| TLC VISION CORP ITEM 1A RISK FACTORS The following are certain risk factors that could affect our business, financial results and results of operations |
| These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements |
| The risks that we have highlighted here are not the only ones that we face |
| If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected |
| In that case, the trading price of our stock could decline, and our stockholders may lose all or part of their investment |
| WE HAVE REPORTED ACCUMULATED DEFICITS; OUR FUTURE PROFITABILITY IS UNCERTAIN We reported a net loss of dlra9dtta4 million for the year ended December 31, 2003 |
| As of December 31, 2005, we reported an accumulated deficit of dlra244dtta2 million |
| Even though we reported net income of dlra6dtta9 million and dlra43dtta7 million for the years ended December 31, 2005 and 2004, respectively, we may not be able to sustain profitability |
| Our profitability will depend on a number of factors, including: - demand for our services; - our ability to control costs; - our ability to execute our strategy and effectively integrate acquired businesses and assets; - our ability to obtain adequate insurance against malpractice claims and reduce the number of claims; - economic conditions in the markets in which we compete, including the availability of discretionary income; - concerns about the safety and effectiveness of laser vision correction; - competitive factors; - regulatory developments; - our ability to retain and attract qualified personnel; and - doctors &apos ability to obtain adequate insurance against malpractice claims at reasonable rates |
| In addition, our subsidiary OccuLogix expects to report significant net losses for the next several years |
| We will be required to report the financial results of OccuLogix on a consolidated basis as long as we have a controlling financial interest |
| CHANGES IN GENERAL ECONOMIC CONDITIONS MAY CAUSE FLUCTUATIONS IN OUR 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, our operating results 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 |
| In addition, weakening economic conditions may result in an increase in the number of our customers, who experience financial distress or declare bankruptcy, which may negatively impact our accounts receivable collection experience |
| THE MARKET FOR LASER VISION CORRECTION IS INTENSELY COMPETITIVE AND COMPETITION MAY INCREASE Some of our 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 us and may compete more effectively than we are able to compete |
| We compete 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 |
| Our principal corporate competitors 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 or provincial laws were amended to permit optometrists, in addition to ophthalmologists, to perform laser vision correction |
| We 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 |
| Competitors have offered laser vision correction at prices considerably 19 lower than our 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 us to lower prices in our centers to remain competitive and any reduction in our prices may not be offset by an increase in our procedure volume or decreases in our costs |
| A decrease in either the fees or procedures performed at our eye care centers or in the number of procedures performed at our centers could cause our revenues to decline and our 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 available and under development, such as intraocular lenses and surgery with different types of lasers |
| Our management, operations and marketing plans may not be successful in meeting this competition |
| Certain competitive optometry chains and other suppliers of eyeglasses and contact lenses may have substantially greater financial, technical, managerial, marketing and other resources and experience than we have 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 our laser access services by making it economically more attractive for eye surgeons to buy excimer lasers rather than utilize our services |
| Most affiliated surgeons performing laser vision correction at our centers and our significant employees have agreed to restrictions on competing with us, or soliciting patients or employees associated with their facilities; however, these non-competition agreements may not be enforceable |
| THE MARKET ACCEPTANCE OF LASER VISION CORRECTION IS UNCERTAIN We believe that the profitability and growth of our company will depend upon broad acceptance of laser vision correction in the United States and, to a lesser extent, Canada |
| We may have difficulty generating revenue and growing our business if laser vision correction does not become more widely accepted by 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: - its cost, particularly since laser vision correction typically is not covered by government or private insurers; - general resistance to surgery; - the fact that effective and less expensive alternative methods of correcting refractive vision disorders are widely available; - the lack of long-term follow-up data; - the possibility of unknown side effects; and - 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 US FROM GROWING OUR 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 us |
| Also, complications or side effects could jeopardize the approval by the US 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 seven years after laser vision correction using PRK, complications may be identified in further long-term follow-up studies of PRK There are no long-term studies on the side effects of LASIK, the procedure more often performed in recent years |
