UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

~~FOR~~For ~~THE~~the ~~QUARTERLY~~quarterly ~~PERIOD~~period ~~ENDED~~ended ~~SEPTEMBER 30~~March 31, ~~2009~~2010

~~COMMISSION FILE NUMBER: 0-29302~~OR


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

Commission file number: 0-29302

TLC VISION CORPORATION

(Exact name of registrant as specified in its charter)

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)

(Debtor-In-Possession as of December 21, 2009)

Registrant’s telephone number, including area code: (905) 602-2020


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

16305 SWINGLEY RIDGE ROAD, SUITE 300
CHESTERFIELD, MO		63017
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone, including area code: (636)-534-2300

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 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. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o ~~Smaller reporting company þ~~ (Do not check if a smaller reporting company) Smaller Reporting Company þ

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

As of ~~November~~May 1314, ~~2009~~2010 there were 50,565,219 of the registrant’s Common Shares outstanding.

INDEX

PART I. FINANCIAL INFORMATION			3
Item 1. Interim Consolidated Financial Statements (unaudited)			3
Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008			3
Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009			3
Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008			4
Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009			4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008			5
Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009			5
Notes to Interim Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1922
Item 3. Quantitative and Qualitative Disclosures about Market Risk			3028
Item 4. Controls and Procedures			3028
PART II. OTHER INFORMATION			31
Item 1. Legal Proceedings			3129
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 3. Defaults Upon Senior Securities			29
Item 3. Defaults Upon Senior Securities			31
Item 4. Removed and Reserved			29
Item 4. Submission of Matters to a Vote of Security Holders			31
Item 5. Other Information			29
Item 5. Other Information			31
Item 6. Exhibits			29
Item 6. Exhibits			31
Signatures			30
Signatures			33
EX-2.1
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-31.3
EX-31.4
EX-32.1
EX-32.2
EX-32.3
EX-32.4

PART I. FINANCIAL INFORMATION

ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

TLC VISION CORPORATION (DEBTOR-IN-POSSESION)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) (In thousands, except per share amounts)

	THREE MONTHS ENDED						~~NINE MONTHS ENDED~~
	SEPTEMBER 30,						SEPTEMBER 30,
	MARCH 31,
	2009			2008			2009			2008
	2010			2009
Revenues:
Refractive centers	$	2233,~~197~~012		$	2836,~~516~~000		$	~~85,145~~		$	~~126,540~~
Doctor services		2221,~~216~~739			2223,~~634~~556			~~70,264~~			~~73,225~~
Eye care		76,~~212~~641			69,~~384~~866			~~24,097~~			~~22,221~~
Total revenues		5161,~~625~~392			5769,~~534~~422			~~179,506~~			~~221,986~~
Cost of revenues (excluding amortization expense shown below):
Refractive centers		1722,~~510~~272			2226,~~245~~035			~~65,140~~			~~89,011~~
Doctor services		1615,~~371~~793			1618,~~618~~334			~~52,462~~			~~53,439~~
Eye care		3,~~491~~366			24,~~596~~772			~~11,413~~			~~10,109~~
Total cost of revenues (excluding amortization expense shown below)		3741,~~372~~431			4149,~~459~~141			~~129,015~~			~~152,559~~
Gross profit		1419,~~253~~961			1620,~~075~~281			~~50,491~~			~~69,427~~
General and administrative		5,~~679~~548			65,~~848~~936			~~18,007~~			~~22,201~~
Marketing and sales		4,~~948~~197			96,~~448~~828			~~17,285~~			~~31,308~~
Amortization of intangibles		~~583~~573			~~799~~583			~~1,748~~			~~2,432~~
Impairment of goodwill, intangibles and other long-term assets		496			1,500			496			1,500
Other (income) expense, net		(144	)		2,518
Other expense (income), net		6,471			(147	)		14,617			(703	)
		10,174			15,865
		18,177			18,448			52,153			56,738
Operating income		9,787			4,416
Operating (loss) income		(3,924	)		(2,373	)		(1,662	)		12,689
Interest income		9			134
Interest income		—			122			168			548
Interest expense		(4,400	)		(3,101	)
Interest expense		(4,118	)		(2,577	)		(9,681	)		(7,467	)
Earnings from equity investments		67			350
Earnings from equity investments		230			467			1,022			365
Income before reorganization items and income taxes		5,463			1,799
(Loss) income before income taxes		(7,812	)		(4,361	)		(10,153	)		6,135
Reorganization items, net		(7,419	)		—
Income tax expense		(176	)		(218	)		(660	)		(950	)
(Loss) income before income tax expense		(1,956	)		1,799
Net (loss) income		(7,988	)		(4,579	)		(10,813	)		5,185
Income tax expense		(300	)		(210	)
Less: Net income attributable to noncontrolling interest		2,057			2,132			7,415			8,024
Net (loss) income		(2,256	)		1,589
Net loss attributable to TLC Vision Corporation	$	(10,045	)	$	(6,711	)	$	(18,228	)	$	(2,839	)
Less: Net income attributable to noncontrolling interest		2,168			2,913
Net loss per share attributable to TLC Vision Corporation:
Net loss attributable to TLC Vision Corporation	$	(4,424	)	$	(1,324	)
Basic	$	(0.20	)	$	(0.13	)	$	(0.36	)	$	(0.06	)
Net loss per share attributable to TLC Vision Corporation:
Diluted	$	(0.20	)	$	(0.13	)	$	(0.36	)	$	(0.06	)
Basic	$	(0.09	)	$	(0.03	)
Weighted average number of common shares outstanding:
Diluted	$	(0.09	)	$	(0.03	)
Basic		50,565			50,345			50,550			50,292
Weighted average number of common shares outstanding:
Diluted		50,565			50,345			50,550			50,292
Basic		50,565			50,518
Diluted		50,565			50,518

See ~~the accompanying~~ notes to unaudited interim consolidated financial statements.

TLC VISION CORPORATION (DEBTOR-IN-POSSESSION)

CONSOLIDATED BALANCE SHEETS (In thousands)

(In thousands)


	(UNAUDITED)
	MARCH 31,			DECEMBER 31,
	2010			2009
ASSETS

Current assets:
Cash and cash equivalents	$	17,995		$	14,623
Accounts receivable, net		18,117			16,824
Prepaid expenses, inventory and other		10,619			10,829

Total current assets		46,731			42,276

Restricted cash		—			1,033
Investments and other assets, net		2,570			2,875
Goodwill		26,755			26,755
Other intangible assets, net		7,107			7,680
Fixed assets, net		31,797			34,297

Total assets	$	114,960		$	114,916


LIABILITIES

Liabilities not subject to compromise
Current liabilities:
Accounts payable	$	8,619		$	8,636
Accrued liabilities		19,343			12,175
Current maturities of long-term debt		12,757			10,049

Total current liabilities		40,719			30,860
Other long-term liabilities		2,140			2,208
Long-term debt, less current maturities		4,366			4,800

Total liabilities not subject to compromise		47,225			37,868

Liabilities subject to compromise		129,454			134,444

Total liabilities		176,679			172,312

STOCKHOLDERS’ DEFICIT

Common stock, no par value; unlimited number authorized		340,663			340,059
Option and warrant equity		341			745
Accumulated deficit		(414,806	)		(410,382	)

Total TLC Vision Corporation stockholders’ deficit		(73,802	)		(69,578	)
Noncontrolling interest		12,083			12,182

Total stockholders’ deficit		(61,719	)		(57,396	)

Total liabilities and stockholders’ deficit	$	114,960		$	114,916

	(UNAUDITED)
	SEPTEMBER 30,			DECEMBER 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	13,153		$	4,492
Accounts receivable, net		16,517			16,870
Prepaid expenses, inventory and other		11,889			14,214
Total current assets		41,559			35,576
Restricted cash		1,000			—
Investments and other assets, net		9,279			11,694
Goodwill		26,755			28,570
Other intangible assets, net		8,252			10,628
Fixed assets, net		43,227			50,514
Total assets	$	130,072		$	136,982
LIABILITIES
Current liabilities:
Accounts payable	$	14,094		$	17,897
Accrued liabilities		24,444			28,076
Current maturities of long-term debt (including debt in default of $100.1 million and $82.7 million at September 30, 2009 and December 31, 2008, respectively)		106,644			89,081
Total current liabilities		145,182			135,054
Long-term debt, less current maturities		14,891			16,500
Other long-term liabilities		6,772			5,444
Total liabilities		166,845			156,998
STOCKHOLDERS’ DEFICIT
TLC Vision Corporation stockholders’ deficit:
Common shares, no par value; unlimited number authorized		339,809			339,112
Option and warrant equity		745			745
Accumulated other comprehensive loss		—			(1,545	)
Accumulated deficit		(391,886	)		(373,658	)
Total TLC Vision Corporation stockholders’ deficit		(51,332	)		(35,346	)
Noncontrolling interest		14,559			15,330
Total stockholders’ deficit		(36,773	)		(20,016	)
Total liabilities and stockholders’ deficit	$	130,072		$	136,982

See notes to unaudited interim consolidated financial statements.

See the accompanying notes to unaudited interim consolidated financial statements.

TLC VISION CORPORATION (DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)

(UNAUDITED) (In thousands)


	THREE MONTHS
	ENDED MARCH 31,
	2010			2009
OPERATING ACTIVITIES
Net (loss) income	$	(2,256	)	$	1,589
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization		3,597			4,012
Earnings from equity investments		(67	)		(350	)
Gain on sales and disposals of fixed assets		(66	)		(164	)
Non-cash compensation expense		200			208
Amortization of deferred finance fees		1,032			104
Other		(88	)		280
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable		(1,294	)		(1,604	)
Prepaid expenses, inventory and other current assets		(358	)		777
Accounts payable and accrued liabilities		3,124			423

Cash provided by operating activities		3,824			5,275


INVESTING ACTIVITIES
Purchases of fixed assets		(449	)		(417	)
Proceeds from sales of fixed assets		89			189
Distributions and loan payments received from equity investments		614			657
Acquisitions and equity investments		(533	)		(4,588	)
Other		(120	)		37

Cash used in investing activities		(399	)		(4,122	)


FINANCING ACTIVITIES
Decrease (increase) in restricted cash		1,033			(876	)
Proceeds from debtor-in-possession financing		10,000			—
Proceeds from Credit Facility and other debt financing		400			17,971
Principal payments of debtor-in-possession financing		(7,500	)		—
Principal payments of Credit Facility and other debt financing		(1,219	)		(1,770	)
Debtor-in-possession debt issuance costs		(500	)		—
Deferred Credit Facility debt issuance costs		—			(78	)
Distributions to noncontrolling interests		(2,267	)		(2,381	)
Proceeds from issuances of common stock		—			23

Cash (used in) provided by financing activities		(53	)		12,889


Net increase in cash and cash equivalents during the period		3,372			14,042
Cash and cash equivalents, beginning of period		14,623			4,492

Cash and cash equivalents, end of period	$	17,995		$	18,534

	NINE MONTHS
	ENDED SEPTEMBER 30,
	2009			2008
OPERATING ACTIVITIES
Net (loss) income	$	(10,813	)	$	5,185
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization		11,955			14,845
Impairment of goodwill, intangibles and other long-term assets		496			1,500
Earnings from equity investments		(1,022	)		(365	)
Net gain on sales and disposals of fixed assets		(303	)		(397	)
Loss (gain) on business divestitures		1,594			(139	)
Non-cash compensation expense		675			1,101
Write-down of inventory		720			—
Other		595			459
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable		(117	)		(1,016	)
Prepaid expenses, inventory and other current assets		1,164			(963	)
Accounts payable and accrued liabilities		659			1,847
Cash provided by operating activities		5,603			22,057
INVESTING ACTIVITIES
Purchases of fixed assets		(1,259	)		(2,785	)
Proceeds from sales of fixed assets		534			774
Distributions and loan payments received from equity investments		1,564			1,682
Acquisitions and equity investments		(5,038	)		(8,332	)
Divestitures of businesses and other investments		2,181			1,128
Other		(61	)		(72	)
Cash used in investing activities		(2,079	)		(7,605	)
FINANCING ACTIVITIES
Restricted cash (increase) decrease		(1,000	)		1,101
Principal payments of debt financing and capital leases		(4,024	)		(25,818	)
Proceeds from debt financing		17,971			13,784
Capitalized debt costs		(78	)		(534	)
Distributions to noncontrolling interests		(7,754	)		(7,724	)
Proceeds from issuances of common stock		22			309
Cash provided by (used in) financing activities		5,137			(18,882	)
Net increase (decrease) in cash and cash equivalents during the period		8,661			(4,430	)
Cash and cash equivalents, beginning of period		4,492			12,925
Cash and cash equivalents, end of period	$	13,153		$	8,495

See notes to unaudited interim consolidated financial statements.

See the accompanying notes to unaudited interim consolidated financial statements.

TLC VISION CORPORATION ~~AND SUBSIDIARIES~~ (DEBTOR-IN-POSSESSION)

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS ~~September 30~~MARCH 31, ~~2009~~2010 (~~Unaudited~~UNAUDITED) (~~Tabular~~tabular amounts in thousands, except per share amounts)

1. ~~BASIS~~Business OFand ~~PRESENTATION~~Accounting Policies

~~The~~Business ~~accompanying unaudited interim consolidated financial statements have been prepared in~~Overview accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. The unaudited interim consolidated financial statements included herein should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2008 filed by TLC Vision Corporation (“Company” or “TLCVision”) with the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all normal recurring adjustments and estimates considered necessary for a fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2009. The consolidated financial statements as of December 31, 2008 and unaudited interim consolidated financial statements for the three and nine months ended September 30, 2009 and 2008 include the accounts and transactions of the Company and its majority-owned subsidiaries that are not considered variable interest entities (“VIEs”) and all VIEs for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

A significant portion of the Company’s revenues come from owning and operating refractive centers that employ laser technologies to treat common refractive vision disorders such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Refractive centers, which is a reportable segment, includes the Company’s 70 centers that provide corrective laser surgery, of which 62 are majority owned and 8 centers are minority owned. In its doctor services business, the Company furnishes doctors and medical facilities with mobile or fixed site access to refractive and cataract surgery equipment, supplies, technicians and diagnostic products, as well as owns and manages single-specialty ambulatory surgery centers. In its eye care business, the Company primarily provides franchise opportunities to independent optometrists under its Vision Source^® brand.

InBasis ~~the third quarter~~ of ~~2009, the Company adopted changes issued by the Financial Accounting~~Presentation Standards Board (“FASB”) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. These changes and the Codification itself do not change GAAP other than the manner in which new accounting guidance is referenced. The adoption of these changes had no impact on the Company’s financial statements.

~~Effective~~The ~~January 1,~~accompanying ~~2009,~~unaudited ~~the~~interim ~~Company~~consolidated ~~adopted~~financial statements have been prepared in accordance with accounting principles generally accepted in the ~~FASB’s~~United ~~guidance~~States ~~(ASC~~for ~~810)~~interim ~~regarding~~financial ~~presentation~~information ofand ~~noncontrolling~~with ~~interests,~~the ~~previously~~instructions ~~referred~~ to asForm ~~minority~~10-Q. ~~interest~~Accordingly, ~~which~~they ~~has~~do not include all of the ~~been~~information ~~changed~~and onfootnotes required by accounting principles generally accepted in the ~~Consolidated~~United ~~Balance~~States (GAAP) for ~~Sheets~~complete tofinancial bestatements. ~~reflected~~The asunaudited ainterim ~~component~~consolidated offinancial ~~total~~statements ~~stockholders’~~included ~~deficit~~herein ~~and~~should be read in conjunction with the Annual Report on Form 10-K, including subsequent amendments, for the ~~Consolidated~~year ~~Statements~~ended ofDecember 31, ~~Operations~~2009 tofiled beby aTLC ~~specific~~Vision ~~allocation~~Corporation of(Company ~~net~~or ~~income~~TLCVision) with the United States Securities and Exchange Commission (~~loss~~SEC). ~~Amounts~~In ~~reported~~the opinion orof ~~included~~management, inall ~~prior~~normal ~~periods~~recurring ~~remain~~adjustments ~~unchanged,~~and ~~but~~estimates considered necessary for a fair presentation have been ~~revised~~ toincluded. ~~conform~~The ~~with~~results of operations for the ~~current~~interim ~~period~~periods ~~presentation.~~are ~~Loss~~not necessarily ~~per~~indicative ~~share~~of ~~continues~~the toresults that may be ~~based~~expected ~~on losses~~for ~~attributable~~the toentire ~~TLC~~year ~~Vision~~ending ~~Corporation~~December 31, 2010.

~~Effective January 1, 2009, the Company adopted the FASB’s guidance (ASC 815) intended to~~Consolidation improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. The guidance encourages, but does not require, comparative disclosures for periods prior to its initial adoption. The Company’s adoption of the guidance did not have a material impact on the financial statements.

The consolidated financial statements as of December 31, 2009 and unaudited interim consolidated financial statements for the three months ended March 31, 2010 and 2009 include the accounts and transactions of the Company and its majority-owned subsidiaries that are not considered variable interest entities (VIEs) and all VIEs for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

Recently Adopted Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued accounting guidance on consolidations which clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The guidance also requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity, and additional disclosures about a company’s involvement in variable interest entities and any associated changes in risk exposure. The guidance became effective January 1, 2010, at which time there was no impact to the Company’s results of operations, financial condition or cash flows. The Company will continue monitoring and assessing its business ventures in accordance with the guidance.

In June 2009, the FASB issued accounting guidance that seeks to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows;

~~During~~and ~~the~~a ~~second fiscal quarter of 2009, the Company adopted the FASB~~transferor’s ~~guidance~~continuing ~~(ASC~~involvement, ~~855) establishing~~if ~~general~~any, ~~standards~~in oftransferred ~~accounting for and disclosure of events that occur after the balance sheet date but before~~ financial ~~statements are issued~~assets. The guidance, ~~adoption~~which ofbecame ~~the~~effective ~~FASB’s~~January 1, ~~guidance~~ 2010, did not ~~have~~affect ~~a material impact on~~ the Company’s ~~consolidated financial position,~~ results of operations, financial condition or cash flows. ~~The Company performed an evaluation of subsequent events through~~ November 16, 2009, the date which the financial statements were issued, and has made disclosures of all material subsequent events in the Notes to the Unaudited Interim Consolidated Financial Statements.

2. ~~LIQUIDITY~~Bankruptcy Proceedings

~~The Company relies on the following sources of liquidity to continue to operate as a going concern: (i)~~Chapter ~~cash~~11 ~~and~~Bankruptcy ~~cash equivalents on hand; (ii) cash generated from operations; (iii)~~Filings borrowings under the Company’s revolving credit facility; (iv) net proceeds from asset sales; and (v) access to the capital markets. The Company’s principal uses of cash are to provide working capital to fund its operation and to service its debt and other contractual obligations. The changes in financial markets during 2008 limited the ability of companies such as TLCVision to access the capital markets. The economic recession in the United States continues to impact the Company’s operations, resulting in a decline in the demand for refractive surgery and financial performance. The Company incurred losses attributable to TLC Vision Corporation of $18.2 million for the nine months ended September 30, 2009 compared to $2.8 million for the nine months ended September 30, 2008. As a result, the Company’s liquidity continued to be significantly constrained during 2009.

~~Beginning~~On ~~in early 2008~~December 21, in2009 ~~response to~~ (the ~~deteriorating~~Petitions ~~economic environment~~Date), the Company ~~implemented~~ aand ~~series~~two of ~~initiatives~~its towholly ~~reduce~~owned subsidiaries, ~~its~~TLC ~~costs~~Vision of(USA) Corporation ~~operation~~and toTLC ~~levels~~Management ~~commensurate~~Services, ~~with~~Inc., (Debtor Entities) ~~the~~filed ~~new~~voluntary ~~lower~~petitions ~~level~~(Chapter 11 ofPetitions) ~~refractive~~under ~~procedures~~Chapter 11 ~~anticipated~~of inTitle ~~fiscal~~11 ~~2008~~of ~~and~~the ~~2009~~U.S. ~~The Company~~Code ~~continues~~(Bankruptcy toCode) ~~evaluate~~in ~~and~~the ~~implement~~United ~~cost~~States ~~reduction~~Bankruptcy ~~and~~Court ~~cash~~for ~~generation~~the ~~initiatives,~~District ~~including~~of ~~the~~Delaware (U.S. Court). ~~sale~~The ofChapter 11 ~~surplus~~cases ~~assets~~are ~~and~~being jointly administered under the ~~closure~~caption ofIn ~~underperforming~~re ~~refractive~~TLC ~~centers/mobile~~Vision ~~refractive~~(USA) ~~routes~~Corporation, et al., ~~During~~Case ~~the~~No. 09-14473. ~~nine~~On ~~months~~the ~~ended~~same ~~September 30~~day, ~~2009,~~ the Company ~~closed~~also ~~four~~filed ~~majority-owned~~ancillary ~~refractive~~proceedings ~~centers,~~in ~~which~~Canada ~~performed~~(Canadian ~~approximately~~Petition) ~~400~~under ~~and~~the ~~1,000~~Canadian ~~refractive~~Companies’ ~~procedures~~Creditors ~~during~~Arrangement ~~the~~Act ~~nine months ended September~~(CCAA) ~~30,~~in ~~2009~~the ~~and~~Ontario ~~2008,~~Superior ~~respectively.~~Court ~~During~~of Justice (the ~~quarter~~Canadian ~~ended~~Court). ~~September~~On December 3023, 2009, the Canadian ~~Company~~Court ~~divested~~recognized ~~one~~the ~~majority-owned~~Company’s ~~and~~Chapter 11 ~~two~~case ~~minority-owned~~as ~~ambulatory~~a ~~surgical~~“foreign ~~centers for~~main aproceeding” ~~combined~~and ~~net~~granted the ~~sale~~Company ~~price~~certain ofother $2relief.~~2 million.~~ ~~The~~No ~~divested~~other ~~ambulatory~~operations ~~surgical~~of ~~centers~~the ~~performed 5~~Company,~~500~~ ~~and~~its ~~7,500~~affiliates ~~surgical~~or subsidiaries ~~procedures~~were ~~during~~involved in the ~~nine months ended September 30, 2009 and 2008, respectively~~filings.

~~Due~~Although to the ~~decline~~filing inof ~~customer~~the ~~demand~~Chapter 11 ~~during~~Petitions ~~the~~constituted ~~trailing~~an ~~twelve~~event ~~month~~of ~~period,~~default ~~and~~under ~~the~~certain ~~resulting~~of ~~decline in sales,~~ the Company’s ~~deteriorating~~debt ~~financial~~obligations, ~~performance~~actions ~~resulted in the Company’s inability~~ to ~~comply~~enforce ~~with~~payment ~~its~~of ~~primary~~obligations ~~financial~~existing ~~covenants~~prior ~~under~~to ~~its~~the Petitions ~~Credit~~Date ~~Facility~~stayed as ~~of December 31,~~a ~~2008,~~result ~~March 31,~~of ~~2009,~~the ~~June 30,~~filing ~~2009~~of ~~and~~the ~~September~~Chapter ~~30,~~11 ~~2009.~~Petitions ~~Furthermore, the Company ceased making principal~~ and ~~interest payments under~~ the ~~Credit Facility subsequent to June 30,~~Canadian ~~2009~~Petition.

