Edgar Filing: LASERSIGHT INC /DE

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
(Mark One)

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

For the fiscal year ended December 31, 2004

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

Commission file number 0-19671

LASERSIGHT INCORPORATED
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(Exact name of registrant as specified in its charter)

Delaware 65-0273162
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(State of Incorporation) (IRS Employer Identification No.)

6848 Stapoint Court, Winter Park, Florida 32792
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (407) 678-9900
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Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None N/A

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.001

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. Yes_____ No__X__

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

The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sale price on January 31, 2005 was
approximately $299,916. Shares of common stock held by each officer and director
and by each person who has voting power of 10% or more of the outstanding common
stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

Number of shares of common stock outstanding as of December 31, 2004: 9,997,995.

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LASERSIGHT INCORPORATED
TABLE OF CONTENTS

PART I

Item 1. Business............................................................................................... 3

Item 2. Properties............................................................................................. 33

Item 3. Legal Proceedings...................................................................................... 33

Item 4. Submission of Matters to a Vote of Security Holders.................................................... 34

PART II

Item 5. Market for Company's Common Equity and Related Stockholder Matters..................................... 34

Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 35

Item 6A. Quantitative and Qualitative Disclosures about Market Risk............................................. 44

Item 7. Financial Statements and Supplemental Data............................................................. 44

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 44

Item 8A. Controls and Procedures................................................................................ 45

PART III

Item 9. Directors and Executive Officers...................................................................... 45

Item 10. Executive Compensation................................................................................ 47

Item 11. Security Ownership of Certain Beneficial Owners and Management........................................ 49

Item 12. Certain Relations and Related Transactions............................................................ 50

Item 13. Principal Accounting Fees and Services................................................................ 50

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................... 51

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The information in this Annual Report on Form 10-KSB contains forward
looking-statements, as indicated by words such as "anticipates," "expects,"
"believes," "estimates," "intends," "projects," and "likely," by statements of
the Company's plans, intentions and objectives, or by any statements as to
future economic performance. Forward-looking statements involve risks and
uncertainties that could cause the Company's actual results to differ materially
from those described in such forward-looking statements. See "Risk Factors -
Risk Related to Our Business and Financial Result". We cannot be certain that we
will be able to achieve or sustain profitability or positive operating cash flow
in the future. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in Item 1 "Business: Risk
Factors" as well as those discussed elsewhere in this Report. All references to
"LaserSight(R)" "we," "our" and "us" in this Report refer to LaserSight
Incorporated and its subsidiaries unless the context otherwise requires.

PART I

Item 1. Business

General

We have over ten years of experience in the manufacture, sale and
service of precision microspot scanning laser systems for refractive vision
correction procedures. Since 1994, we have sold our scanning laser systems
commercially in over 30 countries worldwide. In November 1999, the Food and Drug
Administration (FDA) approved our LaserScan LSX scanning laser system for
commercial sale in the U.S. for the treatment of nearsightedness of up to -6.0
diopters using photorefractive keratectomy (PRK). In September 2001, the FDA
approved our LaserScan LSX precision microspot scanning system for the laser
in-situ keratomileusis ("LASIK") treatment of myopia with and without
astigmatism up to a manifest refraction spherical equivalent ("MRSE") of -6.0
diopters with maximum refractive astigmatism approved for up to 4.5 diopters.
Currently, all of our laser systems delivered into the international market
operate at pulse repetition rates of 200Hz, or pulses per second. Our AstraScan
laser system incorporates the same precision microspot scanning features of our
LaserScan LSX along with an advanced eye tracking system, improved lighting and
a redesigned "delivery arm" on the laser to make the microscope and joystick
more functional. Available now as an upgrade in many international markets, the
AstraScan features will need FDA approval before they can be sold in the U.S. In
the U.S. market we are not currently pursuing FDA approval.

Our family of products for custom refractive treatments (often referred
to as custom ablations) includes the AstraMax(R) diagnostic workstation designed
to provide precise diagnostic measurements of the eye for many refractive
purposes, including generating data needed to plan custom ablation procedures,
our AstraPro(R) custom ablation planning software that utilizes advanced levels
of diagnostic measurements from our AstraMax diagnostic workstation to complete
the planning of custom ablation treatments. The AstraMax integrated diagnostic
workstation was first shown in October 2000 at the Annual Meeting of the

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American Academy of Ophthalmology and was commercially launched during the
second quarter of 2002. We completed international product performance testing
of our AstraPro custom ablation planning software in early 2003 and have
released it for international distribution. Our AstraPro custom ablation
planning software is currently the subject of litigation. See "Item 3. Legal
Proceedings--Italian Distributor."

Operating Segments. We have operated in the following operating
segments: refractive products and patent services. In 2003 we decided to
discontinue our keratomes product line, part of the refractive product segment,
historically the revenue was not significant in keratomes, and re-focus our
marketing sales efforts to the international market, mainly China.

Our refractive products segment, primarily including our laser vision
correction products and services of LaserSight Technologies, develops,
manufactures and markets ophthalmic lasers with a galvanometric scanning system
for use in performing refractive surgery. In 2003 we introduced for sale the
AstraScan laser system, both as a new laser product and as an upgrade to our
LaserScan LSX laser system. The AstraScan uses a 0.6 millimeter precision
microspot scanning laser beam to ablate microscopic layers of corneal tissue to
reshape the cornea and to correct the eye's point of focus in persons with
nearsightedness, farsightedness and astigmatism. Our patent services segment,
consisting primarily of patents licensed by us, includes a license to a patent
related to the use of scanning lasers. For information regarding our export
sales and operating revenues, operating profit (loss) and identifiable assets by
industry segment, see Note 14 of the Notes to Consolidated Financial Statements.

Organization and History. LaserSight was incorporated in Delaware in
1987, but was inactive until 1991. In July 1994, LaserSight was reorganized as a
holding company. In September 2003 we filed a Chapter 11 bankruptcy petition,
discontinued our keratomes and cosmetic product lines due to cash flow problems,
these items never generated significant revenues, and re-focused our marketing
and sales efforts to the international market, mainly China. Our principal
offices and mailing address are 6848 Stapoint Court, Winter Park, Florida 32792,
our telephone number is (407) 678-9900 and our address on the World Wide Web is
www.lase.com.

Industry Overview

Refractive Vision Correction

Laser vision correction is a surgical procedure for correcting vision
disorders such as nearsightedness, farsightedness and astigmatism using an
excimer laser. This procedure uses ultraviolet laser energy to ablate, or
remove, tissue from the cornea and sculpt the cornea into a predetermined shape.
Because the excimer laser is a cold laser, it is possible to ablate precise
amounts of corneal tissue without causing thermal damage to surrounding tissue.
The goal of laser vision correction is to achieve patient vision levels that
eliminate or significantly reduce a person's reliance on corrective eyewear. The
first laser vision correction procedure on a human eye was conducted in 1985 and
the first human eye was treated with the excimer laser in the U.S. in 1987.There
are currently two principal methods for performing laser vision correction with
excimer laser systems: PRK and LASIK.

Photorefractive Keratectomy (PRK)

In PRK, the refractive surgeon prepares the eye by gently removing the
surface layer of the cornea called the epithelium. The surgeon then applies the

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excimer laser beam, reshaping the curvature of the cornea. Following PRK, a
patient typically experiences blurred vision and discomfort until the epithelium
heals. It generally takes one month, but may take up to six months, for the full
benefit of PRK to be realized. PRK has been used commercially since 1988.

Laser in-situ Keratomileusis (LASIK)

LASIK was commercially adopted internationally in 1994 and in the U.S.
in 1996. Immediately prior to a LASIK procedure, the refractive surgeon uses a
surgical instrument called a keratome to create a thin, hinged flap of corneal
tissue. Patients do not feel or see the cutting of the corneal flap, which takes
only a few seconds. The flap is folded back, the laser beam is directed to the
exposed corneal surface, the flap is placed back and the flap and interface are
rinsed with buffered saline solution. Once the procedure is completed, surgeons
generally wait two to three minutes to ensure the corneal flap has fully
re-adhered. At this point, patients can blink normally and the corneal flap
remains secured in position by the natural suction within the cornea. Since the
surface layer of the cornea remains intact during LASIK, the patient experiences
virtually no discomfort. The LASIK procedure often results in a higher degree of
patient satisfaction due to an immediate improvement in visual acuity and
generally involves less post-operative discomfort than PRK.

Laser Epithelial Keratomileusis (LASEK)

Laser refractive surgical procedures have undergone a transition from
PRK to the LASIK procedure that has become the procedure of choice for most
patients and surgeons. With the anticipated transition to custom ablations,
refractive surgeons have expressed concern over the possibility of induced
refractive error related to the LASIK flap. A newly developed technique, LASEK,
is now being considered as an alternative to LASIK when performing custom
ablations. During the LASEK procedure a thin epithelial flap is formed using
alcohol, the flap is lifted up and repositioned after photorefractive ablation.
The LASEK procedure is said to result in less pain and discomfort than the PRK
procedure. Healing and recovery of vision is slower than LASIK, but not as long
as PRK.

Custom Ablation

Most laser system manufacturers are attempting to offer a custom
ablation solution. Custom ablation is believed to offer higher quality clinical
outcomes for patients due to the fact that a specific ablation profile is
planned for each eye. Higher quality outcomes are expected to be a significant
selling point with surgeons. Custom procedures typically involve gathering
diagnostic data from the surfaces of the eye, converting the data into an
individualized laser ablation plan based on the specific diagnostic data of each
eye, and performing the refractive surgery based on the ablation plan. We
believe small spot, high repetition rate scanning lasers are the best suited to
perform custom ablation procedures.

Refractive Vision Correction Market

The worldwide market for products and services to correct common
refractive vision disorders such as nearsightedness, farsightedness and
astigmatism is large and growing. Industry sources estimate that 50% of the U.S.
population, or approximately 140 million people, presently wear eyeglasses or
contact lenses. There are approximately 14,000 practicing ophthalmologists in
the U.S., of whom approximately 4,000 reportedly perform refractive laser vision
correction procedures on a regular basis.

Many, but not all, manufacturers of excimer laser systems seek to
share in the anticipated growth in procedure volume by receiving a fee for each
procedure performed by a refractive surgeon using laser systems manufactured by

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them. The per procedure fees charged by these manufacturers vary. See
"Business-Competition."

Development of Excimer Laser System and Diagnostic Products

Excimer Laser Systems

The excimer laser systems utilized for laser vision correction have
evolved over time with improvements in laser and beam delivery technology from
broad beam to narrow beam scanning and the recent introduction of custom
ablation.

Improvements in excimer laser technology during the early 1990's have
made it possible to develop refractive excimer laser systems that have
significantly narrower laser beams (less than one millimeter in diameter) that
use reduced amounts of laser energy (10 mj) at higher pulse repetition rates (up
to 300 Hz) to achieve corneal ablations. LaserSight was the leader in the
development of precision microspot scanning technology and the first company to
commercialize it. This new generation of narrow beam scanning excimer laser
systems incorporated scanning mirrors and computer control to shape the ablation
profile, making it unnecessary to utilize mechanical elements to size and shape
the laser beam to attain the desired results. Techniques incorporated into
scanning laser technology, such as purposeful overlapping of laser pulses and
random scanning patterns, can lead to overall improved clinical results as
evidenced by smoother ablations, the elimination of corneal ridges and central
islands, and the reduction in the incidence of glare, halos, loss or reduction
of night vision and contrast sensitivity. Narrow beam scanning excimer laser
systems are currently the most flexible laser vision correction platforms
available as they can be adapted to expansions in treatment modalities and the
incorporation of new technologies such as higher laser pulse repetition rate,
active eye tracking and custom ablation through software and minor hardware
upgrades.

Diagnostic and Custom Ablation Products

One of the most important tools ophthalmologists have at their disposal
is corneal topography. With a corneal topographer the ophthalmologist can
literally see the refractive problems that might be present in the cornea.
Corneal topography is used not only for screening all patients before refractive
surgery like LASIK, but also for fitting contacts, adjusting post-surgical
corneal transplants, and diagnosing refractive disorders and diseases.

Of currently available technology, corneal topography provides the most
detailed information about the curvature of the cornea. This information is
useful to evaluate and correct astigmatism, monitor corneal disease, and detect
irregularities in the corneal shape. This diagnostic procedure is essential for
patients being considered for refractive vision correction procedures (such as
LASIK) and may even be necessary in the follow-up of some patients who have
undergone refractive surgical procedures.

Topography instruments have undergone significant changes in technology
and functionality since they were first introduced. The technology has
progressed from stationary placido-based topography in early generation
topographers to scanning slit technology and now to the multi-camera-based
technology in our AstraMax.