| However, a study of patients five years after LASIK reported the majority of patients had a high overall satisfaction of the procedure |
| There is no independent industry source for data on side effects or complications from laser vision correction |
| Some of the possible side effects of laser vision correction are: - foreign body sensation, - pain or discomfort, - sensitivity to bright lights, - blurred vision, 20 - dryness or tearing, - fluctuation in vision, - night glare, - poor or reduced visual quality, - overcorrection or undercorrection, - regression, and - corneal flap or corneal healing complications |
| We believe that the percentage of patients who experience serious side effects as a result of laser vision correction at our centers is likely less than 1prca |
| Laser vision correction may also involve the removal of "e Bowmanapstas membrane, "e 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 Bowmanapstas membrane, the long-term effect of the removal of Bowmanapstas membrane on patients is unclear |
| WE MAY BE UNABLE TO ENTER INTO OR MAINTAIN AGREEMENTS WITH DOCTORS OR OTHER HEALTH CARE PROVIDERS ON SATISFACTORY TERMS We will have difficulty generating revenue if we are unable to enter into or maintain agreements with doctors or other health care providers on satisfactory terms |
| Most states prohibit us from practicing medicine, employing doctors to practice medicine on our behalf or employing optometrists to render optometric services on our behalf |
| In most states we 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 our premium-priced centers and that is expected to continue |
| Accordingly, the success of our business depends upon our 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 we own or manage |
| Our expense levels will be based, in part, on our expectations as to future revenues |
| If actual revenue levels were below expectations, our operating results would deteriorate |
| Historically, our quarterly results of operations have varied, and future results may continue to fluctuate significantly from quarter to quarter |
| Accordingly, quarter-to-quarter comparisons of our operating results may not be meaningful and should not be relied upon as indications of our future performance or annual operating results |
| Quarterly results will depend on numerous factors, including economic conditions in our geographic markets, market acceptance of our services, seasonal factors and other factors described in this Form 10-K THE MARKET PRICE OF OUR COMMON SHARES MAY BE VOLATILE Historically, the market price of our common shares has been volatile |
| For example, the market price of our common shares decreased from a high of dlra53dtta50 to a low of dlra0dtta79 between July 1999 and March 2003, then increased to dlra13dtta13 by April 2004 |
| As of March 10, 2006, the last sale price of our common shares was dlra6dtta84 |
| Our common shares will likely be volatile in the future due to industry developments and business-specific factors such as: - our ability to effectively penetrate the laser vision correction market; - the impact of OccuLogix on results of operations; - perception of the potential for rheopheresis for dry age-related macular degeneration; - our ability to execute our business strategy; - new technological innovations and products; - changes in government regulations; - adverse regulatory action; - public concerns about the safety and effectiveness of laser vision correction; - loss of key management; - announcements of non-routine events such as acquisitions or litigation; - variations in our financial results; - fluctuations in competitors &apos stock prices; 21 - the issuance of new or changed stock market analyst reports and recommendations concerning our common shares or competitors &apos stock; - changes in earnings estimates by securities analysts; - our ability to meet analysts &apos projections; - changes in the market for medical services; or - 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 volatile |
| This volatility has substantially affected the market prices of many companies &apos securities for reasons frequently unrelated or disproportionate to their operating performance |
| Following the terrorist attacks in the United States in September 2001, stock markets experienced volatility and stock prices declined, in some cases substantially |
| Continued volatility may reduce the market price of our common shares |
| WE MAY BE UNABLE TO EXECUTE OUR BUSINESS STRATEGY Our business strategy is to be a diversified eye care services company, leveraging our relationships with over 13cmam000 ophthalmologists and optometrists throughout North America to 1) grow the core refractive business while 2) continuing to expand the non-refractive business segment |
| If we do not successfully execute this strategy or if the strategy is not effective, we may be unable to maintain or grow our revenues and profitability |
| WE MAY MAKE INVESTMENTS THAT MAY NOT BE PROFITABLE We make investments that are intended to support our strategic business purposes |
| These investments are generally made in companies in the laser vision correction business or other eye care services |