AsThe aDecember 21, ~~result~~2009 ofpetitions ~~the~~were ~~inability~~filed to ~~comply~~implement ~~with~~a ~~the~~financial ~~primary~~restructuring ~~financial~~through ~~covenants~~a pre-arranged plan of reorganization. On January 6, 2010, the ~~Company~~Debtor ~~has received~~Entities ~~from~~filed ~~its~~a ~~lenders~~joint ~~numerous~~plan ~~waivers,~~of reorganization ~~consents~~(Plan ~~and~~of ~~amendments~~Reorganization) towith the ~~Credit~~U.S. ~~Agreement~~Court. ~~during the~~The ~~nine~~Plan ~~months~~of ~~ended~~Reorganization ~~September 30~~provided for, ~~2009.~~among ~~All~~other ~~waivers~~things, ~~consents~~a ~~and~~conversion ~~amendments~~of tocertain ~~the~~senior ~~Credit Agreement~~secured ~~are~~indebtedness ~~filed~~to ~~with~~100% of the ~~SEC~~new equity asof ~~exhibits~~TLC toVision ~~Current~~(USA) Corporation, ~~Reports~~which onwould ~~Form~~emerge ~~8-K.~~as ~~The~~a ~~following~~privately ~~were dated~~held ~~during~~Company ~~the~~owned ~~quarter~~by certain ~~ended~~pre-petition ~~September 30,~~senior ~~2009:~~secured creditors.

	•		On September 10, 2009, the Company announced that it obtained from its lenders a Limited Waiver and Amendment No. 5 to the Credit Agreement, dated as of September 8, 2009, which among other things, provided a limited waiver through September 30, 2009 of specified defaults and provided that the lenders would, until October 1, 2009, forbear from exercising their rights arising out of the non-payment of certain principal, interest and other payments previously due.
	•		On October 1, 2009, the Company announced that it had secured from its lenders an extension to October 13, 2009 of the previously announced Limited Waiver and Amendment No. 5 with respect to its Credit Facility that expired on September 30, 2009, along with a forbearance with respect to certain payment obligations under the Credit Agreement. The extension and forbearance agreement is contained in a limited waiver, dated as of September 30, 2009, which among other things, provided a limited waiver through October 13, 2009 of specified defaults, extended the time for payment of certain principal, interest and

On February 3, 2010, the Debtor Entities filed the first amended joint plan of reorganization (First Amended Plan). The First Amended Plan was sponsored by affiliates of a fund managed by Charlesbank Capital Partners LLC (Charlesbank). In connection with the First Amended Plan, Charlesbank provided a written commitment to fund up to $134.4 million to or for the benefit of the Debtor Entities. Charlesbank’s written funding commitment was subject to the satisfaction of conditions set forth in a Chapter 11 plan sponsor agreement. The First Amended Plan provided for, among other things, the following: the payment in full of all amounts owed to the Company’s senior secured lenders; the acquisition by Charlesbank of substantially all of the assets of the Company, including 100% of the equity of TLC Vision (USA) Corporation and the Company’s six refractive centers in Canada; payments to employees and critical vendors in the ordinary course of business; and distributions to certain other secured and unsecured creditors. There was no assurance of any distribution to the stockholders of the Company under the First Amended Plan.

On February 12, 2010, the Debtor Entities filed the second amended joint plan of reorganization (Second Amended Plan). The Second Amended Plan was sponsored by affiliates of Charlesbank and H.I.G. Capital, LLC (H.I.G.), which joined as an investor in the plan sponsor. In addition to the previously announced terms under the First Amended Plan, the Second Amended Plan also provided for consideration in the amount of up to $9.0 million in cash and a new promissory note of up to $3.0 million to be paid to the general unsecured creditors of the Debtor Entities.

The Debtor Entities filed the third and fourth amended joint plans of reorganization on March 17, 2010 and March 24, 2010, respectively. The third and fourth amended joint plans of reorganization did not significantly alter the Second Amended Plan other than for the inclusion of an additional impaired class consisting of pending medical malpractice litigation claims.

On May 5, 2010, the Debtor Entities filed the fifth amended joint plan of reorganization (Fifth Amended Plan). The Fifth Amended Plan did not significantly alter the fourth amended joint plan of reorganization, other than to change the treatment of certain classes of claims under the plan from impaired to unimpaired.

~~other~~ In ~~payments~~order ~~previously~~to ~~due~~successfully exit Chapter 11, the U.S. Court must confirm a Chapter 11 plan, such as the Fifth Amended Plan, and ~~provided~~the Canadian Court must recognize that ~~the~~such ~~lenders~~plan ~~holding~~has abeen ~~majority~~confirmed. ~~amount~~A confirmed plan of ~~the~~reorganization ~~Credit~~may, ~~Agreement~~among ~~could~~other things, inresolve ~~their~~the ~~sole~~Company’s ~~discretion~~pre-petition obligations, ~~extend~~set forth the ~~waiver~~revised ~~period~~capital structure of the newly reorganized entity, and provide for corporate governance subsequent to ~~October~~Chapter 11. 30Under the Fifth Amended Plan, ~~2009~~the Company will cease operations, its assets will be sold or liquidated, and its business will be continued by TLC Vision (USA) Corporation and that entity’s affiliates.

~~Refer~~On toMay 6, ~~Note 24~~2010, ~~Subsequent~~the ~~Events~~U.S. Court confirmed the Fifth Amended Plan. The Canadian Court recognized under the CCAA such confirmation on May 11, ~~for~~2010. ~~additional~~The ~~information~~Fifth ~~regarding~~Amended ~~waivers~~Plan will become effective upon satisfaction or waiver by the plan sponsor of all outstanding closing conditions. The Company expects that the Fifth Amended Plan will become effective on or before May 20, ~~amendments~~2010. After such date, it is expected that any assets of the Company not sold to Charlesbank and ~~consents~~H.I.G. ~~dated~~will ~~subsequent~~be liquidated under the CCAA in a Canadian proceeding and that net proceeds of such liquidation, if any, will be distributed first to ~~September 30~~the Company’s creditors and second, ~~2009~~after all creditors are paid in full, to the Company’s stockholders.

AsThe ofDebtor ~~September 30,~~Entities ~~2009,~~are currently operating as “debtors-in-possession” under the ~~Company~~jurisdiction of ~~failed~~the toU.S. ~~make~~Court ~~various~~and ~~mandatory~~Canadian ~~payments~~Court ~~under~~(collectively, ~~its Credit~~the ~~Agreement~~Bankruptcy Courts) and ~~related~~in ~~amendments.~~accordance ~~Such~~with applicable ~~payments~~provisions ~~included~~of ~~interest~~the onBankruptcy Code and the ~~term~~CCAA. In general, the Company and ~~revolving~~its ~~credit~~subsidiaries ~~advances~~are ofauthorized ~~$2.8 million~~to continue to operate as ongoing businesses, ~~principal~~but ~~payments~~may onnot ~~term~~engage ~~advances~~in transactions outside the ordinary course of ~~$0.4 million~~business ~~and~~without ~~$1.4 million~~the approval of ~~other~~the ~~mandatory~~Bankruptcy ~~payments~~Courts.

~~Given the aforementioned payment defaults, and that it is unlikely that the Company will be~~ Debtor-in ~~compliance~~-Possession ~~with the covenants currently in the Credit Facility for the balance of 2009 beyond the current waiver period unless amended, all term borrowings aggregating $76.7~~(DIP) ~~million under the~~Financing Credit Facility have been recorded as current liabilities as of September 30, 2009 and December 31, 2008. Accordingly, at September 30, 2009 and December 31, 2008, the Company has working capital deficiencies of approximately $103.6 million and $99.5 million, respectively.

~~The~~In ~~Company~~connection ~~borrowed~~with anfiling ~~additional~~the ~~$17.4~~Chapter ~~million~~11 ~~under~~Petitions and the ~~revolving~~Canadian ~~portion~~Petition, ofon ~~its Credit~~December 21, ~~Facility~~2009, ~~during~~the Debtor Entities filed a motion with the ~~nine~~US ~~months~~Court ~~ended~~seeking ~~September~~authority to enter into a post-petition credit agreement. On December 3022, 2009, ~~which~~the ~~reduced~~U.S. ~~the~~Court ~~open~~issued ~~availability~~an ~~under~~interim order approving the ~~Credit~~Company’s ~~Facility~~motion to ~~approximately~~obtain $0a senior secured super priority debtor-in-possession credit agreement (Senior DIP Credit Agreement).~~6 million~~ atOn ~~September~~December 3023, 2009., ~~The~~the ~~outstanding~~Canadian ~~balance~~Court ofgranted a ~~$23.4 million~~recognition ~~under~~order relating to the ~~revolving~~orders ~~portion~~received ofby the ~~Credit~~Company ~~Facility~~from isthe ~~also~~U.S. ~~recorded~~Court. asThe ~~a current~~Senior ~~liability~~DIP asCredit ofAgreement, ~~September~~dated December 3023, 2009, was among the Debtors, various lenders and Cantor Fitzgerald Securities as collateral and administrative agent.

The ~~Company~~Senior ~~will~~DIP ~~likely~~Credit ~~continue~~Agreement toprovided ~~incur~~for ~~operating~~financing ~~losses~~of ina ~~2009~~senior ~~and~~secured ~~its~~super ~~liquidity~~priority ~~will~~term ~~likely~~loan ~~remain~~facility ~~constrained~~in ~~such~~a ~~that~~principal itamount ~~may~~up ~~not be sufficient~~ to ~~meet the Company’s cash operating needs in this period of economic uncertainty~~$15.0 million. ~~The~~On ~~Company~~December 24, ~~is in active discussions with its lenders to ensure that it has sufficient liquidity in excess of what is available under its Credit Facility~~2009, ~~although there is no assurance that~~ the ~~Company~~Debtor ~~can obtain additional liquidity on~~Entities ~~commercially~~borrowed ~~reasonable terms, if at all~~$7.5 million Ifunder the ~~Company~~Senior isDIP ~~unable~~Credit toAgreement. ~~obtain~~For oradditional ~~sustain~~information ~~the~~regarding ~~liquidity required to operate its business~~ the ~~Company may need to seek to modify the~~ terms of ~~its debts and/or to reorganize its capital structure. There can be no assurances that~~ the ~~lenders~~Senior ~~will grant~~DIP ~~such~~Credit ~~restructuring,~~Agreement ~~waivers~~refer ~~or amendments on commercially reasonable terms, if at all. If the Company is unable~~ to ~~obtain~~Note ~~or sustain the liquidity required to operate its business~~7, ~~the~~ ~~Company may need to seek to modify the terms of its debts through court reorganization proceedings to allow it, among other things, to reorganize its capital structure~~Debt.

~~The~~In ~~Company’s~~connection ~~independent~~with ~~registered~~the ~~public~~First ~~accounting~~Amended ~~firm’s~~Plan, ~~report~~the ~~issued~~Company infiled ~~the~~motions ~~December 31,~~seeking ~~2008~~approval ~~Annual~~from ~~Report~~the U.S. onCourt ~~Form~~of ~~10-K~~a ~~included~~junior ansecured ~~explanatory~~super ~~paragraph~~priority ~~describing~~debtor-in-possession ~~the~~credit ~~existence~~agreement of(Junior DIP ~~conditions~~Credit ~~that~~Agreement). ~~raise~~The ~~substantial~~Junior ~~doubt~~DIP ~~about~~Credit ~~the~~Agreement, ~~Company’s~~approved ~~ability~~by tothe ~~continue~~U.S. asCourt avia ~~going~~an ~~concern,~~interim order ~~including~~on ~~significant~~February 12, ~~losses~~2010, ~~limited~~which ~~access~~was torecognized ~~additional~~by ~~liquidity~~the ~~and~~Canadian ~~compliance~~Court ~~with~~on ~~certain~~February 18, 2010, is dated ~~financial~~February 3, ~~covenants.~~2010 ~~The~~and ~~financial~~is ~~statements~~among dothe ~~not~~Debtors, ~~include~~various ~~any~~lenders ~~adjustments~~and ~~relating~~Charlesbank toEquity ~~the~~Fund VII, Limited ~~recoverability~~Partnership, as collateral and ~~classification~~administrative ofagent. ~~asset~~The ~~carrying~~U.S. ~~amounts~~Court orentered ~~the~~a ~~amount~~final ~~and~~order ~~classification~~on ofMarch ~~liabilities~~9, ~~that~~2010 ~~may~~approving ~~result~~the ~~should~~Junior ~~the~~DIP ~~Company~~Credit beAgreement. ~~unable~~That toorder ~~continue~~was asrecognized aby ~~going~~the ~~concern~~Canadian Court on March 16, 2010.

3 The Junior DIP Credit Agreement provides for financing of a junior secured super priority term loan facility in a principal amount of up to $25.0 million. ~~NASDAQ~~On ~~STOCK~~February 25, ~~MARKET~~2010, ~~COMPLIANCE~~the Debtor Entities borrowed $10.0 million under the Junior DIP Credit Agreement and used the funds, among other things, to pay in full the outstanding principal balance of $7.5 million under the Senior DIP Credit Agreement. For additional information regarding the terms of the Junior DIP Credit Agreement refer to Note 7, Debt.

On September 16, 2009, the Company received letters from the NASDAQ Stock Market indicating that, for the last 30 consecutive business days, the Company’s common stock did not maintain a minimum value requirement of publicly held shares of $15 million (“MVPHS Rule”) and the bid price of the Company’s common stock closed below the minimum $1.00 per share requirement (“Minimum Bid Price Rule”) for continued inclusion on the NASDAQ Stock Market. The Company will be provided until December 15, 2009 to obtain compliance with the MVPHS Rule and until March 15, 2010 to regain compliance with the Minimum Bid Price Rule.

The NASDAQ letters state that if, at any time before December 15, 2009, the minimum value of publicly held shares of the Company’s common stock is $15 million or more for a minimum of 10 consecutive business days, NASDAQ staff will provide written notification that the Company has achieved compliance with the MVPHS Rule and if, at any time before March 15, 2010, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, NASDAQ staff will provide written notification that the Company has achieved compliance with the Minimum Bid Price Rule.

~~The~~Reorganization ~~NASDAQ letters also state that, if the Company does not regain compliance with the MVPHS~~Process Rule by December 15, 2009, or the Minimum Bid Price Rule by March 15, 2010, NASDAQ staff will provide written notification that the Company’s securities will be delisted. At that time, the NASDAQ Marketplace Rules would permit the Company to appeal the NASDAQ staff’s determination to delist its securities to a NASDAQ Listing Qualifications Panel.

The ~~NASDAQ~~Company ~~letters~~is operating its business as a debtor-in-possession under the Bankruptcy Courts’ protection from creditors and claimants. The Bankruptcy Courts have approved payment of ~~September 16~~certain pre-petition obligations, ~~2009~~including ~~have~~employee nowages, ~~effect~~salaries onand benefits, and the ~~listing~~payment of vendors and other providers in the ~~Company’s~~ordinary ~~common~~course for goods and services received after the filing ~~stock~~of atthe ~~September~~Chapter 3011 Petitions and Canadian Petition. The Company has retained legal and financial professionals to advise on the bankruptcy proceedings. From time to time, ~~2009~~the Company may seek the U.S. Court’s approval for the retention of additional professionals.

4 Immediately after filing the Chapter 11 Petition and Canadian Petition, the Company notified all known current or potential creditors of the bankruptcy filings. ~~ACQUISITIONS~~Subject ~~AND~~to ~~INVESTMENTS~~certain exceptions under the Bankruptcy Code and the CCAA, the bankruptcy filings stayed the continuation of any judicial or administrative proceedings or other actions against the Company or its property to recover, collect or secure a claim arising prior to the filing of the Chapter 11 Petition and Canadian Petition.

~~The~~As ~~Company’s~~required ~~strategy~~by ~~includes~~the ~~periodic~~Bankruptcy ~~acquisitions of~~Code, orthe ~~investments~~United ~~in,~~States ~~entities~~Trustee ~~that operate~~for ~~within~~the ~~its~~District ~~chosen~~of ~~markets.~~Delaware appointed ~~During~~an ~~the~~official ~~nine~~committee ~~months~~of ~~ended~~unsecured ~~September 30,~~creditors ~~2009 and 2008,~~ (the ~~Company~~ ~~made~~Creditors’ ~~investments~~Committee). ofThe ~~$5.0 million~~Creditors’ Committee and ~~$8.3 million,~~its ~~respectively,~~legal torepresentatives ~~acquire~~have ora ~~invest~~right ~~in multiple~~to ~~entities,~~be ~~none~~heard ofon ~~which~~all ~~was~~matters ~~individually~~that ~~material.~~come ~~Included in acquisition and equity~~before ~~investments~~the ~~are~~U.S. ~~cash~~Court ~~payments~~with ~~during~~respect ~~2009~~to ~~and~~the ~~2008~~Company. ofAn ~~approximately~~information ~~$4.0 million~~officer ~~and~~has ~~$6.6 million, respectively,~~been ~~related~~appointed toby the Canadian ~~Company’s~~Court ~~2005~~with ~~TruVision™~~respect ~~acquisition,~~to ~~which~~proceedings ~~were~~before ~~included in~~ the ~~initial~~ ~~purchase~~Canadian ~~price allocation~~Court.

~~During~~Under ~~2005,~~Section 365 ~~the~~and ~~Company~~other ~~acquired~~relevant asections ~~substantial portion~~ of the ~~assets~~Bankruptcy ofCode, ~~Kremer~~the ~~Laser~~Company ~~Eye~~may assume, ~~(“Kremer”).~~assume Asand ~~of September 30~~assign, ~~2009,~~or ~~Kremer~~reject ~~operates~~certain ~~three~~executory ~~refractive~~contracts ~~centers~~and unexpired leases, ~~which~~including ~~the~~leases ~~Company~~of ~~has~~real anproperty ~~approximate~~and ~~84% ownership interest~~equipment, ~~and~~subject ~~one~~to ~~ambulatory~~the ~~surgery~~approval ~~center,~~of ~~which~~ the ~~Company has~~U.S. aCourt ~~70%~~and ~~ownership~~certain ~~interest~~other conditions. AsAny ~~part~~description of aan ~~transfer~~executory ~~rights~~contract ~~agreement~~or ~~entered~~unexpired onlease ~~the~~in ~~acquisition~~this report, including, ~~date~~where ~~between~~applicable, the Company’s ~~and~~express ~~the~~termination ~~minority~~rights ~~holders~~or a quantification of ~~Kremer~~obligations, ~~the~~must be ~~minority~~read ~~holders~~in ~~retain~~conjunction ~~options that~~with, ~~could~~and ~~require~~is ~~the~~qualified ~~Company~~by, toany ~~purchase~~overriding ~~the~~rejection ~~remaining~~rights ~~noncontrolling~~the ~~interest.~~Company ~~The first option~~has ~~was~~under ~~exercisable during July~~Section ~~2009~~365 ~~with~~of ~~all~~the ~~remaining~~Bankruptcy ~~options being exercisable during July 2010 and 2012~~Code.

~~During~~The ~~July 2009, the~~ Company ~~received~~has ~~formal~~reviewed ~~notification~~and, ~~from~~with ~~the~~one ~~minority~~exception, ~~holders~~determined which of ~~Kremer~~its executory contracts ofand ~~their~~unexpired ~~intent~~leases toit ~~exercise~~will reject pursuant to the ~~first~~Fifth ~~option~~Amended Plan under Section 365 of the Bankruptcy Code. The ~~option,~~Company ifexpects ~~exercised,~~that ~~would~~the ~~transfer~~assumption aof ~~portion~~executory ofcontracts and unexpired ~~the~~leases ~~remaining~~will ~~noncontrolling~~convert ~~interest~~certain of ~~Kremer~~the toliabilities ~~TLCVision~~shown inon ~~exchange~~the ~~for~~accompanying ~~approximately~~consolidated ~~$1.9~~balance sheet ~~million~~as ~~payable~~liabilities ~~August 2009~~subject to compromise to liabilities not subject to compromise. IfDue to the ~~Company~~uncertain nature ~~failed~~of tomany ~~make~~of ~~such~~the ~~payment~~potential ~~all~~claims, ~~remaining~~the ~~options~~Company ~~could become~~cannot ~~exercisable~~project onthe anmagnitude ~~accelerated~~of ~~basis~~such claims with certainty.

~~During August~~March ~~2009~~22, 2010 was the ~~Company~~general ~~and~~bar ~~the~~date ~~minority~~for ~~holders~~potential creditors of ~~Kremer~~the ~~executed~~Company ato ~~limited~~file ~~forbearance~~prepetition ~~and~~claims ~~third~~in ~~amendment~~the toU.S. ~~the~~Court. ~~transfer~~The ~~rights~~general ~~agreement~~bar ~~(“Amendment~~date ~~and~~is ~~Forbearance”).~~the ~~The~~date by which certain claims ~~Amendment~~against ~~and~~the ~~Forbearance,~~Company ~~among~~must ~~other~~be ~~things,~~filed ~~granted~~if the ~~Company~~claimants ~~temporary~~wish ~~forbearance~~to ofreceive any distribution in the $1bankruptcy cases.~~9 million~~ ~~payable,~~Proof ~~waived~~of ~~the~~claim ~~minority~~forms ~~holders’~~received ~~ability~~after ~~during~~ the ~~forbearance~~bar ~~period~~date tomay ~~force~~not be eligible for ~~acceleration~~consideration of ~~the~~recovery ~~remaining~~as ~~options,~~part ~~required~~of the Company’s tobankruptcy ~~make~~case. anCreditors ~~immediate~~were ~~payment~~notified toof the ~~minority~~bar ~~holders~~date and the requirement to file a proof of $0claim with the U.~~3 million~~S. Court. Differences between liability amounts estimated by the Company and ~~accelerated~~claims filed by creditors were investigated and, if necessary, the ~~third~~U.S. ~~option~~Court ~~date~~will ~~from~~make ~~July 2012~~a tofinal ~~July 2011~~determination of any claim filed in the U. S. Court. The ultimate ~~payment~~amount of ~~$0.3 million~~such ~~was~~liabilities ~~recorded~~is asnot ~~other~~determinable ~~expense~~at ~~during~~this ~~the~~time. ~~three~~All ~~months~~claims ~~ended~~allowed ~~September~~in the ~~30,~~bankruptcy ~~2009~~cases will be treated in accordance with the ~~Company’s~~Fifth ~~Unaudited~~Amended ~~Interim~~Plan, ~~Consolidated~~if ~~Statement~~that ofplan ~~Operations~~becomes effective.