We believe our AstraMax diagnostic workstation is the next-generation
topography instrument. The AstraMax uses a unique, patented three-video camera
imaging system to achieve high-precision elevation measurements of the cornea.
Utilizing a patented checkered polar grid and other proprietary features, the

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AstraMax obtains, in a single examination, a series of critical measurements of
the cornea and eye including posterior and anterior corneal topography
(elevation), thickness of the cornea (pachymetry) and the diameter of the pupil
under conditions of both low lighting (scotopic) and normal lighting (photopic).
The precision elevation measurements result in elevation maps of the highest
available quality.

The custom treatments using our excimer laser system demonstrate
efficacy, safety, predictability and stability, and such results have been
published in peer-reviewed journals and presented at major ophthalmology venues
throughout the world.

Recent Developments

NASDAQ Stock Market Listing

Our common stock was listed on The NASDAQ National Market. Because of
the lengthy period during which our common stock traded below $1.00 per share,
it no longer met the listing requirements for the National Market, and on August
15, 2002, NASDAQ approved our application to transfer our listing to the Small
Cap Market via an exception from the minimum bid price requirement. While we
failed to meet this requirement as of February 10, 2003, we were granted a
temporary exception from this standard subject to meeting certain conditions.
The exception required that on or before April 15, 2003, we were to file a
definitive proxy statement with the Securities and Exchange Commission
evidencing our intent to seek shareholder approval for the implementation of a
reverse stock split. Other requirements included that, on or before May 30,
2003, we demonstrated a closing bid price of at least $1.00 per share and,
immediately thereafter, a closing bid price of at least $1.00 per share for a
minimum of ten consecutive trading days. In addition, we must have been able to
demonstrate compliance with the following maintenance requirements for continued
listing on the Small Cap Market:

o stockholders' equity of $2.5 million;

o at least 500,000 shares of common stock publicly held;

o market value of publicly held shares of at least $1.0 million;

o shareholders (round lot holders) of at least 300; and

o at least two registered and active market makers.

We asked for an extension to May 1, 2003 to file the definitive proxy
statement. On April 25, 2003, we asked for a further extension, but because we
did not timely meet the requirements, our request for an extension was denied.
As a result, Listing Qualification Panel determined that our securities would be
delisted from Small Cap Market effective April 30, 2003. Our common stock was
then listed in the OTC Bulletin Board ("OTCBB"). The Company failed to file its
second quarter SEC Form 10-Q due on August 14, 2003. The Company did file a Form
12b-25 on August 14, 2003 advising that the Company would not file the quarterly
report timely. The Company has filed all past due SEC filings in March 2005.

LSI traded on the NASDAQ Small Cap Market through April 29, 2003 as
LASE and LASEC (March 5, 2003 - April 29, 2003). On April 30, 2003, it commenced
trading on OTCBB as LASE. The OTCBB symbol was changed on August 27, 2003 to
LASEE due to the late filing status of the company. The Company commenced
trading on the "Pink Sheets" on September 27, 2003 with the symbol LASEQ (Q
indicates bankruptcy). This is a conditional listing due to the bankruptcy
filing by the company. As mentioned above, the existing common and preferred

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shares, including options and warrants, were cancelled on June 30, 2004,
pursuant to our re-organization plan. New common shares of 9,997,195 were
issued on June 30, 2004 and commenced trading via the "Pink Sheets" under the
symbol LRST.

The delisting of our common stock from the Nasdaq Small Cap Market will
result in decreased liquidity of our outstanding shares of common stock (and a
resulting inability of our stockholders to sell our common stock or obtain
accurate quotations as to their market value), and, consequently, will reduce
the price at which our shares trade. The delisting of our common stock may also
deter broker-dealers from making a market in or otherwise generating interest in
our common stock and may adversely affect our ability to attract investors in
our common stock. Furthermore, our ability to raise additional capital may be
severely impaired. As a result of these factors, the value of our common stock
may decline significantly, and our stockholders may lose some or all of their
investment in our common stock.

China Background

We have been in a cooperation partnership with New Industries
Investment Group ("NII") in China. Further background on China, and NII follows:

Shenzhen New Industries Medical Development Co., Ltd. ("NIMD") was
founded and incorporated by the Medical Investment Department of its parent
company, NII, in the People's Republic of China in 1995. It specializes in
marketing and distribution of LASIK surgery devices and equipment, as well as in
investment and operation of LASIK clinical centers in the Chinese market.

NIMD became the exclusive distributor in China for LaserSight in
September of 2002. NIMD purchased more than $7.5 million of LaserSight's
products and services after it was engaged in the exclusive distributorship with
LaserSight and before LaserSight went into Chapter 11. In the past decade, NIMD
invested and operated more than 50 PRK/LASIK refractive surgery centers in joint
ventures with the most prestigious hospitals and medical institutes in China as
its strategic partners. NIMD is now the largest business in Mainland China in
terms of its investment in refractive surgery centers.

New Industries Investment Consultants (H.K.) Ltd ("NIIC") specializes
in hi-tech business investment and consulting services. It is registered in Hong
Kong. It was incorporated in 1994 by its principal investor, Mr. Xianding Weng
(a major shareholder of NIIC, and NIIC's CEO, also the Company's Chairman of the
Board). NIMD, with NIIC, is a pioneer in the laser refractive surgery industry
in China. NII, NIIC and NIMD are collectively referred to as the China Group.

Product-Related Developments

Our LaserScan LSX and AstraScan excimer laser systems are based on
patented precision microspot scanning technology rather than broad beam
technology. Subject to satisfactorily addressing our serious liquidity and
financing needs, we believe we are well-positioned to become a significant
provider of excimer laser systems, diagnostic products and other related
products as a result of our technology and the following recent developments:

o Reissuance of Scanning Patent. In January 2002, the U.S.
Patent and Trademark Office reissued LaserSight's scanning
patent U.S. Patent No. 5,520,679, (the "679 Scanning Patent")
as U.S. Patent No. RE 37,504 (the "504 Scanning Patent"),
thereby completing the reissue process. See "--Intellectual
Property."

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o License of Scanning Patent. During 2002, we licensed the `504
Scanning Patent on a non-exclusive basis to two other parties
for total payments of $2.6 million in cash. One such
agreement, with Alcon, also provides that LaserSight and Alcon
will cooperate in the future enforcement of the patent and
share in the funds generated by such future enforcement. . In
March 2005 we licensed this patent for $0.9 million to
Wavelight.

o Custom Ablation. We commercially launched the AstraMax product
during 2002. The AstraMax can be utilized as a stand-alone
diagnostic unit or as part of our CustomEyes approach to
custom ablation planning. We believe that the AstraMax
integrated diagnostic workstation is the first product to
integrate precision diagnostic measurements such as anterior
corneal elevation, corneal thickness, and measurements of
photopic and scotopic pupil size into a single instrument. The
precision measurements from the AstraMax integrated
workstation will be utilized in our AstraPro software for
planning custom ablations. International clinical testing of
our internally developed AstraPro planning software has been
completed for previously untreated eyes, and the product was
released for international distribution in early 2003. Any
custom ablation software will require both clinical trials and
FDA approval prior to sale in the U.S. Currently, we do not
have any effort pursuing US trials or approvals.

Products

Excimer Lasers

LaserSight was the first company to develop an advanced precision
microspot scanning excimer laser system. The LaserScan LSX and AstraScan (for
international use) excimer laser systems have evolved from the patented optical
scanning system incorporated in the Compak-200 Mini-Excimer laser system,
introduced internationally in 1994. Since the introduction of the Compak-200
laser system, we have offered several generations of our scanning laser, each
incorporating enhancements and new features. We have sold our precision
microspot scanning excimer laser systems in over 30 countries. The AstraScan
model incorporates the same precision microspot scanning features along with an
advanced eye tracking system, improved lighting and a redesigned "delivery arm"
on the laser to make the microscope and joystick more functional and allow for
keratome placement. The AstraScan features will need FDA approval before they
can be sold in the U.S. (currently, we are not pursuing any US approvals).
Throughout the evolution of our precision microspot scanning excimer laser
systems, the core concept of utilizing our proprietary precision microspot
scanning software to ablate corneal tissue with a low energy, microspot laser
beam at a rapid pulse repetition rate has remained the underlying basis for our
technology platform.

In November 1999, the LaserScan LSX was approved by the FDA for sale in
the U.S., and we began commercial shipments to U.S. customers in March 2000. In
September 2001, our PMA Supplement for the LASIK treatment of myopia and myopia
with astigmatism was approved by the FDA, thereby increasing the range of
indications that can be treated in the U.S. using the LaserScan LSX. We believe
that the incorporation of the smallest spot size (S), the lowest laser fluence
(F) and high repetition rate (R), together with techniques like the patented
purposeful overlapping of laser pulses and random scanning patterns used by our
patented precision microspot scanning technology, can lead to smoother
ablations, the elimination of surgical anomalies associated with broad beam
laser systems such as rings, ridges and central islands, and reductions in the
incidence of glare, halos and loss of night vision. We also believe that our
patented SFR technology is capable of providing the highest resolution and

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accuracy in corneal ablations needed for custom ablation treatments. The key
benefits of our laser systems include the following:

o Precision Microspot Scanning Laser. The AstraScan uses
patented precision microspot scanning to deliver a high
resolution, 0.6 millimeter low-energy "flying spot," in a
proprietary, randomized pattern. They are true
precision-scanning software-controlled lasers that use a pair
of galvanometer controlled mirrors to reflect and scan the
laser beam directly onto the corneal surface, without the
mechanical elements used by broad beam excimer laser systems.

o Lower Fluence. The accuracy and resolution of ablations
produced by a refractive laser system is directly related to
its laser fluence. When low laser fluence is delivered in a
smaller laser spot, the ability of a laser system to
accurately produce a predetermined laser ablation pattern is
increased. Our lasers operate with a fluence of 89 mj/cm2 and
have a beam size of 0.6 to 0.8 mm. Many competitive laser
systems operate with fluences up to 200 mj/ cm2 and have
larger laser spots.

o Higher Pulse Repetition Rate. Our lasers currently operate at
a pulse repetition rate of 200 Hz. Many competitive laser
systems currently operate at lower pulse repetitions, often 50
Hz or less.

o Eye Tracking. Proper alignment of the refractive correction is
important in all laser vision correction procedures, and is
essential in order to perform custom ablations. Our advanced
adaptive eye tracking system maintains alignment of the
refractive correction relative to the visual axis of the eye.
The LaserSight advanced adaptive eye tracker is a high speed,
synchronous, "active" system that is capable of following even
small, involuntary eye movements. Our advanced adaptive eye
tracking system is currently available only on international
versions of the AstraScan.

o Flexible Platform. Custom ablations have resulted in increased
patient satisfaction in international clinical use, and we
believe the ability to perform custom ablations will generally
result in improved visual quality, more predictable results
and less post-operative regression relative to other
refractive surgery techniques. We also believe that custom
ablation will be the technique most preferred by refractive
surgeons for correction of irregular astigmatism, decentered
ablations and other surgically induced corneal irregularities.
When programmed by custom ablation software tools like
AstraPro, our laser is able to perform custom ablations.

o Advanced Design and Ergonomics. Our laser's relatively light
weight and compact design allows it to fit into small spaces,
and its wheels enable it to be easily moved around in a
multi-surgeon practice.

Diagnostic and Custom Ablation Products

Our CustomEyes family of diagnostic instruments and custom ablation
planning tools includes the AstraMax integrated diagnostic workstation and CIPTA
and AstraPro custom ablation planning software.

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AstraMax. The AstraMax is an integrated diagnostic workstation that
obtains precision diagnostic measurements such as corneal elevation, corneal
thickness, and measurements of photopic and scotopic pupil size. Prior to the
AstraMax these measurements would have to be taken utilizing two or more
instruments. In addition to its value as a stand-alone system, the precision
diagnostic measurements provided by the AstraMax integrated workstation will be
utilized in our AstraPro software for planning custom ablations.

We believe the primary benefits of the AstraMax system include:

o Multiple Cameras - The AstraMax has three cameras allowing for
the truest rendering of corneal data to date. Three cameras
capture corneal data with greater precision and accuracy. In
laser vision correction, height data are essential to perform
an accurate laser surgery with reliable accurate results.

o Scotopic and Photopic Pupilometry - The AstraMax is the only
topographer that offers a full range of measurements including
scotopic and photopic pupil size. We believe the quality of
the patient's vision is partly dependent on the size of the
ablation zone equaling or exceeding the size of the scotopic
pupil, something no other topographer measures.