| If we are unable to successfully manage our current and future investments, including ASC investments, or if these investments are not profitable or do not generate the expected returns, then future operating results may be adversely impacted |
| OUR GROWTH STRATEGY DEPENDS ON OUR ABILITY TO OPEN NEW CENTERS OR TO MAKE ACQUISITIONS OR ENTER INTO AFFILIATION ARRANGEMENTS The success of our growth strategy will be dependent on increasing the number of procedures at our eye care centers and/or 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 us, including the integration of new operations, technologies and personnel |
| The addition of new centers also presents special risks, including: - unanticipated liabilities and contingencies; - diversion of management attention; and - possible adverse effects on operating results resulting from: - possible future goodwill impairment; - increased interest costs; - the issuance of additional securities; and - increased costs resulting from difficulties related to the integration of the acquired businesses |
| Our ability to achieve growth through acquisitions will depend on a number of factors, including: - the availability of attractive acquisition opportunities; - the availability of capital to complete acquisitions; - the availability of working capital to fund the operations of acquired businesses; and - the effect of existing and emerging competition on operations |
| We may not be able to successfully identify suitable acquisition candidates, complete acquisitions on acceptable terms, if at all, or successfully integrate acquired businesses into our operations |
| Our past and possible future acquisitions may not achieve adequate levels of revenue, profitability or productivity or may not otherwise perform as expected |
| 22 WE MAY BE UNABLE TO SUCCESSFULLY IMPLEMENT AND INTEGRATE NEW OPERATIONS AND FACILITIES Our success depends on our ability to manage our existing operations and facilities and to expand our businesses consistent with our business strategy |
| In the past, we have grown rapidly in the United States |
| Our future growth and expansion will increase our managementapstas responsibilities and demands on operating information technologies and financial systems and resources |
| Our business and financial results are dependent upon a number of factors, including our ability to: - implement upgraded operations, information technologies and financial systems, procedures and controls; - hire and train new staff and managerial personnel; - adapt or amend our business structure to comply with present or future legal requirements affecting our 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; - obtain regulatory approvals, where necessary, and comply with licensing requirements applicable to doctors and facilities operated, and services offered, by doctors; - successfully integrate acquisitions into our existing business model; and - successfully develop new LASIK Select centers and achieve growth and profitability goals of those centers |
| Our failure or inability to successfully implement these and other factors may adversely affect the quality and profitability of our business operations |
| WE DEPEND ON KEY PERSONNEL WHOSE LOSS COULD ADVERSELY AFFECT OUR BUSINESS Our success and growth depends in part on the active participation of key medical and management personnel, including Mr |
| Elias Vamvakas, Chairman of the Board of Directors, and 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 our business operations |
| We have employment or similar agreements with the above individuals and other key personnel |
| The terms of these agreements include, in some cases, entitlements to substantial severance payments in the event of termination of employment by either us or the employee |
| WE 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 our centers entails an inherent risk of potential malpractice and other similar claims |
| Beginning October 1, 2002, all of our US professional malpractice insurance had a dlra250cmam000 deductible per claim |
| Patients at our centers execute informed consent statements prior to any procedure performed by doctors at our centers, but these consents may not provide adequate liability protection |
| Although we do 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 our centers may be asserted against us 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 |
| We currently maintain malpractice insurance coverage and accruals that we believe is adequate both as to risks and amounts covered |
| In addition, we require the doctors who provide medical services at our centers to maintain comprehensive professional liability insurance and most of these doctors have agreed to indemnify us against certain malpractice and other claims |
| Our insurance coverage, however, may not be adequate to satisfy claims, insurance maintained by the doctors may not protect us and such indemnification may not be enforceable or, if enforced, may not be sufficient |
| Our inability to obtain adequate insurance or an increase in the future cost of insurance to us and the doctors who provide medical services at the centers may have a material adverse effect on our business and financial results |
| The excimer laser system uses hazardous gases which if not properly contained could result in injury |
| We may not have adequate insurance for any liabilities arising from injuries caused by the excimer laser system or hazardous gases |