~~Effective~~Under ~~October 13~~the priority scheme established by the Bankruptcy Code, ~~2009~~unless creditors agree otherwise, ~~the~~pre-petition ~~forbearance~~liabilities ~~period~~and ~~expired~~post-petition ~~allowing~~liabilities ~~the~~must ~~minority~~be ~~holders~~satisfied ofin full before ~~Kremer~~stockholders ~~the~~are ~~right~~entitled to ~~exercise~~receive ~~all~~any ~~options~~distribution ~~under~~or ~~the~~retain ~~amended~~any ~~transfer~~property ~~rights~~under ~~agreement~~a plan of reorganization. AsA plan of reorganization could result in holders of our liabilities and/or ~~November 16~~securities, ~~2009~~including our common shares, receiving no distribution on account of their interests and cancellation of their holdings. Because of such ~~right~~possibilities, ~~has~~the ~~not~~value ~~been~~of our liabilities and securities, including our common shares, is highly speculative. Appropriate caution should be exercised with respect to existing and future investments in any of our liabilities and/or securities. At this time there is no assurance the Company will be able to restructure as a going concern or

5. DIVESTITURES

During the quarter ended September 30, 2009, the Company divested one majority-owned and two minority-owned ambulatory surgical centers for a combined net sale price of $2.2 million, resulting in a net loss on divestiture of $1.6 million included in other expenses on the Company’s Consolidated Statements of Operations. The historical results of operations for these ambulatory surgical centers are included in the “other” segment of the Company’s doctor services business. The net loss on divestiture includes a $1.8 million non-cash write-off of goodwill existing at the time of disposal.

6. INVENTORY AND OTHER ASSETS

During the quarter ended September 30, 2009, management explored terminating the Foresee Preferential Hyperacuity Perimeter (Foresee PHP®) system distribution rights between the Company and Notal Vision®, an entity in which the Company holds a minority investment. The distribution rights allow the Company to sell the

~~Foresee~~successfully ~~PHP®~~implement ~~system, manufactured by Notal Vision®, as~~ a ~~component~~plan of ~~the Company’s cataract access reporting segment~~reorganization. ~~During~~Under the ~~nine~~Fifth ~~months~~Amended ~~ended September 30~~Plan, ~~2009, revenues generated from~~the ~~sales~~Company ofwill ~~the~~cease ~~Foresee~~doing ~~PHP®~~business ~~system~~and ~~were~~will ~~$1.4 million,~~sell aor ~~decline~~liquidate all of ~~$0.6 million~~its ~~compared to the nine months ended September 30, 2008~~assets.

~~Given~~On ~~the~~March 1, ~~recent~~2010, ~~decline~~certain inequity ~~revenues~~holders ~~and~~filed ~~profits~~a ~~generated~~motion ~~from~~with ~~sales~~the ofBankruptcy ~~the~~Courts ~~Foresee~~for ~~PHP®~~the ~~system~~appointment of an equity committee. On March 23, 2010, the ~~Company~~U.S. ~~and~~Court ~~Notal~~entered ~~Vision®~~an ~~mutually~~order ~~agreed~~denying tothis motion. ~~transfer~~On March 24, 2010 the ~~distribution~~Debtor ~~rights~~Entities tofiled a Fourth Amended Disclosure Statement, ~~third~~describing ~~party~~and ~~subsequent~~attaching tothe ~~September 30~~Fourth Amended Joint Plan of Reorganization, ~~2009~~which disclosure statement the U.S. AsCourt aapproved ~~result,~~for solicitation purposes. The Debtor Entities solicited acceptances to the ~~Company~~Fourth ~~determined~~Amended atJoint ~~September 30,~~Plan of Reorganization in accordance with its terms and in ~~2009~~accordance ~~that~~with ~~approximately~~the $0Bankruptcy Code.7 On May ~~million~~5, of2010, ~~remaining~~the ~~nontransferable~~Debtor ~~Foresee~~Entities ~~PHP®~~filed ~~inventory~~the ~~was~~fifth amended ~~impaired~~joint ~~and~~plan ~~thus~~of ~~recorded~~reorganization a(Fifth ~~charge~~Amended ~~for~~Plan). ~~this~~The ~~amount~~Fifth inAmended ~~costs~~Plan did not significantly alter the fourth amended joint plan of ~~revenue~~reorganization, ~~during~~other than to change the ~~three~~treatment ~~months~~of ~~ended~~certain ~~September~~classes of claims under the plan from impaired to unimpaired. Also on May 305, ~~2009~~2010, ina hearing was held to confirm the ~~Company’s~~Fifth ~~Unaudited~~Amended ~~Interim~~Plan ~~Consolidated~~and ~~Statement~~on ofMay 6, ~~Operations~~2010 the U.S. Court entered an order confirming it.

7.Going ~~RESTRICTED~~Concern ~~CASH~~Matters

AsThe ofconsolidated ~~September 30,~~financial ~~2009~~statements and related notes have been prepared assuming that the Company will continue as a going concern, although the Chapter 11 bankruptcy filings raise substantial doubt about the Company’s ~~had~~ability $1to continue as a going concern.~~0 million~~ Under the confirmed Fifth Amended Plan, the Company will cease operations and sell or liquidate all of ~~restricted~~its ~~cash~~assets. The consolidated financial statements do not include any adjustments related to ~~guarantee outstanding~~the ~~bank~~recoverability ~~letters~~and classification of ~~credit~~recorded ~~for~~assets ~~leases.~~or Asto the amounts and classification of ~~December 31,~~liabilities ~~2008,~~or any other adjustments that might be necessary should the Company ~~had~~be ~~no restricted~~unable ~~cash~~to continue as a going concern.

8.Financial ~~INTANGIBLE~~Reporting ~~ASSETS~~Considerations

~~During~~For ~~the~~periods ~~quarter~~subsequent ~~ended~~to ~~September~~the Chapter ~~30,~~11 ~~2009~~bankruptcy filings, the Company ~~recorded~~will aapply ~~$0.5~~Accounting Standards Codification (ASC) ~~million~~852, ~~impairment charge~~Reorganizations, in ~~its~~preparing ~~refractive~~the ~~centers~~consolidated ~~segment~~financial statements. toASC ~~eliminate~~852 arequires ~~trade~~that ~~name~~the ~~intangible~~financial statements, ~~which~~for ~~had~~periods asubsequent ~~fair~~to the Chapter ~~value~~11 filings, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of ~~zero~~the ~~dollars~~business. ~~The~~Accordingly, ~~Company~~certain ~~ceased~~expenses (including ~~use~~professional fees), realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings are recorded in reorganization items, net, on the accompanying consolidated statements of operations. In addition, pre-petition obligations that may be impacted by the ~~trade~~bankruptcy ~~name~~reorganization process have been classified on the consolidated balance sheet at March 31, 2010 and ~~does~~December 31, ~~not~~2009, ~~intend~~in liabilities subject to ~~use~~compromise. itThese liabilities inare reported at the amounts expected to be allowed by the Bankruptcy Courts, even if ~~future~~they ~~operations~~may be settled for lesser amounts.

9. The ~~ACCRUED~~Debtors’ ~~AND~~reorganization ~~OTHER~~items ~~LONG-TERM~~directly ~~LIABILITIES~~related to the process of reorganizing the Company under Chapter 11 and the CCAA for the three months ended March 31, 2010 consisted of the following:

TruVision™ Liability


	THREE MONTHS ENDED
	MARCH 31, 2010
Professional fees directly related to reorganization (a)	$	7,443
Other		(24	)

Reorganization items, net		7,419

As(a) ofProfessional ~~June 30,~~fees ~~2009,~~directly ~~accrued~~related ~~liabilities included $4.0 million due~~ to ~~the~~reorganization ~~former~~include ~~owners~~post-petition ~~of TruVision™~~fees asassociated ~~part~~with ofadvisors ~~the amended 2005 merger agreement. On August 10, 2009, the Company entered into Amendment No. 2 (“Amendment”)~~ to the ~~2005~~Debtors ~~TruVision™ Agreement~~ and ~~Plan~~certain ofsecured ~~Merger~~creditors. ~~The Amendment~~Professional ~~restructured~~fees ~~the~~are ~~Company’s~~estimated ~~final~~by ~~$4.0 million~~the ~~purchase~~Debtors ~~installment,~~and ~~which~~will ~~was~~be ~~due~~reconciled to ~~the former~~actual ~~TruVision™~~invoices ~~owners~~when ~~during August 2009~~received.

~~The~~Pre-petition ~~Amendment~~restructuring ~~resulted~~charges inincurred during the ~~final~~three ~~purchase~~months ~~installment~~ended ~~being increased to an unsecured $5.4 million payable, inclusive of interest and penalties, which will be made through quarterly payments of approximately $0.3~~March ~~million beginning on August 10~~31, 2009 ~~and extending through April 5, 2014. The~~ ~~amount~~are ~~owed~~included isin ~~not represented by a promissory note, is not secured and will not accrue interest on a going forward basis. As of September 30, 2009, accrued and~~ other ~~long-term liabilities include $0~~expense.~~9 million and $3.3 million, respectively, representing the balances owed, net of imputed~~ ~~interest, under the restructured TruVision™ Agreement and Plan of Merger.~~

As of November 16, 2009, the Company was unable to make a $0.3 million scheduled payment due October 5, 2009 as part of the restructured TruVision™ Agreement and Plan of Merger.

10. DEFERRED REVENUES

The Company offers an extended lifetime warranty, i.e. the TLC Lifetime Commitment, at a separately priced fee to customers selecting a certain lower base priced surgical procedure. Revenues generated under this program are initially deferred and recognized over a period of five years based on management’s future estimates of retreatment volume, which are based on historical warranty claim activity. The Company’s deferred revenue balance was $0.8 million and $1.1 million at September 30, 2009 and December 31, 2008, respectively.

~~11.~~ Liabilities ~~DEBT~~subject to compromise consist of the following:

Debt consists of:


	MARCH 31,			DECEMBER 31,
	2010			2009
Accounts payable	$	6,106		$	8,554
Accrued expenses		11,233			13,132
Secured debt		100,060			100,060
Unsecured debt		7,557			8,075
Capitalized Credit Facility debt issuance costs		(1,294	)		(1,403	)
Other long-term liabilities		3,901			4,135
Kremer option (see Note 3)		1,891			1,891

Liabilities subject to compromise		129,454			134,444

	SEPTEMBER 30,		DECEMBER 31,
	2009		2008
Senior term loan; weighted average interest rate of 9.25% and 8.76% at September 30, 2009 and December 31, 2008, respectively	$	76,660	$	76,667
Revolving credit facility, weighted average interest rate of 9.25% and 6.60% at September 30, 2009 and December 31, 2008, respectively		23,400		6,000
Capital lease obligations, payable through 2013, interest at various rates		12,457		14,176
Sale-leaseback debt — interest imputed at 6.25%, due through October 2016, collateralized by building (Cdn $6.2 million and Cdn $6.7 million at September 30, 2009 and December 31, 2008, respectively)		5,712		5,453
Other		3,306		3,285
		121,535		105,581
Less current portion		106,644		89,081
	$	14,891	$	16,500

Liabilities subject to compromise refers to both secured and unsecured obligations that will be accounted for under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities are stayed. ASC 852 requires pre-petition liabilities that are subject to compromise to be reported at the amounts expected to be allowed, even if they may be settled for lesser or greater amounts. These liabilities represent the estimated amount expected to be allowed on known or potential claims to be resolved through the Chapter 11 and CCAA process, and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Courts, assumption or rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim, or other events. Liabilities subject to compromise also include certain items that may be assumed under a plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise. As some uncertainty will continue to exist until the end of the claims rconciliation process, the Company has included its secured and unsecured debt in liabilities subject to compromise. At hearings held in January 2010, final approval was granted of many of the Debtor Entities “first day” motions covering, among other things, human capital obligations, supplier relations, cash management, utilities, case management and retention of professionals. Obligations associated with these matters are not classified as liabilities subject to compromise.

~~The~~Upon ~~Company~~the ~~obtained~~filing aof ~~$110.0~~the Chapter ~~million~~11 ~~credit~~Petitions, ~~facility~~certain ~~(“Credit~~of ~~Facility”)~~the ~~during~~Company’s ~~June 2007,~~debt obligations ~~which~~purported isby ~~secured~~their byterms ~~substantially~~to ~~all~~become ofautomatically ~~the~~and ~~assets~~immediately due and payable, subject to an automatic stay of any action to collect, assert, or recover a claim against the Company and ~~consisting~~the application of ~~both~~other ~~senior~~applicable bankruptcy law. As a result of the Chapter 11 Petitions and due to ~~term~~various debt obligations potentially being undersecured or unsecured, $106.3 million and a$106.7 million ~~revolver~~of the Company’s pre-petition net debt is included in liabilities subject to compromise on the consolidated balance sheet at March 31, 2010 and December 31, 2009, respectively. The Company classifies pre-petition liabilities subject to compromise as ~~follows:~~a long-term liability because management does not believe the Company will use existing current assets or create additional current liabilities to fund these obligations.

	•		Senior term debt, totaling $85.0 million, with a six-year term and required amortization payments of 1% per annum plus a percentage of excess cash flow (as defined in the agreement) and sales of assets or borrowings outside of the normal course of business. As of September 30, 2009, $76.7 million was outstanding on this portion of the facility.
	•		A revolving credit facility, totaling $25.0 million with a five-year term. As of September 30, 2009, the Company had $23.4 million outstanding under this portion of the facility and outstanding letters of credit totaling approximately $1.0 million. Accordingly, availability under the revolving credit facility is $0.6 million at September 30, 2009.

On August 10, 2009, the Company entered into Amendment No. 2 (2^nd Amendment) to the 2005 TruVision™ Agreement and Plan of Merger. The 2^nd Amendment restructured the Company’s final $4.0 million purchase installment, which was due to the former TruVision™ owners during August 2009. The 2^nd Amendment resulted in the final purchase installment being increased to an unsecured $5.4 million payable, inclusive of interest and penalties, which was to be made through quarterly payments of approximately $0.3 million beginning on August 10, 2009 and extending through April 5, 2014. The amount owed is not represented by a promissory note, is not secured and will not accrue interest on a going forward basis. As of March 31, 2010, liabilities subject to compromise includes $4.4 million, representing the balance owed, net of imputed interest, under the restructured TruVision™ Agreement and Plan of Merger. The remaining liability is subject to the Company’s bankruptcy proceedings.

~~Interest~~While onoperating ~~the~~as ~~facility~~debtors-in-possession isunder ~~calculated~~Chapter 11 ~~based~~of onthe ~~either~~Bankruptcy ~~prime~~Code, ~~rate or~~ the ~~London Interbank~~Debtors ~~Offered~~may ~~Rate~~sell ~~(LIBOR) plus~~or aotherwise ~~margin.~~dispose Asof aor ~~result~~liquidate ofassets ~~certain~~or ~~events~~settle ofliabilities, ~~default~~subject ~~and~~to the ~~June 30, 2009~~approval ~~expiration~~ of the ~~Limited~~Bankruptcy ~~Waiver,~~Courts ~~Consent~~or ~~and~~otherwise ~~Amendment~~as ~~No. 3~~permitted toin ~~Credit Agreement,~~ the ~~LIBOR advances~~ordinary ~~with~~course ~~interest~~of ~~periods ending on or after June 30~~business, ~~2009~~in ~~automatically~~amounts other ~~converted~~than tothose ~~prime rate~~reflected ~~advances~~in at the ~~end~~consolidated offinancial ~~such interest period~~statements. ~~Effective June 30~~Moreover, ~~2009,~~a ~~the~~plan ~~Company began~~of ~~incurring~~reorganization 2%could ~~default~~materially ~~interest~~change ~~resulting~~the ~~from~~amounts ~~the~~and ~~provisions~~classifications ofin the ~~Limited Waiver and Amendment No.~~historical 4consolidated tofinancial ~~Credit Agreement~~statements.

As of September 30, 2009, the borrowing rate was 3.25% for prime rate borrowings, plus an applicable margin of 4.00% and default interest of 2.00%. In addition, the Company pays an annual commitment fee equal to 0.35% on the undrawn portion of the revolving credit facility.

The Credit Facility also requires the Company to maintain various financial and non-financial covenants as defined in the Credit Agreement. As of December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009, the Company was unable to satisfy various financial covenants. Furthermore, the Company has failed to make various required payments under the Credit Facility. Refer to Note 2, Liquidity, for additional information.

As a result of the inability to comply with the primary financial covenants, the Company has received from its lenders numerous waivers, consents and amendments to the Credit Agreement during the nine months ended September 30, 2009. All waivers, consents and amendments to the Credit Agreement are filed with SEC as exhibits to Current Reports on Form 8-K. Refer to Note 2, Liquidity, for additional information regarding waivers, amendments or consents dated during the three months ended September 30, 2009, and Note 24, Subsequent Events, for additional information regarding waivers, amendments or consents dated subsequent to September 30, 2009.

AsCondensed ofCombined ~~September 30,~~Financial ~~2009,~~Information ~~the Company failed to make various mandatory payments under its Credit Agreement and related amendments. Such payments included interest on the term and revolving credit advances~~ of ~~$2.8 million, principal payments on term advances of $0.4 million and $1.4~~Debtors ~~million of other mandatory payments.~~

~~12.~~ The ~~INTEREST~~following ~~RATE~~unaudited ~~SWAP~~condensed ~~AGREEMENTS~~combined financial information is presented for the Debtors (in thousands):

The Company does not enter into financial instruments for trading or speculative purposes. As required under the Company’s Credit Facility, during August and December 2007 the Company entered into interest rate swap agreements to eliminate the variability of cash required for interest payments for a majority of the total variable rate debt.


	MARCH 31,			DECEMBER 31,
	2010			2009
Balance Sheet Information :
Cash and cash equivalents	$	9,452		$	7,851
Accounts receivable, net		415			601
Prepaid expenses, inventory and other short-term assets		1,265			2,162
Restricted cash		—			1,033
Investments and other long-term assets, net		41			61
Fixed assets, net		2,268			2,506

Total assets	$	13,441		$	14,214


Current liabilities	$	20,930		$	13,858
Long-term liabilities		246			302

Liabilities not subject to compromise		21,176			14,160
Liabilities subject to compromise		129,454			134,444

Total liabilities		150,630			148,604

Stockholders’ deficit		(137,189	)		(134,390	)

Total liabilities and stockholders’ deficit	$	13,441		$	14,214


Statement of Operations Information (Three months ended March 31, 2010)
Net sales	$	2,129
Gross profit		825
Operating loss		(12,689	)
Reorganization items, net		(7,419	)
Net loss attributable to TLC Vision Corporation		(14,247	)

Statement of Cash Flows Information (Three months ended March 31, 2010)
Cash used in operating activities	$	(12,917	)
Cash provided by investing activities		164
Cash provided by financing activities		14,353

~~Effective~~The ~~July 9,~~unaudited ~~2009,~~condensed ~~Citibank~~combined ~~and~~financial ~~the~~information ~~Company~~of ~~agreed to~~ the ~~early~~Debtor ~~termination~~Entities ofdoes ~~the~~not ~~interest~~separately ~~rate~~disclose ~~swap~~intercompany ~~agreements entered August~~ and ~~December 2007.~~investment Inbalances ~~consideration~~as ~~for~~those ~~Citibank’s agreement~~balances torepresent ~~terminate~~components of the ~~interest~~Debtor ~~rate~~Entities’ ~~swaps,~~equity in the ~~Company~~non-debtor ~~agreed~~entities, ~~that~~and ~~the~~have ~~amount~~therefore ~~due~~been toincluded ~~Citibank~~within asStockholders’ ofdeficit. ~~July 9,~~The ~~2009~~financial ~~(“Settlement~~statements ~~Date”)~~include ~~was~~the ~~$1.6 million~~assets, ~~(“Settlement~~liabilities, ~~Amount”).~~revenues ~~The Company further~~and ~~agreed~~expenses that ~~interest~~are ondirectly ~~the~~and ~~Settlement~~contractually ~~Amount~~related ~~will~~to ~~accrue~~the atDebtor aEntities. ~~default~~However, ~~rate~~certain liabilities ~~from~~at ~~and~~the ~~including~~Debtor ~~the Settlement~~Entities ~~Date~~relate ~~until~~to ~~such~~assets ~~date~~and operations that ~~the~~contractually ~~Settlement~~relate ~~Amount~~to non-debtor isentities, ~~paid~~and inthus ~~full.~~such Asassets ofand ~~September 30, 2009,~~related ~~the~~operations ~~Company~~are ~~had~~ not ~~paid~~included in the ~~$1.6 million~~condensed unaudited ~~Settlement~~combined ~~Amount~~financial information above.

~~Prior~~Stock toMarket ~~termination, the Company’s interest rate swaps qualified as cash flow hedges. The~~Compliance Company historically recorded the unrealized gain or loss resulting from changes in fair value as a component of other comprehensive income/(loss). Since future cash payments relating to the outstanding Credit Facility are no longer probable, the interest rate swap is no longer deemed an effective hedge, which resulted in the Company reclassifying the entire other comprehensive loss balance to interest expense during the three months ended September 30, 2009.

13 The Company’s common shares were delisted from the NASDAQ and the Toronto Stock Exchange effective January 18, 2010 and January 21, 2010, respectively. ~~STOCK~~The Company’s common shares currently trade on the Over-~~BASED~~The-Counter ~~COMPENSATION~~Bulletin Board under the ticker symbol “TLCVQ”.

Total stock-based compensation for the three months ended September 30, 2009 was $0.3 million and was related to the TLCVision Stock Option Plan. Total stock-based compensation for the three months ended September 30, 2008 was $0.4 million and was related to the TLCVision Stock Option Plan and the Company’s Employee Share Purchase Plan. Effective January 1, 2009, the Company suspended future employee contributions to the Company’s Employee Share Purchase Plan due to the limited availability of Company shares under such Plan. Total stock-based compensation was $0.7 million and $1.1 million for the nine months ended September 30, 2009 and 2008, respectively.

As of September 30, 2009, the total unrecognized compensation expense related to TLCVision non-vested awards was approximately $1.5 million. The unrecognized compensation expense will be recognized over the remaining vesting periods, the last of which expires during December 2012 for certain options.

On December 10, 2008, the Company granted conditional options for shares. During June 2009, the condition for these options was satisfied resulting in 362,500 options for shares being granted. The Company began recognizing compensation expense related to these conditional options during the quarter ended June 30, 2009 and will continue recognizing such expense through vesting. The Company granted no other options during the three or nine months ended September 30, 2009. The Company granted options for 387,000 and 423,000 shares during the three and nine months ended September 30, 2008, respectively.

The fair value of stock options granted to employees is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 2009 and 2008, respectively: risk-free interest rate of 2.5% and 3.1%; expected dividend yield of 0%; expected life of 3.8 years and 4.8 years; and expected volatility of 103% and 55%.

