                                                 ----------     -----------    ----------      ----------
<S>                                              <C>            <C>            <C>             <C>

Current assets .............................     $       50     $       --     $      501      $      551
Fixed assets ...............................            150             --             --             150
Goodwill ...................................             --             --             77              77
Practice management agreements .............         18,149          5,964          1,440          25,553
Minority interest ..........................             --             --         (1,314)         (1,314)
                                                 ----------     ----------     ----------      ----------
                                                 $   18,349     $    5,964     $      704      $   25,017
                                                 ==========     ==========     ==========      ==========
Funded by:
Issuance of common shares ..................     $       --     $    1,860     $       --      $    1,860
Contribution of cash .......................         10,000          4,000            587          14,587
Notes payable ..............................          8,099             --             --           8,099
Acquisition costs ..........................            250            104            117             471
                                                 ----------     ----------     ----------      ----------
                                                 $   18,349     $    5,964     $      704      $   25,017
                                                 ==========     ==========     ==========      ==========
</Table>

On June 30, 1999, the Company made a capital contribution of $1.0 million
representing a 50.1% interest in TLC USA LLC, the operating company, for
activities of a strategic alliance with a subsidiary of Kaiser Permanente with
the intention to initially own and operate three eye care centers in California
and to eventually develop additional centers in markets in the United States
where Kaiser Permanente has a significant presence.

On July 8, 1999, the Company acquired 50.1% of the operating assets and
liabilities of Laser Eye Care of California, LLC with an investment of $11.2
million in cash and certain operating assets and liabilities of the Company's
two California eye care centers. Additional amounts were payable contingent upon
achieving certain levels of profit. At December 31, 1999, at the completion of
the earn-out period, the required levels of profit were met, and an additional
payment of $6.0 million was made to complete the transaction.

On August 18, 1999, the Company acquired the laser vision correction assets of
Laser Vision Consultants of Albany, P.L.L.C. in exchange for $1.0 million cash
and 30,000 common shares with a value of $0.7 million.

On December 17, 1999, eyeVantage.com, Inc., acquired the operating assets and
liabilities of Eye Care Consultants, Inc. in exchange for $0.7 million in cash,
the assumption of $0.3 million of liabilities and a commitment to issue shares
with a value of $3.0 million in eyeVantage.com, Inc. in the course of a public
offering of eyeVantage.com, Inc. shares. The value of $3.0 million of shares was
converted to non-interest-bearing payable as a result of the public offering not
being completed within the guidelines set by the acquisition agreement.

On December 31, 1999, the earn-out period relating to the 1997 acquisition of
100% of The Vision Source, Inc. was completed, and 210,902 shares of the Company
with a value of $1.4 million as determined by the acquisition agreement were
released from escrow to the sellers of The Vision Source, Inc.

On January 11, 2000, eyeVantage.com, Inc., an 83% subsidiary of the Company,
acquired the operating assets and liabilities of Optical Options, Inc. in
exchange for shares with a value of $6.0 million in eyeVantage.com, Inc. in the
course of a public offering of eyeVantage.com, Inc. shares. Since the public
offering was not completed within the guidelines set by the acquisition
agreement, the Company was required to issue two notes payable to the sellers
for $3.0 million each. During 2001, these amounts were renegotiated.

On February 15, 2000, the Company acquired the membership interests of New
Jersey Practice Management LLC for $2.8 million in cash and amounts contingent
upon future events. $0.6 million was being held in escrow for a period of one
year subject to an adjustment of the purchase price determined by completion of
the earn-out period and calculation of a contingent amount. In fiscal 2002,
approximately $0.3 million in cash was paid in settlement of this obligation,
relinquishing the Company from any further commitments. On March 31, 2000, the
Company acquired certain assets of a physician's practice located in the state
of New York ("New York Practice") in exchange for $11.9 million in cash and
common shares with a



                                       65
<PAGE>

value of up to $3.0 million contingent upon future events. Contingent amounts
are determined based on fees received by the Company pursuant to an
Administrative Services Agreement. In fiscal 2001, contingent amounts of $0.3
million have been reported as operating expenses, based on pre-determined
targets being achieved pursuant to the Administrative Services Agreement, and
are payable at a future date.

On May 8, 2000, the Company acquired an 80% membership interest in Laser Eye
Care of Torrance, LLC in exchange for $3.2 million in cash through Laser Eye
Care of California, LLC, a 50.1% subsidiary of the Company.

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

<Table>
<Caption>
                                                  LASER EYE
                                                   CARE OF         NEW YORK
                                                 CALIFORNIA        PRACTICE          OTHER            TOTAL
                                                 -----------      -----------     -----------      -----------
<S>                                             <C>              <C>             <C>              <C>
Current assets (including cash of $1,137) ..     $       153      $        --     $     1,102      $     1,255
Fixed assets ...............................             284               --             564              848
Assets under lease .........................           1,807               --              --            1,807
Goodwill ...................................              --               --          15,588           15,588
Practice management agreements .............          16,852           12,006           7,802           36,660
Current liabilities ........................            (146)              --            (913)          (1,059)
Long-term debt .............................              --               --            (280)            (280)
Obligations under capital leases ...........          (1,607)              --              --           (1,607)
Non-controlling interest ...................            (868)              --          (1,078)          (1,946)
                                                 -----------      -----------     -----------      -----------
                                                 $    16,475      $    12,006     $    22,785      $    51,266
                                                 ===========      ===========     ===========      ===========
Funded by:
Issuance of common shares ..................     $        --      $        --     $     2,125      $     2,125
Contribution of cash .......................          16,000           11,860           7,445           35,305
Notes payable ..............................              --               --           9,000            9,000
Common shares to be issued .................              --               --           4,056            4,056
Acquisition costs ..........................             475              146             159              780
                                                 -----------      -----------     -----------      -----------
                                                 $    16,475      $    12,006     $    22,785      $    51,266
                                                 ===========      ===========     ===========      ===========
</Table>

5. RESTRICTED CASH

The Company has a banking facility of approximately $3.9 million available for
posting letters of guarantee, under terms whereby the Company must maintain a
similar minimum amount in its bank account as a collateral deposit. As of
December 31, 2002, $3.4 million of this facility has been utilized. The Company
has $4.0 million, $5.0 million and $1.6 million of restricted cash as of
December 31, 2002, May 31, 2002 and May 31, 2001, respectively.

6. ACCOUNTS RECEIVABLE

Accounts receivable, net of allowances, consist of the following:

<Table>
<Caption>
                                                                 DECEMBER 31,        MAY 31,          MAY 31,
                                                                     2002             2002             2001
                                                                 ------------     ------------     ------------
<S>                                                              <C>              <C>              <C>
Refractive
     Due from physician-owned companies and  physicians ....     $      8,186     $     11,535     $      5,225
     Due from patients and third parties ...................              952              197              557
Non-refractive .............................................            4,884            5,540            2,230
Other ......................................................              133              719            1,938
                                                                 ------------     ------------     ------------
                                                                 $     14,155     $     17,991     $      9,950
                                                                 ============     ============     ============
</Table>

Non-refractive accounts receivable primarily represent amounts due from a
professional corporation for secondary care management services, amounts due
from healthcare facilities for professional healthcare facility management fees
and outstanding fees for network marketing and management services.



                                       66
<PAGE>
Other accounts receivable include interest receivable, technical fees
receivable, and other receivables not directly applicable to the provision of
laser vision correction services at TLC Vision owned or managed centers.

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 regular review of credit limits. As of December 31, 2002, the
Company had recorded an allowance for doubtful accounts of $2.4 million (May 31,
2002 - $2.5 million, May 31, 2001 - $1.1 million). 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.

7. INVESTMENTS AND OTHER ASSETS

Investments and other assets consist of the following:

<Table>
<Caption>
                                              DECEMBER 31,       MAY 31,          MAY 31,
                                                  2002             2002             2001
                                              ------------     ------------     ------------
<S>                                           <C>              <C>              <C>
Equity method investments ...............     $        730     $        560     $        334
Marketable equity securities ............              555              608           13,965
Non-marketable equity securities ........              534            2,629            3,500
Long-term receivables and other .........              623              708            5,372
                                              ------------     ------------     ------------
                                              $      2,442     $      4,505     $     23,171
                                              ============     ============     ============
</Table>

At May 31, 2001, the carrying value of the Company's marketable equity
securities was reduced by $9.5 million reflecting the reduced fair value of
these investments. The unrealized loss on these investments was included in
accumulated other comprehensive income (loss). During fiscal 2002, the fair
value of these investments declined an additional $12.4 million. The Company
determined that the decline in fair value was other than temporary and as a
result recorded a charge to income of $21.9 million. Included in the $21.9
million write-down of marketable equity securities was $1.8 million related to
the Company's investment in LaserVision's common shares prior to the merger. The
carrying value of these shares of $1.2 million on May 15, 2002 was included as a
component of the cost of the acquisition.

During fiscal 2002, the Company determined that the decline in its
non-marketable equity securities was other than temporary and recorded a charge
of $0.9 million to reduce the investments to fair value. The Company estimates
fair value of non-marketable equity securities using available market and
financial information including recent stock transactions. During the
transitional period 2002, these investments were written down an additional $2.1
million due to additional other than temporary declines in fair value.

Long-term receivables and other include notes from and advances to service
providers and other companies and deposits. During fiscal 2002, the Company
recorded a $2.0 million reserve against a $2.3 million long-term receivable from
a secondary care service provider of which the Company owns approximately 25% of
the outstanding common shares. The Company determined that the ability of this
secondary care service provider to repay this note was in doubt due to the
deteriorating financial condition of the investee. The remaining balance of $0.3
million reflects the approximate amount due over the next 12 months. The Company
does not provide management services to this entity.