The technology incorporated into our AstraMax integrated workstation is
covered by six U.S. patents assigned to LaserSight, licenses to related
technologies and a number of patent applications currently undergoing
examination in the U.S. and internationally.

AstraPro. We have completed the international product performance
testing of our AstraPro custom ablation planning software, and it became
commercially available in early 2003. We believe our CustomEyes approach to
custom ablations will represent a new standard of eye care that goes beyond
conventional laser vision correction by individualizing the laser treatment
utilizing a patient-specific set of diagnostic criteria intended to correct both
refractive error and optical aberrations.

For custom ablation treatments, the diagnostic data from the AstraMax
will be exported to our AstraPro custom ablation planning software where the
data will be used initially to plan custom ablation profiles intended to correct
visual anomalies that may have been induced by prior refractive procedures and
improve the overall quality of a patient's vision. LaserSight's approach to
custom ablation is somewhat different from other competitors in that our focus
has been on developing diagnostic and planning tools and techniques that improve
the qualitative aspect of visual performance. Because wavefront devices have
tended to focus on detecting and correcting for spherical aberrations that may
be present in a patient's eye, correction of such visual defects addresses only
visual acuity, or the quantitative aspect, of visual performance. Such
treatments do not address the qualitative aspect of visual performance, or how
well a patient is seeing under a variety of conditions.

Our approach to custom ablation treatment uses precise measurements of
corneal elevation; corneal thickness and pupil size to plan a custom ablation
intended to improve visual performance by post-operatively retaining the natural
prolate shape of the patient's cornea.

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Growth Strategy

Our goal, subject to our ability to obtain adequate financing, is to
become a significant provider of excimer laser systems, diagnostic and custom
ablation products and other products for the refractive vision correction
industry, focusing on China. We believe that our more than ten years of
experience in the manufacture, sales and service of excimer laser systems, our
significant penetration of international markets and the advanced technology of
our laser systems diagnostic instruments, ablation planning software provide us
with a strong platform for future growth as we continue to penetrate the
international markets for refractive surgical lasers and instruments.

The following are the key elements of our growth strategy:

o Expand Market Share in International Excimer Laser Market,
mainly in China. We believe that our AstraScan precision
microspot scanning excimer laser systems represent a
significant technological advancement over the other scanning
laser systems currently being marketed internationally, as our
precision microspot scanning lasers can provide more precise
corneal ablations, reduced visual side effects, enhanced
visual acuity and shorter procedure times. We also believe
that the availability of AstraPro and AstraMax provides a
custom ablation solution internationally that will improve our
sales opportunities.

o Establish Strong Position in Custom Ablation Market. By
combining the capabilities of our laser system with the
AstraMax and AstraPro, we believe we will be in a position to
benefit from a viable custom ablation package in the
international market in the near future.

Sales and Marketing

We sell our excimer laser systems, diagnostic products, and related
products through independent sales representatives and distributors. Since 1994,
we have marketed our laser systems commercially in over 30 countries.

Excimer Laser Systems

Laser system sales in international markets are generally to hospitals,
corporate centers or established and licensed ophthalmologists. Internationally
we marketed our excimer laser systems in Canada, Europe, Asia, South and Central
America, and the Middle East, with particular focus in China. We currently
employ a sales manager who is responsible for sales in international markets,
both directly and through our independent distributors and representatives
within their respective territories.

All of our distributors and representatives were selected based on
their experience and knowledge of their respective ophthalmic equipment market.
In addition, the selection of international distributors and representatives was
also based on their ability to offer technical support. Distributor and
representative agreements provided for either exclusive territories, with
continuing exclusivity dependent upon achievement of mutually agreed levels of
annual sales, or non-exclusive agreements without sales minimums. Our China
distributor was responsible for generating sales representing 81% of our
consolidated revenues in 2004 and 86% of our consolidated revenues in 2003. We
have a concentration of credit risk, with the majority of our sales to one
customer.

In conjunction with our sales activities, we participate in a limited
number of foreign ophthalmology meetings, exhibits and seminars.

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Diagnostic and Custom Ablation Products

We currently employ one person responsible for the sales of our
AstraMax products, in addition to our laser system China distributor. We plan to
offer bundled packages including, for example, a laser system with an AstraMax.

Manufacturing

Excimer Laser Systems

Manufacturing Facilities. Our manufacturing operations primarily
consist of assembly, inspection and testing of parts and system components to
assure performance and quality. We acquire components of our laser system and
assemble them into a complete unit from components that include both
"off-the-shelf" materials and assemblies and key components that are produced by
others to our design and specifications. We conduct a series of final system
integration and acceptance tests prior to shipping a completed system. The
proprietary computer software that operates the scanning system in our laser
systems was developed internally.

In October 1996, we received certification under ISO 9002, an
international system of quality assurance, for our manufacturing and quality
assurance activities in Florida facility. Since that time we have maintained our
ISO 9002 certification through a series of periodic surveillance audits and have
also been certified at our facility to ISO 9001 quality system standards.

Availability of Components. We purchase the vast majority of components
for our laser systems from commercial suppliers. These include both standard,
"off-the-shelf" items, as well as components produced to our designs and
specifications. While most components are acquired from single sources, we
believe that in many cases there are multiple sources available to us in the
event a supplier is unable or unwilling to perform. Since we need an
uninterrupted supply of components to produce our laser systems, we are
dependent upon these suppliers to provide us with a continuous supply of
integral components and sub-assemblies.

We contracted with TUI Lasertechnik und Laserintegration GmbH, Munich,
Germany, in 1996 to develop an improved performance laser head based on their
innovative technology and our performance specification and laser lifetime
requirements. We began to incorporate this new laser head into our products,
notably the LaserScan LSX, in the fourth quarter of 1997. Currently, TUI is a
single source for the laser heads used in the AstraScan XL. Currently,
SensoMotoric Instruments GmbH, Teltow, Germany, is a single source for the eye
tracker boards used in the both the LaserScan LSX and the AstraScan. See "Our
supply of certain critical components and systems maybe interrupted because of
reliance on a limited number of suppliers".

Diagnostic and Custom Ablation Products

Our AstraMax integrated diagnostic workstation is being manufactured in
our Winter Park, Florida, manufacturing facility. These manufacturing operations
also primarily consist of assembly, inspection and testing of parts and system
components to assure performance and quality. We acquire components of the
AstraMax and assemble them into a complete unit from components that include
both "off-the-shelf" materials and assemblies and components that are produced
by others to our design and specifications. We conduct a series of final system
integration and acceptance tests prior to shipping a completed system. The
proprietary computer software that operates the diagnostic workstation was
developed and is maintained internally.

-13-

The AstraPro software was distributed from Winter Park, Florida
beginning in early 2003. The CIPTA software that is being distributed under an
agreement with Ligi Technologie Medicali, Taranto, Italy, was developed by that
company. Any custom ablation software will require clinical trials and FDA
approval prior to sale in the U.S.

Competition

Excimer Laser Systems

The vision correction industry is subject to intense, increasing
competition. We operate in this highly competitive environment that has numerous
well-established U.S. and foreign companies with substantial market shares, as
well as smaller companies. Many of our competitors are substantially larger,
better financed, better known, and have existing products and distribution
systems in marketplace.

We believe competition in the excimer laser system market is primarily
based on product reliability, safety and effectiveness, technology, price,
regulatory approvals, operation costs, warranty coverage and customer service
capabilities. We believe that safety and effectiveness, technology, price,
dependability, warranty coverage and customer service capabilities are among the
most significant competitive factors, and we believe that we compete favorably
with respect to these factors.

Currently, six manufacturers, VISX, Alcon, Nidek, Bausch & Lomb,
WaveLight and LaserSight, have excimer laser systems with the required FDA
approval to commercially sell the systems in the U.S. At present, the laser
systems manufactured by our competitors in the U.S. market have FDA approval to
perform a wider range of treatments than our laser system, including higher
degrees of nearsightedness and in the case of VISX and Alcon, farsightedness.
While regulatory approvals play a significant role with respect to the U.S.
market, competition from new entrants may be prevalent in other countries where
regulatory barriers are lower.

In addition to conventional vision correction treatments such as
eyeglasses and contact lenses, we also compete against other surgical
alternatives for correcting refractive vision disorders such as surgically
implantable rings, which have received FDA approval, as well as implantable
intraocular lenses, a holmium laser system and a conductive keratoplasty system
(using radio frequency waves), both developed for the treatment of
farsightedness, which have also been approved by the FDA.

Diagnostic and Custom Ablation Products

The topography market is segmented into higher priced (Bausch & Lomb's
Orbscan) and lower priced markets (manufactured by Humphrey, Tomey and others).
We are primarily competing against the Orbscan. Our AstraMax instrument also
competes against another class of instruments based on wavefront technology for
use in planning custom ablation treatments. The target market for higher-priced
topographers is refractive surgeons, general ophthalmologists and optometrists.
Sales for the AstraMax have been targeted mostly to refractive surgeons. The
market has shown acceptance of new technology, and is being fueled by the need
to obtain more accurate corneal height data in an effort to provide consistent
and accurate results in LASIK surgery as well as screen out poor candidates for
the procedure.

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We believe the AstraMax competes well against the features offered by
the Orbscan and provides the additional benefits described earlier that should
position the AstraMax as the next generation in corneal topography.

Intellectual Property

There are a number of U.S. and foreign patents or patent rights
relating to the broad categories of laser devices, use of laser devices in
refractive surgical procedures, and delivery systems for using laser devices in
refractive surgical procedures. We maintain a portfolio of what we believe to be
strategically important patents, patent applications, and licenses. Our patents,
patent applications and licenses generally relate to the following areas of
technology: UV and infrared-wavelength laser ablation for refractive surgery,
our precision microspot laser scanning system, harmonic conversion techniques
for solid state lasers, calibration of refractive lasers, eye tracking,
treatment of glaucoma and other retinal abnormalities, keratometer design,
enhanced techniques for corneal topography, techniques for treatment of
nearsightedness and farsightedness, and techniques to optimize clinical outcomes
of refractive procedures. We monitor intellectual property rights in our
industry on an ongoing basis and take action, as we deem appropriate, including
protecting our intellectual property rights and securing additional patent or
license rights.

Among the more significant of our intellectual properties are our `504
Scanning Patent, solid-state laser-related, and keratometer patents. In May
1996, we were granted the original '679 Scanning Patent relating to an
ophthalmic surgery method utilizing a non-contact scanning laser. In 1998 we
petitioned the U.S. Patent and Trademark Office for reissue of this patent, and
in January 2002 the U.S. Patent and Trademark Office reissued the `679 Scanning
Patent as the `504 Scanning Patent. Prior to reissue, the original '679 Scanning
Patent included one independent claim and 23 total claims. The reissue
application added nine new independent claims, and a total of 67 additional
claims to better encompass the breadth of technology to which we are entitled.
The 23 original claims remain essentially unchanged. The fundamental teachings
of the original '679 Scanning Patent cover a refractive laser system using an
excimer laser with low energy and a high laser pulse repetition rate to ablate
corneal tissue with small pulses delivered to the corneal surface in an
overlapping pattern. Through the reissue process, we were able to broaden
several elements of the `679 Scanning Patent's original claims by removing
certain restrictive elements. In 2001 and 2002, we received a total of $7.6
million in licensing fees for the `504 Scanning Patent; no monies were received
in 2003 or 2004. In February 2005 we licensed the'504 Scanning Patent for $0.9
million to Wavelight.

Our U.S. Patent No. 5,144,630 relates to a solid-state laser operating
at multi-wavelengths using harmonic frequency conversion techniques. This is the
technology incorporated into our developmental solid-state system that can
produce both infrared and ultraviolet wavelengths.

Two of our U.S. patents, No. 5,847,804 and No. 5,953,100, cover a
multi-camera corneal analysis system that is the underlying technology for our
AstraMax diagnostic workstation. This state-of-the-art multi-camera technology
provides the precise corneal height measurements that will be critical for the
planning of custom ablation treatments.

In January 2003, we received U.S. Patent No. 6,505,936, our first U.S.
Patent related to the AstraPro custom ablation planning and programming
software.

A number of our competitors, including VISX and Alcon, have asserted
broad intellectual property rights in technology related to excimer laser
systems and related products, and intellectual property lawsuits are sometimes a

-15-

competitive factor in our industry. We believe that we own or have a license to
all intellectual property necessary for commercialization of our products.

