RISK FACTORS

      Investing in our common stock involves a high degree of risk. You should consider carefully the following risk factors, as well as the other information in this prospectus, before deciding to invest in our common stock. Our business, financial condition or results of operations could be affected adversely by any of these risks. The trading price of our common stock could decline due to any of these risks and you might lose all or part of your investment in our common stock.

Risks Relating to Our Business

      We have prepared our consolidated financial statements on the basis that we will continue as a going concern. However, as indicated in their audit report dated August 13, 2004, our auditors have expressed substantial doubt as to whether we will be able to continue as a going concern because of the losses that we have sustained during the past three years, our working capital deficiency and current cash position. Our working capital deficiency as of September 30, 2004 was $6.3 million and our total stockholders’ deficiency as of September 30, 2004 was $4.3 million.

      Although there can be no assurance that we will be able to continue as a going concern, management believes that the estimated net proceeds from this offering of $44.8 million at an assumed initial offering price of $9.00, the midpoint of the range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses, together with the receipt of the remaining funds available as of September 30, 2004 for borrowing under our convertible debentures of approximately $1.9 million, will generate sufficient funds to pay for our operations and other demands and commitments until the latter half of 2006.

      Information about us and the RHEO System has been published in articles contained in The Globe and Mail and other news outlets. Some of these articles contained information that is incorrect or outdated, including information regarding the timing of the introduction of the RHEO System in the United States. Furthermore, the articles presented certain statements about us in isolation and did not disclose many of the related risks and uncertainties described in this prospectus. As a result, you shouldn’t rely on the information contained in the articles.

      You should carefully evaluate all of the information in this prospectus, including the risks described in this section and throughout the prospectus. We have in the past received, and may continue to receive, media coverage. You should rely only on the information contained in this prospectus in making your investment decision.

      We have incurred losses in each year since our inception in 1996. Our net loss for the nine months ended September 30, 2004 was $7.9 million, and for the fiscal years ended December 31, 2003, 2002 and 2001 was $2.5 million, $2.9 million and $4.1 million, respectively. As of September 30, 2004, we had an accumulated deficit of $34.1 million. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect our clinical and regulatory expenses to increase in connection with MIRA-1 and any other clinical trials that we may initiate. In addition, subject to FDA approval of the RHEO System, we expect to incur significant sales, marketing and procurement expenses. As a result, we expect to continue to incur significant and increasing operating losses for the next several years. Because of the numerous risks and uncertainties associated with developing new

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      Since inception, we have funded our operations through private placements of our equity and debt securities and early stage revenues. Prior to this offering, our current cash resources were limited. We may need additional capital in the future, and our prospects for obtaining it are uncertain. We expect that the funding requirements for our operating activities will continue to increase substantially in the future, primarily due to the commercialization of the RHEO System. We will need to seek additional funds in the future from a combination of sources, including product licensing, joint development and other financing arrangements. In addition, we may issue debt or equity securities if we determine that additional cash resources could be obtained under favorable conditions or if future funding requirements cannot be satisfied with available cash resources. Additional capital may not be available on terms favorable to us, or at all. If adequate capital is unavailable, and if our operations do not generate cash, our commercialization of the RHEO System will be delayed and we may be unable to continue our operations. Accordingly, our audited financial statements included elsewhere in this prospectus include a going concern note.

      We were founded in 1996 but the focus of our operations since 2000 has shifted towards our ongoing pivotal trial, MIRA-1, for the RHEO System. Prior to 2000, our focus was on commercializing and performing therapeutic apheresis, or blood filtering. We generated revenues of approximately $900,200 and $1,277,800 for the years ended June 30, 1999 and 1998, respectively, all of which were earned in the United States. For the year ended December 31, 2003, we had revenues of $390,479, all of which were derived from sales of the RHEO System to OccuLogix, L.P., a related party, which then sells the RHEO System to three clinics in Canada, one of which is a related party, RHEO Clinic Inc., a subsidiary of TLC Vision. Since July 2002, our only customer has been OccuLogix, L.P., a related party. Our ability to increase our revenues and to earn revenues in the United States is dependent on a number of factors, including:

	•	successfully completing MIRA-1 for the RHEO System;
	•	obtaining FDA approval to market the RHEO System in the United States;
	•	successfully building the infrastructure and manufacturing capacity to market and sell the RHEO System;
	•	achieving widespread acceptance of RHEO Therapy among physicians and patients; and
	•	agreement of governmental and third-party payors to reimburse for RHEO Therapy.