143. ~~OTHER~~Acquisitions ~~EXPENSE~~and ~~(INCOME), NET~~Investments

~~Other~~The ~~expense~~Company’s ~~(income)~~strategy includes periodic acquisitions of, ~~net~~or investments in, ~~includes~~entities that operate within its chosen markets. During the ~~following~~three ~~operating~~months ~~items:~~ended March 31, 2010 and 2009, the Company made investments of $0.5 million and $4.6 million, respectively, to invest in various entities, none of which was individually material. Included in acquisition and equity investments are cash payments during 2009 of approximately $4.0 million related to the Company’s 2005 TruVision™ acquisition, which were included in the initial purchase price allocation.

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2009			2008			2009			2008
Gain on sales and disposals of fixed assets	$	(26	)	$	(108	)	$	(303	)	$	(397	)
Center closing costs		(15	)		—			701			—
Loss (gain) on business divestitures		1,594			6			1,594			(139	)
Employee severance expense		101			—			2,614			—
Financial and legal advisor costs		4,036			—			9,065			—
Miscellaneous expense (income) and other charges		781			(45	)		946			(167	)
	$	6,471		$	(147	)	$	14,617		$	(703	)

During 2005, the Company acquired a substantial portion of the assets of Kremer Laser Eye (Kremer). As of March 31, 2010, Kremer operates three refractive centers, which the Company has an approximate 84% ownership interest, and one ambulatory surgery center, which the Company has a 70% ownership interest. As part of a transfer rights agreement entered on the acquisition date between the Company and the minority holders of Kremer, the minority holders retain options that could require the Company to purchase the remaining noncontrolling interest. The first option was exercisable during July 2009 with all remaining options being exercisable during July 2010 and 2012.

15 During July 2009, the Company received formal notification from the minority holders of Kremer of their intent to exercise the first option. ~~RESTRUCTURING~~The OFoption, ~~OPERATIONS~~if exercised, would transfer a portion of the remaining noncontrolling interest of Kremer to TLCVision in exchange for approximately $1.9 million. Failure to make such payment would cause all remaining options to become immediately exercisable on an accelerated basis.

During August 2009, the Company ~~accelerated~~and ~~its~~the ~~cost~~minority ~~savings~~holders ~~initiatives~~of ~~that~~Kremer ~~focused~~executed ona ~~employee~~limited ~~reductions,~~forbearance ~~closures~~and ofthird ~~refractive~~amendment ~~centers~~to ~~and~~ the ~~reduction~~transfer inrights ~~refractive~~agreement ~~access~~(Amendment ~~routes~~and Forbearance). The ~~restructuring~~Amendment ~~efforts~~and ~~during~~Forbearance, ~~the~~among ~~nine~~other ~~months ended September 30~~things, ~~2009~~granted ~~resulted~~the inCompany ~~the~~temporary ~~closure~~forbearance of the ~~four~~$1.9 million ~~majority-owned~~payable, ~~refractive~~waived ~~centers~~the ~~and~~minority anholders’ ~~approximate~~ability ~~15%~~during ~~reduction~~the offorbearance ~~the~~period ~~Company’s~~to ~~workforce~~force ~~through~~acceleration ~~involuntary~~of ~~employee~~the ~~separations.~~remaining Inoptions, ~~addition~~required the Company to ~~the~~make ~~cost~~an ~~savings~~immediate ~~initiatives,~~payment to the ~~restructuring~~minority ~~efforts~~holders ~~also~~of ~~included~~$0.3 million ~~financial~~ and ~~legal~~accelerated ~~advisor~~the ~~fees~~third ~~associated~~option ~~with~~date ~~the~~from ~~ongoing Credit~~July 2012 ~~Facility~~to ~~negotiations~~July 2011.

AsEffective aOctober 13, ~~result~~2009, the ~~Company~~forbearance ~~incurred~~period ~~restructuring~~expired ~~charges~~allowing ~~included~~the inminority ~~other~~holders ~~expenses totaling~~of ~~$14.8 million~~Kremer ~~for~~ the ~~nine~~right ~~months~~to ~~ended~~exercise ~~September 30,~~all ~~2009,~~options ~~which~~under ~~primarily~~the ~~included~~amended ~~$9.1 million of~~transfer ~~financial~~rights ~~and~~agreement. ~~legal~~As ~~advisor~~of ~~costs~~May 17, 2010, ~~$2.6 million~~such ~~for~~right ~~employee~~has ~~severance~~not been exercised and ~~benefits,~~is ~~$0.7 million~~subject ofto ~~center~~the ~~closing~~Company’s ~~costs,~~bankruptcy ~~and~~proceedings. The $1.69 million ofhas ~~losses~~been classified onas ~~the~~a ~~divestitures~~liability ofsubject ~~various ambulatory~~to ~~surgical~~compromise ~~center~~as ~~investments~~of March 31, 2010.

~~The restructuring charges for the three months ended September 30, 2009 were $6.5 million, which included $~~4.~~1 million~~ ofRestricted ~~financial and legal advisor costs, $0.1 million for employee~~Cash ~~severance and benefits, and $1.6 million of losses on the divestitures of various ambulatory surgical center investments.~~

~~As of~~During ~~September~~the three months ended March 3031, ~~2009~~2010, the Company’s ~~restructuring~~paid ~~reserves were~~ $1.7 0 million ~~and~~to ~~were~~settle ~~included~~outstanding inbank ~~accrued~~letters ~~liabilities~~of incredit for leases. As of March 31, 2010, none of the ~~consolidated~~Company’s cash balance ~~sheet~~was considered restricted.

~~The~~5. ~~following~~Accrued ~~table summarizes various restructuring efforts:~~Liabilities

	EMPLOYEE
	SEVERANCE			CENTER
	& BENEFITS			CLOSING COSTS			TOTAL
Restructuring charges	$	259		$	280		$	539
Non-cash write-downs		—			(125	)		(125	)
Cash payments		(192	)		—			(192	)
Accrual balance as of March 31, 2009		67			155			222
Restructuring charges		2,254			436			2,690
Non-cash write-downs		—			—			—
Cash payments		(588	)		(84	)		(672	)
Accrual balance as of June 30, 2009	$	1,733		$	507		$	2,240
Restructuring charges		101			(15	)		86
Non-cash write-downs		(34	)		(136	)		(170	)
Cash payments		(388	)		(89	)		(477	)
Accrual balance as of September 30, 2009	$	1,412		$	267		$	1,679

Accrued liabilities include $4.0 million and $3.4 million of accrued wages and related expenses as of March 31, 2010, and December 31, 2009, respectively.

6. Deferred Revenues

The Company offers an extended lifetime warranty, i.e. the TLC Lifetime Commitment, at a separately priced fee to customers selecting a certain lower base priced surgical procedure. Revenues generated under this program are initially deferred and recognized over a period of five years based on management’s future estimates of retreatment volume, which are based on historical warranty claim activity. The Company’s deferred revenue balance was $0.7 million and $0.8 million at March 31, 2010 and December 31, 2009, respectively.

~~As of September 30, 2009, the Company currently estimates that its restructuring efforts will likely continue through the quarter ending December 31, 2009~~7. ~~Such estimate may change and is~~Debt ~~dependent on the outcome of various cost reduction and Credit Facility negotiation efforts.~~

~~16.~~ The ~~TAXES~~Company’s debt consists of:

The Company’s tax provision for interim periods is determined using an estimate of its annual tax expense based on the forecasted taxable income for the full year. The Company believes there is the potential for volatility in its 2009 effective tax rate due to several factors, primarily from the impact of any changes to the forecasted earnings.


	MARCH 31,		DECEMBER 31,
	2010		2009
Secured Debt
Senior debtor-in-possession financing, weighted average interest rate of 13.0% at December 31, 2009	$	—	$	7,500
Junior debtor-in-possession financing, weighted average interest rate of 13.0% at March 31, 2010		10,000		—
Senior term loan; weighted average interest rate of 9.25% at March 31, 2010 and December 31, 2009		76,660		76,660
Revolving credit facility, weighted average interest rate of 9.25% and 8.24% at March 31, 2010 and December 31, 2009, respectively		23,400		23,400

		110,060		107,560

Unsecured Debt
Capital lease obligations, payable through 2013, interest at various rates		9,996		11,003
Sale-leaseback debt — interest imputed at 6.25%, due through October 2016		1,322		1,284
Other		3,362		3,137

		14,680		15,424

Less: Capitalized Credit Facility debt issuance costs		1,294		1,403


Total debt		123,446		121,581
Less liabilities subject to compromise		106,323		106,732
Less current portion		12,757		10,049

Total long-term debt	$	4,366	$	4,800

AsSenior of September 30, 2009, the Company continues to believe that there is insufficient evidence to recognize certain deferred tax assets. Accordingly, the Company continues to carry a full valuation allowance to offset its deferred tax assets. The determination of the appropriate amount of deferred tax asset to recognize is regularly evaluated and is primarily based on expected taxable income Debtor-in-Possession ~~future years, trends of historical taxable income, and other relevant factors.~~Financing

~~Section 382~~In ofconnection with filing the ~~Internal~~Chapter 11 ~~Revenue~~Petitions ~~Code~~and ofthe ~~1986~~Canadian Petition, ason ~~amended~~December 21, 2009, ~~imposes~~the ~~significant~~Debtor ~~annual~~Entities filed a motion with the U.S. Court seeking authority to enter into a ~~limitations~~post-petition oncredit agreement. On December 22, 2009, the ~~utilization~~U.S. ofCourt ~~net~~issued ~~operating~~an ~~losses~~interim order authorizing the motion to obtain a senior secured super priority debtor-in-possession credit agreement (~~NOLs~~Senior DIP Credit Agreement). ~~Such~~On ~~NOL~~December 23, ~~limitations~~2009, ~~result~~the ~~upon~~Canadian Court granted a recognition order relating to the orders received by the Company from the U.S. ~~occurrence~~ Court. ofThe ~~certain~~Senior ~~events~~DIP Credit Agreement, ~~including~~dated anDecember 23, ~~“ownership~~2009, was ~~change”~~among the Debtors, various lenders and Cantor Fitzgerald Securities, as ~~defined~~collateral byand ~~Section 382~~administrative agent.

~~Under~~The ~~Section 382,~~Senior ~~when~~DIP anCredit ~~ownership~~Agreement ~~change~~provided ~~occurs,~~for ~~the~~financing ~~calculation~~ of ~~the~~a ~~annual~~senior ~~NOL~~secured super priority term ~~limitation~~loan isfacility ~~affected~~in bya ~~several~~principal ~~factors,~~amount ~~including~~up ~~the~~to ~~number~~$15.0 million ofamong ~~shares~~the ~~outstanding~~Company and ~~the~~various prepetition ~~trading~~lenders ~~price~~of ~~before~~ the ~~ownership~~Company’s ~~change~~Credit ~~occurred~~Facility. AsThe Company could withdraw a ~~result~~maximum of ~~shareholder~~two ~~activity,~~term ~~the~~loan ~~Company~~advances ~~concluded~~and ~~that~~only anif ~~ownership~~the ~~change~~amount ~~occurred~~of inthe ~~early~~Company’s ~~2008~~controlled ~~limiting~~cash, ~~future~~as ~~utilization~~defined ~~of NOLs.~~in ~~The~~the ~~Company~~Senior ~~currently~~DIP Credit ~~estimates~~Agreement, ~~that~~was ~~this~~less ~~annual~~than ~~limit will result in~~ $673.70 million ~~of NOLs expiring before becoming available~~.

~~The~~Borrowings ~~Company,~~under ~~including~~the ~~its~~term ~~domestic~~loans ~~and~~accrued ~~foreign~~interest ~~subsidiaries,~~at isa ~~subject~~rate per annum equal to ~~U.S.~~the ~~federal~~sum of the ~~income~~London ~~tax~~Interbank asOffered ~~well~~Rate as(LIBOR) plus ~~income~~10.0% ~~tax~~per annum, payable in cash in arrears on the last day of ~~multiple~~any ~~state~~interest period and ~~other~~the ~~jurisdictions~~date any term loan is paid in full. ~~Tax~~In ~~years~~the ~~1997~~event ~~through~~of default, as ~~present~~defined ~~are~~under ~~not~~the ~~yet~~Senior ~~closed~~DIP ~~for~~Credit ~~U.S.~~Agreement, ~~federal~~the ~~and~~principal ~~state~~amount ~~income~~of ~~tax~~all ~~purposes~~term ~~due~~loans toand ~~net~~all ~~operating~~other ~~losses~~due ~~carried~~and ~~forward~~unpaid ~~from~~obligations ~~that~~bear ~~time~~interest at an additional default rate of 2.00%.

AsPrepayments were permitted provided that each partial prepayment was in an aggregate principal amount of ~~September~~$0.5 ~~30,~~million ~~2009,~~or ~~the~~integral ~~Company’s~~multiples ~~2005~~thereof. ~~and~~Upon ~~2006~~payment ~~tax~~in ~~years~~full ~~are~~of ~~under~~the ~~review~~Senior byDIP ~~the~~Credit ~~Internal~~Agreement, ~~Revenue~~an ~~Service~~exit ~~(“IRS”)~~fee ~~regarding~~equal ~~the~~to ~~Company’s~~2.00% ~~employee~~of ~~and~~the ~~independent~~aggregate ~~contractor classifications~~principal ~~and~~amount ~~the~~outstanding ~~impact~~under ofthe Senior ~~such~~DIP ~~classifications~~Credit onAgreement ~~required~~was ~~employer~~due ~~tax~~to ~~withholdings~~the lenders.

17 During the three months ended March 31, 2010, the Debtor Entities entered into a junior secured super priority debtor-in-possession credit agreement (Junior DIP Credit Agreement) described in further detail below. ~~NET~~On ~~LOSS~~February 25, ~~PER~~2010, ~~SHARE~~the Debtor Entities borrowed $10.0 million under the Junior DIP Credit Agreement and used the funds,

The following table represents the calculation of net loss attributable to TLC Vision Corporation per common share :

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER						SEPTEMBER
(in thousands, except per share amounts)	2009			2008			2009			2008
Numerator:
Net loss attributable to TLC Vision Corporation	$	(10,045	)	$	(6,711	)	$	(18,228	)	$	(2,839	)
Denominator:
Weighted-average shares outstanding — basic		50,565			50,345			50,550			50,292
Effect of dilutive stock options *		—			—			—			—
Weighted-average shares outstanding — diluted		50,565			50,345			50,550			50,292
Net loss attributable to TLC Vision Corporation per common share:
Basic	$	(0.20	)	$	(0.13	)	$	(0.36	)	$	(0.06	)
Diluted	$	(0.20	)	$	(0.13	)	$	(0.36	)	$	(0.06	)

*among ~~The~~other ~~effects~~things, ofto ~~including~~pay ~~the~~in ~~incremental~~full ~~shares~~the ~~associated~~outstanding ~~with~~principal ~~options~~balance of ~~and~~$7.5 million ~~warrants~~under ~~are anti-dilutive for~~ the ~~three~~Senior ~~and~~DIP ~~nine~~Credit ~~months~~Agreement. ~~ended~~The ~~September~~payment ~~30,~~resulted ~~2009 and 2008, and are not included~~ in ~~weighted-average~~the ~~shares~~termination ~~outstanding — diluted. The total weighted-average number~~ of the ~~options~~Senior ~~with~~DIP anCredit ~~exercise~~Agreement ~~price~~and ~~less~~triggered ~~than~~ the ~~average~~exit ~~closing~~fee ~~price~~ of ~~the Company’s common stock was 1~~$0.1 2 million ~~and~~paid 0on February 25, 2010.8 ~~million~~During ~~for~~ the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2009~~2010, ~~respectively. The total weighted-average number of options with an exercise price less than~~ the ~~average~~Company ~~closing~~amortized ~~price~~$0.7 million ofin ~~the~~deferred Senior ~~Company’s~~DIP ~~common~~debt ~~stock~~issuance ~~was~~costs ~~0.1~~resulting ~~million~~in ~~and~~no ~~0.2~~unamortized ~~million~~Senior ~~for~~DIP ~~the~~debt ~~three~~issuance ~~and~~costs ~~nine~~remaining as ~~months~~of ~~ended September 30~~March 31, ~~2008, respectively~~2010.

~~18.~~Junior ~~STOCKHOLDERS’~~Debtor-in-Possession ~~(DEFICIT) EQUITY~~Financing

In connection with the First Amended Plan, as further described in Note 2, Bankruptcy Proceedings, the Debtor Entities filed a motion with the U.S. Court seeking authority to enter into a junior secured super priority debtor-in-possession credit agreement (Junior DIP Credit Agreement). The Junior DIP Credit Agreement, authorized by the U.S. Court via an interim order on February 12, 2010 and the Canadian Court on February 18, 2010, is dated February 3, 2010 and is among the Debtors, various lenders and Charlesbank Equity Fund VII, Limited Partnership, as collateral and administrative agent.

The Junior DIP Credit Agreement provides for financing of a junior secured super priority term loan facility in a principal amount up to $25.0 million. On February 25, 2010, the Debtor Entities borrowed $10.0 million under the Junior DIP Credit Agreement and used the funds, among other things, to pay down the previously existing $7.5 million outstanding principal balance under the Senior DIP Credit Agreement. The Company capitalized $0.5 million in Junior DIP debt issuance costs in conjunction with the February 25, 2010 borrowing.

The maximum maturity date of the borrowings under the Junior DIP Credit Agreement is the earlier of (a) May 20, 2010, (b) the effective date of a plan of reorganization, (c) the date on which a sale or sales of all or substantially all of the Company’s assets is consummated under Section 363 of the Bankruptcy Code, (d) the date of conversion of any of the bankruptcy cases to a case under Chapter 7 of the Bankruptcy Code or any equivalent proceeding in the Canadian Case, (e) a proposal or liquidation of any or all of the assets of the Company under the Bankruptcy and Insolvency Act (Canada), (f) the dismissal of any of the bankruptcy cases, or (g) approval by the Bankruptcy Courts of any other debtor-in-possession financing for the Company.

Borrowings accrue interest at a rate per annum equal to the sum of LIBOR plus 10.0% per annum, payable in cash in arrears on the last day of any interest period and the date any term loan is paid in full. In the event of default, as defined under the Junior DIP Credit Agreement, the principal amount of all term loans and all other due and unpaid obligations bear interest at an additional default rate of 2.00%.

The Junior DIP Credit Agreement contains various affirmative, negative, reporting and financial covenants. The covenants, among other things, place restrictions on the Company’s ability to acquire and sell assets, incur additional debt and require the Company to maintain minimum liquidity levels. A breach of any covenant constitutes an event of default as further defined in the Junior DIP Credit Agreement.

Prepayments are permitted provided that each partial prepayment is in an aggregate principal amount of $0.5 million or integral multiples thereof. Upon payment in full of the Junior DIP Credit Agreement, an exit fee equal to 4.00% of the aggregate principal amount outstanding under the Junior DIP Credit Agreement is due to the lenders.

Credit Facility

The Company obtained a $110.0 million credit facility (Credit Facility) during June 2007, which is secured by substantially all of the assets of the Company and consisting of both senior term debt and a revolver as follows:

	•		Senior term debt, totaling $85.0 million, with a six-year term and required amortization payments of 1% per annum plus a percentage of excess cash flow (as defined in the agreement) and sales of assets or borrowings outside of the normal course of business. As of March 31, 2010 and December 31, 2009, $76.7 million was outstanding on this portion of the facility and is classified as liabilities subject to compromise as the liability is undersecured.

	•		A revolving credit facility, totaling $25.0 million with a five-year term. As of March 31, 2010 and December 31, 2009, the Company had $23.4 million outstanding under this portion of the facility which is classified as liabilities subject to compromise as the liability is undersecured.

Upon the filing of the Chapter 11 Petitions, certain of the Company’s Credit Facility obligations became automatically and immediately due and payable, subject to an automatic stay of any action to collect, assert, or recover a claim against the Company and the application of applicable bankruptcy law. As a result of the Chapter 11 Petitions and due to the Credit Facility obligations being undersecured by the net assets of the Company, $100.1 million of the Company’s pre-petition Credit Facility debt is included in liabilities subject to compromise on the consolidated balance sheet at March 31, 2010 and December 31, 2009. The Company classifies pre-petition liabilities subject to compromise as a long-term liability because management does not believe the Company will use existing current assets or create additional current liabilities to fund these obligations.

Interest on the facility is calculated based on either prime rate or the LIBOR plus a margin. As a result of certain events of default and the June 30, 2009 expiration of the Limited Waiver, Consent and Amendment No. 3 to Credit Agreement, the LIBOR advances with interest periods ending on or after June 30, 2009 automatically converted to prime rate advances at the end of such interest period. Effective June 30, 2009, the Company began incurring 2% default interest resulting from the provisions of the Limited Waiver and Amendment No. 4 to Credit Agreement.

As of March 31, 2010, the borrowing rate was 3.25% for prime rate borrowings, plus an applicable margin of 4.00% and default interest of 2.00%. In addition, the Company pays an annual commitment fee equal to 0.35% on the undrawn portion of the revolving credit facility.

The Credit Facility also requires the Company to maintain various financial and non-financial covenants as defined in the Credit Agreement. As of December 31, 2008 and through March 31, 2010, the Company was unable to satisfy various financial covenants. As a result, the Company received from its lenders numerous waivers, consents and amendments to the Credit Agreement during the year ended December 31, 2009. All waivers, consents and amendments to the Credit Agreement are filed with the SEC. The filing of the bankruptcy petitions also constituted an event of default under the Credit Facility. As of March 31, 2010, the Company was operating without a waiver of default resulting in all obligations under the Credit Facility being automatically and immediately due and payable, subject to the automatic stay of any action to collect, assert, or recover a claim against the Company and the application of applicable bankruptcy law.

Immediately prior to the time of filing the Chapter 11 Petitions, the Company had failed to make various mandatory contractual payments under its Credit Facility, as amended. Such payments included interest on the term and revolving credit advances of $5.0 million, principal payments on term advances of $0.4 million and $1.4 million of other mandatory payments.

As of March 31, 2010 and December 31, 2009 capitalized debt costs of $1.3 million and $1.4 million, respectively, associated with the Company’s pre-petition Credit Facility were included in liabilities subject to compromise to adjust the carrying amount of the outstanding obligation in accordance with ASC 852.

8. Interest Rate Swap Agreements

Effective July 9, 2009, Citibank and the Company agreed to the early termination of the interest rate swap agreements entered August and December 2007. In consideration for Citibank’s agreement to terminate the interest rate swaps, the Company agreed that the amount due to Citibank as of July 9, 2009 (Settlement Date) was $1.6 million (Settlement Amount). The Company further agreed that interest on the Settlement Amount will accrue at a default rate from and including the Settlement Date until such date that the Settlement Amount is paid in full. As of March 31, 2010, the Company had not paid the $1.6 million Settlement Amount; as such the amount is included in liabilities subject to compromise in the consolidated balance sheet.