Patent Segment. Prior to 2001, we generated royalty income pursuant to
license agreements with respect to certain of our intellectual property rights,
primarily the Blum Patent and related license agreements we acquired from
International Business Machines Corporation (IBM) in August 1997. These patents
(IBM Patents), the Blum Patent and U.S. Patent No. 4,925,523 (Braren Patent)
relate to the use of ultraviolet light for the removal of organic tissue and may
be used in laser vision correction, as well as for non-ophthalmic applications,
and are the fundamental blocking patents that underlie the technology of
ultraviolet laser refractive surgery. Under the license agreements with VISX and
Alcon that we acquired from IBM, VISX and Alcon were each obligated to pay a
royalty to us on all excimer laser systems they manufacture, sell or lease in
the U.S., excluding those systems manufactured in the U.S. and sold into a
country where a foreign counterpart to the IBM Patents exists.

We purchased the Blum and Braren patents from IBM in August 1997 for
$14.9 million. Shortly thereafter, we granted an exclusive paid-up license in
the cardiovascular field in exchange for a payment of $4.0 million. In February
1998, we entered into an agreement with Nidek pursuant to which we retained all
of the IBM Patent rights within the U.S. and sold to Nidek, for $7.5 million,
the foreign counterparts to those patents. We also granted Nidek a non-exclusive
license to utilize the IBM Patents in the U.S. In addition, Nidek granted us an
exclusive license to the foreign counterparts to the IBM Patents in the
non-ophthalmic, non-vascular and non-cardiovascular fields. From our 1997
purchase of the IBM Patents until March 2001,we realized over $5.0 million in
royalty revenues from licenses to the patent.

In March 2001, we entered into a business arrangement with Alcon
regarding the Blum Patent. As part of the arrangement, we sold the Blum Patent
to Alcon for $6.5 million and assigned to Alcon certain licenses to the Blum
Patent. We retained a non-exclusive royalty free license under the Blum Patent
and at the time retained the license to the Blum Patent that was granted to
VISX. LaserSight and Alcon will share in royalties received from any future
licenses of the Blum Patent and we will also receive a portion of any recovery
from parties found to be infringing the Blum Patent. Including the transaction
with Alcon, we will have received a total of approximately $24.0 million from
the Blum Patent and will continue to benefit from a royalty free license in the
U.S.

In May 2001 as part of our Settlement and License Agreement with VISX
we sold them a fully paid-up license to the Blum Patent.

Other Intellectual Property. We believe that our other intellectual
property rights are valuable assets of our business. For example, our U.S.
Patent Nos. 5,841,511 and 6,213,605 cover the checkered polar grid utilized in
our AstraMax diagnostic workstation, and our U.S. Patent Nos. 6,234,631 and
6,428,168 cover the combination of advanced corneal topography and wavefront
aberration measurement into a single instrument and relate to future plans for
our AstraMax diagnostic workstation.

The extent of protection that may be afforded to us by our patents, or
whether any claim embodied in our patents will be challenged or found to be
invalid or unenforceable, cannot be determined at this time. Our patents and
other pending applications may not afford a significant advantage or product
protection to us.

We maintain an internal program that encourages development of
patentable ideas. As of December 31, 2004, we have approximately no U.S. patent
applications undergoing prosecution at the U.S. Patent and Trademark Office or

-16-

any applications filed internationally. Our patent applications would generally
relate to the use of laser devices in refractive surgical procedures, delivery
systems and other technology related to the use of laser devices in refractive
surgical procedures, diagnostic devices for eye measurements.

In the U.S., our trademarks include LaserSight(R), LaserSight
Technologies, Inc.(R), LSX(R), LaserScan LSX(R), MicroShape(R), UltraShaper(R),
UltraEdge(R), UniShaper(R) AstraPro(R), AstraMax(R) and AccuTrack(R).

Regulation

Medical device regulation

The FDA regulates the manufacture, use and distribution of medical
devices in the U.S. Our products are regulated as medical devices by the FDA
under the Federal Food, Drug, and Cosmetic Act. In order to sell such medical
devices in the U.S., a company must file a 510(k) premarket notice or obtain
premarket approval after filing a PMA application. Noncompliance with applicable
FDA regulatory requirements can result in one or more of the following:

o fines;
o injunctions;
o civil penalties;
o recall or seizure of products;
o total or partial suspension of production;
o denial or withdrawal of premarket clearance or approval of
devices;
o exclusion from government contracts; and
o criminal prosecution.

Medical devices are classified by the FDA as Class I, Class II or Class
III based upon the level of risk presented by the device and whether the device
is substantially equivalent to an already legally marketed Class I or II device.
Class III devices are subject to the most stringent regulatory review and cannot
be marketed in the U.S. until the FDA approves a PMA for the device.

Class III Devices. A PMA application must be filed if a proposed device
is not substantially equivalent to a legally marketed Class I or Class II
device, or if it is a Class III device for which the FDA requires PMAs. The
process of obtaining approval of a PMA application is lengthy, expensive and
uncertain. It may require the submission of extensive clinical data and
supporting information to the FDA. Human clinical studies may be conducted only
under an FDA-approved protocol and must be conducted in accordance with FDA
regulations. In addition to the results of clinical trials, the PMA application
includes other information relevant to the safety and efficacy of the device; a
description of the facilities and controls used in the manufacturing of the
device, and proposed labeling. After the FDA accepts a PMA application for
filing and reviews the application, a public meeting may be held before an FDA
advisory panel comprised of experts in the field.

After the PMA is reviewed and discussed, the panel issues a favorable
or unfavorable recommendation to the FDA. Although the FDA is not bound by the
panel's recommendations, it historically has given them significant weight. If
the FDA's evaluation of the PMA application is favorable, the FDA typically
issues an "approvable letter" requiring the applicant's agreement to comply with
specific conditions (such as specific labeling language) or to supply specific
additional data (such as post-approval patient follow-up data) or other

-17-

information in order to secure final approval. Once the approvable letter is
satisfied, the FDA will issue approval for certain indications that may be more
limited than those originally sought by the manufacturer. The PMA approval can
include post-approval conditions that the FDA believes necessary to ensure the
safety and effectiveness of the device including, among other things,
restrictions on labeling, promotion, sale and distribution. Failure to comply
with the conditions of approval can result in enforcement action, including
withdrawal of the approval. Products manufactured and distributed pursuant to a
PMA will be subject to extensive, ongoing regulation by the FDA. The FDA review
of a PMA application generally takes one to two years from the date such
application is accepted for filing but may take significantly longer. The review
time is often significantly extended by FDA requests for additional information,
including additional clinical trials or clarification of information previously
provided.

Modifications to a device subject to a PMA generally require approval
by the FDA of PMA supplements or new PMAs. We believe that our excimer laser
systems require a PMA or a PMA supplement for each of the surgical procedures
that they are intended to perform. The FDA may grant a PMA with respect to a
particular procedure only when it is satisfied that the use of the device for
that particular procedure is safe and effective. In granting a PMA, the FDA may
restrict the types of patients who may be treated and the ranges of treatment.

FDA regulations authorize any interested person to petition for
administrative review of the FDA's decision to approve a PMA application.
Challenges to an FDA approval have been rare. We are not aware that any
challenge has been asserted against us and do not believe any PMA application
has ever been revoked by the agency based on such a challenge.

The QSR/GMP ("Quality System Regulations", "Good Manufacturing
Practice") regulations impose certain procedural and documentation requirements
upon us with respect to our manufacturing, design controls and quality assurance
activities. Our facilities will be subject to ongoing inspections by the FDA,
and compliance with QSR/GMP regulations is required for us to continue marketing
our laser products in the U.S. In addition, our suppliers of significant
components or sub-assemblies must meet quality requirements established and
monitored by LaserSight, and some may also be subject to FDA regulation.

During 1994, we began the clinical studies required for approval and
commercialization of our laser scanning system in the U.S. In April 1998, we
filed a PMA application for PRK treatment of nearsightedness using our scanning
laser system. We received notification from the FDA that our laser system had
received PMA approval for PRK treatment of low to moderate nearsightedness in
November 1999.

We also began a clinical trial of our scanning laser system for LASIK
treatment of nearsightedness and nearsightedness astigmatism in Canada in late
1998 and received Device License Approval from the Canadian Medical Devices
Bureau in mid-1999.

In September 2001, we received FDA approval for the LASIK treatment of
myopia with and without astigmatism for correction of manifest spherical
equivalent refractive error of up to -6 diopters with up to -4.5 diopters of
astigmatism. We also received FDA approval to increase our laser pulse rate to
200 Hz.

In December 2002, we received FDA approval to increase our laser pulse
rate from 200 Hz to 300 Hz.

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Class I or II Devices. Devices deemed to pose relatively less risk are
placed in either Class I or II, which requires the manufacturer to submit a
510(k) premarket notification, unless an exemption applies. The premarket
notification must demonstrate that the proposed device is "substantially
equivalent" to a "predicate device" that is either in Class I or II, or is a
"pre-amendment" Class III device that was in commercial distribution before May
28, 1976, for which the FDA does not require PMA approval. Our AstraMax
diagnostic workstation was classified by the FDA as Class I exempt, which does
not require FDA market clearance.

After the FDA has issued a determination of equivalency for a device,
any modification that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use, requires a new 510(k)
notice. The FDA requires each manufacturer to make this determination in the
first instance, but the FDA can review any such decision. If the FDA disagrees
with a manufacturer's decision not to submit a new 510(k), the agency may
retroactively require the manufacturer to submit a premarket notification. The
FDA also can require the manufacturer to cease marketing and/or recall the
modified device until receipt of the necessary 510(k).

Other Regulatory Requirements. Labeling and promotional activities are
subject to scrutiny by the FDA and by the Federal Trade Commission. Current FDA
enforcement policy prohibits manufacturers from marketing and advertising their
approved medical devices for unapproved or off-label uses. The scope of this
prohibition has been the subject of litigation. The only materials related to
unapproved devices that may be disseminated by companies are peer-reviewed
articles. Our lasers are also subject to the Radiation Control for Health and
Safety Act administered by the Center for Devices and Radiological Health of the
FDA. The law requires laser manufacturers to file new product and annual reports
and to maintain quality control, product testing and sales records. In addition,
laser manufacturers must incorporate specified design and operating features in
lasers sold to end-users and comply with labeling and certification
requirements. Various warning labels must be affixed to the laser depending on
the class of the product under the performance standard. The manufacture, sale
and use of our products is also subject to numerous federal, state and local
government laws and regulations relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances.

International Regulatory Requirements. The manufacture, sale and use of
our products are also subject to regulation in countries other than the U.S.
During November 1996 we completed all requirements necessary to obtain authority
to apply the CE Mark to our LaserScan 2000 System, an earlier generation of
excimer laser system we sold in international markets. In September 1998, we
received similar certification to apply the CE Mark to our LaserScan LSX excimer
laser system. In June 2002, the AstraMax was CE Marked. The CE Mark, certifying
that the LaserScan Models 2000, LaserScan LSX and AstraMax meet all requirements
of the European Community's medical directives, provides our products with
marketing access in all member countries of the EU. All countries in the EU
require the CE Mark certification of compliance with the EU Medical Directives
as the standard for regulatory approval for sale of excimer laser systems.

The EU Medical Directives include requirements under EU laws regarding
the placement of various categories of medical devices on the EU market. This
includes a "directive" that an approved "Notified Body" will review technical
and medical requirements for a particular device. All clinical testing of
medical devices in the EU must be done under the Declaration of Helsinki, which
means that companies must have ethics committee approval prior to commencement
of testing, must obtain informed consent from each patient tested, and the
studies must be monitored and audited. Patient records must be maintained for 15

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years. Companies must also comply with the Medical Device Vigilance reporting
requirements. In obtaining the CE Mark for our excimer laser system, we
demonstrated that we satisfied all engineering and electro-mechanical
requirements of the EU by having our manufacturing processes and controls
evaluated by a Notified Body (Semko) for compliance with EN46001, ISO 9002 and
ISO 9001 requirements, and conducted a clinical study in France to confirm the
safety and efficacy of the excimer laser system on patients.

Research and Development

We continue, on a limited basis, to research and develop new laser
products, laser systems, product upgrades enhancements, and ancillary product
lines.

Employees

As of December 31, 2004, we had 25 full-time employees. All of the
employees are located in Winter Park, Florida. Eleven are in manufacturing,
three are in engineering, six are in customer service/sales and five are in
administration. None of our employees is a member of a labor union or subject to
a collective bargaining agreement. LaserSight generally considers its employee
relations to be good. We occasionally use independent contractors in the field
support area.

Risk Factors

The following risk factors should be read by you together with the more
detailed information included at other sections of this Form 10-KSB. You should
understand that it is not possible to predict or identify all such risk factors.
Consequently, you should not consider this list to be a complete statement of
all potential risks or uncertainties. An investment in our Common Stock is
extremely risky. You should carefully consider the following risk factors and
other information in this Form 10-KSB before investing in our Common Stock. Our
business and the results of operations could be seriously harmed by any of the
following risks. The trading price of our Common Stock could decline due to any
of these risks, and you may lose part or all of your investment.