      We do not anticipate that we will generate any revenues in the United States until late 2006, at the earliest. If we do not obtain FDA approval and are required to focus our efforts on marketing the RHEO System to clinics in Canada, or if we are unable to generate significant revenues in the United States, we may not become profitable, and we may be unable to continue our operations.

      We are required to obtain FDA approval to market the RHEO System in the United States. To support an application for FDA approval, we are conducting, at our own expense, MIRA-1 to evaluate the safety and efficacy of RHEO Therapy in humans. Clinical testing is expensive, can take many years and has an uncertain outcome. Although we have submitted an interim analysis to the FDA, these results may not be indicative of the final results for MIRA-1. Failure can occur at any stage of the testing. We may encounter numerous

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	•	enrollment may be slower than we currently anticipate, or we may be unable to obtain the complete number of data sets required by the protocol filed with the FDA if patients do not fulfill the requirement to have a 12-month follow-up visit, or otherwise;
	•	costs of MIRA-1 may be greater than we currently anticipate;
	•	we, or the regulators, may suspend or terminate MIRA-1 if the participating patients are being exposed to unacceptable health risks; and
	•	MIRA-1 may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or preclinical testing.

      MIRA-1 is currently being conducted at seven treatment centers in the United States and Canada. We are working with our contract research organization, Promedica International, and the following consulting organizations to conduct our MIRA-1 trial: McGarvey Group, Center for Clinical Research (Don Sanders, PhD), Jules Stein Eye Institute, LabCorp, and Biostat International. If our relationship with any of these organizations terminates, we believe that we would be able to enter into arrangements with alternative third parties, however, such a change may delay the completion of MIRA-1. If these organizations or any replacements do not successfully carry out their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trial may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for the RHEO System.

      Even if we complete MIRA-1 successfully, we may not receive FDA approval to market the RHEO System in the United States. Obtaining FDA approval is a lengthy and expensive process, and approval is uncertain. We may never receive FDA approval for the RHEO System or we may experience delays in receiving approval. Delays in obtaining or failure to obtain FDA approval would delay or prevent the successful commercialization of the RHEO System, diminish our competitive advantage and/or defer or decrease our receipt of revenues. Even if we obtain FDA approval, this approval may only be for a limited or narrow class of Dry AMD patients, thereby diminishing the size of the class of prospective patients for whose use the RHEO System can be promoted.

      In addition, changes to the RHEO System can require additional FDA approvals. The RHEO System currently uses a cellulose acetate Rheofilter which is manufactured by Asahi Medical. We have been informed by Asahi Medical that it intends to discontinue manufacturing the cellulose acetate filter in 2008 and we are working with Asahi Medical to develop a new polysulfone filter to replace it. We will require FDA approval to replace the cellulose acetate Rheofilter with the new polysulfone Rheofilter which may require the generation and submission of additional clinical data which could delay the timing of the application and increase the cost of obtaining such approval. If we do not receive FDA approval for the new polysulfone Rheofilter or, if obtaining the approval takes longer than we expect, we may be unable to market the RHEO System.

      We currently depend on single sources for the filters and the OctoNova pump used in the RHEO System. We have entered into a supply agreement for the filters with Asahi Medical and for the OctoNova pump with Diamed, which designed the OctoNova pump, and MeSys GmbH, which manufactures the pumps for Diamed. If any of these suppliers ceases to supply components to us or does not supply an adequate number of components, our sales and growth could be restricted, potentially materially. If we do not achieve FDA approval and other necessary approvals in the territories for which we have distribution rights by the end of December 2006, Asahi Medical can terminate the supply agreement for the filters and Diamed can terminate the supply