| While we believe that any claims alleging defects in our excimer laser systems would usually be covered by the manufacturers &apos product liability insurance, the manufacturers of our excimer laser systems may not continue to carry adequate product liability insurance |
| 23 WE MAY FACE CLAIMS FOR FEDERAL, STATE AND LOCAL TAXES We operate in 48 states and two Canadian provinces and are subject to various federal, state and local income, payroll, unemployment, property, franchise, capital, sales and use tax on our operations, payroll, assets and services |
| We endeavor to comply with all such applicable tax regulations, many of which are subject to different interpretations, and have hired outside tax advisors who assist in the process |
| Many states and other taxing authorities have been interpreting laws and regulations more aggressively to the detriment of taxpayers |
| We believe that we have adequate provisions and accruals in our financial statements for tax liabilities, although we cannot predict the outcome of future tax assessments |
| Tax authorities in two states have contacted us and issued proposed sales tax adjustments in the aggregate amount of approximately dlra0dtta7 million for various periods through 2005 on the basis that certain of our business arrangements constitute at least a partially taxable transaction rather than an exempt service |
| Our discussions with these two state tax authorities are ongoing |
| If it is determined that any sales tax is owed, we believe that, under applicable laws and our contracts with our customers, each customer is ultimately responsible for the payment of any applicable sales and use taxes in respect of our services |
| However, we may be unable to collect any such amounts from our customers, and in such event we would remain responsible for payment |
| We cannot yet predict the outcome of these outstanding assessments or any other assessments or similar actions which may be undertaken by other state tax authorities |
| We have evaluated and implemented a comprehensive sales tax reporting system |
| We believe that we have adequate provisions in our financial statements with respect to these matters |
| COMPLIANCE WITH INDUSTRY REGULATIONS IS COSTLY AND BURDENSOME Our operations are subject to extensive federal, state and local laws, rules and regulations |
| Our 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 us |
| We have incurred significant costs, and expect to incur additional costs in connection with compliance with the provisions of the Sarbanes-Oxley Act of 2002 |
| Our failure to comply with the provisions of Sarbanes-Oxley, including provision relating to internal financial controls, could have a material adverse effect on us |
| 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 our fees and our contractual arrangements with hospitals, surgery centers, ophthalmologists and optometrists, among others |
| Some states also impose licensing requirements |
| Although we have tried to structure our business and contractual relationships in compliance with these laws in all material respects, if any aspect of our operations were found to violate applicable laws, we could be subject to significant fines or other penalties, required to cease operations in a particular jurisdiction, prevented from commencing operations in a particular state or otherwise be required to revise the structure of our 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, we may not be able to predict how these laws and regulations will be interpreted or applied by courts and regulatory authorities, and some of our activities could be challenged |
| Numerous legislative proposals to reform the US health care system have been introduced in Congress and in various state legislatures over the past several years |
| We cannot predict whether any of these proposals will be adopted and, if adopted, what impact this legislation would have on our business |
| To respond to any such changes, we could be required to revise the structure of our legal arrangements or the structure of our fees, incur substantial legal fees, fines or other costs, or curtail some of our business activities, reducing the potential profit of some of our 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 our co-management program did not comply with state licensing laws, we would be required to revise the structure of our legal arrangements or curtail our operations, and affiliated doctors might terminate their relationships with us |
| 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 ours, 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 US government for violations of its provisions and obtain a portion of the damages if the action is successful |
| We believe that we are in material compliance with these billing laws, but our business could be adversely affected if governmental authorities were to scrutinize or challenge our activities or private parties were to assert a false claim or action against us in the name of the US government |
| 24 Although we believe that we have obtained the necessary licenses or certificates of need in states where such licenses are required and that we are 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 these issues |
| A state regulatory authority could determine that we are operating a center inappropriately without a required license or certificate of need, which could subject us to significant fines or other penalties, result in us being required to cease operations in a state or otherwise jeopardize our business and financial results |