During fiscal 2002, the Company recorded a reserve of $0.3 million for amounts
due from investees and unrelated doctors groups. These receivables are past due.
These amounts bear interest at rates ranging from prime to 8.75%.

During fiscal 2000, the Company advanced $1.0 million to a refractive care
service provider, in which one of the Company's minority interest partners is a
significant shareholder, in exchange for a convertible subordinated term note
bearing interest at the current LIBOR rate and maturing on July 1, 2002. The
note is convertible into 37,500 membership units, which represents approximately
38% of the company. The Company does not provide management services to this
entity. The Company determined that the ability of this refractive service
provider to repay the note was in doubt and therefore recorded a provision
during fiscal 2002 for the full amount of the note of $1.0 million. During the
transitional period, the Company initiated litigation in an effort to receive
payment.

The Company entered into an agreement with Vascular Sciences Corporation
("Vascular Sciences") for the purpose of pursuing commercial applications of
technologies owned or licensed by Vascular Sciences applicable to the
evaluation, diagnosis, monitoring and treatment of age-related macular
degeneration. According to the terms of the agreement, the Company purchased
$3.0 million in preferred stock and has the obligation to purchase an additional
$7.0 million in preferred stock in Vascular Sciences if Vascular Sciences
attains certain milestones in the development and commercialization of the
product. If Vascular Science fails to achieve a milestone, TLC Vision shall have
no further obligations to purchase additional



                                       67
<PAGE>
shares. The consideration for the purchase of the $3.0 million in preferred
shares included the conversion of a $1 million promissory note owed to TLC
Vision by Vascular Sciences which was issued in April 2002. Since the technology
is in the development stage and has not received Food and Drug Administration
(FDA) approval, the Company will account for this investment as a research and
development arrangement whereby cost will be expensed as amounts are expended by
Vascular Sciences. If commercialization of the product occurrs or FDA
approval is obtained, the Company will reevaluate the accounting treatment of
the investment. The first $1.0 million of the investment was expensed during the
fiscal year ended May 31, 2002, and the remaining $2.0 million of the investment
has been expensed as research and development expense during the transitional
period ended December 31, 2002.

In fiscal 2002, the Company advanced $1.0 million to Tracey Technologies, LLC to
support the development of laser scanning technology. This advance will be used
to further develop this technology and accordingly was accounted for as research
and development costs and was expensed in fiscal 2002.

8. GOODWILL

Effective June 1, 2001, the Company early adopted SFAS No. 142, "Goodwill and
Intangible Assets." Under SFAS No. 142, goodwill and intangible assets
of indefinite life are no longer amortized but are subject to an annual
impairment review (or more frequently if deemed appropriate). On adoption, the
Company determined that it has no intangible assets of indefinite life.

The Company's net goodwill amount by reported segment is as follows:

<Table>
<Caption>
                                                                 REFRACTIVE       CATARACT         OTHER           TOTAL
                                                                 ----------      ----------      ----------      ----------
<S>                                                             <C>             <C>             <C>             <C>

     Goodwill, June 1, 2000 ................................     $   25,945      $       --      $   19,366      $   45,311
     Goodwill acquired during the period ...................             97                              20             117
     Amortization expense ..................................         (2,351)                         (1,433)         (3,784)
     Aggregate amount of impairment losses recognized ......             --              --          (8,892)         (8,892)
                                                                 ----------      ----------      ----------      ----------
     Goodwill, May 31, 2001 ................................         23,691              --           9,061          32,752
     Goodwill acquired during the period ...................         65,184          10,328          11,112          86,624
     Other .................................................             --              --            (330)           (330)
     Aggregate amount of impairment losses recognized ......        (53,333)             --         (12,521)        (65,854)
                                                                 ----------      ----------      ----------      ----------
     Goodwill, May 31, 2002 ................................         35,542          10,328           7,322          53,192
     Goodwill acquired during the period ...................            586           8,763             294           9,643
     Aggregate amount of impairment losses recognized ......        (22,138)             --              --         (22,138)
                                                                 ----------      ----------      ----------      ----------
     Goodwill, December 31, 2002 ...........................     $   13,990      $   19,091      $    7,616      $   40,697
                                                                 ==========      ==========      ==========      ==========
</Table>

The Company tests goodwill for impairment in the fourth quarter after the annual
forecasting process. Based on the trend of lower procedure volumes and
increasing pricing pressures in the refractive segment, the earning forecast for
the next five years was revised. The fair value of each reporting unit was
estimated using the present value of expected future cash flows. A goodwill
impairment charge of $22.1 million was recognized in the refractive segment
during transitional period 2002. The charge includes $21.8 million related to
the goodwill attributable to the reporting unit acquired in the LaserVison
acquisition.

The Company completed a transitional impairment test to identify if goodwill
was impaired as of June 1, 2001. The Company utilized the assistance of an
independent outside appraiser to determine the fair value of the Company's
reporting units. The independent appraiser used a fair value methodology based
on budget information to generate representative values of the future cash flows
attributable to each reporting unit. The Company determined that goodwill was
impaired at June 1, 2001 and recorded an impairment charge of $15.2 million,
which was recorded as a cumulative effect of a change in accounting principle.

The Company performed its annual impairment test in the fourth quarter of fiscal
2002 and determined that there was a further impairment of goodwill during 2002
of $50.7 million, which was recorded as a charge to income during the year. This



                                       68
<PAGE>

charge was comprised of $45.9 million which relates to the goodwill attributable
to reporting units acquired in the LaserVision acquisition and $4.8 million
relating to goodwill attributable to reporting units acquired in prior years.

A reconciliation of net income as if SFAS No. 142 has been adopted at the
beginning of the fiscal year is presented below for the year ended May 31, 2001.

<Table>
<S>                                          <C>
Reported net loss ......................     $    (37,773)
Add back goodwill amortization .........            3,784
                                             ------------
Adjusted net loss ......................     $    (33,989)
                                             ============
Basic and diluted  loss per share:
Reported net loss ......................     $      (1.00)
Add back goodwill amortization .........             0.10
                                             ------------
Adjusted net loss ......................     $      (0.90)
                                             ============
</Table>

9. OTHER INTANGIBLE ASSETS

The Company's other intangible assets consist of practice management agreements
(PMAs), deferred contract rights and other intangibles. The Company has no
indefinite lived intangible assets. Amortization expense was $3.8 million, $10.3
million, $8.8 million, and $7.4 million in the seven-month period ended December
31, 2002, year ended May 31, 2002, year ended May 31, 2001, and year ended May
31, 2000, respectively.

The weighted average amortization period for PMAs is 9.6 years, deferred
contract rights are 7.7 years, and other intangibles are 15.45 years as of
December 31, 2002.

Amortized intangible assets as of December 31, 2002 consist of:

<Table>
<Caption>
                                           Gross Carrying    Accumulated
                                                Cost         Amortization
                                           --------------    ------------
<S>                                        <C>              <C>
Practice management agreements               $    43,407     $    27,151
Deferred contract rights                          13,983           1,487
Other                                                600              26
                                             -----------     -----------
Total                                        $    57,990     $    28,664
                                             ===========     ===========
</Table>

The approximate estimated aggregate amortization expense for the next five years
as of December 31, 2002 is as follows:

<Table>
<S>                                                <C>
2003........................................       $6,500
2004........................................        5,300
2005........................................        3,500
2006........................................        2,800
2007........................................        2,800
Thereafter in total.........................        8,400
</Table>

Intangible assets arising from PMAs were reviewed for impairment in fiscal 2002,
using an undiscounted cash flow methodology based on budgets prepared for future
periods. The refractive industry had experienced reduced procedure volumes over
the last two years as a result of increased competition, customer confusion and
a weakening in the North American economy. This reduction in procedures has
occurred at practices the Company had purchased, and as a result revenues were
lower than anticipated when initial purchase prices and resulting intangible
values were determined. The result of an initial review indicated that on an
undiscounted basis, all of the refractive PMAs were impaired, and a further fair
value analysis based on the present value of future cash flows was completed to
determine the extent of the impairment. This further



                                       69
<PAGE>

review resulted in an impairment charge of $31.0 million, which was reported in
operating loss for the year ended May 31, 2002.

10. FIXED ASSETS

Fixed assets, including capital leased assets, consist of the following:

<Table>
<Caption>
                                           DECEMBER 31, 2002  MAY 31, 2002     MAY 31, 2001
                                           -----------------  ------------     ------------
<S>                                        <C>                <C>              <C>
Land and buildings .....................   $           9,589     $   9,459     $     10,809
Computer equipment and software ........              14,112        14,109           13,492
Furniture, fixtures and equipment ......               9,321        10,902            8,379
Laser equipment ........................              40,132        41,398           26,310
Leasehold improvements .................              20,873        23,252           25,637
Medical equipment ......................              22,746        22,742           17,563
Vehicles and other .....................               6,565         5,980              828
                                           -----------------  ------------     ------------
                                                     123,338       127,842          103,018
Less accumulated depreciation ..........              65,335        59,709           50,673
                                           -----------------  ------------     ------------
Net book value .........................   $          58,003  $     68,133     $     52,345
                                           =================  ============     ============
</Table>

Certain fixed assets are pledged as collateral for certain long-term debt and
capital lease obligations.

In the transitional period 2002, the Company recorded a reduction in the
carrying value of fixed assets of $1.0 million, within the refractive segment,
reflecting the disposal of certain of the Company's lasers. The amount is
included in other income and expense. These lasers were not needed after the
LaserVision acquisition, and the Company disposed of them below their carrying
cost.