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      In the 2001 supply agreement with Asahi Medical for the filters that are used in the RHEO System, we agreed to obtain the FDA approval in the name of Asahi Medical and to maintain that approval. In a subsequent 2003 amendment to that agreement, we agreed to transfer FDA approval to Asahi Medical upon receipt from the FDA. Any clinical data contained in the application for FDA approval continues to belong to us. Asahi Medical will have the right to use the data in any territory where Asahi Medical grants us a distributorship. This agreement also makes us the exclusive distributor of Asahi Medical’s RHEO System filters in the United States, Canada, Mexico and the Caribbean for a term of ten years beginning at the date of the FDA approval, and is automatically renewable for one year terms unless terminated upon six months’ notice. The agreement also provides that Asahi Medical may terminate the exclusivity provision if certain post-FDA approval minimum purchase requirements are not met. This transfer of FDA approval to Asahi Medical may limit our flexibility to make changes in the FDA approval such as the addition of alternate suppliers of RHEO System components without Asahi Medical’s consent, or limit our ability to prevent changes to the FDA approval that we might consider detrimental, such as the addition of labeling changes or the substitution of alternate component suppliers.

      We, our suppliers and our products are subject to numerous FDA requirements covering the design of the RHEO System, testing, manufacturing, quality control, labeling, advertising, promotion and export of the RHEO System and other matters. Failure to comply with statutes and regulations administered by the FDA could result in, among other things, any of the following actions:

	•	warning letters;
	•	fines and other civil penalties;
	•	unanticipated expenditures;
	•	withdrawal of FDA approval;
	•	delays in approving or refusal to approve the RHEO System;
	•	product recall or seizure;
	•	interruption of production;
	•	operating restrictions;
	•	injunctions; and
	•	criminal prosecution.

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      We and our suppliers are subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. In addition, advertising and promotional materials relating to medical devices are, in certain instances, subject to regulation by the Federal Trade Commission. We and our suppliers may be required to incur significant costs to comply with such laws and regulations in the future, and such laws and regulations may materially harm our business. Unanticipated changes in existing regulatory requirements, the failure of us or our manufacturers to comply with such requirements or the adoption of new requirements could materially harm our business.

      Even if we successfully complete MIRA-1 and obtain FDA approval for the RHEO System, our success depends on our ability to market and sell the RHEO System. Successful commercialization of the RHEO System depends on a number of factors, including:

	•	achieving widespread acceptance of RHEO Therapy among physicians and patients;
	•	agreement of governmental and third-party payors to provide reimbursement for RHEO Therapy;
	•	maintaining our relationships with our single source suppliers;
	•	obtaining sufficient quantities of components for the RHEO System;
	•	establishing adequate sales and marketing capabilities;
	•	obtaining sufficient facility space;
	•	our ability to identify and sell the RHEO System to key multi-facility health care providers as well as to private eye care professional practices;
	•	our ability to successfully sell the RHEO System at our projected selling price;
	•	whether there are adverse side effects or unfavorable publicity concerning the RHEO System; and
	•	whether there is competition for the RHEO System from new or existing products, which may prove to be safer, more efficacious or more cost-effective than the RHEO System.

      AMD is not a well-understood disease and its underlying cause is not known. RHEO Therapy is based on a disease model that has not achieved widespread acceptance with eye care professionals. Unlike traditional therapeutic treatments for eye diseases, RHEO Therapy is a systemic approach for the treatment of Dry AMD, rather than a localized approach. Our success is dependent upon achieving widespread acceptance of RHEO Therapy among ophthalmologists and optometrists. Eye care professionals and health care service providers may not be willing to integrate RHEO Therapy into their workflow. In addition, because RHEO Therapy can be performed by health care providers other than eye care professionals, eye care professionals may be reluctant to endorse RHEO Therapy.

      Even if we are successful in achieving widespread acceptance of RHEO Therapy among physicians, we may be unable to achieve widespread acceptance among potential patients. An initial course of RHEO Therapy is time consuming, requiring eight procedures over a 10- to 12-week period, with each procedure lasting between two and four hours. Some patients may be reluctant to undergo RHEO Therapy because of the time commitment. In addition, RHEO Therapy providers may not be easily accessible to all patients and some patients may be unwilling or unable to travel to receive RHEO Therapy. If we are unable to achieve widespread acceptance, our financial condition and results of operations will be adversely affected.