9. Stock-Based Compensation

Total stock-based compensation was $0.2 million for each of the three months ended March 31, 2010 and 2009, and was related to the TLCVision Stock Option Plan.

As of March 31, 2010, the total unrecognized compensation expense related to TLCVision non-vested awards was approximately $1.0 million. The unrecognized compensation expense will be recognized over the remaining vesting periods, the last of which expires during December 2012 for certain options. The Company granted no options during each of the three months ended March 31, 2010 and 2009.

10. Other (Income) Expense, Net

Other (income) expense, net includes the following operating items:


	THREE MONTHS ENDED
	MARCH 31,
	2010			2009
Other (income) expense:
Gain on sales and disposals of fixed assets	$	(66	)	$	(164	)
Center restructuring and closing costs		—			280
Employee severance expense		—			259
Financial and legal advisor costs		—			2,147
Miscellaneous income		(78	)		(4	)

	$	(144	)	$	2,518

11. Restructuring of Operations

Beginning in early 2009 and continuing through March 2010, the Company accelerated its cost savings initiatives that focused on employee reductions, closures of refractive centers and the reduction in refractive access routes. The restructuring efforts resulted in the closure of three majority-owned refractive centers and an approximate 15% reduction of the Company’s workforce through involuntary employee separations. In addition to the cost savings initiatives, the restructuring efforts also included financial and legal advisor fees.

As a result, the Company incurred pre-petition restructuring charges included in other expenses totaling $2.7 million for the three months ended March 31, 2009, which primarily included $2.1 million of financial and legal advisor costs, $0.3 million for employee severance and benefits and $0.3 million of center closing costs.

Significant activities that occurred after December 21, 2009, were approved by the U.S. or Canadian Court when required under the Bankruptcy Code or the CCAA, respectively, as part of the Company’s reorganization efforts. Charges incurred after December 21, 2009 and specifically associated with the bankruptcy proceedings are recorded as reorganization items, net, on the consolidated statement of operations. For additional information see Note 2, Bankruptcy Proceedings.

As of March 31, 2010, restructuring reserves of $0.1 million of center restructuring costs were included in accrued liabilities and $0.9 million of employee severance and benefits were included in liabilities subject to compromise in the consolidated balance sheet. As of December 31, 2009, restructuring reserves of $0.2 million of center restructuring costs were included in accrued liabilities and $1.2 million of employee severance and benefits were included in liabilities subject to compromise in the consolidated balance sheet.

The following table sets forth activity that was recorded through the Company’s accrued restructuring accounts during the three months ended March 31, 2010:


	EMPLOYEE			CENTER
	SEVERANCE			RESTRUCTURING
	& BENEFITS			COSTS			TOTAL
Restructuring reserve balance as of December 31, 2009	$	1,214		$	210		$	1,424
Reorganization items, net		—			(24	)		(24	)
Non-cash write-downs		(5	)		—			(5	)
Cash payments		(275	)		(38	)		(313	)

Restructuring reserve balance as of March 31, 2010	$	934		$	148		$	1,082

As of March 31, 2010, the Company currently estimates that its restructuring efforts will likely continue into the quarter ending June 30, 2010. Such estimate may change and is dependent on the outcome of various cost reduction efforts and the outcome of the Company’s bankruptcy proceedings.

12. Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of its annual tax expense based on the forecasted taxable income for the full year. The Company believes there is the potential for volatility in its 2010 effective tax rate due to several factors, primarily from the impact of any changes to the forecasted earnings and the outcome of the Company’s pending bankruptcy proceedings.

As of March 31, 2010, the Company continues to believe that there is insufficient evidence to recognize certain deferred tax assets. Accordingly, the Company continues to carry a full valuation allowance to offset its deferred tax assets. The determination of the appropriate amount of deferred tax asset to recognize is regularly evaluated and is primarily based on expected taxable income in future years, trends of historical taxable income, and other relevant factors.

Section 382 of the Internal Revenue Code of 1986, as amended, imposes significant annual limitations on the utilization of NOLs. Such NOL limitations result upon the occurrence of certain events, including an “ownership change” as defined by Section 382.

Under Section 382, when an ownership change occurs, the calculation of the annual NOL limitation is affected by several factors, including the number of shares outstanding and the trading price before the ownership change occurred. As a result of shareholder activity, the Company concluded that an ownership change occurred in early 2008 limiting future utilization of NOLs. The Company currently estimates that this annual limit will result in $67.7 million of NOLs expiring before becoming available.

Our ability to utilize the remaining NOL carryforwards could be subject to a significant limitation if we were to undergo an “ownership change” for purposes of Section 382, as amended, during or as a result of the bankruptcy proceedings.

A restructuring of our debt pursuant to the bankruptcy proceedings may give rise to cancellation of indebtedness or debt forgiveness (COD), which if it occurs would generally be non-taxable. If the COD is non-taxable, we will be required to reduce our NOL carryforwards and other attributes such as capital loss carryforwards and the tax basis in assets, by an amount equal to the non-recognized COD. Therefore, it is possible that, as a result of the successful completion of a plan of reorganization, we will have a reduction of NOL carryforwards and/or other tax attributes in an amount that cannot be determined at this time and that could have a material adverse effect on our financial future.

13. Stockholders’ (Deficit) Equity

The following table reflects the changes in stockholders’ (deficit) equity attributable to both TLC Vision Corporation and the noncontrolling interests of the subsidiaries in which the Company has a majority, but not total, ownership interest.

				ATTRIBUTABLE
	ATTRIBUTABLE			TO
	TO TLC VISION			NONCONTROLLING
	CORPORATION			INTEREST			TOTAL
Stockholders’ (deficit) equity at December 31, 2008	$	(35,346	)	$	15,330		$	(20,016	)
Shares issued as part of the employee share purchase plan		22						22
Stock based compensation		675						675
Distributions to noncontrolling interest					(7,754	)		(7,754	)
Divestitures and other noncontrolling interest activity					(432	)		(432	)
Comprehensive income
Deferred hedge		1,545						1,545
Net (loss) income		(18,228	)		7,415			(10,813	)
Stockholders’ (deficit) equity at September 30, 2009	$	(51,332	)	$	14,559		$	(36,773	)

19.Table SEGMENTof INFORMATION Contents


				ATTRIBUTABLE
	ATTRIBUTABLE			TO
	TO TLC VISION			NONCONTROLLING
	CORPORATION			INTEREST			TOTAL
Stockholders’ (deficit) equity at December 31, 2009	$	(69,578	)	$	12,182		$	(57,396	)
Stock based compensation		200						200
Distributions to noncontrolling interest					(2,267	)		(2,267	)
Net (loss) income		(4,424	)		2,168			(2,256	)

Stockholders’ (deficit) equity at March 31, 2010	$	(73,802	)	$	12,083		$	(61,719	)

14. Segment Information

The Company’s reportable segments are strategic business units that offer different products and services. They are managed and evaluated separately by the chief operating decision maker because each business requires different management and marketing strategies. The Company has three lines of business and five reportable segments including “Other” as follows:

	•		Refractive Centers: The refractive centers business provides a significant portion of the Company’s revenue and is in the business of providing corrective laser surgery (principally LASIK) in fixed sites typically branded under the TLC name.

	•		Doctor Services: The doctor services business provides a variety of services and products directly to doctors and the facilities in which they perform surgery. It consists of the following segments:

	•		Mobile Cataract: The mobile cataract segment provides technology and diagnostic equipment and services to doctors and hospitals to support cataract surgery as well as treatment of other eye diseases.

	•		Refractive Access: The refractive access segment assists surgeons in providing corrective laser surgery in their own practice location by providing refractive technology, technicians, service and practice development support at the surgeon’s office.

	•		Other: The Company has ownership interests in businesses that manage surgical and secondary care centers. None of these businesses meets the quantitative criteria to be disclosed separately as a reportable segment and they are included in “Other” for segment disclosure purposes.

•

Eye Care: The eye care business consists of the optometric franchising business segment. The optometric franchising segment provides marketing, practice development and purchasing power to independently-owned and operated optometric practices in the United States and Canada.

Corporate depreciation and amortization of $0.42 million and $0.64 million for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008, respectively, is included in corporate operating expenses. Corporate depreciation and amortization of $1.1 million and $1.8 million for the nine months ended September 30,~~ 2009 ~~and 2008~~, respectively, is included in corporate operating expenses. For purposes of the depreciation and amortization disclosures shown below, these amounts are included in the refractive centers reporting segment.

1519

The Company’s reportable segments are as follows:

THREE MONTHS ENDED SEPTEMBER 30, 2009 (IN THOUSANDS)


			DOCTOR SERVICES							EYE CARE
THREE MONTHS ENDED MARCH 31, 2010	REFRACTIVE		REFRACTIVE		MOBILE					OPTOMETRIC
(IN THOUSANDS)	CENTERS		ACCESS		CATARACT		OTHER			FRANCHISING		TOTAL
Revenues	$	33,012	$	7,047	$	9,160	$	5,532		$	6,641	$	61,392
Cost of revenues (excluding amortization)		22,272		5,071		6,762		3,960			3,366		41,431

Gross profit		10,740		1,976		2,398		1,572			3,275		19,961

Segment expenses:
Marketing and sales		2,366		28		982		47			774		4,197
G&A, amortization and other		896		16		816		246			9		1,983
(Earnings) loss from equity investments		55		—		—		(122	)		—		(67	)

Segment profit	$	7,423	$	1,932	$	600	$	1,401		$	2,492	$	13,848
Noncontrolling interest		405		9		—		575			1,179		2,168

Segment profit attributable to TLC Vision Corp.	$	7,018	$	1,923	$	600	$	826		$	1,313	$	11,680

Corporate operating expenses													(3,994	)
Reorganization items, net													(7,419	)
Interest expense, net													(4,391	)
Income tax expense													(300	)

Net loss attributable to TLC Vision Corporation													(4,424	)

Depreciation and amortization	$	2,030	$	530	$	695	$	322		$	20	$	3,597

				DOCTOR SERVICES								EYE CARE
	REFRACTIVE			REFRACTIVE		MOBILE						OPTOMETRIC
THREE MONTHS ENDED MARCH 31, 2009	REFRACTIVE			REFRACTIVE		MOBILE						OPTOMETRIC
	CENTERS			ACCESS		CATARACT			OTHER			FRANCHISING		TOTAL
(IN THOUSANDS)	CENTERS			ACCESS		CATARACT			OTHER			FRANCHISING		TOTAL
Revenues	$	2236,~~197~~000		$	57,~~477~~481	$	109,~~787~~576		$	56,~~952~~499		$	79,~~212~~866	$	5169,~~625~~422
Cost of revenues (excluding amortization)		1726,~~510~~035			36,~~916~~302		87,~~445~~301			4,~~010~~731			34,~~491~~772		3749,~~372~~141
Gross profit		49,~~687~~965			1,~~561~~179		2,~~342~~275			1,~~942~~768			35,~~721~~094		1420,~~253~~281
Segment expenses:
Marketing and sales		24,~~458~~035			2023		1,~~238~~645			93129			~~1,139~~996		46,~~948~~828
G&A, amortization and other		1,~~136~~875			3315		~~818~~1,000			~~1,839~~366			16		3,~~827~~262
Impairment		496			—		—			—			—		496
Loss (earnings) from equity investments		(147	)		—		—			(203	)		—		(350	)
Earnings from equity investments		(33	)		—		—			(197	)		—		(230	)
Segment profit	$	4,202		$	1,141	$	(370	)	$	1,476		$	4,092	$	10,541
Segment profit	$	630		$	1,508	$	286		$	207		$	2,581	$	5,212
Noncontrolling interest		362			12		—			581			1,958		2,913
Noncontrolling interest		40			13		—			870			1,134		2,057
Segment profit attributable to TLC Vision Corp.	$	3,840		$	1,129	$	(370	)	$	895		$	2,134	$	7,628
Segment profit (loss) attributable to TLC Vision Corp.	$	590		$	1,495	$	286		$	(663	)	$	1,447	$	3,155
Corporate operating expenses															(5,775	)
Corporate operating expenses															(8,906	)
Interest expense, net															(2,967	)
Interest expense, net															(4,118	)
Income tax expense															(210	)
Income tax expense															(176	)
Net loss attributable to TLC Vision Corporation															(1,324	)
Net loss attributable to TLC Vision Corporation															(10,045	)
Depreciation and amortization	$	2,427		$	527	$	717		$	329		$	12	$	4,012
Depreciation and amortization	$	2,354		$	535	$	715		$	330		$	12	$	3,946

~~THREE~~15. ~~MONTHS~~Supplemental ~~ENDED~~Cash ~~SEPTEMBER~~Flow ~~30, 2008~~Information ~~(IN THOUSANDS)~~

				DOCTOR SERVICES								EYE CARE
	REFRACTIVE			REFRACTIVE			MOBILE					OPTOMETRIC
	CENTERS			ACCESS			CATARACT		OTHER			FRANCHISING		TOTAL
Revenues	$	28,516		$	5,861		$	10,177	$	6,596		$	6,384	$	57,534
Cost of revenues (excluding amortization)		22,245			4,766			7,635		4,217			2,596		41,459
Gross profit		6,271			1,095			2,542		2,379			3,788		16,075
Segment expenses:
Marketing and sales		6,651			36			1,470		120			1,171		9,448
G&A, amortization and other		1,628			(115	)		942		455			2		2,912
Impairment		—			—			—		1,500			—		1,500
Earnings from equity investments		(114	)		—			—		(353	)		—		(467	)
Segment (loss) profit	$	(1,894	)	$	1,174		$	130	$	657		$	2,615	$	2,682
Noncontrolling interest		(53	)		10			—		952			1,223		2,132
Segment (loss) profit attributable to TLC Vision Corp.	$	(1,841	)	$	1,164		$	130	$	(295	)	$	1,392	$	550
Corporate operating expenses															(4,588	)
Interest expense, net															(2,455	)
Income tax expense															(218	)
Net loss attributable to TLC Vision Corporation															(6,711	)
Depreciation and amortization	$	3,158		$	737		$	681	$	380		$	12	$	4,968

NINE MONTHS ENDED SEPTEMBER 30, 2009 (IN THOUSANDS)

				DOCTOR SERVICES							EYE CARE
	REFRACTIVE			REFRACTIVE		MOBILE					OPTOMETRIC
	CENTERS			ACCESS		CATARACT		OTHER			FRANCHISING		TOTAL
Revenues	$	85,145		$	18,946	$	31,630	$	19,688		$	24,097	$	179,506
Cost of revenues (excluding amortization)		65,140			15,093		23,798		13,571			11,413		129,015
Gross profit		20,005			3,853		7,832		6,117			12,684		50,491
Segment expenses:
Marketing and sales		9,459			65		4,208		300			3,253		17,285
G&A, amortization and other		4,881			34		2,656		2,517			21		10,109
Impairment		496			—		—		—			—		496
Earnings from equity investments		(273	)		—		—		(749	)		—		(1,022	)
Segment profit	$	5,442		$	3,754	$	968	$	4,049		$	9,410	$	23,623
Noncontrolling interest		560			21		—		2,444			4,390		7,415
Segment profit attributable to TLC Vision Corp.	$	4,882		$	3,733	$	968	$	1,605		$	5,020	$	16,208
Corporate operating expenses														(24,263	)
Interest expense, net														(9,513	)
Income tax expense														(660	)
Net loss attributable to TLC Vision Corporation														(18,228	)
Depreciation and amortization	$	7,169		$	1,593	$	2,161	$	996		$	36	$	11,955

NINE MONTHS ENDED SEPTEMBER 30, 2008 (IN THOUSANDS)

			DOCTOR SERVICES								EYE CARE
	REFRACTIVE		REFRACTIVE			MOBILE					OPTOMETRIC
	CENTERS		ACCESS			CATARACT		OTHER			FRANCHISING		TOTAL
Revenues	$	126,540	$	23,831		$	30,527	$	18,867		$	22,221	$	221,986
Cost of revenues (excluding amortization)		89,011		18,500			22,526		12,413			10,109		152,559
Gross profit		37,529		5,331			8,001		6,454			12,112		69,427
Segment expenses:
Marketing and sales		22,794		112			4,895		349			3,158		31,308
G&A, amortization and other		5,672		(321	)		3,078		1,200			49		9,678
Impairment		—		—			—		1,500			—		1,500
Loss (earnings) from equity investments		544		—			—		(909	)		—		(365	)
Segment profit	$	8,519	$	5,540		$	28	$	4,314		$	8,905	$	27,306
Noncontrolling interest		1,189		77			—		2,704			4,054		8,024
Segment profit attributable to TLC Vision Corp.	$	7,330	$	5,463		$	28	$	1,610		$	4,851	$	19,282
Corporate operating expenses														(14,252	)
Interest expense, net														(6,919	)
Income tax expense														(950	)
Net loss attributable to TLC Vision Corporation														(2,839	)
Depreciation and amortization	$	9,499	$	2,122		$	2,055	$	1,131		$	38	$	14,845

20. SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash transactions:

	NINE MONTHS ENDED SEPTEMBER 30,
	THREE MONTHS ENDED MARCH 31,
	2009			2008
	2010			2009
Capital lease obligations relating to equipment purchases	$	~~2,006~~75		$	21,~~961~~436
Other comprehensive (income) loss on hedge		(1,545	)		276
Other comprehensive income on hedge		—			(208	)
Option and warrant reduction		—404			92—

Cash paid for the following:

		NINE MONTHS ENDED SEPTEMBER 30,
		THREE MONTHS ENDED MARCH 31,
		2009		2008
		2010		2009
Interest	$	$3,967	~~7,266~~	$	73,~~197~~052
Income taxes		362	~~858~~		~~1,172~~304

2116. ~~FAIR~~Fair ~~VALUE~~Value ~~MEASUREMENT~~Measurements

In September 2006, the FASB issued guidance (ASC 820), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of this guidance were effective for the Company as of January 1, 2008. However, the FASB deferred the effective date of the provision until the beginning of the Company’s 2009 fiscal year as it relates to fair value measurement requirements for nonfinancial assets, such as goodwill, and liabilities that are not remeasured at fair value on a recurring basis. The Company uses fair value measurements when it periodically revaluates the recoverability of goodwill and other intangible assets. The Company’s adoption of the additional fair value guidance in fiscal 2009 did not have a material impact on the financial statements.

During the nine months ended September 30, 2009, the Company implemented FASB issued guidance (ASC 825) to require disclosures about the fair value of financial instruments in interim as well as in annual financial statements. The adoption of this guidance did not impact the Company’s financial position or results of operations.

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

	•		Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

	•		Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

	•		Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

Cash and cash equivalents of $1318.20 million at ~~September~~March 3031, ~~2009~~2010 are primarily comprised of ~~either~~ either bank deposits or amounts invested in money market funds, the fair value of which is based on unadjusted quoted prices in active markets for identical assets (Level 1).

As of ~~September~~March 3031, ~~2009~~2010, the carrying value and approximate fair value ~~was~~of ~~$100.1 million and $95.6 million, respectively, relating to~~ the Company’s pre-petition ~~combined~~Credit ~~term~~Facility advances and ~~revolving~~debtor-in-possession ~~advances~~borrowings ~~under~~were $110.1 million and ~~the~~$109.5 ~~Credit~~million, ~~Facility~~respectively. The fair value was estimated by discounting the amount of estimated ~~future~~ future cash flows associated with the respective debt instruments using the Company’s current ~~incremental~~ incremental rate of borrowing for similar debt instruments (Level 3). The calculation of fair value assumes no acceleration of payments that may be required under default provisions included in the Company’s Credit Facility.

1817. Subsequent Events

On May 5, 2010, the Debtor Entities filed the Fifth Amended Plan. The Fifth Amended Plan did not significantly alter the fourth amended joint plan of reorganization other than to change the treatment of certain classes of claims under the plan from impaired to unimpaired.

On May 6, 2010, the U.S. Court confirmed the Fifth Amended Plan. The Canadian Court recognized under the CCAA such confirmation on May 11, 2010. The Fifth Amended Plan will become effective upon satisfaction or waiver by the plan sponsor of outstanding closing conditions. The Company expects that the Plan of Reorganization, as amended, will become effective on or before May 20, 2010. After such date, it is expected that any assets of the Company not sold to Charlesbank and H.I.G. will be liquidated under the CCAA in a Canadian proceeding and that net proceeds of such liquidation, if any, will be distributed first to the Company’s creditors and second, after all creditors are paid in full, to the Company’s stockholders. Refer to Note 2, Bankruptcy Proceedings, for additional information.

22. EXECUTIVE OFFICERS

On April 23, 2009, the Company announced that James C. Wachtman resigned as Chief Executive Officer and as a member of the Board of Directors of the Company, effective immediately. The Company also announced that James B. Tiffany was named President and Chief Operating Officer, effective immediately.

On April 23, 2009, the Company also announced that it created the position of Chief Restructuring Officer and formed an Office of the Chairman. Michael Gries, a principal of Conway, Del Genio, Gries & Co. LLC (“CDG”), a financial advisory firm based in New York, NY, accepted the position of Chief Restructuring Officer. The new three-person Office of the Chairman will report to the Board of Directors and is comprised of: Chairman Warren Rustand; President and Chief Operating Officer, James B.Tiffany; and Chief Restructuring Officer, Michael Gries.

On May 15, 2009, the Company announced that as part of its efforts to reduce costs, it terminated the employment of three executive officers, effective immediately. The three executive officers impacted were: Steven P. Rasche, Chief Financial Officer; Brian L. Andrew, General Counsel and Secretary; and Larry D. Hohl, President of Refractive Centers.

On May 15, 2009, the Company also announced that William J. McManus, a managing director of CDG, was appointed to the position of Interim Chief Financial Officer. Mr. Andrew’s non-legal responsibilities as well as Mr. Hohl’s responsibilities have been assumed by James B. Tiffany. Mr. Andrew’s legal responsibilities have been assumed on an interim basis by Company attorneys and external counsel.

23. RELATED PARTY TRANSACTIONS

As noted in Note 22, Executive Officers, the Company’s Interim Chief Financial Officer and Chief Restructuring Officer are employed by CDG. The Company has retained CDG to provide consulting services relating to the Company’s ongoing restructuring efforts, which include cost saving initiatives and Credit Facility negotiations. During the three and nine months ended September 30, 2009, the Company paid CDG approximately $0.6 million and $1.6 million, respectively.

24. SUBSEQUENT EVENTS

On October 22, 2009, the Company announced that it had secured from its lenders an extension to November 15, 2009 of the previously announced limited waiver with respect to the Credit Agreement that expired on October 13, 2009, and of the forbearance with respect to certain payment obligations under the Credit Agreement. The amendment to the limited waiver, dated October 13, 2009, among other things, provides an extension of the limited waiver through November 15, 2009 of specified defaults and provides that the lenders will, until November 15, 2009, forbear from exercising their rights arising out of the non-payment of certain principal, interest and other payments previously due.