| If we expand to a new geographic market, we may be unable to obtain any new license required in that jurisdiction |
| COMPLIANCE WITH ADDITIONAL HEALTH CARE REGULATIONS 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 us from practicing medicine or optometry and from directly employing physicians or optometrists |
| We believe that we are in material compliance with these requirements, but a review of our operations by Canadian regulators or changes in the interpretation or enforcement of existing Canadian legal requirements or the adoption of new requirements could require us to incur significant costs to comply with laws and regulations in the future or require us to change the structure of our arrangements with doctors |
| COMPLIANCE WITH US 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 us, our 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 our 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 &apos 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 our centers and limit our ability to use excimer lasers |
| Most of our eye care centers and access sites in the United States use VISX and/or Alcon Laboratories Inc |
| 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 |
| We believe 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 us, which could impede our ability to maintain or increase our volume of excimer laser surgeries |
| Similarly, we believe that FDA approval is not required for our mobile use of microkeratomes or the cataract equipment transported by our mobile cataract operations |
| The FDA, however, could take a contrary position that could result in an enforcement action |
| DISPUTES WITH RESPECT TO INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR BUSINESS There has been substantial litigation in the United States and Canada regarding the patents on ophthalmic lasers |
| Although we currently lease or purchase excimer lasers and other technology from the manufacturers, if the use of an excimer laser or other procedure performed at any of our centers is deemed to infringe a patent or other proprietary right, we 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 25 license, which may involve substantial costs, including ongoing royalty payments |
| We have also secured patents for portions of the equipment we use to transport our mobile lasers |
| Our patents and other proprietary technology are important to our success |
| These patents could be challenged, invalidated or circumvented in the future |
| Litigation regarding intellectual property is common and our patents may not adequately protect our intellectual property |
| Defending and prosecuting intellectual property proceedings is costly and involves substantial commitments of management time |
| If we fail to successfully defend our rights with respect to our intellectual property, we may be required to pay damages and cease using our equipment to transport mobile lasers, which may have a material adverse effect on our business |
| WE 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 our centers |
| We may not have the capital resources to upgrade our 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 ABILITY OF OUR SHAREHOLDERS TO EFFECT CHANGES IN CONTROL OF OUR COMPANY IS LIMITED We have a shareholder rights plan which enables the Board of Directors to delay a change in control of our company |
| This could discourage a third party from attempting to acquire control of our company, even if an attempt would be beneficial to the interests of the shareholders |
| In addition, since we are a Canadian corporation, investments in our company 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 33prca or more of our outstanding common stock, the threshold for a presumption of control, the transaction could be reviewable by the Investment Canada agency |
| The Investment Canada Act also applies to a change of control effected by a sale of all or substantially all of the assets of our company |
| These factors and others could have the effect of delaying, deferring or preventing a change of control of our company supported by shareholders but opposed by our Board of Directors |
| AS THE MAJORITY OWNER OF OCCULOGIX, IT MAY BE NECESSARY FOR US TO FUND ADDITIONAL CAPITAL REQUIREMENTS OccuLogix reported approximately dlra41dtta3 million of cash and short-term investments as of December 31, 2005, largely as a result of its initial public offering in December 2004 |
| Although it expects the current cash and short-term investments to be adequate to support its operations for at least the next 12 months, OccuLogix anticipates that the funding requirements for its activities will continue to increase substantially, primarily due to its efforts to achieve FDA approval for and to commercialize the RHEO(TM) System |
| OccuLogix may need to seek additional funds in the future, and it may be necessary for us to fund OccuLogixapstas additional capital requirements as the majority shareholder in order to avoid dilution of the value of our ownership |
| THERE IS NO GUARANTEE THAT OCCULOGIX WILL BE SUCCESSFUL IN OBTAINING FDA APPROVAL OR COMMERCIALIZING THE RHEO(TM) SYSTEM On February 3, 2006, OccuLogix announced that, based on a preliminary analysis of the data from MIRA-1 (a pivotal clinical trial), MIRA-1 did not meet its primary efficacy endpoint as it did not demonstrate a statistically significant difference in the mean change of Best Spectacle-Corrected Visual Acuity applying the Early Treatment Diabetic Retinopathy Scale, or ETDRS BCVA, between the treated and placebo groups in MIRA-1 at 12 months post-baseline |