      In August 1997, our predecessor opened its sole client facility, the Rheotherapy Center, in Tampa, Florida to perform therapeutic apheresis commercially. In 1999, the FDA’s Office of Compliance issued a

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      RHEO Therapy is expensive, with an initial course of treatment expected to initially cost between $16,000 and $25,600 in the United States. Continuing efforts of governmental and third-party payors to contain or reduce the costs of health care could negatively affect the sale of the RHEO System. Our ability to commercialize the RHEO System successfully will depend in substantial part on favorable determinations by governmental payors, most prominently Medicare, private health insurers and state-funded health care coverage programs. Without the establishment of timely, favorable coverage and reimbursement policies, we may be unable to set or maintain price levels sufficient to realize an appropriate return on our investment in product development. Other significant insurance coverage limitations, such as narrow restrictions on patient coverage criteria and restrictions on treatment settings in which RHEO Therapy is covered, may also limit our potential revenues.

      Our owned and licensed patents may not be valid and we may not be able to obtain and enforce patents and to maintain trade secret protection for our technology. The extent to which we are unable to do so could materially harm our business.

      We have applied for and will continue to apply for patents for certain processes used in the RHEO System. Such applications may not result in the issuance of any patents, and any patents now held or that may be issued may not provide us with adequate protection from competition. In addition, we expect that we will seek to have the patent licensed to us re-examined in the next 12 months at the U.S. Patent and Trademark Office, and we believe that a more detailed claim set will be issued. The re-examination of this patent may result in the patent being rejected or no claims of commercial value being issued or it may result in competitors acquiring intervening rights. Furthermore, it is possible that patents issued or licensed to us may be challenged successfully. In that event, if we have a preferred competitive position because of such patents, any preferred position held by us would be lost. If we are unable to secure or to continue to maintain a preferred position, the RHEO System could become subject to competition from the sale of generic products.

      Patents issued or licensed to us may be infringed by the products or processes of others. The cost of enforcing our patent rights against infringers, if such enforcement is required, could be significant, and the time demands could interfere with our normal operations. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical, biotechnology and medical technology industries. We may become a party to patent litigation and other proceedings. The cost to us of any patent litigation, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation more effectively than we can because of their substantially greater financial resources. Litigation may also absorb significant management time.

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      Unpatented trade secrets, improvements, confidential know-how and continuing technological innovation are important to our scientific and commercial success. Although we attempt to and will continue to attempt to protect our proprietary information through reliance on trade secret laws and the use of confidentiality agreements with our corporate partners, collaborators, employees and consultants and other appropriate means, these measures may not effectively prevent disclosure of our proprietary information, and, in any event, others may develop independently, or obtain access to, the same or similar information.

      Certain of our patent rights are licensed to us by third parties. If we fail to comply with the terms of these license agreements, our rights to those patents may be terminated, and we will be unable to conduct our business.

      It is possible that a court may find us to be infringing upon validly issued patents of third parties. In that event, in addition to the cost of defending the underlying suit for infringement, we may have to pay license fees and/or damages and we may be enjoined from conducting certain activities. Obtaining licenses under third-party patents can be costly, and such licenses may not be available at all. Under such circumstances, we may need to materially alter our products or processes and we may be unable to do so successfully.

      While our management team has some experience in marketing medical technology, we do not have a sales organization and have limited experience as a company in the sales, marketing and distribution of ophthalmic therapy products. In order to commercialize RHEO Therapy, we must develop our sales, marketing and distribution capabilities or make arrangements with a third party to perform these functions. If and when marketing of the RHEO System is approved by the FDA, we currently plan to establish our own sales force to market the RHEO System in the United States. Developing a sales force is expensive and time consuming and we may not be able to develop this capacity. If we are unable to establish adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate significant revenue and may not become profitable.

      Our success requires that our suppliers have adequate manufacturing capacity and inventory in order to facilitate a rapid rollout of the RHEO System. We have been informed by Asahi Medical that the current Rheofilter being used in the RHEO System will be discontinued in 2008 and that, even if it is not discontinued, Asahi Medical would not be able to produce enough of the current cellulose acetate Rheofilter to meet our anticipated demand. Although we are working with Asahi Medical to develop a new polysulfone filter that we believe Asahi Medical will be able to manufacture in larger quantities and at a lower cost to us, there can be no assurance that we and Asahi Medical will be successful in these efforts. Even if we are able to develop a new filter, we may not be able to obtain FDA approval for the new filter and the new filter may not be manufactured at a lower cost to us. If we are unable to obtain FDA approval for, or the necessary quantities of, this new filter, we may not be able to generate product revenue and may not become profitable.