During fiscal 2002, the Company determined that events and circumstances
indicated that the carrying value of certain of the Company's lasers may not be
recoverable. As a result, the Company evaluated the assets and concluded they
were impaired. In accordance with SFAS No. 121 "Accounting for Impairment of
Long-Lived Assets and Assets to be Disposed Of," the Company recorded an
impairment charge of $2.6 million within the refractive segment, to write the
assets down to their fair value.

In fiscal 2002, the Company completed a sale-leaseback transaction for its
Canadian corporate headquarters. Total consideration received for the sale was
$6.4 million, which was comprised of $5.4 million cash and a $1.0 million 8.0%
note receivable ("Note"). The Note has a seven-year term with the first of four
annual payments of $63,000 starting on the third anniversary of the sale and a
final payment of $0.7 million due on the seventh anniversary of the sale. The
lease term related to the leaseback covers a period of 15 years. For accounting
purposes, due to ongoing responsibility for tenant management and
administration, as well as receiving the Note as part of the consideration for
the sale, no sale was recognized. For purpose of financial reporting, the cash
proceeds of $5.4 million have been presented as additional debt. The four annual
payments and the final payment, upon receipt, will result in additional debt,
while lease payments will result in decreasing the debt and recognizing interest
expense. Until the Company meets the accounting qualifications for recognizing
the sale, the building associated with the sale-leaseback will continue to be
depreciated over its initial term of 40 years.

The Company is currently reviewing its space requirements with regard to this
facility. No restructuring charge has been made relating to this facility, as no
decision has been made with regard to the use or disposal of this facility. The
Company continues to use this facility for certain functions. Any costs
associated with exiting or renegotiating the lease on this facility, which could
be material, will be reflected in income in future periods.



                                       70
<PAGE>

11. LONG-TERM DEBT

Long-term debt consists of:

<Table>
<Caption>
                                                                            DECEMBER 31,        MAY 31,         MAY 31,
                                                                                2002             2002             2001
                                                                            ------------     ------------     ------------
<S>                                                                         <C>              <C>              <C>
Term loans
  Interest at 8%, due September 2001, payable to affiliated
    Physicians ........................................................     $         --     $         --     $         32
  Interest at 3.11%, due through June 2004, payable to vendor .........            4,587            6,061
  Interest imputed at 9.00%, due in three payments from March 2003
    through 2005, payable to affiliated doctor relating to
    practice acquisition ..............................................            6,328            5,806            8,099
  Interest imputed at 6.25%, due through October 2016,
    collateralized by building and payable in Canadian dollars
    of $8.6 million ...................................................            5,201            5,447               --
  Interest ranging from prime to 12%, due through March 2007,
    collateralized by equipment .......................................            2,441            1,119            2,727
  Other ...............................................................               --               62               --
  Capital lease obligations, payable through 2006, interest ranging
    from 4.8% to 14% ..................................................            3,525            5,581            4,224
                                                                            ------------     ------------     ------------

                                                                                  22,082           24,076           15,082
  Less current portion ................................................            6,322            9,433            6,769
                                                                            ------------     ------------     ------------
                                                                            $     15,760     $     14,643     $      8,313
                                                                            ============     ============     ============
</Table>

Aggregate debt repayments of principal for each of the next five years and
thereafter as of December 31, 2002 are as follows:

<Table>
<Caption>
                                     Long-term
                                       debt
                                   ------------
<S>                                <C>
2003 .........................     $      4,509
2004 .........................            4,705
2005 .........................            4,327
2006 .........................              393
2007 .........................              296
Thereafter ...................            4,327
                                   ------------
Total ........................     $     18,557
                                   ============
</Table>

Aggregate repayments for capital lease obligations for each of the next five
years and thereafter are as follows:

<Table>
<S>                       <C>
2003                     $1,892
2004                      1,169
2005                        660
2006                         48
2007                         --
Thereafter                   --
                         ------
Total                     3,769
Less interest portion       244
                         ------
                         $3,525
                         ======
</Table>


12. OTHER INCOME AND EXPENSE

Other income and expense for the seven months ended December 31, 2002 consists
of $6.8 million of income from the settlement of an antitrust lawsuit. In
August 2002, LaserVision received $8.0 million in cash from the settlement, and
TLC Vision received $7.1 million in cash from the settlement. The cash received
for the LaserVision portion reduced the receivable recorded in the purchase
price allocation. The cash received for the TLC Vision portion was recorded as a
gain of $6.8 million (net of $0.3 million for its obligations to be paid to the
minority interests).

During the transitional period, the Company recorded $0.9 million of income from
the termination of the Surgicare Inc. ("Surgicare") agreement to purchase Aspen
Healthcare ("Aspen") from the Company. On May 16, 2002, the Company agreed to
sell the capital stock of its Aspen subsidiary to SurgiCare for a purchase price
of $5.0 million in cash and warrants for 103,957 shares of common stock of
SurgiCare with an exercise price of $2.24 per share. On June 14, 2002, the
purchase agreement for the transaction was amended due to the failure of
Surgicare to meet its obligations under the agreement. The amendment established
a new closing date of September 14, 2002 and required SurgiCare to issue 38,000
shares of SurgiCare common stock and to pay $760,000 to the Company, prior to
closing, all of which was non-refundable. SurgiCare failed to perform under the
purchase agreement, and as a result, the purchase agreement was terminated and
the Company recorded the gain in other income and expense for the period.

During the transitional period 2002, the Company disposed of six excess lasers,
resulting in a loss of $1.0 million, which amount is included in other income
and expense (See Note 10).




                                       71
<PAGE>
13. STOCKHOLDERS' EQUITY AND OPTIONS

Option and Warrants

In January 2000, the Company issued 100,000 warrants with an exercise price of
$13.063 per share to an employee benefits company as consideration. These
warrants are not transferable, vest over periods up to three years and expire
after five years.

Using the Black-Scholes option-pricing model (assumptions - five year life,
volatility of .35, risk free rate of return 6.35%, no dividends), a $0.5 million
fair value was assigned to these warrants, which was amortized over the vesting
periods.

The 8,018,711 options issued in connection with the LaserVision merger had a
fair value of $11.0 million using the Black-Scholes options pricing model
(assumptions - 2 years to 5 year estimated lives, volatility of .74, risk free
rates of returns 3.34% to 3.72%, no dividends, market price of $4.1725 on the
date the merger was announced in August 2001, exercise prices ranging from
$1.713 to $8.688 per share).

During fiscal 2002, the Board of Directors voted to fully vest all outstanding
unexercised options of a consultant who was a former executive officer. As
required by SFAS No. 123, "Accounting for Stock-based Compensation," the $0.2
million fair value of these options was charged to earnings in fiscal 2002, the
year the options vested, and an equivalent amount was credited to option equity.
These options were granted during the period from December 1997 through December
2001 at exercise prices ranging from Cdn$4.04 to Cdn$29.90.

OPTIONS OUTSTANDING

As of December 31, 2002, the Company has issued stock options to employees,
directors and certain other individuals. Options granted have terms ranging from
five to ten years. Vesting provisions on options granted to date include options
that vest 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 of the grant date.

As of December 31, 2002, the issued and outstanding options denominated in
Canadian dollars were at the following prices and terms:

<Table>
<Caption>
                                   OUTSTANDING                                      EXERCISABLE
-----------------------------------------------------------------------     -----------------------------
                                             WEIGHTED        WEIGHTED                          WEIGHTED
                                             AVERAGE         AVERAGE                            AVERAGE
   PRICE RANGE             NUMBER OF       CONTRACTUAL       EXERCISE        NUMBER OF         EXERCISE
     (CDN $)                OPTIONS           LIFE            PRICE           OPTIONS            PRICE
--------------------     ------------     ------------     ------------     ------------     ------------
<S>                      <C>             <C>               <C>              <C>              <C>
$1.43 - $3.87 ......          184,000        3.5 years     $       1.43              250     $         --
$4.04 - $5.54 ......          523,376        3.0 years             4.05          299,226             4.09
$7.25 - $10.50 .....           52,812        3.3 years             8.61           16,406             8.43
$10.87 - $19.73 ....          310,592        0.8 years            12.53          295,172            13.70
$20.75 - $30.66 ....           13,261        1.5 years            26.18           11,623            28.91
$49.30 - $64.79 ....              669        2.0 years            47.06              669            56.11
                         ------------                                       ------------
                            1,084,710        2.4 years            10.76          623,346             9.28
                         ============                                       ============
</Table>

As of December 31, 2002, the issued and outstanding options denominated in U.S.
dollars were at the following prices and terms:

<Table>
<Caption>
                            OUTSTANDING                                              EXERCISABLE
-----------------------------------------------------------------------     -----------------------------
                                            WEIGHTED         WEIGHTED                          WEIGHTED
                                             AVERAGE         AVERAGE                           AVERAGE
   PRICE RANGE             NUMBER OF       CONTRACTUAL       EXERCISE        NUMBER OF         EXERCISE
     (U.S.$)                OPTIONS           LIFE            PRICE           OPTIONS           PRICE
--------------------     ------------     ------------     ------------     ------------     ------------
<S>                      <C>             <C>               <C>              <C>              <C>
$0.90 - $2.81 ......        1,949,747        5.2 years     $       2.26        1,585,943     $       2.19
$3.02 - $3.86 ......        1,009,864        7.4 years             3.23        1,006,489             3.23
$4.25 - $4.88 ......        1,739,284        2.5 years             4.65        1,596,990             4.63
$5.00 - $7.81 ......          692,899        1.8 years             5.70          549,144             5.55
$8.50 - $8.69 ......        2,181,121        1.6 years             8.68        2,145,568             8.68
$10.06 - $19.50 ....           22,761        1.5 years            18.02           18,635            18.40
                         ------------                                       ------------
                            7,595,676        3.5 years             5.14        6,902,769             5.24
                         ============                                       ============
</Table>