As of November 16, 2009, the filing date of this quarterly report, the Company was operating without a current waiver of defaults under its Credit Facility.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q (together with all amendments, exhibits and schedules hereto, referred to as the “Form 10-Q”) 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,” “believes,” “could,” “might,” “anticipate,” “estimate,” “plans,” “intends” or “continue” or the negative thereof or other variations thereon or comparable terminology. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth elsewhere in this Form 10-Q in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009. Unless the context indicates or requires otherwise, references in this Form 10-Q to the “Company” or “TLCVision” shall mean TLC Vision Corporation and its subsidiaries. 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.

19Overview

requires otherwise, references in this Form 10-Q to the “Company” or “TLCVision” shall mean TLC Vision Corporation and its subsidiaries. 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.

OVERVIEW

TLC Vision Corporation is an eye care services company dedicated to improving lives through improved vision by providing high-quality care directly to patients and as a partner with their doctors and facilities. A significant portion of the Company’s revenues come from owning and operating refractive centers that employ laser technologies to treat common refractive vision disorders such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Refractive centers, which is a reportable segment, includes the Company’s 70 centers that provide corrective laser surgery, of which 62 are majority owned and 8 centers are minority owned. In its doctor services businesses, the Company furnishes doctors and medical facilities with mobile or fixed site access to refractive and cataract surgery equipment, supplies, technicians and diagnostic products, as well as owns and manages single-specialty ambulatory surgery centers. In its eye care business, the Company primarily provides franchise opportunities to independent optometrists under its Vision Source^® brand.

The Company serves surgeons who performed approximately ~~151~~51,000 and ~~186~~56,000 procedures, including refractive and cataract procedures, at the Company’s centers or using the Company’s equipment during each of the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, respectively. Being an elective procedure, laser vision correction volumes fluctuate due to changes in economic conditions, unemployment rates, consumer confidence and political uncertainty. Demand for laser vision correction also is affected by perceived safety and effectiveness concerns given the lack of long-term follow-up data. ~~For additional information regarding the Company’s decline in procedure~~ ~~volume and the direct impact of such decline on the Company’s liquidity, refer to the section Recent Developments below.~~

~~RECENT~~Recent ~~DEVELOPMENTS~~Developments

~~Amendments,~~Confirmation ~~Waivers~~of ~~and~~Amended ~~Consents~~Plan toof ~~the Credit Facility~~Reorganization

AsOn aMay 6, ~~result~~2010, ofthe U.S. Court confirmed the ~~Company’s~~Fifth ~~inability~~Amended toPlan. The ~~comply~~Canadian ~~with~~Court recognized under the ~~primary~~CCAA ~~financial~~such ~~covenants~~confirmation ~~under its~~on ~~Credit~~May ~~Facility~~11, ~~the~~2010. ~~Company~~The ~~has~~Fifth ~~received~~Amended ~~from~~Plan ~~its~~will ~~lenders~~become ~~numerous~~effective ~~waivers,~~upon ~~consents~~satisfaction ~~and amendments~~or towaiver by the ~~Credit~~plan ~~Agreement~~sponsor ~~during~~of outstanding closing conditions. The Company expects that the ~~nine~~Plan ~~months~~of ~~ended~~Reorganization, ~~September 30~~as amended, ~~2009.~~will ~~All~~become ~~waivers~~effective on or before May 20, ~~consents~~2010. ~~and~~After ~~amendments~~such todate, ~~the~~it ~~Credit~~is ~~Agreement~~expected ~~are~~that ~~filed~~any ~~with~~assets of the ~~SEC~~Company asnot ~~exhibits~~sold to ~~Current~~Charlesbank and ~~Reports~~H.I.G. onwill ~~Form~~be ~~8-K.~~liquidated ~~Refer~~under tothe ~~Notes~~CCAA in a Canadian proceeding and that net proceeds of ~~the~~such liquidation, ~~Unaudited~~if ~~Interim~~any, ~~Consolidated~~will ~~Financials~~be ~~Statements~~distributed first to the Company’s creditors and second, inafter all ~~particular~~creditors ~~Note~~are 2,paid ~~Liquidity~~in full, ~~and~~to the Company’s stockholders. Refer to Note 242, ~~Subsequent~~Bankruptcy ~~Events~~Proceedings, for additional ~~details~~information.

~~NASDAQ~~Junior ~~Compliance~~Debtor-in-Possession Financing

OnIn ~~September 16,~~connection ~~2009,~~with the ~~Company~~First ~~received~~Amended ~~letters~~Plan, ~~from~~as ~~the~~further ~~NASDAQ~~described ~~Stock~~in ~~Market~~Note ~~indicating that~~2, ~~for the last 30 consecutive business days~~Bankruptcy Proceedings, the ~~Company’s~~Debtor ~~common~~Entities ~~stock~~filed ~~did not maintain~~ a ~~minimum~~ ~~value~~motion ~~requirement~~seeking ofauthority ~~publicly~~from ~~held~~the ~~shares~~Bankruptcy ofCourts ~~$15 million~~for ~~(“MVPHS~~a ~~Rule”) and the bid price~~junior ofsecured ~~the~~super ~~Company’s~~priority ~~common~~debtor-in-possession ~~stock~~credit ~~closed~~agreement ~~below~~(Junior ~~the~~DIP ~~minimum~~Credit $1Agreement).00 ~~per~~The ~~share~~Junior ~~requirement~~DIP ~~(“Minimum~~Credit ~~Bid~~Agreement, ~~Price~~approved ~~Rule”)~~by ~~for continued inclusion on~~ the ~~NASDAQ Stock Market~~U.S. ~~The~~Court ~~Company~~via ~~will~~an beinterim ~~provided~~order ~~until December~~on February 1512, ~~2009~~2010 toand ~~obtain compliance with~~ the ~~MVPHS~~Canadian ~~Rule~~Court ~~and until March~~on February 1518, 2010 ~~to regain compliance with the Minimum Bid Price Rule or may have its securities delisted. Refer to Note 3~~, ~~NASDAQ~~ ~~Stock~~is ~~Market Compliance, to the Unaudited Interim Consolidated Financial Statements for~~dated ~~additional details.~~

Foresee PHP® System

During the quarter ended September 30, 2009, management explored terminating the Foresee Preferential Hyperacuity Perimeter (Foresee PHP®) system distribution rights between the Company and Notal Vision®. The distribution rights allow the Company to sell the Foresee PHP® system, manufactured by Notal Vision®, as a component of the Company’s cataract access reporting segment. During the nine months ended September 30, 2009, revenues generated from sales of the Foresee PHP® system were $1.4 million, a decline of $0.6 million compared to the nine months ended September 30, 2008.

Given the recent decline in revenues and profits generated from sales of the Foresee PHP® system, the Company and Notal Vision® mutually agreed to transfer the distribution rights to a third party subsequent to the quarter ended September 30, 2009. As a result, the Company determined at September 30, 2009 that approximately $0.7 million of remaining nontransferable Foresee PHP® inventory was impaired.

Refer to Note 6, Inventory and Other Assets, to the Unaudited Interim Consolidated Financial Statements for additional details.

Kremer Put Options

During August 2009, the Company and the minority holders of Kremer executed a limited forbearance and amendment (“Amendment and Forbearance”) to the 2005 transfer rights agreement, as previously amended. The Amendment and Forbearance, among other things, granted the Company temporary forbearance of a $1.9 million payable due to the minority holders, waived the minority holders’ ability during the forbearance period to force acceleration of the remaining put options and required the Company to make an immediate payment to the minority holders of $0.3 million. Refer to Note 4, Acquisitions and Investments, to the Unaudited Interim Consolidated Financial Statements for additional details.

Interest Rate Swap Agreements

Effective July 9, 2009, Citibank and the Company agreed to the early termination of the interest rate swap agreements entered August and December 2007. In consideration for Citibank’s agreement to terminate the interest rate swaps, the Company agreed that the amount due to Citibank as of July 9, 2009 (“Settlement Date”) was $1.6 million (“Settlement Amount”). The Company further agreed that interest on the Settlement Amount will accrue at a default rate from and including the Settlement Date until such date that the Settlement Amount is paid in full. As of September 30, 2009, the Company had not paid the $1.6 million Settlement Amount. See Note 12, Interest Rate Swap Agreements, to the Unaudited Interim Consolidated Financial Statements for additional details regarding the interest rate swap agreements.

Ambulatory Surgical Center Disposals

During the quarter ended September 30, 2009, the Company divested one majority-owned and two minority-owned ambulatory surgical center investments for a combined net sale price of $2.2 million, resulting in a net loss on divestiture of $1.6 million included in other expense in the Consolidated Statements of Operations. The historical results of operations for these ambulatory surgical centers are included in the “other” segment of the Company’s doctor services business.

Center Closures

During the nine months ended September 30, 2009 the Company closed four majority-owned centers as part of the Company’s ongoing efforts to improve overall operating performance. The majority-owned centers had procedure volume of approximately 400 and 1,000 during the nine months ended September 30, 2009 and 2008, respectively. While the Company does not have immediate plans to close additional centers, management continues to review refractive center operating performance and may chose to close additional centers in future periods as necessary.

Amendment No. 2 to the TruVision Agreement and Plan of Merger

On August 10, 2009, the Company entered into Amendment No. 2 (“Amendment”) to the 2005 TruVision™ Agreement and Plan of Merger. The Amendment resulted in the Company’s final $4.0 million purchase installment, which was due to the former TruVision owners during August 2009, being increased to an unsecured $5.4 million payable. Refer to Note 9, Accrued and Other Long-Term Liabilities, to the Unaudited Interim Consolidated Financial Statements for additional details.

RESULTS OF OPERATIONS

The following table sets forth certain center and procedure operating data for the periods presented:

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2009		2008		2009		2008
OPERATING DATA (unaudited)
Number of majority-owned eye care centers at end of period		62		68		62		68
Number of minority-owned eye care centers at end of period		8		10		8		10
Number of TLCVision branded eye care centers at end of period		70		78		70		78
Number of laser vision correction procedures:
Majority-owned centers		13,100		16,300		50,500		73,600
Minority-owned centers		3,200		3,500		10,900		13,900
Total TLCVision branded center procedures		16,300		19,800		61,400		87,500
Total access procedures		8,200		8,500		28,000		36,400
Total laser vision correction procedures		24,500		28,300		89,400		123,900

THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2008

Total revenues for the three months ended September 30, 2009 were $51.6 million, a decrease of $5.9 million (10%) from revenues of $57.5 million for the three months ended September 30, 2008. The decrease in revenue was primarily attributable to the decline in refractive centers procedures, partially offset by higher cataract volume.

Revenues from refractive centers for the three months ended September 30, 2009 were $22.2 million, a decrease of $6.3 million (22%) from revenues of $28.5 million for the three months ended September 30, 2008. The decrease in revenues from centers resulted primarily from lower center procedure volume, which accounted for a decrease in revenues of approximately $5.0 million. The remaining revenue decline of $1.3 million was the result of decreased revenue per procedure. For the three months ended September 30, 2009, majority-owned center procedures were approximately 13,100, a decrease of 3,200 from 16,300 procedures for the three months ended September 30, 2008. The procedure decline was attributable to the weakened U.S. economy, which has negatively impacted consumer discretionary spending.

Revenues from doctor services for the three months ended September 30, 2009 were $22.2 million, a decrease of $0.4 million (2%) from revenues of $22.6 million for the three months ended September 30, 2008. The revenue decrease from doctor services was due principally to procedure shortfalls in refractive access and the disposal of a majority-owned ambulatory surgical center, partially offset by an increase in the mobile cataract segment.

• Revenues from the refractive access services segment for the three months ended September 30, 2009 were $5.5 million, a decrease of $0.4 million (7%) from revenues of $5.9 million for the three months ended September 30, 2008. For the three months ended September 30, 2009, excimer procedures declined by approximately 300 (4%) from the prior year period on lower customer demand and lower average sales price of 3%. The procedure decline accounted for a decrease in revenues of approximately $0.2 million and lower average sales price decreased revenues by approximately $0.2 million. • Revenues from the Company’s mobile cataract segment for the three months ended September 30, 2009 were $10.8 million, an increase of $0.6 million (6%) from revenues of $10.2 million for the three months ended September 30, 2008. The increase in mobile cataract revenues was due to increased surgical procedure volume of 5% and a higher surgical average sales price of 3%. • Revenues from the Company’s businesses that manage cataract and secondary care centers for the three months ended September 30, 2009 were $6.0 million, a decrease of $0.6 million (10%) from revenues of $6.6 million for the three months ended September 30, 2008. The decrease was primarily

~~driven~~February 3, by2010 and is among the ~~sale~~Debtors, ofvarious alenders ~~majority-owned~~and ~~ambulatory~~Charlesbank ~~surgical~~Equity ~~center~~Fund VII, ~~which~~Limited Partnership, ~~contributed~~as nocollateral ~~revenue~~and ~~during~~administrative ~~the~~agent. The ~~quarter~~U.S. ~~ended~~Court ~~September~~entered 30a Final order on March 9, ~~2009~~2010 ~~compared~~approving tothe $0Junior DIP Credit Agreement.9 ~~million~~That ~~during~~order was recognized by the ~~comparable~~Canadian ~~prior~~Court ~~year~~on ~~period~~March 16, 2010.

~~Revenues~~The ~~from~~Junior ~~eye~~DIP ~~care~~Credit ~~for~~Agreement ~~the~~provides ~~three~~for ~~months~~financing ~~ended~~of ~~September 30,~~a ~~2009~~junior ~~were~~secured ~~$7.2 million,~~super anpriority term ~~increase~~loan offacility in a principal amount up to $025.80 million. ~~(13%)~~On ~~from~~February 25, ~~revenues~~2010, ofthe Company borrowed $610.40 million ~~for~~under the ~~three~~Junior ~~months~~DIP ~~ended September 30,~~Credit ~~2008.~~Agreement ~~This~~and ~~increase~~used inthe ~~revenues~~funds, isamong ~~attributable~~other things, to apay down ~~10%~~the ~~year-over-year~~previously ~~increase in~~existing ~~franchisee locations~~$7.5 million Asoutstanding ofprincipal ~~September 30,~~balance ~~2009~~under the ~~Company~~Senior ~~had~~DIP 2Credit Agreement. Refer to Note 7,~~058~~ ~~total~~Debt, ~~franchisees~~for additional information.

~~Total~~Results ~~cost~~ of ~~revenues (excluding amortization expense for all segments) for the three months~~Operations ~~ended September 30, 2009 was $37.4 million, a decrease of $4.1 million (10%) from the cost of revenues of $41.5 million for the three months ended September 30, 2008.~~

The ~~cost~~following oftable ~~revenues~~sets ~~from~~forth ~~refractive~~certain ~~centers~~center for the three months ended September 30, 2009 was $17.5 million, a decrease of $4.7 million (21%) from cost of revenues of $22.2 million for the three months ended September 30, 2008. This decrease was attributable to a $1.5 million cost of revenue decline related to lower procedure volume, $2.7 million in fixed cost reductions and ~~$0.5 million~~ ~~in decreased variable costs per~~ procedure. ~~Gross~~operating ~~margin~~data for ~~centers was 21.1% during~~ the ~~three months ended September 30, 2009, down from prior year gross margin of 22.0% as~~periods ~~the Company’s cost saving initiatives nearly outweighed the revenue decline caused by the~~presented: ~~refractive center procedure decline.~~

The cost of revenues from doctor services for the three months ended September 30, 2009 was $16.4 million, a decrease of $0.2 million (1%) from cost of revenues of $16.6 million for the three months ended September 30, 2008. Gross margin increased to 26.3% during the three months ended September 30, 2009 from 26.6% in the prior year period. The decrease in cost of revenues was due to the following:


	THREE MONTHS ENDED
	MARCH 31,
	2010		2009
OPERATING DATA (unaudited)
Number of majority-owned eye care centers at end of period		62		65
Number of minority-owned eye care centers at end of period		8		8

Number of TLCVision branded eye care centers at end of period		70		73


Number of laser vision correction procedures:
Majority-owned centers		19,300		21,400
Minority-owned centers		4,100		4,200

Total TLCVision branded center procedures		23,400		25,600
Total access procedures		10,600		11,000

Total laser vision correction procedures		34,000		36,600
Total other surgical procedures (including cataract)		17,100		19,400

Total laser vision correction and other surgical procedures		51,100		56,000

•Three ~~The~~Months ~~cost~~Ended ~~of revenues from the refractive access segment for the three months ended September 30~~March 31, ~~2009~~2010 ~~was~~Compared ~~$3.9 million, a decrease of $0.9 million (18%) from cost of revenues of $4.8 million for the three months ended September 30, 2008. This decrease was primarily attributable~~ to $0.2 million of lower costs associated with decreased excimer procedures and lower cost of revenues of $0.7 million primarily associated with lower costs per procedure on fixed cost reductions. • The cost of revenues from the ~~Company’s~~Three ~~mobile~~Months ~~cataract~~Ended ~~segment for the three months ended September 30~~March 31, 2009 was $8.4 million, an increase of $0.8 million (11%) from cost of revenues of $7.6 million for the three months ended September 30, 2008. This increase was primarily due to higher variable costs of 20% on increased surgical procedure volume, higher lens cost and a one-time inventory write-down of $0.7 million, which were almost entirely offset with fixed cost reductions of 11% as the Company continues to operate under a leaner fixed cost structure in the current economic environment. • The cost of revenues from the Company’s businesses that manage cataract and secondary care centers for the three months ended September 30, 2009 was $4.0 million, a decrease of $0.2 million (5%) from cost of revenues of $4.2 million for the three months ended September 30, 2008. The decrease was caused by the third quarter 2009 sale of the majority-owned ambulatory surgical center, which contributed no cost of revenue during the current quarter but $0.6 million during the three months ended September 30, 2008.

~~The~~Total ~~cost of~~ revenues ~~from eye care~~ for the three months ended ~~September~~March 3031, ~~2009~~2010 ~~was~~were $361.5 4 million, ana ~~increase~~decrease of $08.90 million (3412%) from ~~cost of~~ revenues of $269.64 million for the three months ended ~~September~~March 3031, ~~2008~~2009. ~~This increase was due to additional costs incurred as a result~~The ofdecrease ~~a 10% increase~~ in ~~total~~revenue ~~franchisee~~was ~~locations,~~primarily ~~which~~attributable ~~required additional operating costs~~ to ~~manage.~~ ~~Gross margins decreased to 51.6% during~~ the ~~three~~decline ~~months~~in ~~ended~~refractive ~~September 30,~~center ~~2009~~procedures ~~from~~and ~~59.3%~~the intiming of the ~~prior~~annual ~~year~~Vision ~~period~~Source® onNational ~~higher~~Conference, ~~professional~~as ~~fees~~explained below.

~~General~~Revenues ~~and~~from ~~administrative~~refractive ~~expenses~~centers for the three months ended March 31, 2010 were $33.0 million, a decrease of $53.70 million (8%) from revenues of $36.0 million for the three months ended ~~September~~March 3031, 2009. ~~decreased~~The decrease in revenues from centers resulted from lower center procedure volume, which accounted for a decrease in revenues of approximately $13.1 million. ~~from~~This decline was partially offset by an increase in average price per procedure, which accounted for an increase in revenues of approximately $60.81 million. For the three months ended March 31, 2010, majority-owned center procedures were approximately 19,300, a decrease of 2,100 from 21,400 procedures for the three months ended ~~September~~March 3031, ~~2008~~2009. The ~~decrease~~ ~~was~~procedure ~~primarily~~decline ~~related~~was attributable to the ~~lower~~weakened ~~employee~~U.S. ~~related~~economy, ~~expenses~~which inhas ~~refractive~~negatively ~~centers~~impacted ~~and~~consumer ~~lower non-restructuring~~discretionary ~~related~~spending, ~~professional~~and lower ~~fees~~direct-to-consumer inmarketing ~~corporate overhead~~spend.

Revenues from doctor services for the three months ended March 31, 2010 were $21.7 million, a decrease of $1.9 million (8%) from revenues of $23.6 million for the three months ended March 31, 2009. The revenue decrease from doctor services was due principally to procedure shortfalls in refractive access, the disposal of a majority-owned ambulatory surgical center and the discontinuance of the PHP Foresee product offering in cataract access.

•

Revenues from the refractive access services segment for the three months ended March 31, 2010 were $7.0 million, a decrease of $0.5 million (6%) from revenues of $7.5 million for the three months ended March 31, 2009. For the three months ended March 31, 2010, excimer procedures declined by approximately 400 (4%) from the prior year period, on lower customer demand, and lower average

~~Marketing~~sales ~~expenses~~price ~~decreased~~of ~~to $4~~3%.~~9 million~~ ~~for~~The ~~the~~procedure ~~three~~decline ~~months~~accounted ~~ended September 30, 2009 from $9.4 million~~ for ~~the~~a ~~three~~decrease ~~months~~in ~~ended~~revenues ~~September 30,~~of ~~2008.~~approximately ~~The~~ $40.~~5 million~~3 ~~decrease was due to a $4.2~~ million ~~(63%) reduction in refractive center marketing spend, specifically related to external advertising~~ and ~~direct~~lower toaverage ~~consumer~~sales ~~marketing,~~price indecreased ~~order~~revenues toby ~~reduce~~approximately ~~costs~~$0.2 ~~during the economic downturn~~million.

During the three months ended September 30, 2009, the Company recorded a $0.5 million impairment charge in refractive centers on a trade name intangible as the trade name was no longer being utilized by the Company. During the three months ended September 30, 2008, the Company recorded $1.5 million of impairment charges in doctor services against goodwill and other long-term assets to adjust the carrying values of various ambulatory surgical centers to fair value.

	•		Revenues from the Company’s mobile cataract segment for the three months ended March 31, 2010 were $9.2 million, a decrease of $0.4 million (4%) from revenues of $9.6 million for the three months ended March 31, 2009. The decrease in mobile cataract revenues was due to the discontinuance of the PHP Foresee product offering during late 2009, which contributed revenues of $0.5 million during the three months ended March 31, 2009, partially offset by an increase in surgical procedure volume of 1% and a higher surgical average sales price of 1%.

	•		Revenues from the Company’s businesses that manage cataract and secondary care centers for the three months ended March 31, 2010 were $5.5 million, a decrease of $1.0 million (15%) from revenues of $6.5 million for the three months ended March 31, 2009. The decrease was primarily driven by the sale of a majority-owned ambulatory surgical center in the second half of 2009, which contributed no revenue during the quarter ended March 31, 2010 compared to $1.2 million during the comparable prior year period.