There are forward-looking statements in these risk factors and elsewhere
in this report. We use words such as "believe", "expect," "anticipate," "plan"
or similar words to identify forward-looking statements and any statement
relating to plans, intentions, expectations or other forward-looking expression
is a forward-looking statement. Forward-looking statements are made based upon
our belief as of the date that such statements are made and are based largely on
our current expectations and are subject to a number of risks and uncertainties,
many of which are beyond our control. You should not place undue reliance on
these forward-looking statements, which speak as of the date of this report.
While we may make other forward-looking statements either orally or in writing
in the future, we do not assume the obligation to update any forward-looking
statement. The following risk factors are intended to be cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statements.

The business, results of operations and financial condition of
LaserSight and the market price of our common stock may be adversely affected by
a variety of factors, including the ones noted below:

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A. Risk Related to Our Business and Financial Results

We have experienced significant losses and operating cash flow
deficits. We continue to be challenged by our significant liquidity and capital
resource issues relative to the timing of our accounts receivable collection and
the successful completion of new sales compared to our ongoing payment
obligations. Although the Chapter 11 re-organization in September of 2003 and
resultant re-structuring relieved the Company of substantial debt, we need to
increase sales to NIMD and to other customers, and/or decrease expenses further,
before we will sustain profitability or positive cash flow. Our future working
capital requirements and our ability to continue operations are based on various
factors and assumptions, which are subject to substantial uncertainty and risks
beyond our control, and no assurances can be given that these expectations will
prove correct. The occurrence of adverse developments related to these risks and
uncertainties or others could result in LaserSight being unable to generate
additional sales or collect new and outstanding accounts receivable. Any such
adverse developments may also result in the incurrence of unforeseen expenses or
LaserSight being unable to control expected expenses and overhead. If we fail to
generate additional sales and collect new and outstanding accounts receivable or
incur unforeseen expenses or fail to control our expected expenses and overhead,
we will be unable to continue operations in the absence of obtaining additional
sources of capital.

The timing of the conversion of our current assets into cash is not
totally in our control. For example, we cannot dictate the timing of the
collection of our accounts receivable with our customers, and converting our
inventory into cash is dependent on our ability to generate new sales with our
products and collect the sales price in a timely manner. While to date we have
been able to negotiate limited payment terms with our suppliers and other
creditors, there is no assurance that we can continue to do so.

We experienced significant net losses and deficits in cash flow from
operations for the years ended December 31, 2004 and 2003, as set forth in the
following table. We cannot be certain that we will be able to achieve or sustain
profitability or positive operating cash flow in the future.

Year Ended December 31,
2003 2004
---- ----
Net income (loss) ($25.1) million $14.7 million
Deficit in cash flow from
operations $1.0 million $0.9 million

The 2004 net income includes $15.3 million of gain on forgiveness of
debt. In the longer term, our expectations are based on additional factors
including: the success of our sales efforts in China, where our efforts will
initially be primarily focused, increases in accounts receivable and inventory
purchases when sales increase, AstraMax diagnostic workstations and AstraPro
diagnostic software, and the absence of unanticipated product development and
marketing costs. These factors and assumptions are subject to substantial
uncertainty and risks beyond our control, and no assurances can be given that
these expectations will prove correct. These risks and uncertainties include:

o the willingness of trade creditors to continue to extend
credit to LaserSight;
o reductions and cancellations in orders;
o our ability to fulfill orders in light of our current
financial condition;
o our ability to sell products and collect accounts receivables
at or above the level of management's expectations;
o the occurrence of unforeseen expenses and our ability to
control expected expenses and overhead;

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o the occurrence of property and casualty losses which are
uninsured or that generate insurance proceeds that cannot be
collected in a short time frame;
o our ability to improve pricing and terms of international
sales;
o the loss of, or failure to obtain additional, customers; and
o changes in pricing by our competitors.

If we fail to meet the financial covenants in our loan with GE, we will
not have enough available cash to pay the amount owed. Under the original terms
of our term loan with GE, we were required to pay GE approximately $2.1 million
in March 2003. On March 12, 2003, the due date was extended 30 days to April 11,
2003. On March 31, 2003, our loan agreement with GE was amended again. In
addition to the amendment, GE waived our failure to comply with the net revenue
covenant for the fourth quarter of 2002. In exchange for the amendment and
waiver, we paid approximately $9,250 in fees to GE, and we had agreed to
increase our monthly principal payments to $45,000 beginning in April 2003.
Revised covenants became effective that decreased the minimum level of net worth
to $1.0 million, minimum tangible net worth to negative $4.0 million and minimum
quarterly net revenue during 2003 to $2.0 million. On June 20, 2003, the Company
had been advised by GE that its loans to the Company were in default due to an
adverse material change in the financial condition and business operations of
the Company. The Company executed a new agreement with GE on August 28, 2003
providing for an extension of its loans through January 2005. On August 30, 2004
the Company signed a three-year note expiring on June 30, 2007. The note bears
annual interest of 9%. Certain covenants were modified as follows: net worth
$750,000, tangible net worth $1,000,000 and minimum quarterly revenues of
$1,000,000. The Company is in default with some loan covenants and is in
negotiations to amend the loan agreement. GE was issued a warrant to purchase
100,000 shares of common stock at $0.25 per share, or $0.40 per share if NIIC
converts their DIP loan to equity. The warrant expires June 30, 2008.

If our uncollectible receivables exceed our reserves we will incur
additional unanticipated expenses. Although we monitor the status of our
receivables and maintain a reserve for estimated losses, we cannot be certain
that our reserves for estimated losses, which were approximately $0.6 million at
December 31, 2004, will be sufficient to cover the amount of our actual
write-offs over time. In June 2004, we wrote off trade accounts and notes
receivable of approximately $8.5 million, which had been reserved for in 2003.
As a result of the Chapter 11 filing on September 5, 2003, the Company lost the
ability to vigorously collect on these accounts receivable. The Company hired a
collection agency in 2004 with no success.

Our ability to evaluate the financial condition and revenue-generating
ability of our prospective customers located outside of the U.S. and our ability
to obtain and enforce legal judgments against customers located outside of the
U.S. is generally more limited than for our customers located in the U.S. Our
agreements with our international customers typically provide that the contracts
are governed by Florida law. We have not determined whether or to what extent
courts or administrative agencies located in foreign countries would enforce our
right to collect such receivables or to recover laser systems from customers in
the event of a customer's payment default. When a customer is not paying
according to established terms, we attempt to communicate and understand the
underlying causes and work with the customer to resolve any issues we can
control or influence. Accounts written off during the year ended December 31,
2004 and 2003 totaled approximately 0% and 92%, respectively, of ending
receivables for each period. International revenues represented 98% and 96% of
total revenues during the year ended December 31, 2004 and 2003.

-22-

We May Need External Financing In Order To Fund Our Operations And Plans
For Sales Growth. While we continue to take actions to reduce cash used in
operations, there can be no assurance that we will generate sufficient cash to
fund our future operations and growth strategies. We do not have any material
commitments from others to provide additional financing in the future and there
can be no assurance that any such additional financing will be available if
needed; or, if available; will be on terms acceptable to us. Any additional
equity financing may be dilutive to shareholders, and debt financings, if
available, may involve substantial restrictive covenants or require the pledging
of substantial of our assets.

Because Of Our Dependence On One Key Customer, The Loss of This Key
Customer Could Cause A Significant Decline in Our Revenues. In fiscal 2004 and
2003, NIMD accounted for 78% and 66% of our net revenue, respectively. The loss
of this customer, or a significant reduction in sales to them, would adversely
affect our revenues.

We do not intend to continue actively marketing our LaserScan LSX laser
system in the U.S. until we receive additional FDA approvals. We received the
FDA approval necessary for the commercial marketing and sale of our LaserScan
LSX excimer laser system in the U.S. in late 1999 and commercial shipments to
customers in the U.S. began in March 2000. To date, our LaserScan LSX laser
system and per procedure fee business model have not achieved a level of market
acceptance sufficient to provide our cash flows from operations to fund our
business. Our excimer laser system has not been approved by the FDA for use in
the U.S. for as wide a range of treatments as have many of our competitors'
lasers. Because of the limited treatment ranges many physicians have resisted
purchasing our excimer laser. As a result of our current liquidity and capital
resource issues, we have decided to focus on international markets, primarily
China, with our LaserScan LSX laser system and other select international
markets with a custom ablation product line, and not to continue actively
marketing our laser system in the U.S.

The vision correction industry currently consists of a few established
providers with significant market shares and we are encountering difficulties
competing in this highly competitive environment. The vision correction industry
is subject to intense, increasing competition, and we do not know if we will be
able to compete successfully against our current and future competitors. Many of
our competitors have established products, distribution capabilities and
customer service networks in the U.S. marketplace, are substantially larger and
have greater brand recognition and greater financial and other resources than we
do. VISX, the historical industry leader for excimer laser system sales in the
U.S., sold laser systems that performed a significant majority of the laser
vision correction procedures performed in the U.S. from 1999 through 2004.
Alcon, one of the largest ophthalmic companies in the world, and its narrow beam
laser technology platform also competes directly with our precision beam,
scanning microspot LaserScan LSX excimer laser system. In addition, Alcon, as a
result of its acquisition of Summit Autonomous Inc., is able to sell its narrow
beam laser systems under a royalty-free license to certain VISX patents without
incurring the expense and uncertainty associated with intellectual property
litigation with VISX. Alcon also has the ability to leverage the sale of its
laser systems with its other ophthalmic products, and has placed a significant
number of its lasers systems in the U.S. Competitors are using our weak
financial condition to dissuade potential customers from purchasing our laser.

Many of our competitors received earlier regulatory approvals and may
have a competitive advantage over us due to the subsequent expansion of their
regulatory approvals and their substantial experience in the U.S. market. We
received the FDA approval necessary for the commercial sale of our LaserScan LSX

-23-

excimer laser system in the U.S. in November 1999, and commercial shipments to
customers in the U.S. began in March 2000. Our direct competitors include large
corporations such as VISX and Alcon, each of whom received FDA approval of
excimer laser systems more than three years prior to our approval and has
substantial experience manufacturing, marketing and servicing laser systems in
the U.S. In addition to VISX and Alcon, Nidek, WaveLight and Bausch & Lomb have
also received FDA approval for their laser systems.

In the U.S., a manufacturer of excimer laser vision correction systems
gains a competitive advantage by having its systems approved by the FDA for a
wider range of treatments for refractive errors such as nearsightedness,
farsightedness or astigmatism. A laser that has been approved for a wider range
of treatments is more attractive because it enlarges the pool of laser
correction candidates to whom laser correction procedures can be marketed.

Our LaserScan LSX is currently approved in the U.S. for the LASIK
treatment of nearsightedness with and without astigmatism for a range of
treatment of refractive errors up to -6.0 diopters MRSE with or without a
refractive astigmatism up to 4.5 diopters and for the Photorefractive
Keratectomy, or PRK, treatment of low to moderate nearsightedness (up to -6.0
diopters) without astigmatism. Additionally, we have received FDA approval to
operate our laser systems at a repetition rate of 300 pulses per second, three
times the originally approved rate. We do not intend to sell our laser systems
in the U.S. until future cash flows permit us to file FDA supplements.
Competitors' earlier receipt of LASIK and farsightedness-specific FDA regulatory
approvals have given them significant competitive advantages that have impeded
our ability to successfully sell our LaserScan LSX system in the U.S.

We depend upon our ability to establish and maintain strategic
relationships. We believe that our ability to establish and maintain strategic
relationships will have a significant impact on our ability to meet our business
objectives. These strategic relationships are critical to our future success
because we believe that these relationships will help us to:

o extend the reach of our products to a larger number of
refractive surgeons;
o develop and deploy new products;
o further enhance the LaserSight brand; and
o generate additional revenue.

Entering into strategic relationships is complicated because some of
our current and future strategic partners may decide to compete with us in some
or all of our markets. In addition, we may not be able to establish
relationships with key participants in our industry if they have relationships
with our competitors, or if we have relationships with their competitors.
Moreover, some potential strategic partners have resisted, and may continue to
resist, working with us until our products and services have achieved widespread
market acceptance. Once we have established strategic relationships, we will
depend on our partners' ability to generate increased acceptance and use of our
products and services. There can be no assurance as to the terms, timing or
consummation of any future strategic relationships. If we fail to establish
additional relationships, or if our strategic relationships fail to benefit us
as expected, we may not be able to execute our business plan, and our business
will suffer.