      We plan to use between $9.5 million and $10.5 million of our net proceeds to stockpile an inventory of filters from Asahi Medical. We recently signed a purchase order with Asahi Medical for 9,600 Rheofilters, including 1,600 filters in the third quarter of 2004 and 4,000 filters for each of the following two quarters. We intend to accumulate inventory in advance of FDA approval in order to maximize the number of filters available to us due to manufacturing constraints on the number of cellulose acetate filters that Asahi Medical can produce. However, we will not be in a position to commercially market the RHEO System in the United States until late 2006, at the earliest. Each filter has a shelf life of approximately three years. It is possible that some or all of these filters will expire before they are used. Moreover, holding inventory in this manner will decrease our short term liquidity.

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      Our ability to conduct MIRA-1 and commercialize the RHEO System, depends, in large part, on our ability to have components manufactured at a competitive cost and in accordance with FDA and other regulatory requirements. We do not control the manufacturing processes of our suppliers. If current manufacturing processes are modified, or the source or location of our product supply is changed, voluntarily or involuntarily, the FDA will require us to demonstrate that the material produced from the modified or new process or facility is equivalent to the material used in the clinical trials or products previously approved. Any such modifications to the manufacturing process or supply may not achieve or maintain compliance with the applicable regulatory requirements. In many cases, prior approval by regulatory authorities may be required before any changes can be made, which may adversely affect our business.

      In order to facilitate a rapid rollout of the RHEO System if and when we receive FDA approval, we will need to establish relationships with key organized groups of multi-facility health care service providers, including hospitals, dialysis clinics and ambulatory surgery centers, as well as private practices. We may be unsuccessful in establishing these relationships, which could limit our ability to commercialize the RHEO System.

      We anticipate that RHEO Therapy will be prescribed by physicians and administered by nurses, and therefore our service provider customers will need the support of an adequate supply of trained nurses. Training nurses to administer RHEO Therapy may be costly, and our customers may experience shortages of nurses from time to time. If there is a shortage of trained nurses to work in our customers’ facilities, our commercialization of RHEO Therapy may be unsuccessful.

      RHEO Therapy may produce unexpected side effects not previously observed during clinical trials. These undesirable and unintended side effects in patients may prevent or limit its commercial adoption and use. Side effects that have been observed in MIRA-1 were all temporary and generally mild, and included temporary drops in blood pressure, abnormal heart rate, nausea, chills and localized bleeding, pain, numbness and swelling in the area of the arms where the needles were inserted. Even after approval by the FDA and other regulatory authorities, the RHEO System may later be found to produce adverse side effects that prevent widespread use or necessitate withdrawal from the market. The manifestation of such side effects could cause our business to suffer. In some cases, regulatory authorities may require additional disclosure to patients that could add warnings or restrict usage based on unexpected side effects seen after marketing a medical treatment.

      The testing, manufacturing, marketing and sale of therapeutic products entails significant inherent risks of allegations of product liability. Our use of such products in clinical trials and our sale of the RHEO System may expose us to liability claims. These claims might be made directly by patients, health care providers or others selling the RHEO System. We carry clinical trials and product liability insurance to cover certain claims that could arise during MIRA-1 or during the commercial use of RHEO Therapy. We currently maintain clinical trials and product liability insurance with coverage limits of $1,000,000 in the aggregate annually. Such coverage, and any coverage obtained in the future, may be inadequate to protect us in the event of a successful product liability claim, and we may not be able to increase the amount of such insurance coverage or even renew it. A successful product liability claim could materially harm our business. In addition, substantial, complex or extended litigation could cause us to incur large expenditures and divert significant resources.

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      In order to commercialize the RHEO System, we will need to expand our employee base for management of operational, sales and marketing, financial and other resources. We do not expect to be able to commercially launch the RHEO System until late 2006, at the earliest. Future growth will impose significant additional responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability to commercialize the RHEO System and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:

	•	manage MIRA-1 effectively;
	•	integrate additional management, administrative, distribution and sales and marketing personnel;
	•	develop our administrative, accounting and management information systems and controls; and
	•	hire and train additional qualified personnel.