~~Other~~Revenues ~~operating~~from ~~expenses~~eye ~~increased~~care ~~to $6.5 million~~ for the three months ended ~~September~~March 3031, 2010 were $6.6 million, a ~~2009~~decrease ~~from~~of ~~other~~$3.3 million ~~operating~~(33%) ~~income~~from revenues of $09.19 million for the three months ended ~~September 30~~March 31, ~~2008~~2009. ~~The $6.6 million~~This ~~unfavorable~~decrease ~~change~~ was primarily ~~related~~due to ~~$4.1 million~~the timing of ~~financial~~the ~~and~~Vision ~~legal~~Source® National ~~advisor~~Conference, ~~expenses~~which is an annual optometric conference hosted by the Company’s Vision Source® subsidiary. The 2009 Vision Source® National Conference was hosted during the three months ended March 31, 2009, and acontributed approximately $13.68 million ~~loss~~in ~~incurred~~revenue, onwhereas the ~~divestiture~~2010 conference ofwill not take place until the three ~~ambulatory~~month ~~surgical center~~period ~~investments~~ended June 30, ~~each~~2010. ~~incurred~~As ~~during~~of March 31, 2010 the ~~three~~Company ~~months~~had ~~ended~~2,152 ~~September~~total franchisees, an increase of 10% compared to March 3031, 2009.

~~Interest~~Total ~~expense~~cost ~~increased~~of torevenues ~~$4.1 million~~(excluding ~~for~~amortization ~~the~~expense ~~three~~for ~~months~~all ~~ended~~segments) ~~September 30, 2009 from $2.6 million~~ for the three months ended ~~September~~March 3031, ~~2008.~~2010 ~~This~~was $141.54 million, ~~increase~~a ~~was primarily~~decrease ~~due the termination~~ of ~~the~~$7.7 million ~~Company’s~~(16%) ~~interest rate swap, which was reclassified to interest expense~~ from ~~other comprehensive loss during~~ the ~~quarter~~cost ~~ended~~of ~~September 30, 2009. Also~~revenues ~~contributing to the higher interest expense are higher borrowings under the Credit Facility and the incremental default interest rate~~ of 2$49.0%1 million ~~that began during the quarter. The average interest rate~~ for the three months ended ~~September~~March 3031, 2009 ~~and 2008 was approximately 13~~.~~4% and 9.9%,~~ ~~respectively, which includes the impact of deferred loan costs, the Company’s interest rate swap and other fees.~~

~~For~~The cost of revenues from refractive centers for the three months ended ~~September~~March 3031, ~~2009~~2010 was $22.3 million, ~~the~~a ~~Company~~decrease ~~recognized~~of ~~income~~$3.7 million ~~tax~~(14%) ~~expense~~from cost of revenues of $026.20 million for the three months ended March 31, ~~which~~2009. This decrease was ~~determined~~attributable ~~using~~to ana ~~estimate~~$1.1 million cost of revenue ~~the~~decline ~~Company’s~~related ~~2009~~to ~~total~~lower ~~annual~~procedure ~~tax~~volume, ~~expense~~$1.4 million in fixed cost reductions and ~~based~~$1.2 million onin ~~the~~decreased ~~forecasted~~variable ~~taxable~~costs ~~income~~per procedure. Gross margin for ~~the~~centers ~~full~~was ~~year~~32.5% during ~~For~~ the three months ended ~~September~~March 3031, ~~2008~~ 2010, ~~the~~up ~~Company~~from ~~also~~prior ~~recognized~~year ~~income~~gross ~~tax~~margin ~~expense~~ of $027.~~2 million~~6% due to various cost savings initiatives.

~~Net~~The ~~loss~~cost ~~attributable~~of torevenues ~~TLC~~from ~~Vision~~doctor ~~Corporation~~services for the three months ended ~~September~~March 3031, ~~2009 was~~2010 (was $1015.0) 8 million, ora (decrease of $02.205 million (14%) ~~per~~from ~~basic~~cost ~~and~~of ~~diluted~~revenues ~~share,~~of ~~compared to (~~$618.7) 3 million, orfor ~~($0.13)~~the ~~per~~three ~~basic~~months ~~and~~ended ~~diluted share~~March 31, ~~for~~2009. Gross margin increased to 27.4% during the three months ended ~~September~~ March 3031, ~~2008~~2010 from 22.2% in the prior year period. The decrease in cost of revenues was due to the following:

~~NINE~~• ~~MONTHS~~The ~~ENDED~~cost ~~SEPTEMBER~~of 30revenues from the refractive access segment for the three months ended March 31, 2010 was $5.1 million, a decrease of $1.2 million (20%) from cost of revenues of $6.3 million for the three months ended March 31, 2009. ~~COMPARED~~This TOdecrease ~~THE~~was ~~NINE~~primarily ~~MONTHS~~attributable ~~ENDED~~to ~~SEPTEMBER~~$0.2 30million of lower costs associated with decreased excimer procedures and lower cost of revenues of $1.0 million primarily associated with lower costs per procedure on fixed cost reductions. • The cost of revenues from the Company’s mobile cataract segment for the three months ended March 31, ~~2008~~ 2010 was $6.8 million, a decrease of $0.5 million (7%) from cost of revenues of $7.3 million for the three months ended March 31, 2009. This decrease was primarily due to lower PHP Foresee costs of $0.3 million on the late 2009 discontinuance of this product line. • The cost of revenues from the Company’s businesses that manage cataract and secondary care centers for the three months ended March 31, 2010 was $4.0 million, a decrease of $0.7 million (16%) from cost of revenues of $4.7 million for the three months ended March 31, 2009. The decrease was caused

Total revenues for the nine months ended September 30, 2009 were $179.5 million, a decrease of $42.5 million (19%) from revenues of $222.0 million for the nine months ended September 30, 2008. The decrease in revenue was primarily attributable to the decline in refractive centers and refractive access procedures, partially offset by higher cataract volume and growth in eye care.

Revenues from refractive centers for the nine months ended September 30, 2009 were $85.1 million, a decrease of $41.4 million (33%) from revenues of $126.5 million for the nine months ended September 30, 2008. The decrease in revenues from refractive centers resulted primarily from lower center procedure volume, which accounted for a decrease in revenues of approximately $37.7 million. The remaining revenue decline of $3.7 million was the result of decreased revenue per procedure. For the nine months ended September 30, 2009, majority-owned center procedures were approximately 50,500, a decrease of 23,100 from 73,600 procedures for the nine months ended September 30, 2008. The procedure decline was attributable to the weakened U.S. economy, which has negatively impacted consumer discretionary spending.

Revenues from doctor services for the nine months ended September 30, 2009 were $70.3 million, a decrease of $2.9 million (4%) from revenues of $73.2 million for the nine months ended September 30, 2008. The revenue decrease from doctor services was due principally to procedure shortfalls in refractive access, partially offset by increases in the Company’s mobile cataract and other segments.

• Revenues from the refractive access services segment for the nine months ended September 30, 2009 were $18.9 million, a decrease of $4.9 million (20%) from revenues of $23.8 million for the nine months ended September 30, 2008. For the nine months ended September 30, 2009, excimer procedures declined by ~~approximately 8,400 (23%) from~~ the ~~prior~~third ~~year~~quarter period on lower customer demand, which accounted for a decrease in revenues of approximately $5.5 million. This decrease was partially offset by a higher average sales price of 4%, which increased revenues by approximately $0.6 million, primarily caused by a 6% Intralase revenue increase. • Revenues from the Company’s mobile cataract segment for the nine months ended September 30, 2009 ~~were~~sale ~~$31.6 million, an increase~~ of ~~$1.1 million (4%) from revenues of $30.5 million for the nine months ended September 30, 2008. The increase in mobile cataract revenues was due to increased surgical procedure volume of 4% and~~ a slightly higher surgical average sales price of 4%, partially offset by a $0.7 million or 32% decline in PHP Foresee® revenue on a 33% unit volume reduction as the weakened U.S. economy continues to limit consumer spending. • Revenues from the Company’s businesses that manage cataract and secondary care centers for the nine months ended September 30, 2009 were $19.7 million, an increase of $0.8 million (4%) from revenues of $18.9 million for the nine months ended September 30, 2008. The increase was primarily driven by a 2% increase in majority-owned ~~procedures primarily led by cataract growth. Year-to-date 2009 cataract growth was partially limited due to the early third quarter disposal of a majority-owned~~ ambulatory surgical center, which contributed ~~1,900~~no ~~procedures~~cost of revenue during the ~~nine~~current ~~months~~quarter ~~ended~~but ~~September~~$0.7 ~~30,~~million ~~2009 compared to 2,400 procedures~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2008~~2009.

~~Revenues~~The cost of revenues from eye care for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 ~~were~~was $243.1 4 million, ~~an increase~~a decrease of $1.94 million (829%) from cost of revenues of $224.28 million for the ~~nine~~ three months ended ~~September 30~~March 31, ~~2008~~2009. This ~~increase~~decrease was due to athe ~~10%~~timing of the annual Vision Source® National Conference, which took place during the three months ended March 31, 2009 and contributed $1.9 million of cost of revenues in the prior year~~-over-year~~ ~~increase~~period. The 2010 National Conference is not scheduled until the three month period ending June 30, 2010. Gross margins decreased to 49.3% during the three months ended March 31, 2010 from 51.6% in ~~total~~the ~~franchisee~~prior ~~locations~~year period due to the timing of the National Conference, which typically contributes a high gross margin.

~~Total~~General ~~cost~~and administrative expenses of ~~revenues~~$5.5 million ~~(excluding~~for ~~amortization~~the ~~expense~~three ~~for~~months ~~all~~ended ~~segments)~~March 31, 2010 decreased $0.4 million from $5.9 million for the ~~nine~~three months ended ~~September~~March 3031, 2009. The decrease was ~~$129.0 million,~~primarily arelated ~~decrease~~to oflower ~~$23.6 million~~fees, ~~(15%)~~including ~~from~~professional ~~the~~fees, ~~cost~~in ofcorporate overhead and an ~~revenues~~unfavorable change of $~~152~~0.62 million ~~for~~in ~~the~~foreign ~~nine~~exchange ~~months ended September 30, 2008~~expense.

~~The~~Marketing ~~cost~~expenses ofdecreased ~~revenues~~to ~~from~~$4.2 million ~~refractive centers~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2009 was~~2010 ~~$65.1 million, a decrease of $23.9 million (27%)~~ from ~~cost of revenues of~~ $896.08 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2008~~2009. ~~This~~The ~~decrease was attributable to a~~ $122.96 million ~~cost of~~(39%) ~~revenue~~decrease ~~decline~~was ~~related~~due to a ~~lower procedure volume,~~ $101.7 million in(41%) ~~fixed~~reduction ~~cost reductions and $0.3 million~~ in ~~decreased~~refractive ~~variable~~center ~~costs~~marketing ~~per~~spend ~~procedure.~~in ~~Gross~~order ~~margin~~to ~~for~~reduce ~~centers~~costs ~~was 23.5%~~ during the ~~nine~~economic ~~months~~downturn ~~ended~~and ~~September~~a $0.8 ~~30,~~million ~~2009,~~(41%) ~~down~~reduction ~~from~~in ~~prior~~doctor ~~year~~services ~~gross~~on ~~margin~~lower ~~of 29.7% as~~advertising ~~the~~costs ~~Company’s~~associated ~~cost~~with ~~saving~~the ~~initiatives~~discontinuance ~~could~~of ~~not outweigh~~ the ~~revenue~~PHP ~~decline~~Foresee ~~caused~~product byoffering ~~the refractive~~during ~~center~~late ~~procedure decline~~2009.

~~The~~Other ~~cost~~operating ofincome ~~revenues~~was ~~from~~$0.1 million ~~doctor services~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 ~~was~~compared to ~~$52.5 million,~~other aoperating ~~decrease~~expense of $02.95 million ~~(2%)~~for ~~from~~the ~~cost~~three ofmonths ~~revenues~~ended ofMarch 31, 2009. The $532.46 million favorable ~~for~~change ~~the nine~~was ~~months~~primarily ~~ended~~related ~~September 30,~~to ~~2008~~$2.1 million ~~Gross~~of ~~margin~~financial ~~decreased~~and tolegal 25advisor expenses and $0.3% million of severance expense incurred during the ~~nine~~three months ended ~~September~~March 3031, 2009, ~~from~~all ~~27.0%~~of which inwas related to the ~~prior~~Company’s ~~year~~restructuring ~~period~~efforts. ~~The~~Financial ~~decrease~~and inlegal ~~cost~~advisor ~~of revenues~~expenses ~~was~~related ~~due~~ to the ~~following:~~Company’s restructuring efforts during the three months ended March 31, 2010 are classified as reorganization items.

	•		The cost of revenues from the refractive access segment for the nine months ended September 30, 2009 was $15.1 million, a decrease of $3.4 million (18%) from cost of revenues of $18.5 million for the nine months ended September 30, 2008. This decrease was primarily attributable to $4.3 million of lower costs associated with decreased excimer procedures, partially offset by an increase in cost of revenues of $0.9 million primarily associated with higher cost procedures and additional mobile Intralase procedures, which on a procedure basis is up 11% year-over-year.
	•		The cost of revenues from the Company’s mobile cataract segment for the nine months ended September 30, 2009 was $23.8 million, an increase of $1.3 million (6%) from cost of revenues of $22.5 million for the nine months ended September 30, 2008. This increase was primarily due to higher surgical procedure volume of 4%, higher lens supply costs and a third quarter 2009 $0.7 million PHP Foresee® inventory write-down, partially offset by lower costs associated with a 33% decline in PHP Foresee® unit volume.

Interest expense increased to $4.4 million for the three months ended March 31, 2010 from $3.1 million for the three months ended March 31, 2009. This $1.3 million increase was primarily due to the write-off of capitalized senior DIP debt issuance costs during February 2009 and higher average borrowing rates.

For the three months ended March 31, 2010, the Company recognized income tax expense of $0.3 million, which was determined using an estimate of the Company’s 2010 total annual tax expense based on the forecasted taxable income for the full year. For the three months ended March 31, 2009, the Company recognized income tax expense of $0.2 million.

Net loss attributable to TLC Vision Corporation for the three months ended March 31, 2010 was ($4.4) million, or ($0.09) per basic and diluted share, compared to ($1.3) million, or ($0.03) per basic and diluted share, for the three months ended March 31, 2009.

Liquidity and Capital Resources

Since the bankruptcy Petitions Date, as further described in Note 2, Bankruptcy Proceedings, our liquidity position has improved. At March 31, 2010, we had unrestricted cash and cash equivalents of $18.0 million compared to $14.6 million at December 31, 2009. The improvement in liquidity primarily resulted from $2.5 million of additional borrowings under the Junior DIP Credit Agreement, net of repayments under the Senior DIP Credit Agreement, and general savings on various cost reduction initiatives implemented during 2009, partially offset by restructuring and reorganization costs.

• The ~~cost~~following oftable ~~revenues~~presents ~~from~~a ~~the~~summary ~~Company’s businesses that manage cataract and secondary care centers for the nine months ended September 30, 2009 was $13.6 million, an increase~~ of ~~$1.2~~our ~~million~~cash ~~(9%)~~flows ~~from cost of revenues of $12.4 million~~ for the ~~nine~~three months ended ~~September 30, 2008. The increase was caused primarily by the increase in surgical procedures and higher per procedure cataract lens cost.~~March 31:

Cost of revenues from eye care for the nine months ended September 30, 2009 were $11.4 million, an increase of $1.3 million (13%) from cost of revenues of $10.1 million for the nine months ended September 30, 2008. This increase was primarily due to the 10% year-over-year increase in total franchisee locations requiring additional cost to support.


	2010			2009
Net cash provided by (used in):
Operating activities	$	3,824		$	5,275
Investing activities		(399	)		(4,122	)
Financing activities		(53	)		12,889

Net increase in cash	$	3,372		$	14,042

~~General~~Cash ~~and~~Provided ~~administrative~~By ~~expenses~~Operating ~~of $18.0 million for the nine months ended September 30,~~Activities 2009 decreased $4.2 million from $22.2 million for the nine months ended September 30, 2008. The decrease was primarily related to lower employee related expenses, non-restructuring professional fees and discretionary spending, partially offset by an unfavorable change in foreign exchange expense related to the Company’s Canadian operations.

~~Marketing~~Net ~~expenses~~cash ~~decreased~~provided toby operating activities was $~~17.~~3.8 million for the ~~nine~~three months ended ~~September 30, 2009~~March ~~from $~~31, 2010.~~3 million~~ ~~for~~The cash flows provided by operating activities during the ~~nine~~three months ended ~~September~~March 3031, 2010 ~~2008~~were primarily comprised of the $2.3 million ~~The~~net loss plus non-cash items including depreciation and amortization of $143.06 million, ~~decrease~~amortization ~~was~~of ~~due~~deferred finance fees of $1.0 tomillion and a $131.35 million ~~(59%)~~change ~~reduction~~ in ~~refractive~~working ~~center~~capital. ~~marketing~~Our ~~spend,~~2010 ~~specifically~~cash ~~related~~flow tofrom operating activities ~~external~~was ~~advertising~~favorably ~~and~~impacted ~~direct~~by tothe ~~consumer~~stay ~~marketing,~~of inpayment ~~order~~of liabilities subject to ~~reduce~~compromise, ~~costs~~including accounts ~~during~~payable and interest payable, resulting from the ~~economic downturn~~bankruptcy filings.

~~Amortization~~Cash ofUsed ~~intangibles~~In ~~decreased~~Investing ~~to $1.7 million for the nine months ended September 30,~~Activities 2009 from $2.4 million for the nine months ended September 30, 2008. The $0.7 million decrease was due to a lower average intangible balance during 2009 compared to 2008 due to the impairment of multiple intangible assets during the quarter ended December 31, 2008.

~~During~~Net ~~the~~cash ~~nine~~used ~~months~~in ~~ended~~investing ~~September 30,~~activities ~~2009,~~was ~~the Company recorded a~~ $0.54 million ~~impairment~~ ~~charge~~for ~~in refractive centers on a trade name intangible as~~ the ~~trade~~three ~~name~~months ~~was~~ended ~~no longer~~March 31, ~~being~~2010. ~~utilized~~The bycash ~~the~~used ~~Company.~~in ~~During~~investing ~~the~~activities ~~nine~~included ~~months~~capital ~~ended~~expenditures ~~September~~of $0.4 ~~30,~~million ~~2008, the Company~~and ~~recorded~~investments of $10.5 million. ofThese ~~impairment~~cash ~~charges~~outflows inwere ~~doctor~~partially ~~services~~offset ~~against~~by ~~goodwill~~$0.6 million ~~and other long-term~~of ~~assets~~distributions toand ~~adjust~~loan ~~the~~payments ~~carrying~~received ~~values~~from ofequity ~~various ambulatory surgical centers to fair value~~investments.

~~Other~~Cash ~~operating~~Used ~~expenses~~In ~~increased~~Financing ~~to $14.6 million for the nine months ended September 30,~~Activities 2009 from other operating income of $0.7 million for the nine months ended September 30, 2008. The $15.3 million unfavorable change was primarily related to center closing costs of $0.7 million, employee severance expense of $2.6 million, $9.1 million of financial and legal advisor expenses and a $1.6 million loss incurred on the divestiture of three ambulatory surgical center investments, all incurred during the nine months ended September 30, 2009.

~~Interest~~Net ~~expense~~cash ~~increased~~used toin financing activities was $90.71 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2009 from~~ $72010.~~5 million~~ ~~for~~Net ~~the~~cash ~~nine~~used ~~months~~in ~~ended~~financing ~~September 30,~~activities ~~2008.~~during ~~This~~this ~~$2.2 million~~period ~~increase~~ was primarily ~~due~~ ~~the~~related ~~termination~~to principal payments of ~~the~~debtor-in-possession ~~Company’s~~financing ~~interest~~of ~~rate swap~~$7.5 million, ~~which~~principal ~~was~~payments ~~reclassified~~of toother ~~interest expense~~debt ~~from~~financing ~~other~~of ~~comprehensive loss during the nine months ended September~~$1.2 30million, ~~2009.~~distributions ~~Also contributing~~ to ~~the~~ ~~higher~~noncontrolling ~~interest~~interests ~~expense~~of ~~was~~$2.3 million ~~higher average borrowings under the Credit Facility~~ and ~~the~~ ~~additional~~debtor-in-possession ~~default~~debt ~~interest~~issuance ~~rate~~costs of 2%$0.5 million, ~~The~~partially ~~average~~offset ~~interest~~by ~~rate~~proceeds ~~for the nine months ended~~from ~~September 30,~~debtor-in-possession ~~2009~~ and ~~2008~~other ~~was~~debt ~~approximately~~financing of $10.5%4 million and ~~9.4%,~~a ~~respectively,~~decrease ~~which~~of ~~includes~~$1.0 million ~~the~~in ~~impact~~restricted ~~of deferred loan costs, the Company’s interest rate swap and other fees~~cash.

Earnings from equity investments were $1.0 million for the nine months ended September 30, 2009 compared to $0.4 million for the nine months ended September 30, 2008. The lower equity earnings during the nine months ended September 30, 2008 were primarily caused by equity losses generated Debtor-in-Possession ~~the Company’s Laser Eye Centers of California (“LECC”) investment. Under the equity~~Financing method of accounting, such losses did not recur during the nine months ended September 30, 2009 as the investment balance in LECC was reduced to zero due to the cumulative effect of historical losses incurred.

~~For~~In connection with the ~~nine~~First ~~months~~Amended ~~ended~~Plan, ~~September 30~~as further described in Note 2, ~~2009~~Bankruptcy Proceedings, the ~~Company~~Debtor ~~recognized~~Entities ~~income~~filed ~~tax~~a ~~expense~~motion ~~of $0~~seeking authority from the U.~~7 million,~~S. ~~which~~Court ~~was~~for ~~determined~~a ~~using~~junior secured ansuper ~~estimate~~priority ofdebtor-in-possession ~~the~~credit ~~Company’s~~agreement ~~2009~~(Junior ~~total~~DIP ~~annual~~Credit ~~tax~~Agreement). ~~expense~~The ~~based~~Junior onDIP Credit Agreement, approved by the ~~forecasted~~U.S. ~~taxable~~Court ~~income~~via ~~for~~an ~~the~~interim ~~full~~order ~~year.~~on ~~For~~February 12, 2010 and the ~~nine~~Canadian ~~months~~Court ~~ended~~on ~~September~~February 3018, ~~2008~~ 2010, is dated February 3, 2010 among the ~~Company~~Debtors, ~~recognized~~various lenders ~~income~~and ~~tax~~Charlesbank ~~expense~~Equity ofFund $1VII, Limited Partnership, as collateral and administrative agent.~~0 million.~~

~~Net~~as ~~income~~defined ~~attributable~~under tothe ~~noncontrolling~~Junior ~~interest~~DIP ~~decreased~~Credit toAgreement, ~~$7.4 million for~~ the ~~nine months~~principal ~~ended~~amount ~~September 30,~~of ~~2009~~all ~~from~~term ~~$8.0 million~~loans ~~for~~and all ~~the~~other ~~nine~~due ~~months~~and ~~ended~~unpaid ~~September 30,~~obligations ~~2008 primarily~~bear ~~due~~interest toat ~~lower~~an ~~profits~~additional indefault ~~non-wholly~~rate ~~owned~~of ~~refractive centers~~2.00%.