-24-

Because the sale of our products is dependent on the continued market
acceptance of laser-based refractive eye surgery using the LASIK procedure, the
lack of broad market acceptance would hurt our business. We believe that whether
we achieve profitability and growth will depend, in part, upon the continued
acceptance of laser vision correction using the LASIK procedure in China, the
U.S. and in other countries. We believe that if we achieve profitability and
growth as a result of our focus in China, we can increase our level of activity
in the U.S. and other countries. We cannot be certain that laser vision
correction will continue to be accepted by either the refractive surgeons or the
public at large as an alternative to existing methods of treating refractive
vision disorders. The acceptance of laser vision correction and, specifically,
the LASIK procedure may be adversely affected by:

o possible concerns relating to safety and efficacy, including
the predictability, stability and quality of results;
o the public's general resistance to surgery;
o the effectiveness and lower cost of alternative methods of
correcting refractive vision disorders;
o the lack of long-term follow-up data;
o the possibility of unknown side effects;
o the lack of third-party reimbursement for the procedures;
o the cost of the procedure; and
o unfavorable publicity involving patient outcomes from the use
of laser vision correction.

Unfavorable side effects and potential complications that may result
from the use of laser vision correction systems manufactured by any manufacturer
may broadly affect market acceptance of laser-based vision correction surgery.
Any adverse consequences resulting from procedures performed with a competitor's
systems or an unapproved laser system could adversely affect consumer acceptance
of laser vision correction in general. In addition, because laser vision
correction is an elective procedure that is not typically covered by insurance
and involves more significant immediate expense than eyeglasses or contact
lenses, adverse changes in economy may cause consumers to reassess their
spending choices and to select lower-cost alternatives for their vision
correction needs. Any such shift in spending patterns could reduce the volume of
LASIK procedures performed that would, in turn, reduce the number of laser
systems sold and our revenues from per procedure fees.

The failure of laser vision correction to achieve continued market
acceptance would limit our ability to market our products which in turn would
limit our ability to generate revenues from the sale of our products. If we are
unable to generate revenue from the sale of our products, we may not be able to
continue our business operations, even if laser vision correction achieves and
sustains market acceptance.

-25-

New products or technologies could erode demand for our products or
make them obsolete, and our business could be harmed if we cannot keep pace with
advances in technology. In addition to competing with eyeglasses and contact
lenses, excimer laser vision correction competes or may compete with newer
technologies such as intraocular lenses, intracorneal inlays, corneal rings and
surgical techniques using different or more advanced types of lasers. Two
products that may become competitive within the near term are implantable
contact lenses and corneal rings, which have been approved by the FDA. Both of
these products require procedures with lens implants, and their ultimate market
acceptance is unknown at this time. To the extent that any of these or other new
technologies are perceived to be clinically superior or economically more
attractive than currently marketed excimer laser vision correction procedures or
techniques, they could erode demand for our excimer laser, and cause a reduction
in selling prices of such products or render such products obsolete. In
addition, if one or more competing technologies achieves broader market
acceptance or renders laser vision correction procedures obsolete, our ability
to generate revenues form the sale of our products would be limited. If we are
unable to generate revenue from the sale of our products, we may not be able to
continue our business operations.

As is typical in the case of new and rapidly evolving industries, the
demand and market for recently introduced products and technologies is
uncertain, and we cannot be certain that our LaserScan LSX, AstraScan XL laser
systems or future new products and enhancements will be accepted in the
marketplace. In addition, announcements or the anticipation of announcements of
new products, whether for sale in the near future or at some later date, may
cause customers to defer purchasing our existing products.

If we cannot adapt to changing technologies, our products may become
obsolete, and our business could suffer. Our success will depend, in part, on
our ability to continue to enhance our existing products, develop new technology
that addresses the increasingly sophisticated needs of our customers, license
leading technologies and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. The development of
our proprietary technology entails significant technical and business risks. We
may not be successful in using new technologies effectively or adapting our
proprietary technology to evolving customer requirements or emerging industry
standards.

The loss of key personnel could adversely affect our business. Our
ability to maintain our competitive position depends in part upon the continued
contributions of our executive officers and other key employees. A loss of one
or more such officers or key employees would result in a diversion of financial
and human resources in connection with recruiting and retaining a replacement
for such officers or key employees. Such a diversion of resources could prevent
us from successfully executing our business plan, and our business will suffer.
We do not carry "key person" life insurance on any officer or key employee.

-26-

We must continue to comply with stringent regulation of our
manufacturing operations. We cannot assure you that we will not encounter
difficulties in increasing our production capacity for our laser systems at our
Florida facility, including problems involving production delays, quality
control or assurance, component supply and lack of qualified personnel. Any
products manufactured or distributed by us pursuant to FDA clearances or
approvals are subject to extensive regulation by the FDA, including
record-keeping requirements and reporting of adverse experience with the use of
the product. Our manufacturing facilities are subject to periodic inspection by
the FDA, certain state agencies and international regulatory agencies. We
require that our key suppliers comply with recognized standards as well as our
own quality standards, and we regularly test the components and sub-assemblies
supplied to us. Any failure by us or our suppliers to comply with applicable
regulatory requirements, including the FDA's quality systems/good manufacturing
practice (QSR/GMP) regulations, could cause production and distribution of our
products to be delayed or prohibited, either of which could impair our ability
to generate revenues form the sale of our products. If we are unable to generate
revenues from the sale of our products we may not be able to continue our
business operations.

Required per procedure fees payable to VISX under our license agreement
may exceed per procedure fees collected by us. In addition to the risk that our
refractive lasers will not be accepted in the marketplace, we are required to
pay VISX a royalty for each procedure performed in the U.S. using our refractive
lasers. The required per procedure fees we are required to pay to VISX may
exceed the per procedure fees we are able to charge and/or collect from
refractive surgeons. If the per procedure fees we are required to pay to VISX
exceed the per procedure fees we are able to charge and/or collect from
refractive surgeons, we would have to pay the VISX per procedure fees out of our
limited available cash reserves. During each of the years 2004 and 2003, the per
procedure fees we are required to pay VISX did not exceed per procedure fees
collected by us.

Our failure to timely obtain or expand regulatory approvals for our
products and to comply with regulatory requirements could adversely affect our
business. Our excimer laser systems, diagnostic and custom ablation products are
subject to strict governmental regulations that materially affect our ability to
manufacture and market these products and directly impact our overall business
prospects. FDA regulations impose design and performance standards, labeling and
reporting requirements, and submission conditions in advance of marketing for
all medical laser products in the U.S. New product introductions, expanded
treatment types and levels for approved products, and significant design or
manufacturing modifications require a premarket clearance or approval by the FDA
prior to commercialization in the U.S. The FDA approval process, which is
lengthy and uncertain, requires supporting clinical studies and substantial
commitments of financial and management resources. Failure to obtain or maintain
regulatory approvals and clearances in the U.S. and other countries, or
significant delays in obtaining these approvals and clearances, could prevent us
from marketing our products for either approved or expanded indications or
treatments, which could substantially decrease our future revenues.

Additionally, product and procedure labeling and all forms of
promotional activities are subject to examination by the FDA, and current FDA
enforcement policy prohibits the marketing by manufacturers of approved medical
devices for unapproved uses. Noncompliance with these requirements may result in
warning letters, fines, injunctions, recall or seizure of products, suspension
of manufacturing, denial or withdrawal of PMAs, and criminal prosecution. Laser
products marketed in foreign countries are often subject to local laws governing
health product development processes, which may impose additional costs for
overseas product development. Future legislative or administrative requirements,
in the U.S. or elsewhere, may adversely affect our ability to obtain or retain
regulatory approval for our products. The failure to obtain approvals for new or

-27-

additional uses on a timely basis could prevent us from generating revenues from
the sale of our products, and if we are unable to generate revenues from the
sale of our products we may not be able to continue our business operations.

Our business depends on our intellectual property rights, and if we are
unable to protect them, our competitive position may be adversely affected. Our
business plan is predicated on our proprietary systems and technology, including
our precision beam scanning microspot technology laser systems. We protect our
proprietary rights through a combination of patent, trademark, trade secret and
copyright law, confidentiality agreements and technical measures. We generally
enter into non-disclosure agreements with our employees and consultants and
limit access to our trade secrets and technology. We cannot assure you that the
steps we have taken will prevent misappropriation of our intellectual property.
Misappropriation of our intellectual property would have a material adverse
effect on our competitive position. In addition, we may have to engage in
litigation or other legal proceedings in the future to enforce or protect our
intellectual property rights or to defend against claims of invalidity. These
legal proceedings may consume considerable resources, including management time
and attention, which would be diverted from the operation of our business, and
the outcome of any such legal proceeding is inherently uncertain.

We are aware that certain competitors are developing products that may
potentially infringe patents owned or licensed exclusively by us. In order to
protect our rights in these patents, we may find it necessary to assert and
pursue infringement claims against such third parties. We could incur
substantial costs and diversion of management resources litigating such
infringement claims and we cannot assure you that we will be successful in
resolving such claims or that the resolution of any such dispute will be on
terms that are favorable to us.

Patent infringement allegations may impair our ability to manufacture
and market our products. There are a number of U.S. and foreign patents covering
methods and apparatus for performing corneal surgery that we do not own or have
the right to use. If we were found to infringe a patent in a particular market,
we and our customers may be enjoined from manufacturing, marketing, selling and
using the infringing product in the market and may be liable for damages for any
past infringement of such rights. In order to continue using such rights, we
would be required to obtain a license, which may require us to make royalty, per
procedure or other fee payments. We cannot be certain if we or our customers
will be successful in securing licenses, or that if we obtain licenses, such
licenses will be available on acceptable terms. Alternatively, we might be
required to redesign the infringing aspects of these products. Any redesign
efforts that we undertake could be expensive and might require regulatory
review. Furthermore, the redesign efforts could delay the reintroduction of
these products into certain markets, or may be so significant as to be
impractical. If redesign efforts were impractical, we could be prevented from
manufacturing and selling the infringing products. If we are prevented from
selling the infringing products we may not be able to continue our business
operations.

Litigation involving patents is common in our industry. While we do not
believe our laser systems infringe on any valid and enforceable patents that we
do not own or have a license to, we cannot assure you that one or more of our
other competitors or other persons will not assert that our products infringe
their intellectual property, or that we will not in the future be deemed to
infringe one or more patents owned by them or some other party. We could incur
substantial costs and diversion of management resources defending any
infringement claims. Furthermore, a party making a claim against us could secure
a judgment awarding substantial damages, as well as injunctive or other
equitable relief that could effectively block our ability to market one or more
of our products. In addition, we cannot assure you that licenses for any

-28-

intellectual property of third parties that might be required for our products
will be available on commercially reasonable terms, or at all.

In February of 2003, an Italian court issued an order restraining our
LaserSight Technologies subsidiary from marketing our AstraPro software at a
trade show in Italy. This restraining order was issued in favor of Ligi
Tecnologie Medicali S.p.a. (LIGI), a distributor of our products, and alleged
that our AstraPro software product infringes certain European patents owned by
LIGI. We retained Italian legal counsel to defend us in this litigation, and the
Italian court revoked the restraining order and ruled that LIGI must pay our
attorney's fees in connection with our defense of the restraining order. Our
Italian legal counsel informed us that LIGI had filed a motion for a permanent
injunction. We believe that our AstraPro software does not infringe the European
Patents owned by LIGI. Since the Chapter 11 filing does not apply to foreign
courts, this action is still pending.

We are subject to certain risks associated with our international
sales. Our international sales accounted for 98% and 96% of our total revenues
during the years ended December 31, 2004 and 2003, respectively. In the future,
we expect that international sales, especially to China, will represent a higher
percentage of our total sales. We are presently focusing our sales efforts on
international sales in China.

International sales of our products may be limited or disrupted by:

o the imposition of government controls;
o export license requirements;
o economic or political instability;
o trade restrictions;
o difficulties in obtaining or maintaining export licenses;
o health concerns in China and other areas;
o changes in tariffs; and
o difficulties in staffing and managing international operations.

Our sales have historically been and are expected to continue to be
denominated in U.S. dollars. The European Economic Union's conversion to a
common currency, the euro, is not expected to have a material impact on our
business. However, due to our significant export sales, we are subject to
exchange rate fluctuations in the U.S. dollar, which could increase the
effective price in local currencies of our products. This could result in
reduced sales, longer payment cycles and greater difficulty in collecting
receivables relating to our international sales.