      We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from achieving or maintaining profitability.

      The pharmaceutical, biotechnology and medical technology industries are characterized by rapidly changing technology and intense competition. AMD is not a well-understood disease and researchers are continuing to investigate different theories of the cause of AMD. If the cause of AMD is determined, competitors could potentially develop a treatment for Dry AMD that would replace RHEO Therapy. In addition, competitors may develop alternative treatments for Dry AMD that prove to be superior to, or more cost-effective than, RHEO Therapy. Some of these competitors may include companies which have access to financial, technical and marketing resources significantly greater than ours and substantially greater experience in developing, manufacturing and distributing products, conducting preclinical and clinical testing and obtaining regulatory approvals.

      We are aware of a number of companies which have developed or are in the process of developing treatments for Wet AMD, including Eyetech Pharmaceuticals, Inc./ Pfizer Inc., Genentech, Inc./ Novartis Ophthalmics, Alcon Laboratories, Inc., Iridex Corporation, Genaera Corporation, QLT, Inc. and GenVec, Inc. Some of these treatments are in late-stage clinical development or have been approved by the FDA. Some of these companies may develop new treatments for Dry AMD or may develop modifications to their treatments for Wet AMD that may be effective for Dry AMD as well. In addition, other companies also may be involved in competitive activities of which we are not aware.

      Our success depends on the continued contributions of our executive officers and scientific personnel. Many of our key responsibilities have been assigned to a relatively small number of individuals. We will be required to hire eyecare specialists as well as personnel with skill sets in apheresis, nursing, training, equipment maintenance, finance, distribution, logistics, warehousing, sales and service to meet our personnel needs. There is competition for qualified personnel, and the failure to secure the services of key personnel or loss of services of key personnel could adversely affect our business.

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Risks Related to This Offering

      Upon completion of this offering, TLC Vision will beneficially own approximately 52.2% of our outstanding common stock or 48.9%, on a fully diluted basis. Accordingly, TLC Vision on its own could possess an effective controlling vote on matters submitted to a vote of the holders of our common stock.

      While it owns a substantial portion of our common stock, TLC Vision will effectively control decisions with respect to:

	•	our business direction and policies, including the election and removal of our directors;
	•	mergers or other business combinations involving us;
	•	the acquisition or disposition of assets by us;
	•	our financing; and
	•	amendments to our certificate of incorporation and bylaws.

      Furthermore, TLC Vision may be able to cause or prevent a change of control of our company, and this concentration of ownership may have the effect of discouraging others from pursuing transactions involving a potential change of control of our company, in either case regardless of whether a premium is offered over then-current market prices.

      Upon completion of this offering, TLC Vision will beneficially own approximately 52.2% of our outstanding common stock or 48.9%, on a fully diluted basis. Messrs. Vamvakas and Davidson and Dr. Lindstrom, who comprise a majority of the members of our board of directors, are also directors of TLC Vision. Mr. Vamvakas beneficially owns 3,527,047 common shares of TLC Vision, representing approximately 5.1% of TLC Vision’s outstanding shares. As of April 29, 2004, Mr. Davidson beneficially owned 54,827 common shares of TLC Vision and Dr. Lindstrom beneficially owned 38,500 common shares of TLC Vision. Because they are directors of TLC Vision, a conflict of interest could arise. Conflicts may arise between TLC Vision and us as a result of our ongoing agreements. We may not be able to resolve all potential conflicts with TLC Vision, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated third party.

      In addition, our Chairman and Chief Executive Officer, Mr. Vamvakas, will also serve as Chairman of TLC Vision and, therefore, will devote a portion of his time to matters other than our business and operations. We believe that Mr. Vamvakas will devote approximately 20% of his time, on average, to TLC’s operations, which may divert his attention from our business operations and which may adversely affect our business. Stephen Kilmer, our Vice President, Corporate Affairs, will also provide investor relations services to TLC Vision under a consulting contract. Mr. Kilmer currently holds options to purchase 2,888 shares of TLC Vision that expire on November 30, 2004 with an exercise price of Cdn$13.69, options to purchase 1,750 shares that are exercisable or will become exercisable on December 1, 2004, with an exercise price of Cdn$4.09 for 875 options and Cdn$4.04 for the remaining 875 options, options to purchase 3,750 shares which will become exercisable on December 15, 2004 with an exercise price of Cdn$7.95 and options to purchase 2,500 shares which will become exercisable on January 2, 2005 with an exercise price of Cdn$1.82.