~~Net~~The ~~loss~~Junior ~~attributable~~DIP toCredit ~~TLC~~Agreement ~~Vision~~contains ~~Corporation~~various ~~for~~affirmative, ~~the~~negative, ~~nine~~reporting ~~months~~and financial ~~ended~~covenants. ~~September 30~~The covenants, ~~2009 was~~among ~~($18.2)~~other ~~million~~things, orplace ~~($0.36)~~restrictions ~~per~~on ~~basic~~the Company’s ability to acquire and ~~diluted~~sell ~~share~~assets, ~~compared~~incur additional debt and require the Company to ~~($2~~maintain minimum liquidity levels.8) ~~million,~~A orbreach ~~($0.06) per~~of ~~basic~~any ~~and~~covenant ~~diluted~~constitutes ~~share,~~an ~~for~~event ~~the~~of ~~nine~~default ~~months~~as ~~ended~~further ~~September 30,~~defined ~~2008~~in the Junior DIP Credit Agreement.

~~LIQUIDITY~~ Prepayments ~~AND~~are ~~CAPITAL~~permitted ~~RESOURCES~~provided that each partial prepayment is in an aggregate principal amount of $0.5 million or integral multiples thereof. Upon payment in full of the Junior DIP Credit Agreement, an exit fee equal to 4.00% of the aggregate principal amount outstanding under the Junior DIP Credit Agreement is due to the lenders.

~~Liquidity~~Credit Facility

The Company ~~relies~~obtained ~~on the following sources of liquidity to continue to operate as~~ a ~~going concern: (i)~~$110.0 ~~cash~~million ~~and cash equivalents on hand; (ii) cash generated from operations; (iii) borrowings under the Company’s revolving~~ credit facility; (ivCredit Facility) ~~net~~ ~~proceeds~~during ~~from asset sales; and (v)~~June ~~access~~2007, which tois ~~the~~secured ~~capital~~by ~~markets.~~substantially ~~The~~all ~~Company’s principal uses~~ of ~~cash are to provide working capital to fund its operation and to service its debt and other contractual obligations. The changes in financial markets during 2008 limited~~ the ~~ability~~assets of ~~companies such as TLCVision to access~~ the ~~capital markets. The economic recession in the United States continues to impact the~~ Company’s ~~operations, resulting in a decline in the demand for refractive surgery~~ and ~~financial performance.~~consisting ~~The Company incurred losses attributable to TLC Vision Corporation~~ of ~~$18.2 million for~~both ~~the nine months ended September 30, 2009 compared to $2.8 million for the nine months ended~~senior ~~September 30,~~term ~~2008.~~debt Asand a ~~result,~~revolver ~~the~~as ~~Company’s liquidity continued to be significantly constrained~~follows: ~~during 2009.~~

Beginning in early 2008, in response to the deteriorating economic environment, the Company implemented a series of initiatives to reduce its costs of operation to levels commensurate with the new lower level of refractive procedures anticipated in fiscal 2008 and 2009. The Company continues to evaluate and implement cost reduction and cash generation initiatives, including the sale of surplus assets and the closure of underperforming refractive centers/mobile refractive routes. During the nine months ended September 30, 2009, the Company closed four majority-owned refractive centers, which performed approximately 400 and 1,000 refractive procedures during the nine months ended September 30, 2009 and 2008, respectively. During the quarter ended September 30, 2009, the Company divested one majority-owned and two minority-owned ambulatory surgical centers for a combined net sale price of $2.2 million. The divested ambulatory surgical centers performed 5,500 and 7,500 surgical procedures during the nine months ended September 30, 2009 and 2008, respectively.

	•		Senior term debt, totaling $85.0 million, with a six-year term and required amortization payments of 1% per annum plus a percentage of excess cash flow (as defined in the agreement) and sales of assets or borrowings outside of the normal course of business. As of March 31, 2010 and December 31, 2009, $76.7 million was outstanding on this portion of the facility which is classified as liabilities subject to compromise as the liability is undersecured.

	•		A revolving credit facility, totaling $25.0 million with a five-year term. As of March 31, 2010 and December 31, 2009, the Company had $23.4 million outstanding under this portion of the facility which is classified as liabilities subject to compromise as the liability is undersecured.

~~Due~~Upon to the ~~decline~~filing inof ~~customer~~the ~~demand~~Chapter 11 ~~during~~Petitions, certain of the ~~trailing~~Company’s ~~twelve~~Credit ~~month~~Facility obligations ~~period,~~became automatically and ~~the~~immediately due and payable, subject to an automatic stay of ~~resulting~~any ~~decline~~action into ~~sales~~collect, assert, or recover a claim against the Company’s ~~deteriorating~~and ~~financial~~the ~~performance~~application ~~resulted~~of applicable inbankruptcy law. As a result of the ~~Company’s~~ ~~inability~~Chapter 11 Petitions and due to ~~comply~~the ~~with~~Credit ~~its~~Facility obligations ~~primary~~being ~~financial~~undersecured ~~covenants~~by ~~under~~the ~~its~~net assets of the Company, $100.1 million of the Company’s pre-petition Credit Facility asdebt ofis included in liabilities subject to compromise on the ~~December 31,~~consolidated ~~2008,~~balance sheet at March 31, ~~2009,~~2010 ~~June 30, 2009~~ and ~~September~~December 3031, 2009. ~~Furthermore,~~The ~~the~~ Company classifies ~~ceased~~pre-petition ~~making~~liabilities ~~principal~~subject ~~and~~to ~~interest~~compromise ~~payments~~as ~~under~~a long-term liability because management does not believe the ~~Credit~~Company ~~Facility~~will ~~subsequent~~use toexisting ~~June 30,~~current assets or create additional current liabilities to ~~2009~~fund these obligations.

Interest on the facility is calculated based on either prime rate or the LIBOR plus a margin. As a result of ~~the~~certain ~~inability~~events toof ~~comply~~default ~~with~~and the ~~primary~~June 30, ~~financial~~2009 ~~covenants,~~expiration of the ~~Company~~Limited ~~has~~Waiver, ~~received~~Consent ~~from~~and ~~its~~Amendment ~~lenders~~No. 3 ~~numerous~~to ~~waivers~~Credit Agreement, ~~consents~~the ~~and~~LIBOR ~~amendments~~advances towith ~~the~~interest ~~Credit~~periods ~~Agreement~~ending ~~during~~on ~~the~~or ~~nine~~after ~~months ended September~~June 30, 2009. ~~All~~automatically ~~waivers,~~converted ~~consents~~to ~~and~~prime ~~amendments~~rate toadvances at the ~~Credit Agreement~~end ~~are~~of ~~filed~~such ~~with~~interest period. ~~the~~Effective ~~SEC~~June 30, as2009, ~~exhibits~~the toCompany ~~Current~~began ~~Reports~~incurring on2% ~~Form~~default ~~8-K.~~interest ~~The~~resulting ~~following~~from ~~were~~the ~~dated~~provisions ~~during~~of the ~~quarter~~Limited ~~ended~~Waiver ~~September~~and Amendment No. ~~30,~~4 ~~2009:~~to Credit Agreement.

	•		On September 10, 2009, the Company announced that it obtained from its lenders a Limited Waiver and Amendment No. 5 to the Credit Agreement, dated as of September 8, 2009, which among other things, provided a limited waiver through September 30, 2009 of specified defaults and provided that the lenders would, until October 1, 2009, forbear from exercising their rights arising out of the non-payment of certain principal, interest and other payments previously due.
	•		On October 1, 2009, the Company announced that it had secured from its lenders an extension to October 13, 2009 of the previously announced Limited Waiver and Amendment No. 5 with respect to its Credit Facility that expired on September 30, 2009, along with a forbearance with respect to certain payment obligations under the Credit Agreement. The extension and forbearance agreement is contained in a limited

~~waiver,~~ Immediately ~~dated~~prior asto ofthe ~~September~~time ~~30,~~of ~~2009,~~filing ~~which~~the ~~among~~Chapter 11 ~~other things~~Petitions, ~~provided~~the aCompany ~~limited~~had ~~waiver~~failed ~~through~~to make ~~October~~various ~~13,~~mandatory ~~2009~~contractual ofpayments ~~specified~~under ~~defaults,~~its ~~extended~~Credit ~~the time for payment of certain principal~~Facility, ~~interest~~as ~~and~~amended. ~~other~~Such payments included ~~previously~~interest ~~due~~on ~~and provided that~~ the ~~lenders~~term ~~holding~~and arevolving ~~majority~~credit ~~amount~~advances of ~~the Credit Agreement could~~$5.0 million, inprincipal ~~their~~payments ~~sole~~on term ~~discretion,~~advances ~~extend~~of ~~the~~$0.4 million ~~waiver~~and ~~period~~$1.4 million toof ~~October~~other ~~30,~~mandatory ~~2009~~payments.

~~Refer~~As toof ~~Note 24~~March 31, ~~Subsequent~~2010 ~~Events~~and December 31, 2009 capitalized debt costs of $1.3 million and $1.4 million, respectively, associated with the ~~Interim~~Company’s ~~Unaudited~~pre-petition ~~Consolidated~~Credit ~~Financial~~Facility were included in ~~Statements~~liabilities ~~for~~subject ~~additional~~to ~~information~~compromise ~~regarding~~to ~~waivers,~~adjust ~~amendments~~the ~~and~~carrying ~~consents~~amount ~~dated~~of ~~subsequent~~the outstanding obligation in toaccordance ~~September 30,~~with ~~2009~~ASC 852.

As of September 30, 2009, the Company failed to make various mandatory payments under its Credit Agreement and related amendments. Such payments included interest on the term and revolving credit advances of $2.8 million, principal payments on term advances of $0.4 million and $1.4 million of other mandatory payments.

Given the aforementioned payment defaults, and that it is unlikely that the Company will be in compliance with the covenants currently in the Credit Facility for the balance of 2009 beyond the current waiver period unless amended, all term borrowings aggregating $76.7 million under the Credit Facility have been recorded as current liabilities as of September 30, 2009 and December 31, 2008. Accordingly, at September 30, 2009 and December 31, 2008, the Company has working capital deficiencies of approximately $103.6 million and $99.5 million, respectively.

The Company borrowed an additional $17.4 million under the revolving portion of its Credit Facility during the nine months ended September 30, 2009, which reduced the open availability under the Credit Facility to approximately $0.6 million at September 30, 2009. The outstanding balance of $23.4 million under the revolving portion of the Credit Facility is also recorded as a current liability as of September 30, 2009.

The Company will likely continue to incur operating losses in 2009 and its liquidity will likely remain constrained such that it may not be sufficient to meet the Company’s cash operating needs in this period of economic uncertainty. The Company is in active discussions with its lenders to ensure that it has sufficient liquidity in excess of what is available under its Credit Facility, although there is no assurance that the Company can obtain additional liquidity on commercially reasonable terms, if at all. If the Company is unable to obtain or sustain the liquidity required to operate its business the Company may need to seek to modify the terms of its debts and/or to reorganize its capital structure. There can be no assurances that the lenders will grant such restructuring, waivers or amendments on commercially reasonable terms, if at all. If the Company is unable to obtain or sustain the liquidity required to operate its business, the Company may need to seek to modify the terms of its debts through court reorganization proceedings to allow it, among other things, to reorganize its capital structure.

The Company’s independent registered public accounting firm’s report issued in the December 31, 2008 Annual Report on Form 10-K included an explanatory paragraph describing the existence of conditions that raise substantial doubt about the Company’s ability to continue as a going concern, including significant losses, limited access to additional liquidity and compliance with certain financial covenants. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

Credit Facility

The Company obtained a $110.0 million credit facility (“Credit Facility”) during June 2007, which is secured by substantially all of the assets of the Company and consisting of both senior term debt and a revolver as follows:

	•		Senior term debt, totaling $85.0 million, with a six-year term and required amortization payments of 1% per annum plus a percentage of excess cash flow (as defined in the agreement) and sales of assets or borrowings outside of the normal course of business. As of September 30, 2009, $76.7 million was outstanding on this portion of the facility.
	•		A revolving credit facility, totaling $25.0 million with a five-year term. As of September 30, 2009, the Company had $23.4 million outstanding under this portion of the facility and outstanding letters of credit totaling approximately $1.0 million. Accordingly, availability under the revolving credit facility is $0.6 million at September 30, 2009.

Interest on the facility is calculated based on either prime rate or the London Interbank Offered Rate (LIBOR) plus a margin. As a result of certain events of default and the June 30, 2009 expiration of the Limited Waiver, Consent and Amendment No. 3 to Credit Agreement, the LIBOR advances with interest periods ending on or after June 30, 2009 automatically converted to prime rate advances at the end of such interest period. Effective June 30, 2009, the Company began incurring 2% default interest resulting from the provisions of the Limited Waiver and Amendment No. 4 to Credit Agreement.

As a result of the inability to comply with the primary financial covenants, the Company has received from its lenders numerous waivers, consents and amendments to the Credit Agreement during the nine months ended September 30, 2009. All waivers, consents and amendments to the Credit Agreement are filed with SEC as exhibits to Current Reports on Form 8-K. Refer to Note 2, Liquidity, of the Unaudited Interim Consolidated Financial Statements for additional information regarding waivers, amendment or consents dated during the three months ended September 30, 2009, and Note 24, Subsequent Events, of the Unaudited Interim Consolidated Financial Statements for additional information regarding waivers, amendments or consents dated subsequent to September 30, 2009.

CASH PROVIDED BY OPERATING ACTIVITIES

Net cash provided by operating activities was $5.6 million for the nine months ended September 30, 2009. The cash flows provided by operating activities during the nine months ended September 30, 2009 were primarily comprised of the ($10.8) million net loss plus non-cash items including depreciation and amortization of $12.0 million, intangible impairment charges of $0.5 million, loss on business divestitures of $1.6 million, non-cash compensation charges of $0.7 million, an inventory write-down of $0.7 million and a $1.7 million change in working capital, partially offset by earnings from equity investments of $1.0 million.

CASH USED IN INVESTING ACTIVITIES

Net cash used in investing activities was $2.1 million for the nine months ended September 30, 2009. The cash used in investing activities included capital expenditures of $1.3 million and acquisitions and investments of $5.0 million. These cash outflows were partially offset by $1.6 million of distributions and loan payments received from equity investments, proceeds from the sales of fixed assets of $0.5 million and $2.2 million received on the divestiture of businesses and other investments.

CASH PROVIDED BY FINANCING ACTIVITIES

Net cash provided by financing activities was $5.1 million for the nine months ended September 30, 2009. Net cash provided during this period was primarily related to proceeds from debt financing of $18.0 million, principally due to Company borrowing against its revolving credit facility. Partially offsetting the cash provided by financing activities were cash outflows due to restricted cash movement of $1.0 million, principal payments of debt of $4.0 million and distributions to noncontrolling interests of $7.8 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investments

The Company has invested in various companies, some of which are in development stages. The investments in development stage companies are inherently risky because the markets for the technologies or products these companies are developing are typically in the early stages and may never materialize. The Company could lose its various investments in development stage companies. As of September 30, 2009 and December 31, 2008, the Company had investments and other long-term assets of $4.3 million in development stage companies.

Interest Rate Risk

As of ~~September~~March 3031, ~~2009~~2010 the Company had $~~121~~123.54 million in debt, which is significantly exposed to variable interest rates. As of ~~September~~March 3031, ~~2009~~2010, the Company did not have any interest rate hedging instruments to hedge the variable interest rate exposure.

Foreign Currency Risk

The functional currency of the Company’s ~~net~~Canadian ~~assets,~~operations ~~net~~is ~~earnings~~the U.S. dollar. The assets and ~~cash~~liabilities ~~flows~~of ~~from~~the ~~its~~Company’s Canadian ~~subsidiaries~~operations are ~~based~~maintained in Canadian dollars and onremeasured ~~the~~into U.S. ~~dollar~~dollars ~~equivalent~~at ofexchange ~~such~~rates ~~amounts~~prevailing ~~measured~~at in the ~~Canadian~~consolidated ~~dollar~~balance ~~functional~~sheet ~~currency.~~date ~~Assets~~for monetary items and ~~liabilities~~at ofexchange rates prevailing at the ~~Canadian~~transaction ~~operations~~dates for nonmonetary items. Revenues and expenses are ~~translated~~remeasured tointo U.S. dollars ~~using~~at ~~the applicable~~average exchange ~~rate~~rates asprevailing ofduring the year with the ~~end~~exception of adepreciation ~~reporting~~and ~~period~~amortization, which are translated at historical exchange rates. ~~Revenues,~~Exchange ~~expenses~~gains and ~~cash~~losses ~~flow~~ are included in net loss/income. Included in other ~~translated~~expense ~~using~~is ~~the~~a ~~average~~foreign exchange ~~rate~~loss ~~during~~of $0.1 million and a foreign exchange gain of $0.1 million for the ~~reporting~~three ~~period~~months ended March 31, 2010 and 2009, respectively.

ITEM 4. 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 Principal Executive Officers and Principal 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.

As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Principal Executive Officers and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, the Company’s Principal Executive Officers and Principal 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.

There have been no significant changes in the Company’s internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

3028

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~There~~Charles ~~have~~Benjamin ~~been~~Dickerson norecently ~~material~~filed ~~changes~~a class action in ~~legal~~the ~~proceedings~~United ~~from~~States ~~that~~District ~~reported~~Court infor the District of South Carolina, against various subsidiaries and affiliates of the Company’s in connection with laser vision correction surgeries performed at TLC centers. The suit alleges violation of the Federal ~~Annual~~ ~~Report~~Racketeer onInfluenced ~~Form~~and ~~10-K~~Corrupt ~~for~~Organizations Act and seeks, among other things, unspecified monetary damages and declaratory relief. While the ~~year~~ultimate ~~ended~~result ~~December 31~~of the litigation cannot be predicted with certainty, ~~2008~~the Company believes the suit is without merit and intends to vigorously defend the suit.

~~ITEM~~ There have ~~1A.~~been ~~RISK~~no ~~FACTORS~~other material changes in legal proceedings from that reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

There are no material changes to the risk factors as disclosed in the Company’s Annual Report on Form 10-K for fiscal year 2008.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. ~~SUBMISSION~~REMOVED OFAND ~~MATTERS TO A VOTE OF SECURITY HOLDERS~~RESERVED

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

		10.1	Limited Forbearance and Third Amendment to Transfer Rights Agreement, entered August 20, 2009, by and among Michael Aronsky, M.D., Carol Hoffman, M.D., George Pronesti, M.D., and Anthony Zacchei, M.D. (collectively “Kremer Minority Holders”), TLC Vision (USA) Corporation, DelVal ASC, LLC, and TLC Management, LLC.
2.1	Fifth Amended Joint Chapter 11 Plan of Reorganization dated as of May 5, 2010.
		10.2	Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision Corporation, dated as of February 16, 2009.
31.1	Chairman of the Board’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
		10.3	Addendum to the Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision Corporation, dated April 23, 2009.
31.2	President and Chief Operating Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
		10.4	Limited Waiver and Amendment No. 4 to Credit Agreement dated as of June 30, 2009 (incorporated by reference from TLC Vision Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 5, 2009.)
31.3	Interim Chief Financial Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
		10.5	Amendment to Limited Waiver and Amendment No. 4 to Credit Agreement and Amendment No. 5 to Credit Agreement dated September 8, 2009 (incorporated by reference from TLC Vision Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2009.)
32.1	Chairman of the Board’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
		10.6	Limited Waiver dated September 30, 2009 (incorporated by reference from TLC Vision Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2009.)
32.2	President and Chief Operating Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
		10.7	Amendment No. 2 to Agreement and Plan of Merger, dated as of August 10, 2009, by and among TruVision, Inc., TLC Vision Corporation, TLC Vision (USA) Corporation and Lindsay T. Atwood (incorporated by reference from TLC Vision Corporation’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2009.)
32.3	Interim Chief Financial Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.

3129

			31.1			Chairman of the Board’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
			31.2			Chief Operating Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
			31.3			Chief Restructuring Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
			31.4			Interim Chief Financial Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
			32.1			Chairman of the Board’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
			32.2			Chief Operating Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
			32.3			Chief Restructuring Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
			32.4			Interim Chief Financial Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.

SIGNATURES

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

	TLC VISION CORPORATION
	By:	/s/ Warren S. Rustand
		Warren S. Rustand
		Chairman of the BoardNovember 16, 2009
		Chairman of the BoardMay 17, 2010
	By:	/s/ James B. Tiffany
		James B. Tiffany
		Chief Operating OfficerNovember 16, 2009
		President and Chief Operating OfficerMay 17, 2010
	By:	/s/ Michael F. Gries
		Michael F. Gries
		Chief Restructuring OfficerNovember 16, 2009
	By:	/s/ William J. McManus
		William J. McManus
		Interim Chief Financial OfficerNovember 16, 2009
		Interim Chief Financial OfficerMay 17, 2010

3330

EXHIBIT INDEX

No.		Description
10.1		Limited Forbearance and Third Amendment to Transfer Rights Agreement, entered August 20, 2009, by and among Michael Aronsky, M.D., Carol Hoffman, M.D., George Pronesti, M.D., and Anthony Zacchei, M.D. (collectively “Kremer Minority Holders”), TLC Vision (USA) Corporation, DelVal ASC, LLC, and TLC Management, LLC.
2.1		Fifth Amended Joint Chapter 11 Plan of Reorganization dated as of May 5, 2010.
10.2		Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision Corporation, dated as of February 16, 2009.
10.3		Addendum to the Engagement Letter of Conway, Del Genio, Gries & Co., LLC by TLC Vision Corporation, dated April 23, 2009.
10.4		Limited Waiver and Amendment No. 4 to Credit Agreement dated as of June 30, 2009 (incorporated by reference from TLC Vision Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 5, 2009.)
10.5		Amendment to Limited Waiver and Amendment No. 4 to Credit Agreement and Amendment No. 5 to Credit Agreement dated September 8, 2009 (incorporated by reference from TLC Vision Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2009.)
10.6		Limited Waiver dated September 30, 2009 (incorporated by reference from TLC Vision Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2009.)
10.7		Amendment No. 2 to Agreement and Plan of Merger, dated as of August 10, 2009, by and among TruVision, Inc., TLC Vision Corporation, TLC Vision (USA) Corporation and Lindsay T. Atwood (incorporated by reference from TLC Vision Corporation’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2009.)
31.1		Chairman of the Board’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		President and Chief Operating Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.3		Interim Chief ~~Restructuring~~Financial Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.4		Interim Chief Financial Officer’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Chairman of the Board’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
32.2		President and Chief Operating Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
32.3		Interim Chief ~~Restructuring~~Financial Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
32.4		Interim Chief Financial Officer’s Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

19.Table SEGMENTof INFORMATION Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · TLC VISION CORP