-29-

Our supply of certain critical components and systems may be
interrupted because of our reliance on a limited number of suppliers. We
currently purchase certain components used in the production, operation and
maintenance of our laser systems from a limited number of suppliers, and certain
key components are provided by a single vendor. We do not have long-term
contracts with providers of some key laser system components, including TUI
Lasertechnik und Laserintegration GmbH, which currently is a single source
supplier for the laser heads used in our LaserScan LSX excimer laser system.
Currently, SensoMotoric Instruments GmbH, Teltow, Germany, is a single source
supplier for the eye tracker boards used in our excimer laser systems. If any of
our key suppliers ceases providing us with products of acceptable quality and
quantity at a competitive price and in a timely fashion, we would have to locate
and contract with a substitute supplier and, in some cases, such substitute
supplier would need to be qualified by the FDA. If substitute suppliers cannot
be located and qualified in a timely manner or could not provide required
products on commercially reasonable terms, our ability to manufacture, sell and
generate revenues from our products would be impaired.

Unlawful tampering of our system configurations could result in reduced
revenues and additional expenses. We included a procedure counting mechanism on
LaserScan LSX lasers manufactured for sale and use in the U.S. Users of our
LaserScan LSX excimer laser system could tamper with the software or hardware
configuration of the system so as to alter or eliminate the procedure counting
mechanism that facilitates the collection of per procedure fees. Unauthorized
tampering with our procedure counting mechanism by users could result in us
being required to pay per procedure fees to VISX that we were not able to
collect from users. If we are unable to prevent such tampering, our license
agreement with VISX could be terminated after all applicable notice and cure
periods have expired.

Inadequacy or unavailability of insurance may expose us to substantial
product liability claims. Our business exposes us to potential product liability
risks and possible adverse publicity that are inherent in the development,
testing, manufacture, marketing and sale of medical devices for human use. These
risks increase with respect to our products that receive regulatory approval for
commercialization. We have agreed in the past, and we will likely agree in the
future, to indemnify certain medical institutions and personnel who conduct and
participate in our clinical studies. While we maintain product liability
insurance, we cannot be certain that any such liability will be covered by our
insurance or that damages will not exceed the limits of our coverage. Even if a
claim is covered by insurance, the costs of defending a product liability,
malpractice, negligence or other action, and the assessment of damages in excess
of insurance coverage limits in the event of a successful product liability
claim, may exceed the amount of our operating reserves. Further, product
liability insurance may not continue to be available, either at existing or
increased levels of coverage, on commercially reasonable terms.

Our auditors' reports for the year ended December 31, 2004 and 2003
include an explanatory paragraph regarding our ability to continue as a going
concern. Our auditors' reports included an explanatory paragraph regarding our
ability to continue as a going concern because we have incurred significant
losses and negative cash flows from operations for several years and our ability
to raise or generate enough cash to survive is questionable. The going concern
opinion has been used by competitors in an attempt to negatively impact our
sales and has resulted in shorter payment terms to meet the demands of some of
our vendors.

Variations in our sales and operating results may cause our stock price
to fluctuate. Our operating results have fluctuated in the past, and may
continue to fluctuate in the future, as a result of a variety of factors, many
of which are outside of our control. As a result, our operating results for any
quarter often depend on the timing of the receipt of orders and the subsequent
shipment of our laser systems. Other factors that may cause our operating
results or stock price to fluctuate include:

-30-

o our significant liquidity and capital resource issues;
o the addition or loss of significant customers;
o reductions, cancellations or fulfillment of major orders;
o changes in pricing by us or our competitors;
o timing of regulatory approvals and the introduction or delays
in shipment of new products;
o the relative mix of our business; and
o increased competition.

As a result of these fluctuations, we believe that period-to-period
comparisons of our operating results cannot be relied upon as indicators of
future performance. In some quarters our operating results may fall below the
expectations of securities analysts and investors due to any of the factors
described above or other uncertainties. As a result of the Chapter 11 petition,
the Company cancelled all outstanding common and preferred stock, including
options and warrants. New common stock of 10,000,000 shares was issued on June
30, 2004. The stock is presently trading on the "Pink Sheets" under the symbol
LRST.

We are no longer listed on the NASDAQ Small Cap Market - now traded on
the "Pink Sheets"; the market price of our common stock may continue to
experience extreme fluctuations due to market conditions that are unrelated to
our operating performance. The stock market, and in particular the securities of
technology companies like us, could experience extreme price and volume
fluctuations unrelated to our operating performance. Our stock price has
historically been volatile. Factors such as announcements of technological
innovations or new products by us or our competitors, changes in domestic or
foreign governmental regulations or regulatory approval processes, developments
or disputes relating to patent or proprietary rights, public concern as to the
safety and efficacy of refractive vision correction procedures, and changes in
reports and recommendations of securities analysts, have and may continue to
have a significant impact on the market price of our common stock.

Because of the lengthy period during which our common stock traded
below $1.00 per share, it no longer met the listing requirements for the NASDAQ
National Market and on August 15, 2002, NASDAQ approved our application to
transfer our listing to the NASDAQ Small Cap Market via an exception from the
minimum bid price requirement. While we failed to meet this requirement as of
February 10, 2003, we were granted a temporary exception from this standard
subject to meeting certain conditions. The exception required that on or before
April 15, 2003, we were to file a definitive proxy statement with the Securities
and Exchange Commission and NASDAQ evidencing our intent to seek shareholder
approval for the implementation of a reverse stock split. Other requirements
included that, on or before May 30, 2003, we demonstrate a closing bid price of
at least $1.00 per share and, immediately thereafter, a closing bid of at least
$1.00 per share for a minimum of ten consecutive trading days. NASDAQ could have
required a minimum closing bid price of at least $1.00 for more than 10 days. In
addition, we must have been able to demonstrate compliance with the following
maintenance requirements for continued listing on the NASDAQ Small Cap Market:

o stockholders' equity of $2.5 million
o at least 500,000 shares of common stock publicly held
o market value of publicly held shares of at least $1.0 million
o shareholders (round lot holders) of at least 300, and
o at least two registered and active market makers

-31-

We asked for an extension to May 1, 2003 to file the definitive proxy.
On April 25, 2003, we again asked for a further extension. But because we did
not timely meet the requirements, our request for an extension was denied. As a
result, NASDAQ's Listing Qualification Panel determined that our securities
would be delisted from NASDAQ's Small Cap Market effective April 30, 2003. Our
common stock was then listed in the OTC Bulletin Board. The Company failed to
file its second quarter SEC Form 10-Q due on August 14, 2003. The Company did
file a Form 12b-25 on August 14, 2003 advising that the Company would not file
the quarterly report timely.

LSI traded on NASDAQ through April 29, 2003 as LASE and LASEC (March 5,
2003 - April 29, 2003). On April 30, 2003 it commenced trading on OTC Bulletin
Board as LASE. The OTCBB symbol was changed on August 27, 2003 to LASEE due to
the late filing status of the company. The Company was dropped from the OTC
Bulletin Board and commenced trading on the "Pink Sheets" on Sep 27, 2003 with
the symbol LASEQ. (Q indicates bankruptcy) This is a conditional listing due to
the bankruptcy filing by the company. As previously mentioned, the existing
common and preferred shares, including options and warrants, we cancelled
pursuant to the Company's re-organization plan. New common shares of 9,997,195
were issued on June 30, 2004 and commenced trading via the "Pink Sheets" under
the symbol LRST.

The delisting of our common stock from the NASDAQ Small Cap Stock
Market will result in decreased liquidity of our outstanding shares of common
stock (and a resulting inability of our stockholders to sell our common stock or
obtain accurate quotations as to their market value), and, consequently, will
reduce the price at which our shares trade. The delisting of our common stock
may also deter broker-dealers from making a market in or otherwise generating
interest in our common stock and may adversely affect our ability to attract
investors in our common stock. Furthermore, our ability to raise additional
capital may be severely impaired. As a result of these factors, the value of our
common stock may decline significantly, and our stockholders may lose some or
all of their investment in our common stock.

The terms of the NIIC transaction will in all probability prevent or
discourage an acquisition or change of control of LaserSight. As a result of the
Chapter 11 petition, and subsequent re-structuring, NIIC will initially control
72% of the newly issued 9,997,195 common shares. Under certain circumstances
their control could increase to approximately 74%.

Amortization and charges relating to our significant intangible assets
could adversely affect our stock price and reported net income or loss. Of our
total assets at December 31, 2004, approximately $0.4 million, or 9%, were
intangible assets. Any reduction in net income or increase in net loss resulting
from the amortization of intangible assets resulting from future acquisitions by
us may have an adverse impact upon the market price of our common stock. In
addition, in the event of a sale of LaserSight or our assets, we cannot be
certain that the value of such intangible assets would be recovered.

In accordance with FASB Statement No. 144, we review intangible assets
for impairment whenever events or changes in circumstances, including a history
of operating or cash flow losses, indicate that the carrying amount of an asset
may not be recoverable. If we determine that an intangible asset is impaired, a
non-cash impairment charge would be recognized. Accordingly, the Company
believes the Chapter 11 petition has caused an impairment of the carrying values
of some of our intangibles. In that regard, during the second quarter of 2003,

-32-

the Company recorded approximately $4.1 million of re-structuring losses
attributable to impairment of intangibles.

Item 2. Properties

Our principal offices, including executive offices and administrative,
marketing and laboratory facilities, and manufacturing facilities are located in
approximately 15,600 square feet of space that we have leased in Winter Park,
Florida. The lease expires January 31, 2006. Monthly lease payments are $15,116
and the Company is also responsible for taxes. In our opinion, the property used
in our operations is generally in good condition and is adequate for the
purposes for which we utilize them.

Item 3. Legal Proceedings

Italian Distributor. In February 2003, an Italian court issued an order
restraining LaserSight Technologies from marketing our AstraPro software at a
trade show in Italy. This restraining order was issued in favor of Ligi
Tecnologie Medicali S.p.a (LIGI), a distributor of our products, and alleged
that our AstraPro software product infringes certain European patents owned by
LIGI. We had retained Italian legal counsel to defend us in this litigation, and
we were informed that the Italian court had revoked the restraining order and
ruled that LIGI must pay our attorney's fees in connection with our defense of
the restraining order. In addition, our Italian legal counsel informed us that
LIGI had filed a motion for a permanent injunction. We believe that our AstraPro
software does not infringe the European patents owned by LIGI, but due to
limited cash flow the Company has not defended its position. Management believes
that the outcome of this litigation will not have a material adverse impact on
LaserSight's business, financial condition or results from operations. Since the
Chapter 11 petition does not apply to foreign courts, this action is still
pending.

Routine Matters. In addition, we are involved from time to time in
routine litigation and other legal proceedings incidental to our business.
Although no assurance can be given as to the outcome or expense associated with
any of these proceedings, we believe that none of such proceedings, either
individually or in the aggregate, will have a material adverse effect on the
financial condition of LaserSight.

Item 4. Submission of Matters to a Vote of Security Holders

None

PART II

Item 5. Market for Company's Common Equity and Related Stockholder Matters

Our common stock traded on The NASDAQ Stock Market(R) under the symbol
LASEC until April 29, 2003. This was a conditional listing on the NASDAQ
SmallCap Market where the fifth character "C" was appended to LaserSight's
symbol. Effective with the open of business on March 5, 2003, the trading symbol
for LaserSight's securities was changed from LASE to LASEC. On April 30, 2003
the common stock was delisted by NASDAQ and commenced trading on OTC Bulletin
Board as LASE. This OTCBB symbol was changed on August 27, 2003 to LASEE due to
the late filing status of the Company. The Company was dropped from the OTCBB

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and commenced trading on the "Pink Sheets" on September 27, 2003 with the symbol
LASEQ ("Q" indicates bankruptcy). As mentioned previously, the existing
outstanding common and preferred shares, including options and warrants, were
cancelled by action of the US Bankruptcy Court on June 30, 2004. New common
shares of 9,997,195 were issued on June 30, 2004 and commenced trading via the
"Pink Sheets" under the symbol LRST. The following table sets forth, for the
fiscal quarters indicated, the high and low sale prices for our common stock on
the various markets indicated above.

2003: High Low
---- ---- ---
First Quarter ............................ $0.29 $0.04
Second Quarter ........................... 0.29 0.07
Third Quarter ............................ 0.29 0.01
Fourth Quarter............................ 0.16 0.001
2004:
----
First Quarter ............................ 1.55 0.05
Second Quarter ........................... 3.11 0.52
Third Quarter ............................ 0.78 0.01
Fourth Quarter............................ 0.10 0.01

On June 30, 2004, the closing sale price for our common stock on the
"Pink Sheets" was $0.52 per share, as adjusted for the 51.828 to 1 reverse
split. As of December 31, 2004, LaserSight had 9,997,195 shares of common stock
outstanding held by approximately 400 stockholders of record and, to our
knowledge, approximately 3,000 total stockholders, including stockholders of
record and stockholders in "street name." Of these 9,997,195 shares
approximately 1,134,000 shares representing approximately 350 creditors' shares
were issued in January 2005 after resolution of a creditor objection to claim.