A total of 1,159,000 options have been authorized for issuance in the future but
were not issued and outstanding as of December 31, 2002. A summary of option
activity during the last three fiscal years and the transitional period follows:

                                       72
<PAGE>


<Table>
<Caption>
                                                                 WEIGHTED         WEIGHTED
                                                                 AVERAGE          AVERAGE
                                                OPTIONS       EXERCISE PRICE   EXERCISE PRICE
                                                (000'S)         PER SHARE        PER SHARE
                                             ------------     --------------   --------------
<S>                                         <C>              <C>              <C>
May 31, 1999 ...........................            2,692      Cdn$   11.12     US$     7.54
   Granted .............................              453             30.14            20.62
   Exercised ...........................              (88)            10.71             7.26
                                             ------------      ------------     ------------
May 31, 2000 ...........................            3,057      Cdn$   13.95     US$     9.49
   Granted .............................            1,338              5.63             3.74
   Exercised ...........................              (40)             4.73             3.24
   Forfeited ...........................           (1,502)             9.48             6.51
                                             ------------      ------------     ------------
May 31, 2001 ...........................            2,853      Cdn$   12.65     US$     8.46
   Granted .............................            1,221              4.45             2.81
   Exercised ...........................              (10)             4.06             2.67
   Forfeited ...........................             (610)            10.52             7.06
   Granted, LaserVision merger .........            7,519              7.79             5.08
                                             ------------      ------------     ------------
May 31, 2002 ...........................           10,973      Cdn$    8.50     US$     5.59
   Granted .............................               11              2.17             1.42
   Exercised ...........................               (5)             2.47             1.61
   Surrendered .........................             (618)            27.05            17.68
   Reissued ............................              610             13.69             8.69
   Forfeited ...........................             (824)             9.66             6.95
   Expired .............................           (1,467)             6.12             4.00
                                             ------------      ------------     ------------
December 31, 2002 ......................            8,680      Cdn$    7.80     US$     5.10
                                             ============      ============     ============
Exercisable at December 31, 2002 .......            7,526      Cdn$    8.12     US$     5.30
                                             ============      ============     ============
</Table>

Immediately prior to the effective time of the merger, LaserVision reduced the
exercise price of approximately 2.1 million outstanding stock options and
warrants of Laser Vision with an exercise price greater than $8.688 per share to
$8.688 per share. This reduction was part of the merger agreement approved by
LaserVision stockholders in April 2002. The vesting and expiration dates did not
change. Post-merger, these former LaserVision options became approximately 2.0
million options of the Company with an exercise price of $8.688. These options
are part of the 7,519,000 options granted in connection with the LaserVision
merger.

Pursuant to a plan approved by the Company's stockholders in April 2002, most
employees and officers with options at exercise prices greater than $8.688
elected to exchange them for options with an exercise price of $8.69
(Cdn$13.69). A total of 618,000 shares with an average exercise price of $17.68
(Cdn$27.05) were exchanged for 610,000 shares with exercise prices of $8.69
(Cdn$13.69). For every option with an exercise price of at least $40, the holder
surrendered 75% of the shares subject to such option; for every option with an
exercise price of at least $30 but less than $40, the holder surrendered 66.6%
of the shares subject to such option; for every option with an exercise price of
at least $20 but less than $30, the holder surrendered 50% of the shares subject
to such option; and for every option with an exercise price of at least $8.688
but less than $20, the holder did not surrender any of the shares subject to
such option. These repriced options will be subject to variable option
accounting and compensation expense will be necessary whenever
these options are outstanding and the market price of the Company's stock is
$8.69 or higher.

Pro forma information regarding net loss and loss per share is required by SFAS
No. 123 and has been included in Note 2 to the financial statements. The fair
value of the options granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 2.5% for the transitional period 2002,
4.25% for fiscal 2002, 6.5% for fiscal 2001 and 7.5% for fiscal 2000; no
dividends; volatility factors of the expected market price of the Company's
common shares of 0.70 for the transitional period, 0.88 for fiscal 2002, 0.83
for fiscal 2001 and 0.71 for fiscal 2000; and a weighted average expected option
life of 2.5 years for the transitional period, 4.0 years for fiscal 2002, 4.0
years for fiscal 2001, and 3.5 years for fiscal 2000. The estimated value of the
options issued in connection with the LaserVision acquisition were recorded as
part of the cost of the acquisition. The fair market value of the options
granted during the transitional period ended December 31, 2002 was approximately
$12,000 (fiscal 2002 - $1.3 million; fiscal 2001 - $3.1 million; fiscal 2000 -
$5.8 million). The Black-Scholes option-pricing model was developed for use in
estimating fair value of traded options that have no vesting restrictions and
are fully transferable.

Because the Company's employee stock options have characteristics significantly
different from those of traded options (deferred/partial vesting and no trading
during four "black-out" periods each year) 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 No. 123 are not
necessarily a reliable single measure of the fair value of the Company's
employee stock options.



                                       73
<PAGE>

14. INCOME TAXES

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

<Table>
<Caption>
                                                 DECEMBER 31,         MAY 31,           MAY 31,
                                                     2002              2002              2001
                                                 ------------      ------------      ------------
<S>                                              <C>               <C>               <C>
Deferred tax asset:
     Net operating loss carryforwards ......     $     55,293      $     49,408      $     20,947
     Fixed assets ..........................            3,693             3,399             1,362
     Intangibles ...........................           17,418            16,638             2,444
     Investments ...........................           12,343            15,806             5,580
     Other .................................           15,859             4,197             1,607
                                                 ------------      ------------      ------------
Total ......................................          104,606            89,448            32,322
     Valuation allowance ...................          (99,603)          (85,052)          (30,429)
                                                 ------------      ------------      ------------
                                                 $      5,003      $      4,396      $      1,702
                                                 ============      ============      ============
Deferred tax liabilities:
     Practice management agreements ........     $      1,495      $      1,571      $      1,702
     Intangibles ...........................            2,825             2,825                --
     Fixed assets ..........................              683                --                --
                                                 ------------      ------------      ------------
                                                 $      5,003      $      4,396      $      1,702
                                                 ============      ============      ============
</Table>

As of December 31, 2002, the Company has net operating losses available for
carryforward for income tax purposes of approximately $169.2 million, 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 $24.3 million as of December 31, 2002 expire as follows:

<Table>
<Caption>
<S>                                                 <C>
        2003...................................      $   1,481
        2004...................................            821
        2005...................................            315
        2006...................................            580
        2007...................................          9,237
        2008...................................          8,206
        2009...................................          3,657
</Table>

The United States losses of $145.6 million expire between 2011 and 2022. The
Canadian and United States losses include amounts of $3.2 million and $67.8
million, respectively, relating to the acquisitions of 20/20, Beacon Eye and
LaserVision. The availability and timing of utilization of these losses 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 minority interest were as follows:

<Table>
<Caption>
                                                                      SEVEN-MONTH
                                                                      PERIOD ENDED                    YEAR ENDED MAY 31,
                                                                      DECEMBER 31,     --------------------------------------------
                                                                          2002              2002           2001            2000
                                                                      ------------     ------------     ------------   ------------
<S>                                                                   <C>              <C>              <C>            <C>
Income tax recovery based on the Canadian statutory
      income tax 40.3% (2001 - 43.2%; 2000 - 44.6%) ...............   $    (16,731)    $    (46,963)    $    (15,529)  $        241
Current year's losses not utilized ................................          5,824           10,025            8,474          1,950
Expenses not deductible for income tax purposes ...................         10,907           37,733            7,764          1,675
Adjustments of cash vs. accrual tax deductions for
      U.S. income tax purposes ....................................             --             (516)             117            363
Utilization of prior year's losses ................................             --               --             (118)        (1,675)
Corporate minimum tax, large corporations tax and foreign tax .....            851            1,221            1,255            879
Other .............................................................             --              284              276             21
                                                                      ------------     ------------     ------------   ------------
Provision for income taxes ........................................   $        851     $      1,784     $      2,239   $      3,454
                                                                      ============     ============     ============   ============
</Table>



                                       74
<PAGE>
The provision for income taxes is as follows:

<Table>
<Caption>
                                                 DECEMBER 31,     MAY 31,        MAY 31,
                                                    2002           2002           2001
                                                 -----------    ----------     ----------
<S>                                              <C>            <C>            <C>
Current:
         Canada ............................     $       67     $      112     $      111
         United States - federal ...........            325            924            929
         United States - state .............            135            280            645
         Other .............................            324            468            554
                                                 ----------     ----------     ----------
                                                 $      851     $    1,784     $    2,239
                                                 ==========     ==========     ==========
</Table>

15. COMMITMENTS AND CONTINGENCIES

Operating Commitments

As of December 31, 2002 the Company has commitments relating to non-cancellable
operating leases for rental of office space and equipment and long term
marketing contracts, which require future minimum payments aggregating to
approximately $34.7 million. Future minimum payments over the next five years
and thereafter are as follows:

<Table>
<S>                                                 <C>
2003.........................................       $ 9,690
2004.........................................         8,824
2005.........................................         7,731
2006.........................................         3,651
2007.........................................         2,761
Thereafter...................................         2,025
</Table>

As of December 31, 2002 the Company had a commitment with a major laser
manufacturer ending November 30, 2004 for the use of that manufacturer's lasers
which require future minimum lease payments aggregating $5.1 million. Future
minimum lease payments in aggregate and over the remaining two years are as
follows:

<Table>
<S>                                      <C>
2003..............................       $ 2,040
2004..............................         3,060
</Table>

Guarantees

One of the Company's subsidiaries, together with other investors, has jointly
and severally guaranteed the obligations of an equity investee. Total
liabilities of the equity investee under guarantee are approximately $2.1
million at December 31, 2002.