| As expected, the treated group demonstrated a positive result |
| An anomalous response of the control group is the principal reason why the primary efficacy endpoint was not met |
| There were subgroups that did demonstrate statistical significance in their mean change of ETDRS BCVA versus control |
| OccuLogix is in the process of analyzing further the study data |
| To that end, OccuLogix had enrolled a total of 185 patients in MIRA-1 as of December 31, 2004 |
| On November 17, 2005, OccuLogix announced that it had collected complete 12-month post-treatment data sets for 169 of these patients |
| As of December 31, 2004, OccuLogix had also submitted to the FDA the first three of four modules of the Pre-market Approval Application, or PMA, filing, the non-clinical portion |
| The non-clinical portion of the PMA consisted of technical data relating to components of the RHEO(TM) System |
| Although OccuLogix had intended to submit the fourth module, which consists of the follow-up clinical data, in two components, following discussions 26 with the FDA, it subsequently elected to file only one PMA clinical module following completion of the 12-month data on at least 150 data sets |
| Subsequent to the February 3, 2006 announcement, OccuLogix completed an in-depth analysis of the MIRA-1 study data identifying subjects that were included in the intent-to-treat, or ITT, population but who deviated from the MIRA-1 protocol as well as those patients who had documented losses or gains in vision for reasons not related to retinal disease such as cataracts |
| Those subjects in the ITT population who met the protocol requirements, and who did not exhibit ophthalmic changes unrelated to retinal disease, comprised the modified per-protocol population |
| In the modified per-protocol analysis, eyes treated with RHEO(TM) Therapy demonstrated a mean vision gain of 0dtta8 lines of ETDRS BCVA at 12 months post-baseline, compared to a mean vision loss of 0dtta1 lines of ETDRS BCVA in the eyes of the placebo group |
| The result was statistically significant (repeated measure p value = 0dtta0147) |
The following table presents a summary of the ETDRS BCVA changes observed 12 months post-baseline in the modified per-protocol analysis of MIRA-1: Treatment Group Placebo Group (n=69) (n=46) --------------- ------------- Vision improvement greater or equal to: 1 line 46dtta4prca 19dtta6prca 2 lines 27dtta5prca 8dtta7prca 3 lines 8dtta7prca 2dtta2prca Vision loss greater or equal to: 1 line 11dtta6prca 23dtta9prca 2 lines 5dtta8prca 6dtta5prca 3 lines 2dtta9prca 2dtta2prca Within the modified per-protocol population with pre-treatment vision worse than 20/40, 50dtta0prca of RHEO(TM) Therapy-treated eyes improved, after treatment, to 20/40 or better and would be able to qualify for a driverapstas license 12 months post-baseline, compared to 20dtta0prca of placebo eyes |
| OccuLogix will be re-evaluating its PMA submission strategy |
| The per-protocol population analysis comprises 115 complete data sets, while OccuLogix had been required to obtain a minimum of 150 complete data sets |
| OccuLogix is planning to meet with representatives of the FDA in the second quarter of 2006 in order to discuss the impact on the PMA submission strategy of the MIRA-1 study results and the fact of the per-protocol population being fewer than 150 |
| It is more likely than not that OccuLogix will be required to conduct a follow-up clinical trial of the RHEO(TM) System |
| However, until OccuLogix has discussions with the FDA, it will not know if a follow-up clinical trial will be necessary and, if one is necessary, what its nature, size, scope or duration will be |
| OccuLogix cannot begin commercialization in the United States until it receives FDA approval |
| Until OccuLogix has discussions with the FDA, it will not be able to anticipate when, if ever, it will receive FDA approval |
| Accordingly, at this time, OccuLogix does not know when it can expect to begin to generate revenues in the United States |
| Prior to the announcement on February 3, 2006 of the preliminary analysis of the data from MIRA-1, in anticipation of commercialization in the United States, OccuLogix was establishing a plan to educate members of the eye care community about RHEO(TM) Therapy |
| It was in the process of identifying multi-facility health care service providers, including hospitals, dialysis clinics and ambulatory surgery centers, as well as private practices, which it believes may be interested in providing RHEO(TM) Therapy in their facilities |
| One of these potential providers may be TLCVision due to our relationships with a large number of optometrists and ophthalmologists in the United States |
| Pending the outcome of its discussions with the FDA and the determination of the parameters of any follow-up clinical trial of the RHEO(TM) System, OccuLogix has suspended, for the time being, all of its activities that were being conducted in anticipation of commercialization in the United States |
| In 2003, OccuLogix received Health Canada approval for the components of the RHEO(TM) System |
| The approval allows OccuLogix to market the RHEO(TM) System in Canada for use in the treatment of patients suffering from dysproteinemia due, for example, to abnormal plasma viscosity and/or macular disease |