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      The initial public offering price for our common stock will be determined through negotiations with the underwriters and may not bear any relationship to the market price at which it will be traded after this offering. Prior to this offering there has been no public market for our common stock. We cannot predict the extent to which investor interest will lead to the development of an active trading market in our common stock or whether that market will be sustained. Moreover, we cannot assure you that any securities analysts will initiate or maintain research coverage of our company and our common stock. Additionally, the trading prices of the securities of medical technology companies have been highly volatile. Accordingly, the trading price of our common stock is likely to be subject to wide fluctuations. Factors that could affect the trading price of our common stock include, among other things:

	•	results of MIRA-1 and whether we receive FDA approval to market the RHEO System in the United States;
	•	results of ongoing research into the underlying causes of AMD;
	•	whether we will receive FDA approval to use the new polysulfone filter with the RHEO System;
	•	developments relating to patents, proprietary rights and potential infringement;
	•	announcements by us or our competitors of technological innovations or new commercial products;
	•	reimbursement policies of various governmental and third-party payors;
	•	public concern over the safety and efficacy of the RHEO System;
	•	changes in estimates of our revenue and operating results;
	•	variances in our revenue or operating results from forecasts or projections;
	•	recommendations of securities analysts regarding investment in our stock; and
	•	market conditions in our industry and the economy as a whole.

      If our future quarterly or annual operating results are below the expectations of securities analysts or investors, the price of our common stock will likely decline. In addition, share price fluctuations may be exaggerated if the trading volume of our common stock is too low.

      From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, or milestones. These milestones may include the commencement or completion of scientific studies and clinical trials, such as MIRA-1, and the submission of regulatory filings. From time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, our stock price may decline and the commercialization of our products may be delayed.

      The assumed initial public offering price will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock. As a result, purchasers of our common stock will experience immediate dilution of $7.87 per share, based on an assumed initial public offering price of $9.00 per share, the midpoint of the range set forth on the cover of this prospectus. This dilution is due in large part to the fact that our earlier investors paid substantially less than the assumed initial public offering price when they purchased their shares. Investors purchasing shares in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. In addition, the exercise

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      After this offering, holders of approximately 33.5 million shares of common stock will have piggyback registration rights with respect to their shares. Sales by stockholders of substantial amounts of our shares, or the perception that these sales may occur in the future, could affect materially and adversely the market price of our common stock. The shares we and the selling stockholders are offering for sale in this offering will be freely tradeable immediately following this offering. Our officers and directors and the selling stockholders have agreed not to sell their shares for a period of 180 days after the date of the underwriting agreement. As these restrictions on resale end, the market price of our common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. As at September 30, 2004, there were options to purchase 1,943,399 shares of our common stock and warrants to purchase 37,500 shares of our common stock outstanding with weighted average exercise prices of $1.46, and $4.00, respectively. Upon the closing of this offering, options to purchase 828,000 shares of common stock will be granted under our 2002 stock option plan to certain of our officers, employees and directors. These shares will be exercisable at an exercise price equal to the price of the shares issued in this offering. We also have 2,028,684 shares reserved for issuance of additional options under our 2002 stock option plan.

      We intend to use the net proceeds of this offering to fund MIRA-1 and related clinical trials and to purchase and accumulate inventory and build infrastructure for our commercialization of the RHEO System in the United States if and when we receive FDA approval. We expect to use the remainder of the net proceeds for general corporate purposes. Accordingly, we will have significant discretion in the use of a substantial portion of the net proceeds of this offering received by us, and it is possible that we may allocate the proceeds differently than investors in this offering desire, or that we will fail to maximize our return on these proceeds.

      We have never declared or paid any cash dividends on shares of our common stock. We intend to retain all available earnings to fund the operation and expansion of our business. Any determination related to payments of future dividends will be at the discretion of our board of directors after taking into account various factors that our board of directors deems relevant, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and debt restrictions.