Legal Contingencies

On February 9, 2001, Joseph Dello Russo, M.D., filed a lawsuit against the
Company and certain physicians associated with the Company in the United States
District Court, Eastern District of New York, alleging false description, false
advertising and deceptive trade practices based upon certain advertisements of a
doctor with substantially the same name as the plaintiff. The complaint alleged
compensatory damages to be no less than $30 million plus punitive damages. This
lawsuit was settled on October 31, 2002, and no payment was made by any party to
any of the other parties.

In the fourth quarter fiscal 2001, an arbitration award was issued against TLC
Network Service Inc. for $2.1 million that has been fully accrued for in fiscal
2002. The arbitration award was extended to the Company. The Company has filed
an appeal but no hearing date has been set at this time. Payment of this
liability has been deferred until final resolution of the appeal and all other
legal alternatives have been explored.

In April 2002, Lesa K. Melchor, Richard D. and Lee Ann Dubois and Major Gary D.
Liebowitz filed a lawsuit in the U.S. District Court, Southern District of
Texas, Houston Division against LaserVision. This is a securities claim seeking
damages for losses incurred in trading in LaserVision stock and options in the
period from November 1999 to December 2001. In their Complaint, the plaintiffs
allege that LaserVision's director of investor relations gave them false and
misleading information. This lawsuit was settled on January 14, 2002; and while
admitting no liability, the Company paid $25,000 to the plaintiffs in full
settlement of all claims.

On October 21, 2002 the Company was served with a lawsuit filed by Thomas S.
Tooma, M.D. and TST Acquisitions, LLC in the Superior Court of the State of
California in Orange County, California. Dr. Tooma and certain entities
controlled



                                       75
<PAGE>

by him have entered into a joint business venture with TLC Vision in the State
of California since July 1999. The lawsuit seeks damages and injunctive relief
based on the plaintiffs' allegation that the Company's merger with Laser Vision
Centers, Inc. violated certain exclusivity provisions of its agreements with the
plaintiffs, thereby giving plaintiffs the right to exercise a call option to
purchase TLC Vision's interest in the joint venture. Since the lawsuit has only
recently been served, the Company is still evaluating its position.

In March 2003, the Company and its subsidiary OR Providers, Inc. were served
with subpoenas issued by the U.S. Attorney's Office in Cleveland, Ohio. The
subpoenas appear to relate to business practices of OR Providers prior to its
acquisition by LaserVision in December 2001. OR Providers is a provider of
mobile cataract services in the eastern part of the U.S. The Company is aware
that other entities and individuals have also been served with similar
subpoenas. The subpoenas seek documents related to certain business activities
and practices of OR Providers. The Company will cooperate fully to comply with
the subpoenas. Pursuant to the purchase agreement for the Company's purchase of
OR Providers, the selling shareholders of OR Providers agreed to indemnify the
Company with respect to the liability and accordingly the Company does not
believe this matter will have a material adverse effect on the Company.

The Company is subject to various claims and legal actions in the ordinary
course of its business, which may or may not be covered by insurance. These
matters include, without limitation, professional liability, employee-related
matters and inquiries and investigations by governmental agencies. While the
ultimate results of such matters can not be predicted with certainty, the
Company believes that the resolution of these matters will not have a material
adverse effect on its consolidated financial position or results of operations.

Regulatory Tax Contingencies

TLC Vision operates in 48 states and two Canadian provinces and is subject to
various federal, state and local income, payroll, unemployment, property,
franchise, capital, sales and use tax on its operations, payroll, assets and
services. TLC Vision endeavors to comply with all such applicable tax
regulations, many of which are subject to different interpretations, and has
hired outside tax advisors to assist in the process. Many states and other
taxing authorities are experiencing financial difficulties and have been
interpreting laws and regulations more aggressively to the detriment of
taxpayers such as TLC Vision and its customers. Although TLC Vision cannot
predict the outcome of all past and future tax assessments, it believes that it
has adequate provisions and accruals in its financial statements for tax
liabilities.

Tax authorities in four states have contacted TLC Vision and issued proposed
sales tax adjustments in the aggregate amount of approximately $2.2 million for
various periods through 2002 on the basis that certain of TLC Vision's laser
access arrangements constitute a taxable lease or rental rather than an exempt
service. If it is determined that any sales tax is owed, TLC Vision believes
that, under applicable laws and TLC Vision's contracts with its eye surgeon
customers, each customer is ultimately responsible for the payment of any
applicable sales and use taxes in respect of TLC Vision's services. However, TLC
Vision may be unable to collect any such amounts from its customer, and in such
event would remain responsible for payment. TLC Vision cannot yet predict the
outcome of these assessments, or any other assessments or similar actions which
may be undertaken by other state tax authorities. The Company is currently
conducting an evaluation of its sales tax reporting in various other states.
The Company believes that it has adequate provisions in its financial statements
with regard to these matters.

Employment Contingencies

As of December 31, 2002, the Company had employment contracts with 11 officers
of TLC Vision or its subsidiaries to provide for base salaries, the potential to
pay certain bonuses, medical benefits and severance payments. Nine officers have
agreements providing for severance payments ranging from 12 to 24 months of base
or total compensation under certain circumstances. Two officers have agreements
providing for severance payments equal to 36 months of total compensation and
future medical benefits (totaling approximately $2.0 million) at their option
until November 2003 and 24-month agreements thereafter.

16. SEGMENT INFORMATION

The Company has two reportable segments: refractive and cataract. The refractive
segment is the core focus of the Company and is in the business of providing
corrective laser surgery specifically related to refractive disorders, such as
myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. This
segment is comprised of Company-owned laser centers and Company-managed laser
centers. The refractive segment also includes the access and mobile refractive
business of



                                       76
<PAGE>
LaserVision. The cataract segment provides surgery specifically for the
treatment of cataracts. The Company acquired the cataract segment in the
LaserVision acquisition, therefore no amounts are shown for that segment in
periods prior to June 1, 2002. Other includes an accumulation of other
healthcare business activities including the management of cataract and
secondary care centers that provide advanced levels of eye care, network
marketing and management and professional healthcare facility management. None
of these activities meet the quantitative criteria to be disclosed separately as
a reportable segment.

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

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

Doctors' compensation as presented in the segment information of the financial
statements represents the cost to the Company of engaging experienced and
knowledgeable ophthalmic professionals to perform laser vision correction
services at the Company's owned laser centers. Where the Company manages laser
centers due to certain state requirements it is the responsibility of the
professional corporations or physicians to whom the Company furnishes management
services to provide the required professional services and engage ophthalmic
professionals. In such cases, the costs associated with arranging for these
professionals to furnish professional services are reported as a cost of the
professional corporation and not of the Company.

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. The Company's
business units were acquired or developed as a unit, and management at the time
of acquisition was retained.

The Company's business segments were as follows:

<Table>
<Caption>
   SEVEN-MONTH PERIOD ENDED DECEMBER 31,  2002             REFRACTIVE          CATARACT            OTHER               TOTAL
--------------------------------------------------        ------------       ------------       ------------       ------------
<S>                                                       <C>                <C>                <C>                <C>

Revenues ...........................................      $     76,199       $     12,944       $     11,011       $    100,154
Expenses:
Doctor compensation ................................             6,523                 --                 --              6,523
Operating ..........................................            79,869             10,040              9,223             99,132
Depreciation expense ...............................             8,361              1,172                525             10,058
Amortization of intangibles ........................             3,592                482                 --              4,074
Impairment of intangibles ..........................            22,138                 --                 --             22,138
Write down in the fair value of investments ........             2,095                 --                 --              2,095
Restructuring and other charges ....................             4,227                 --                 --              4,227
                                                          ------------       ------------       ------------       ------------
                                                               126,805             11,694              9,748            148,247
                                                          ------------       ------------       ------------       ------------
Income (loss) from operations ......................           (50,606)             1,250              1,263            (48,093)
Other income and (expense) net .....................             6,996                 --                 --              6,996
Interest expense, net and other ....................               136                (73)              (306)              (243)
Minority interest ..................................              (238)                --               (914)            (1,152)
Income taxes .......................................            (1,041)                (1)               191               (851)
                                                          ------------       ------------       ------------       ------------
Net  income (loss) .................................      $    (44,753)      $      1,176       $        234       $    (43,343)
                                                          ============       ============       ============       ============
Total assets .......................................      $    161,855       $     13,323       $     20,878       $    196,056
                                                          ============       ============       ============       ============
Purchase of long-lived assets ......................      $      3,652       $      1,390       $      9,492       $     14,534
                                                          ============       ============       ============       ============
</Table>

<Table>
<Caption>
               YEAR ENDED MAY 31, 2002                     REFRACTIVE           OTHER               TOTAL
----------------------------------------------------      ------------       ------------       ------------
<S>                                                       <C>                <C>                <C>