| Upon receiving the approval, OccuLogix began limited commercialization of the RHEO(TM) System through sales of OctoNova pumps and disposable treatment sets to three clinics in Canada |
| In September 2004, OccuLogix signed an agreement with a private Canadian company called Rheo Therapeutics Inc |
| ) ( "e Veris "e ), a provider of RHEO(TM) Therapy, which agreed to purchase approximately 8cmam000 treatment sets and 20 OctoNova pumps by the end of 2005, with an option to purchase up to an additional 2cmam000 treatment sets, subject to availability |
| However, due to delays in its plans to open a number of commercial treatment centers in various Canadian cities where RHEO(TM) 27 Therapy would be performed, Veris no longer required the contracted-for number of treatment sets for such period |
| OccuLogix agreed to keep the original pricing for a reduced number of treatment sets |
| In December 2005, by letter agreement, OccuLogix agreed to the volume and other terms for the purchase and sale of treatment sets and pumps for the period ending February 28, 2006 |
| OccuLogix intends to negotiate with Veris purchase orders for the future |
| Jeffery Machat, who is an investor in and one of the directors of Veris, was a co-founder and former director of our Company |
| In summary, OccuLogixapstas primary activities to date have included commercialization of the RHEO(TM) System in Canada, working to obtain FDA regulatory approval for the RHEO(TM) System and building an operating infrastructure to support potential US sales following approval by the FDA Pending the outcome of OccuLogixapstas discussions with the FDA regarding the full analysis of the MIRA-1 study data, it is reasonably likely that the focus of its primary activities will shift |
| OUR STOCK PRICE AND REPORTED RESULTS MAY BE IMPACTED BY THE OPERATING RESULTS OF OCCULOGIX As a significant shareholder of OccuLogix, our stock price may be affected by changes in the price of OccuLogixapstas common stock |
| We are unable to predict how fluctuations in OccuLogixapstas stock price will affect our own stock price |
| Because we have a controlling financial interest in OccuLogix, the results of operations of this entity are consolidated into the operating results of our other businesses |
| OccuLogix expects to continue to report significant operating losses for the next several years |
| Because of the numerous risks and uncertainties associated with developing and commercializing new medical therapies, including obtaining FDA approval, OccuLogix is unable to predict the extent of any future losses or when it will become profitable, if ever |
| Because we are a significant shareholder of OccuLogix, our operating results and stock price may be negatively impacted by the operating results of OccuLogix |
| In the event that we were to reduce our ownership interest to the level where consolidation was not required, our operating results would still be impacted by OccuLogix to the extent of our ownership, via earnings from equity investments |
| As noted previously, on February 3, 2006, OccuLogix announced that the preliminary analysis of the data from MIRA-1 indicated that MIRA-1 did not demonstrate a statistically significant mean change of BCVA As a result, the share price of OccuLogixapstas stock as traded on the NASDAQ National Market System decreased from dlra12dtta75 on February 2, 2006 to close at dlra4dtta10 on February 3, 2006 |
| The 10-day average price of the stock immediately following the announcement was dlra3dtta65 and reflected a decrease in the market capitalization of OccuLogix from dlra536dtta6 million on February 2, 2006 to dlra153dtta6 million based on the 10-day average share price after the announcement |
| The resulting decrease in the share price was identified as an indicator of impairment leading to an analysis of OccuLogixapstas intangible assets and goodwill and resulting in OccuLogix reporting an impairment charge to goodwill of dlra147dtta5 million |
| Because we accounted for the OccuLogix reorganization at historical cost, we eliminate OccuLogixapstas goodwill balance in consolidation (see Note 1) |
| OccuLogix believes that the announcement made it unlikely that it would be able to collect on amounts outstanding from its sole customer, Veris, resulting in a provision for bad debts of dlra0dtta5 million related to revenue reported prior to December 2005 |
| OccuLogix did not recognize dlra0dtta5 million of revenue related to goods shipped in December 2005, based on collectibility not being reasonably assured |
| OccuLogix also fully expensed the dlra0dtta2 million advance that it had paid to Veris in connection with clinical trial services to be provided by Veris for one of OccuLogixapstas clinical trials |
| OccuLogix also evaluated its ending inventory balance as of December 31, 2005 on the basis that Veris may not be able to increase its commercial activities in Canada in line with initial expectations |
| Accordingly, OccuLogix set up a provision for obsolescence of dlra2dtta0 million for filter sets that are unlikely to be utilized prior to their expiration dates |
| As a result of the above entries, our reported pre-tax earnings for the quarter and year ended December 31, 2005 were reduced by dlra1dtta6 million |
| Additional adjustments to asset values may be required as OccuLogix continues its evaluation and operations, and those adjustments may be material |
| Those adjustments could impact our stock price as well as our results to the extent of our ownership percentage in OccuLogix |