      As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur costs associated with our public company reporting requirements, costs associated with recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the Securities and Exchange Commission and the Nasdaq National Market. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

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      We have entered into several related party transactions with our suppliers, creditors, stockholders and other parties, each of which may have interests which conflict with those of our public stockholders.

      We purchase the OctoNova pump pursuant to a marketing and distributorship agreement with Diamed, the developer of the OctoNova pump, and a distribution agreement with MeSys, the company that manufactures the pump for Diamed. The distribution agreement with MeSys provides for a minimum purchase of 25 OctoNova pumps per year beginning after FDA approval of the RHEO System, representing an annual commitment of € 405,000, or approximately $522,450 based on current exchange rates. The marketing and distributorship agreement with Diamed provides for a minimum purchase of 1,000 OctoNova pumps during the period from the date of the agreement until five years after FDA approval, representing an aggregate commitment of € 16,219,000, or approximately $20,922,510 based on current exchange rates. Upon completion of this offering, Diamed will beneficially own approximately 9.5% of our common stock. Mr. Hans Stock, who is the controlling stockholder of Diamed, is also our stockholder and is a party to two agreements with us:

	•	a patent license and royalty agreement that requires us to make royalty payments of 1.5% based on our sales of the RHEO System, with a minimum required payment of $12,500 during each calendar quarter. Payments made under the agreement in the nine months ended September 30, 2004 and for the years ended December 31, 2003 and 2002 were $37,500, $50,000 and $37,500, respectively.
	•	an agreement in consideration for his assistance in procuring for us a distribution agreement with Asahi Medical and for his commitment to assist in the procurement of distribution rights for new product lines. The agreement requires us to pay royalties of 5% of the purchase price that we pay to Asahi Medical for all products it supplies us. Royalty payments made to Mr. Stock in respect of products supplied to us by Asahi Medical in the nine months ended September 30, 2004 and the years ended December 31, 2003 and 2002 were $5,130, $9,234 and $598, respectively.

      On February 11, 1997, Apheresis Technologies entered into an agreement with Diamed to pay $1,000,000 for the purpose of supporting Diamed’s conduct of research and gathering of clinical data in Germany. On May 20, 1998, we agreed to assume the obligation to make this payment. Payments of $250,000 were made in each of December 1997 and June 1999. The balance of $500,000 remained unpaid as at September 30, 2004 and December 31, 2003. The balance is unsecured, due on demand and no interest is payable on the outstanding balance.

      During the nine months ended September 30, 2004 and during the period between November 1, 2003 and December 31, 2003, we paid $3,647 and $826, respectively, to a subsidiary of TLC Vision for office space.

      In December 2003 we issued stock options to purchase an aggregate of 1,352,500 shares of common stock to certain employees, directors and consultants. The exercise price of these options was $0.99 per share. The issuance of the stock options will result in a total charge to us of $15,905,400, which amount reflected the intrinsic value of the options at that time. In December 2003, we expensed $513,077. In 2004, we expensed $1,539,231 in each of the first, second and third quarters. Since all of the options vest upon completion of this offering, we will expense any unamortized compensation related to stock options, which was $10,774,630 as of September 30, 2004, in the quarter in which we complete this offering.

      Thomas P. Reeves, our President and Chief Operating Officer, Stephen Kilmer, our Vice President, Corporate Affairs, Julie Fotheringham, our Vice President, Marketing, Joseph Zawaideh, our Vice President, Sales and our directors Thomas Davidson, Jay T. Holmes, and Richard L. Lindstrom have all served as

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	•	have limited familiarity with our past practices;
	•	lack experience in communicating effectively within the team and with other employees;
	•	lack settled areas of responsibility; and
	•	lack an established track record in managing our projected growth.

      A portion of our expenses are denominated in euros and Canadian dollars. However, our revenues are denominated in U.S. dollars. As a result, we will be exposed to currency exchange rate risk. Our reported earnings could fluctuate materially as a result of foreign exchange rate fluctuations. We reported a foreign currency exchange gain of $2,063 in the year ended December 31, 2003 and a foreign currency exchange loss of $22,402 in the nine months ended September 30, 2004.

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