Revenues ...........................................      $    115,908       $     18,843       $    134,751
Expenses:
Doctor compensation ................................            10,225                 --             10,225
Operating ..........................................           111,708             15,856            127,564
Depreciation expense ...............................            10,143                860             11,003
Amortization of intangibles ........................             9,897                452             10,349
Impairment of Intangibles including transitional ...            84,879             12,015             96,894
Write down in the fair value of investments ........            24,066              2,016             26,082
Reduction in the carrying value of fixed assets ....             2,553                 --              2,553
Restructuring and other charges ....................             8,750                 --              8,750
                                                          ------------       ------------       ------------
                                                               262,221             31,199            293,420
                                                          ------------       ------------       ------------
Loss from operations ...............................          (146,313)           (12,356)          (158,669)
Interest expense, net and other ....................              (735)               (26)              (761)
Minority interest ..................................              (225)              (410)              (635)
Income taxes .......................................              (745)            (1,039)            (1,784)
                                                          ------------       ------------       ------------
Net loss ...........................................      $   (148,018)      $    (13,831)      $   (161,849)
                                                          ============       ============       ============
Total assets .......................................      $    223,472       $     22,043       $    245,515
                                                          ============       ============       ============
Purchase long-lived assets .........................      $      2,707       $        620       $      3,320
                                                          ============       ============       ============
</Table>


                                       77
<PAGE>


<Table>
<Caption>
               YEAR ENDED MAY 31, 2001
----------------------------------------------------
<S>                                                       <C>                <C>                <C>

Revenues ...........................................      $    161,219       $     12,787       $    174,006
Expenses:
Doctor compensation ................................            15,538                 --             15,538
Operating ..........................................           134,324             15,168            149,492
Depreciation expense ...............................            13,675              1,375             15,050
Amortization of intangibles ........................            10,703              1,840             12,543
Restructuring and other charges ....................             6,433             12,642             19,075
                                                          ------------       ------------       ------------
                                                               180,673             31,025            211,698
                                                          ------------       ------------       ------------
Loss from operations ...............................           (19,454)           (18,238)           (37,692)
Interest income, net and other .....................             2,385                158              2,543
Minority interest ..................................              (370)               (15)              (385)
Income taxes .......................................            (1,779)              (460)            (2,239)
                                                          ------------       ------------       ------------
Net loss ...........................................      $    (19,218)      $    (18,555)      $    (37,773)
                                                          ============       ============       ============
Total assets .......................................      $    216,494       $     21,944       $    238,438
                                                          ============       ============       ============
Purchase of long lived assets ......................      $     36,296       $        140       $     36,436
                                                          ============       ============       ============
</Table>


<Table>
<Caption>
              YEAR ENDED MAY 31, 2000                      REFRACTIVE            OTHER              TOTAL
----------------------------------------------------      ------------       ------------       ------------
<S>                                                       <C>                <C>                <C>

Net revenues .......................................      $    190,233       $     10,990       $    201,223
Expenses:
Doctor compensation ................................            17,333                  2             17,335
Operating ..........................................           153,673             12,477            166,150
Depreciation expense ...............................            12,886              1,406             14,292
Amortization of intangibles ........................             6,363              1,033              7,396
                                                          ------------       ------------       ------------
                                                               190,255             14,918            205,173
                                                          ------------       ------------       ------------
Loss from operations ...............................               (22)            (3,928)            (3,950)
Interest income (expense), net and other ...........             4,574                (82)             4,492
Minority interest ..................................            (2,443)              (563)            (3,006)
Income taxes .......................................            (3,141)              (313)            (3,454)
                                                          ------------       ------------       ------------
Net  loss ..........................................      $     (1,032)      $     (4,886)      $     (5,918)
                                                          ============       ============       ============
Total assets .......................................      $    250,279       $     39,085       $    289,364
                                                          ============       ============       ============
Purchase of long-lived assets ......................      $     65,941       $      8,477       $     74,418
                                                          ============       ============       ============
</Table>

The Company's geographic segments are as follows:

<Table>
<Caption>
    SEVEN-MONTH PERIOD ENDED DECEMBER 31, 2002               CANADA        UNITED STATES         TOTAL
----------------------------------------------------      ------------     -------------      ------------
<S>                                                       <C>               <C>               <C>

Revenues ...........................................      $      5,588      $     94,566      $    100,154
Doctor compensation ................................             1,424             5,099             6,523
                                                          ------------      ------------      ------------
Net revenue after doctor compensation ..............      $      4,164      $     89,467      $     93,631
                                                          ============      ============      ============
Total fixed assets and intangibles .................      $     11,258      $    116,768      $    128,026
                                                          ============      ============      ============
</Table>

<Table>
<Caption>
            YEAR ENDED MAY 31, 2002
----------------------------------------------------

<S>                                                       <C>               <C>               <C>
Revenues ...........................................      $     13,208      $    121,543      $    134,751
Doctor compensation ................................             1,260             8,965            10,225
                                                          ------------      ------------      ------------
Net revenue after doctor compensation ..............      $     11,948      $    112,578      $    124,526
                                                          ============      ============      ============
Total fixed assets and intangibles .................      $     12,156      $    141,682      $    153,838
                                                          ============      ============      ============
</Table>


                                       78
<PAGE>


<Table>
<Caption>
               YEAR ENDED MAY 31, 2001
----------------------------------------------------
<S>                                                       <C>               <C>               <C>

Revenues ...........................................      $     18,114      $    155,892      $    174,006
Doctor compensation ................................             1,698            13,840            15,538
                                                          ------------      ------------      ------------
Net revenue after doctor compensation ..............      $     16,416      $    142,052      $    158,468
                                                          ============      ============      ============
Total fixed assets and intangibles .................      $     22,039      $    123,108      $    145,147
                                                          ============      ============      ============
</Table>

<Table>
<Caption>
                YEAR ENDED MAY 31, 2000
----------------------------------------------------
<S>                                                       <C>               <C>               <C>

Revenues and physician costs:
Net revenues .......................................      $     17,275      $    183,948      $    201,223
Doctor compensation ................................             2,876            14,459            17,335
                                                          ------------      ------------      ------------
Net revenue after doctor compensation ..............      $     14,399      $    169,489      $    183,888
                                                          ============      ============      ============
Total fixed assets and intangibles .................      $     22,195      $    131,255      $    153,450
                                                          ============      ============      ============
</Table>

17. FINANCIAL INSTRUMENTS

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

The Company's short-term investments are recorded at cost, which approximates
fair market value. In the seven months ended December 31, 2002, the Company's
short-term investment portfolio consisted of bank certificates of deposit that
have remaining terms to maturity not exceeding 12 months.

Given the large number of individual long-term debt instruments and capital
lease obligations held by the Company, it is not practicable to determine fair
value.

18. RESTRUCTURING AND OTHER CHARGES

The following table details restructuring charges recorded during the
transitional period ended December 31, 2002:

<Table>
<Caption>
                                                                                                  ACCRUAL BALANCE
                                           RESTRUCTURING          CASH             NON-CASH            AS OF
                                              CHARGES           PAYMENTS          REDUCTIONS     DECEMBER 31, 2002
                                           -------------      ------------       ------------    -----------------
<S>                                         <C>               <C>                <C>                <C>
   Severance .........................      $      1,120      $       (466)      $         --       $        654
   Lease commitments, net of
      sub-lease income ...............               978                --                 --                978
   Write-down of fixed assets ........             2,266                --             (2,266)                --
   Sale of center to third party .....               342                --                 --                342
                                            ------------      ------------       ------------       ------------
Total restructuring charges ..........      $      4,706      $       (466)      $     (2,266)      $      1,974
                                            ============      ============       ============       ============
</Table>

During the transitional period 2002, the Company recorded a $4.7 million
restructuring charge for the closure of 13 centers and the elimination of 36
full time equivalent positions primarily at the Company's Toronto headquarters.


                                       79
<PAGE>

The total restructuring charge for the transitional period 2002 is $4.2 million
which consists of the $4.7 million offset by the reversal into income of $0.5
million of restructuring charges related to prior year accruals that were no
longer needed as of December 31, 2002. All restructuring costs will be financed
through the Company's cash and cash equivalents. A total of $2.3 million of this
provision related to non-cash costs of writing down fixed assets. The severance
and center balances will be paid out in 2003 while the lease costs will be paid
out over the remaining term of the lease.


The following table details restructuring and other charges incurred for the
year ended May 31, 2002:

<Table>
<Caption>
                                                                                    ACCRUAL                              ACCRUAL
                                                                                  BALANCE AS                            BALANCE AS
                                                                                      AT                                   AT
                                          RESTRUCTURING     CASH       NON-CASH     MAY 31,     CASH       NON-CASH      DECEMBER
                                             CHARGES      PAYMENTS    REDUCTIONS     2002     PAYMENTS    REDUCTIONS     31, 2002
                                          -------------   --------    ----------  ----------  --------    ----------    ----------
<S>                                       <C>             <C>         <C>         <C>         <C>         <C>           <C>

   Severance ...........................   $    2,907     $ (2,219)   $     (222)   $   466   $   (235)   $     (212)   $       19
   Lease commitments, net of
     sublease income ...................        2,765           --            --      2,765       (897)           85         1,953
   Termination costs of doctors
     contracts .........................          146          (80)           --         66        (66)           --            --
   Laser commitments ...................          652           --            --        652         --          (352)          300
   Write-down of fixed assets ..........        2,280           --        (2,280)        --         --            --            --
                                           ----------     --------    ----------    -------   --------    ----------    ----------

   Total restructuring and other
     charges ...........................   $    8,750     $ (2,299)   $   (2,502)   $ 3,949   $ (1,198)   $     (564)   $    2,272
                                           ==========     ========    ==========    =======   ========    ==========    ==========
</Table>


During fiscal 2002, the Company implemented a restructuring program to reduce
employee costs in line with current revenue levels, close certain under
performing centers and eliminate duplicate functions caused by the merger with
LaserVision. This program resulted in total cost for severance and office
closures of $8.8 million of which $3.5 million has been paid out in cash as of
December 31, 2002. All restructuring costs will be financed through the
Company's cash and cash equivalents.

    The components of this fiscal 2002 restructuring charges are as follows:

(a) The Company continued its objective of reducing employee costs in line with
    revenues. This activity occurred in two stages with total charges of $2.9
    million. The first stage of reductions were identified in the second and
    third quarters of fiscal 2002 and resulted in restructuring charges of $2.2
    million all of which had been paid out in cash or options by the end of the
    fiscal year. This reduction impacted 89 employees of whom 35 were working in
    laser centers with the remaining 54 working within various corporate
    functions. The second stage of the cost reduction required the Company to
    identify the impact of its acquisition of LaserVision on May 15, 2002 and
    eliminate surplus positions resulting from the acquisition. The majority of
    these costs were paid out by December 31, 2002.

(b) As part of the Company restructuring subsequent to its acquisition of
    LaserVision in May 2002, six centers were identified for closure based on
    management's earnings criteria. These closures resulted in restructuring
    charges of $4.9 million, reflecting a write-down of fixed assets of $1.9
    million and cash costs of $3.0 million, which include net lease commitments
    (net of costs to sublet and sub-lease income) of $2.0 million, ongoing laser
    commitments of $0.7 million, termination costs of a doctor's contract of
    $0.1 million, and severance costs impacting 21 center employees of $0.1
    million. The lease costs will be paid out over the remaining term of the
    lease. The majority of the severance and termination costs were paid out by
    December 31, 2002.

(c) The Company also identified four centers where management determined, that
    given the current and future expected procedures, the centers had excess
    leased capacity or the lease arrangements were not economical. The Company
    assessed these four centers to determine whether the excess space should be
    subleased or whether the centers should be relocated. The Company provided
    $1.0 million related to the costs associated with sub-leasing the excess or
    unoccupied facilities. A total of $0.3 million of this provision related to
    non-cash costs of writing down fixed assets and $0.7 million represented net
    future cash costs for lease commitments and costs to sublet available space
    offset by sub-lease income that is projected to be generated. The lease
    costs will be paid out over the remaining term of the lease.

In the year ended May 31, 2001, the Company recorded a restructuring and other
charge of $19.1 million. These charges consisted of cash payments of $4.7
million primarily for severance, lease costs, consulting services, and closure
costs, and $14.4 million in non-cash costs. Non-cash costs were primarily for
write-off of goodwill, fixed assets and current assets


                                       80
<PAGE>


resulting from the decision to exit from its e-commerce enterprise,
eyeVantage.com, Inc., the accrual for an arbitration award and provision for
portfolio investments.

19. SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash transactions:

<Table>
<Caption>
                                                                 SEVEN-MONTH               YEAR ENDED MAY 31,
                                                                PERIOD ENDED      -------------------------------------
                                                              DECEMBER 31, 2002      2002          2001         2000
                                                              -----------------   ----------    ----------   ----------
<S>                                                            <C>                <C>           <C>          <C>
Issue of warrants to be expensed over three years ..........   $       --         $       --    $       --   $      532
Issue of options as severance remuneration .................           --                222            --           --
Capital stock issued as remuneration .......................           --                 --            35          387
Capital stock issued for acquisitions ......................           --            111,058         6,059        2,125
Treasury stock arising from acquisition ....................           --             (2,432)           --           --
Issue of options arising from acquisition ..................           --             11,001            --           --
Reversal of accrual for costs of IPO .......................           --                 --            --          139
Accrued purchase obligations ...............................           --                 --         3,899       13,200
Capital lease obligations relating to equipment purchases ..          901                 --            --        1,366
Long-term debt cancellation ................................           --                 --           450           --
</Table>

Cash paid for the following:

<Table>
<Caption>
                              SEVEN-MONTH               YEAR ENDED MAY 31,
                             PERIOD ENDED      -------------------------------------
                           DECEMBER 31, 2002      2002          2001         2000
                           -----------------   ----------    ----------   ----------
<S>                         <C>                <C>           <C>          <C>
Interest ................      $      830      $    1,693    $    1,668   $    2,671
                               ==========      ==========    ==========   ==========
Income taxes ............      $      595      $    1,382    $      148   $    5,647
                               ==========      ==========    ==========   ==========
</Table>

20. RELATED PARTY TRANSACTIONS

During the fiscal 2002, J.L. Investments, Inc., of which Mr. Warren Rustand, a
director of TLC Vision, is a shareholder, and Mr. Warren Rustand entered into a
consulting agreement with the Company to oversee the development of the
Company's international business development project. J.L. Investments and Mr.
Rustand received $125,000 under this agreement.

On March 1, 2001, a limited liability company indirectly wholly owned by TLC
Vision acquired all of the non-medical assets relating to the refractive
practice of Dr. Mark Whitten prior to Dr. Whitten becoming a director of TLC
Vision. The cost of this acquisition was $20.0 million, with $10.0 million paid
in cash on March 1, 2001 and the remaining $10.0 million payable in four equal
non-interest bearing installments on each of the first four anniversary dates of
closing. Dr. Whitten became a director of TLC Vision in May 2002. At December
31, 2002 the remaining discounted amounts payable to Dr. Whitten of $6.3 million
is included in long-term debt. (See Note 12, Long-term debt). In addition, TLC
Vision has entered into service agreements with companies that own Dr. Whitten's
refractive satellite operations located in Frederick, Maryland, and
Charlottesville, Virginia, under which TLC Vision will provide such companies
with services in return for a fee. During fiscal 2002, TLC Vision received a
total of $761,000 in revenue as a result of the service agreements.

During the transitional period ended December 31, 2002, the law firm Gourwitz
and Barr, P.C., of which Mr. Gourwitz, a director of the Company, provided legal
services to TLC Vision and was paid $0.1 million.

LaserVision, a subsidiary of TLC Vision, has a limited partnership agreement
with Minnesota Eye Consultants for the operation of one of its roll-on/roll-off
mobile systems. Dr. Richard Lindstrom, a director of TLC Vision, is president of
Minnesota Eye Consultants. LaserVision is the general partner and owns 60% of
the partnership. Minnesota Eye Consultants, P.A. is a limited partner and owns
40% of the partnership. Under the terms of the partnership agreement,
LaserVision receives a revenue-based management fee from the partnership. During
the transitional period, LaserVision received a management fee in the amount of
$21,000 from the partnership. Dr. Lindstrom also receives compensation from TLC
Vision in his capacity as medical director of both TLC Vision and LaserVision.

In September 2000, LaserVision entered into a five-year agreement with Minnesota
Eye Consultants to provide laser access. LaserVision paid $6.2 million to
acquire five lasers and the exclusive right to provide laser access to Minnesota
Eye


                                       81
<PAGE>


Consultants. LaserVision also assumed leases on three of the five lasers
acquired. The transaction resulted in a $5.0 million intangible asset recorded
as deferred contract rights which will be amortized over the life of the
agreement. During the transitional period, LaserVision received a total of $0.5
million in revenue as a result of the agreement.

In May 2002, John J. Klobnak, a director of the Company and the former Chief
Executive Officer of LaserVision, was paid $2.9 million and received 500,000 TLC
Vision stock options in a severance arrangement in connection with the
LaserVision acquisition.

21. SUBSEQUENT EVENTS

On March 3, 2003, Midwest Surgical Services, Inc. a subsidiary of TLC Vision,
entered into a purchase agreement to acquire 100% of American Eye Instruments,
Inc., which provides access to surgical and diagnostic equipment to perform
cataract surgery in hospitals and ambulatory surgery centers. The Company paid
$2.0 million in cash and 100,000 common shares of TLC Vision. The Company also
agreed to make additional cash payments over a three-year period up to $1.9
million if certain financial targets are achieved.



                                       82
<PAGE>


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

     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 December 31, 2002.

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 December 31, 2002.

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

     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 December 31, 2002.

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 December 31, 2002.

ITEM 14. Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

     Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
of the Exchange Act). Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective, in all material respects, to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.

     As part of an overall evaluation of its controls and procedures, the
Company identified certain aspects of its internal control procedures and
processes that resulted in inefficiencies in processing of certain financial
transactions for the seven months ended December 31, 2002, particularly non-cash
items such as revised contracts with suppliers and customers, pre-paid items and
accruals. The ineffective initial processing of these transactions led to a
delay in completing the consolidation of the Company's financial statements for
the seven months ended December 31, 2002 and to various audit adjustments
recommended by the Company's auditors. The Company has concluded that the issues
related primarily to the relocation of the Company's finance department from
Toronto, Ontario, to St. Louis, Missouri, including temporary reductions in
staffing levels caused by unfilled positions in the finance department and
implementation of a new financial accounting software package. The effect of
these transitional issues on the Company's internal controls and procedures was
further amplified


                                       83
<PAGE>


during the period by several events during the period, including a change in
Company's fiscal year-end, various financial restructuring activities initiated
by the Company throughout 2002, revisions to the Company's sales tax compliance
program, and performance of a goodwill impairment test required by a change in
accounting principle. The Company has implemented or is in the process of
implementing, a number of improvements which will improve these procedures,
including enhanced staffing levels, additional training on accounting system
software, implementation of a pre-review system of monthly operating results by
field management and establishment of a cross-functional team to streamline
various payments.

     There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation, except for the
ongoing actions described above. Many of the ongoing actions described above
were initiated prior to the evaluation date and the Company expects that many of
the additional processes and controls implemented will serve to enhance existing
processes and controls.

                                     PART IV

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

(a) The following documents are filed as part of the report:

    (1) Financial statements:

    Report of Independent Auditors.

    Consolidated Statements of Operations - Transitional period ended December
    31, 2002 and Years Ended May 31, 2002, 2001, and 2000.

    Consolidated Balance Sheets as of December 31, 2002, May 31, 2002, and 2001.

    Consolidated Statements of Cash Flows - Transitional period ended December
    31, 2002, and Years Ended May 31, 2002, 2001, and 2000.

    Consolidated Statements of Changes in Stockholders' Equity - Transitional
    period ended December 31, 2002, and Years Ended May 31, 2002, 2001, and
    2000.

    Notes to Consolidated Financial Statements

    (2) Financial statement schedules required to be filed by Item 8 and Item
    15(d) of Form 10-K.

    Schedule II - Valuation and Qualifying Accounts and Reserves

    Except as provided below, all schedules for which provision is made in the
    applicable accounting regulations of the 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.

    (3) Exhibits required by Item 601 of Regulation S-K and by Item 14(c).

    See Exhibit Index.

(b) Reports on Form 8-K.

        No reports on Form 8-K were filed during the last quarter of the
        transition period ended December 31, 2002.

(c) Exhibits required by Item 601 of Regulation S-K.

    See Exhibit Index.

(d) None


                                       84
<PAGE>


                                   SIGNATURES

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

                                    TLC VISION CORPORATION



                                    By /s/ ELIAS VAMVAKAS
                                       -----------------------------------------
                                       Elias Vamvakas, Chief Executive Officer

    March 31, 2003

    Pursuant to the requirements 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 date indicated.

<Table>
<Caption>

          SIGNATURE                                      TITLE                         DATED
------------------------------------      -------------------------------------     -----------
<S>                                       <C>                                       <C>

         /s/ ELIAS VAMVAKAS               Chief Executive Officer and               March 28, 2003
------------------------------------      Chairman of the Board of Directors
           Elias Vamvakas

      /s/ B. CHARLES BONO III             Chief Financial Officer, Treasurer        March 28, 2003
------------------------------------      and Principal Accounting Officer
        B. Charles Bono III

       /s/ JOHN J. KLOBNAK                Director                                  March 31, 2003
------------------------------------
          John J. Klobnak

        /s/ JOHN F. RIEGERT               Director                                  March 28, 2003
------------------------------------
          John F. Riegert

       /s/ HOWARD J. GOURWITZ             Director                                  March 31, 2003
------------------------------------
         Howard J. Gourwitz

 /s/ WILLIAM DAVID SULLINS, JR., OD       Director                                  March 29, 2003
------------------------------------
   William David Sullins, Jr., OD

     /s/ THOMAS N. DAVIDSON               Director                                  March 28, 2003
------------------------------------
         Thomas N. Davidson

       /s/ WARREN S. RUSTAND              Director                                  March 28, 2003
------------------------------------
         Warren S. Rustand

         /s/ MARK WHITTEN                 Director                                  March 31, 2003
------------------------------------
         Mark Whitten, M.D.


   /s/ RICHARD L. LINDSTROM, M.D.         Director                                  March 29, 2003
------------------------------------
     Richard L. Lindstrom, M.D.
</Table>


                                       85
<PAGE>


     CERTIFICATIONS

     CHIEF EXECUTIVE OFFICER

     I, Elias Vamvakas, certify that:

1.   I have reviewed this annual report on Form 10-K of TLC Vision Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

     c)  presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether there were significant changes in internal controls
     or in other factors that could significantly affect internal controls
     subsequent to the date of our most recent evaluation, including any
     corrective actions with regard to significant deficiencies and material
     weaknesses.

     Date: March 31, 2003
     /s/ Elias Vamvakas
     Elias Vamvakas


                                       86
<PAGE>


     CHIEF FINANCIAL OFFICER

     I, B. Charles Bono III, certify that:

1.   I have reviewed this annual report on Form 10-K of TLC Vision Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

     c)  presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether there were significant changes in internal controls
     or in other factors that could significantly affect internal controls
     subsequent to the date of our most recent evaluation, including any
     corrective actions with regard to significant deficiencies and material
     weaknesses.


     Date:  March 31, 2003
     /s/ B. Charles Bono III
     ------------------------------
     B. Charles Bono III


                                       87
<PAGE>

SCHEDULE II

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<Table>
<Caption>
                                              BALANCE AT                                   DEDUCTIONS-     BALANCE AT
                                              BEGINNING       EXPENSE                     UNCOLLECTABLE        END
                                              OF PERIOD      PROVISION       OTHER(1)       A MOUNTS       OF PERIOD
                                             ------------   ------------   ------------   ------------    ------------
<S>                                          <C>            <C>            <C>            <C>             <C>

                                                                      (IN THOUSANDS)
Fiscal 2000
-----------
Doubtful accounts receivable                 $      2,527   $      2,553   $         --   $     (1,183)   $      3,897
Provision against investments and other
  assets                                               --             --             --             --
Deferred tax asset valuation allowance             17,345           (999)                                       16,346

Fiscal 2001
-----------
Doubtful accounts receivable                 $      2,849   $        646   $         --   $     (2,335)   $      1,160
Provision against investments and other
  assets                                               --          1,913             --             --           1,913
Deferred tax asset valuation allowance             16,346         14,083                                        30,429

Fiscal 2002
-----------
Doubtful accounts receivable                 $      1,160   $        521   $      1,742   $       (896)   $      2,527
Provision against investments and other
  assets                                            1,913          2,016             --             --           3,929
Deferred tax asset valuation allowance             30,429         31,360         23,263             --          85,052

Transitional Period 2002
------------------------
Doubtful accounts receivable                 $      2,527   $        213   $         --   $        312    $      2,428
Provisions against investments and other
  assets                                            3,929            194             --             --           4,123
Deferred tax asset valuation allowance             85,052         14,551             --             --          99,603
</Table>

Note (1): additional provision for doubtful accounts and the deferred tax asset
valuation allowance were acquired in the merger transaction with LaserVision



                                       88
<PAGE>


                                  EXHIBIT INDEX

<Table>
<Caption>
 EXHIBIT
   NO.                                   DESCRIPTION
--------       -----------------------------------------------------------------
<S>            <C>

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

   3.2         Articles of Amendment (incorporated by reference to Exhibit 3.2
               to the Company's 10-K filed with the Commission on August 29,
               2000)

   3.3         Articles of Continuance (incorporated by reference to Exhibit 3.6
               to the Company's Registration Statement on Form S-4/A filed with
               the Commission on March 1, 2002 (file no. 333-71532))

   3.4         Articles of Amendment (incorporated by reference to Exhibit 4.2
               to the Company's Post Effective Amendment No. 1 on Form S-8 to
               the Company's Registration Statement on Form S-4 filed with the
               Commission on May 14, 2002 (file no. 333-71532))

   3.5         By-Laws of the Company (incorporated by reference to Exhibit 3.6
               to the Company's Registration Statement on Form S-4/A filed with
               the Commission on March 1, 2002 (file no. 333-71532))

   4.1         Shareholder Rights Plan Agreement dated as of September 21, 1999
               between the Company and CIBC Mellon Company (incorporated by
               reference to Exhibit 4.1 to the Company's Registration Statement
               on Form S-4 filed with the Commission on October 12, 2001)

  10.1         TLC Vision 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))

  10.2         TLC Vision 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))

  10.3         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)

  10.4         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)

  10.5         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)

  10.6         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)

  10.7         Employment Agreement with David Eldridge (incorporated by
               reference to Exhibit 10.1(m) to the Company's 10-K filed with the
               Commission on August 29, 2000)

  10.8         Employment Agreement with William Leonard (incorporated by
               reference to Exhibit 10.1(n) to the Company's 10-K filed with the
               Commission on August 29, 2000)

  10.9         Consulting Agreement with Warren Rustand (incorporated by
               Reference to Exhibit 10.10 to the Company's Amendment No. 2
               registration Statement on Form S-4/A filed with the Commission on
               January 18, 2002 (file no. 333-71532))

  10.10        Employment Agreement with Paul Frederick (incorporated by
               reference to Exhibit 10.10 to the Company's 10-K for the year
               ended May 31, 2002)
</Table>


                                       89
<PAGE>


<Table>
<Caption>
 EXHIBIT
   NO.                                   DESCRIPTION
--------       -----------------------------------------------------------------
<S>            <C>
 10.11         Employment Agreement with Lloyd Fiorini (incorporated by
               reference to Exhibit 10.11 to the Company's 10-K for the year
               ended May 31, 2002)

 10.12         Separation Agreement with Lloyd Fiorini (incorporated by
               reference to Exhibit 10.12 to the Company's 10-K for the year
               ended May 31, 2002)

 10.13         Employment Agreement with James C. Wachtman dated May 15, 2002
               (incorporated by reference to Exhibit 10.13 to the Company's 10-K
               for the year ended May 31, 2002)

 10.14         Employment Agreement with Robert W. May dated May 15, 2002
               (incorporated by reference to Exhibit 10.14 to the Company's 10-K
               for the year ended May 31, 2002)

 10.15         Employment Agreement with B. Charles Bono dated May 15, 2002
               (incorporated by reference to Exhibit 10.15 to the Company's 10-K
               for the year ended May 31, 2002)

 10.16         Supplemental Employment Agreement with John J. Klobnak dated May
               15, 2002 (incorporated by reference to Exhibit 10.16 to the
               Company's 10-K for the year ended May 31, 2002)

 21            List of the Company's Subsidiaries (incorporated by reference to
               Exhibit 21.1 to the Company's 10-K for the year ended May 31,
               2002)

 23            Consent of Independent Auditors

 99.1          Certification of Chief Executive Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

 99.2          Certification of Chief Financial Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002
</Table>


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