We have never declared or paid any cash dividends on our common stock
and do not anticipate paying cash dividends on our common stock in the
foreseeable future. Our current policy is to retain all available funds and any
future earnings to provide funds for the operation and expansion of our
business. Any determination in the future to pay dividends will depend upon our
financial condition, capital requirements, results of operations and other
factors deemed relevant by our board of directors, including any contractual or
statutory restrictions on our ability to pay dividends.

Possible Dilutive Issuances of Common Stock

GE Warrants. In connection with our August, 2004 loan agreement with GE
Healthcare Financial Services, Inc., as successor-in-interest to Heller
Healthcare Finance, Inc. ("GE"), we issued the GE warrants to purchase a total
of 100,000 shares of common stock at an exercise price of $0.25 per share. The
warrants have a term of three years. The exercise price will convert to $0.40
per share if NII, the DIP lender, converts the remaining $1.0 million of
financing to equity. The warrant expires June 30, 2008.

China Transaction. In connection with our bankruptcy re-structuring,
NIIC will initially control 72% of the newly issued 9,997,195 common shares.
Under certain circumstances their control could increase to approximately 74%
with the conversion of DIP financing. They have the option to convert the
remaining $1 million loan to 2,500,000 common shares.

-34-

Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements made by or on behalf of the Company. All
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this report, other than statements
of historical facts, which address activities, events or developments that we
expect or anticipate will or may occur in the future, including such things as
future capital expenditures, growth, product development, sales, business
strategy and other similar matters are forward-looking statements. These
forward-looking statements are based largely on our current expectations and
assumptions and are subject to a number of risks and uncertainties, many of
which are beyond our control. Actual results could differ materially from the
forward-looking statements set forth herein as a result of a number of factors,
including, but not limited to, our products current stage of development, the
need for additional financing, competition in various aspects of its business
and other risks described in this report and in our other reports on file with
the Securities and Exchange Commission. In light of these risks and
uncertainties, all of the forward-looking statements made herein are qualified
by these cautionary statements and there can be no assurance that the actual
results or developments anticipated by us will be realized. We undertake no
obligation to update or revise any of the forward-looking statements contained
in this report.

All references to years are to LaserSight's fiscal years ended December
31, 2004 and 2003, unless otherwise indicated.

Liquidity and Capital Resources

History: On September 5, 2003 the company filed for Chapter 11
bankruptcy protection and reorganization. Under Chapter 11, certain claims
against the Company in existence prior to the filing of the petitions for relief
were stayed while the Company continued business operations as
Debtor-in-possession. The Company operated in this manner from September 5, 2003
through June 10, 2004, when a final bankruptcy release was obtained. As a result
of the bankruptcy re-structuring, the Company recorded credits for debt
forgiveness of approximately $15.3 during the three months ended June 30, 2004.
Additionally, the Company recognized re-structuring charges of approximately
$7.6 million during 2003 for patent impairments and inventory write offs. The
Company cancelled all of its outstanding common and preferred stock, including
warrants and options, and issued 9,997,195 new common shares on June 30, 2004.
The Company emerged from bankruptcy with approximately $0.7 million in unsecured
liabilities, $2.1 million in secured debt to GE, approximately $5.4 million in
deferred revenue and approximately $1.0 million of DIP financing provided by
NIIC. NIIC can convert the $1.0 million of the DIP financing for an additional
2,500,000 shares of common stock.

Cash Flows: With the new revenues being generated from the China Group
and projected sales to other customers, management expects that LaserSight's
cash and cash equivalent balances and funds from operations (which are
principally the result of sales and collection of accounts receivable) will be
sufficient to meet its anticipated operating cash requirements for the next
several months. This expectation is based upon assumptions regarding cash flows
and results of operations over the next several months and is subject to
substantial uncertainty and risks beyond our control. If these assumptions prove
incorrect, the duration of the time period during which LaserSight could
continue operations could be materially shorter. We continue to face liquidity
and capital resource issues relative to the timing of the successful completion
of new sales compared to our ongoing payment obligations. To continue our
operations, we will need to generate increased revenues, collect them and reduce
our expenditures relative to our recent history. While we are working to achieve
these improved results, we cannot assure you that we will be able to generate
increased revenues and collections to offset required cash expenditures.

-35-

Our expectations regarding future working capital requirements and our
ability to continue operations are based on various factors and assumptions that
are subject to substantial uncertainty and risks beyond our control, and no
assurances can be given that these expectations will prove correct. The
occurrence of adverse developments related to these risks and uncertainties or
others could result in LaserSight incurring unforeseen expenses, being unable to
generate additional sales, to collect new and outstanding accounts receivable,
to control expected expenses and overhead, or to negotiate payment terms with
creditors, and we would likely be unable to continue operations.

We have actively sought additional funds through the possible sale of
certain Company assets, which would provide temporary relief from our current
liquidity pressures.

On March 12, 2001, the Company established a $3.0 million term loan and
$10.0 million revolving credit facility with GE. We borrowed $3.0 million under
the term loan at an annual rate equal to two and one-half percent (2.5%) above
the prime rate. Interest was payable monthly and the loan was required to be
repaid on March 12, 2003. As of December 31, 2003, the outstanding principal on
our term loan was approximately $1.8 million. Under our credit facility, we had
the option to borrow amounts at an annual rate equal to one and one-quarter
percent (1.25%) above the prime rate for short-term working capital needs or
such other purposes as approved by GE. Borrowings were limited to 85% of
eligible accounts receivable related to U.S. sales. Eligible accounts receivable
were to be primarily based on future U.S. sales, which did not increase as a
result of our decision to not actively market our laser in the U.S. until we
receive additional FDA approvals. Accordingly no borrowings were ever placed on
the line of credit.

Borrowings under the loans are collateralized by substantially all of
the Company's assets. The term loan and credit facility require us to meet
certain covenants, including the maintenance of a minimum net worth. The terms
of the loans originally extended to March 12, 2003. In addition to the costs and
fees associated with the transaction, we issued to GE a warrant to purchase
243,750 shares of common stock at an exercise price of $3.15 per share. The
warrant was to expire on March 12, 2004. On August 15, 2002, GE provided a
waiver of our prior defaults under our loan agreement pending the funding of the
equity portion of the NIMD transaction. Upon receipt of the equity investment in
October 2002, revised covenants became effective that decreased the required
minimum level of net worth to $2.1 million, decreased minimum tangible net worth
to negative $2.8 million and decreased required minimum quarterly revenues
during the last two quarters of 2002 and the first quarter of 2003. In exchange
for the waiver and revised covenants, the Company paid $150,000 in principal to
GE upon the receipt of the equity investment in October 2002 and agreed to
increase other monthly principal payments to $60,000 in October 2002 and to
$40,000 during each of November and December 2002 and January 2003, with the
remaining principal due on March 12, 2003.

On March 12, 2003, our loan agreement with GE was extended by 30 days
from March 12, 2003 to April 11, 2003. On March 31, 2003, our loan agreement
with GE was amended again. In addition to the amendment, GE waived our failure
to comply with the net revenue covenant for the fourth quarter of 2002. In
exchange for the amendment and waiver, we paid approximately $9,250 in fees to
GE and agreed to increase our monthly principal payments to $45,000 beginning in
April 2003. Revised covenants became effective on March 31, 2003 that decreased
the minimum level of net worth to $1.0 million, minimum tangible net worth to
negative $4.0 million and minimum quarterly net revenue during 2003 to $2.0
million. We agreed to work in good faith with GE to adjust these covenants by
May 31, 2003 based on our first quarter 2003 financial results and our ongoing
efforts to obtain additional cash infusion. , On June 20, 2003 LSI announced
that it had been advised by GE that its loans to the Company were in default due
to an adverse material change in the financial condition and business operations
of the Company. The Company continued to negotiate with GE during the June and

-36-

July of 2003, until a new agreement was executed on August 28, 2003 providing
for an extension of the loans through January 2005.

The China Group provided $2 million of DIP financing, of which $750,000
was funded at December 31, 2003. On June 30, 2004, $1 million of the total was
converted to 6,850,000 common shares. The remaining $1 million note bears
interest of 9%, with interest only payments due monthly. It is a three-year
balloon note. The China Group has the option to convert the note to an
additional 2,500,000 common shares. This note is subject to any GE liens on
Company assets.

On August 30, 2004 the Company signed a three-year note expiring on
June 30, 2007. The note bears interest of 9%. Certain covenants were modified as
follows: net worth $750,000, tangible net worth $1,000,000 and minimum quarterly
revenues of $1,000,000. The Company is in violation of certain loan covenants
and is negotiating an amendment to the loan agreement. GE was issued a warrant
to purchase 100,000 shares of common stock at $0.25 per share, or $0.40 per
share if NIIC converts their DIP loan to equity. The warrant expires June 30,
2008.

There can be no assurance as to the correctness of the other
assumptions underlying our business plan or our expectations regarding our
working capital requirements or our ability to continue operations. Our ability
to continue operations is based on factors including the success of our sales
efforts in China and in other foreign countries where our efforts will initially
be primarily focused, increases in accounts receivable and inventory purchases
when sales increase, the uncertain impact of the market introduction of our
AstraMax diagnostic workstations, and the absence of unanticipated product
development and marketing costs.

In June of 2004, as of the effective date of the re-organization plan, the
following liabilities were relieved:

Accounts Payable $ 2,905,814
Accrued TLC license fee 825,500
Accrued salaries/severance 235,367
Accrued warranty 6,125,730
Accrued Ruiz license fees 3,471,613
Deposits/service contracts 720,399
Other accrued expenses 1,311,711
------------
15,616,134
Stock issued to creditors (328,500)
------------
Gain on forgiveness of debt $ 15,287,634
============

The new common stock issued to the creditors was valued at $0.146 per
share, or $328,500, which was deducted from the forgiven liabilities. The stock
value per shares is the same amount as the $1,000,000 of DIP financing converted
to equity.

-37-

Key Performance Indicators

How we operate

LaserSight has an annual purchase agreement with the China Group.
Monthly the China Group issues a purchase order and product is shipped. Payment
terms are net 30 to 45 days determined at the time of the purchase order. For
non China Group laser sales, fifty percent is due upon ordering and the balance
is due thirty days after installation. Sales of parts, service and procedure fee
are generally prepaid. Occasionally there are delays with foreign currency in
China.

Our key indicators

Usually on a weekly basis, management reviews a number of performance
indicators. Some of these indicators are qualitative and others are
quantitative. These indicators change from time to time as the opportunities and
challenges in the business change. Financial indicators that are usually
reviewed at the same time include the major elements of the micro-level business
cycle:

o inventory levels - Inventory levels are managed by the Company
to minimize investment in working capital and still have the
flexibility to meet shipment schedules. Many critical
components require ninety-day firm orders or minimum order
quantities.

Contraction Obligations - Payments Due by Period as of December 31,2004.

Contractual obligations Payments due by period

Less than 1 Over 5
Total year 1-3 years 4-5 years years
GE Debt Obligations 1,728,104 1,728,104 - - -
DIP Financing Obligation 1,000,000 - 1,000,000 - -
County Tax Assessor Obligation 110,412 20,075 40,150 21,112 10,037
Operating Lease Obligations 269,000 192,000 77,000 - -
---------------------------------------------------------------
3,107,516 1,940,179 1,117,150 21,112 10,037
===============================================================

We had no material off-balance sheet arrangements that have, or are
likely to have, a current or future material effect on us.

-38-

Quarterly Results of Operations

The following table sets forth selected items from our quarterly financial
results (in thousands, except for per share amounts).

2003
----
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
------- ------- ------- ------- -----
Net sales 2,321 1,830 1851 435 6,437
Gross profit (loss) 975 (2,709) 1340 (321) (715)
Loss from continuing operations (2,382) (11,059) (8,867) (1,222) (23,530)
Net loss (2,411) (11,091) (8,915) (1,099) (23,516)
Loss attributable to common
shareholders (2,895) (11,575) (9,403) (1,225) (25,098)
Loss per common share-basic and
diluted (0.10) (0.42) (0.34) (0.04) (0.90)
Weighted average shares outstanding 27,842 27,842 27,842 27,842 27,842

2004
----
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
------- ------- ------- ------- -----
Net sales 2,301 1,174 1166 3271 7,912
Gross profit 1,213 235 539 1735 3,722
Income (loss) from continuing operations 311 (846) (337) 462 (410)
Net Income (loss) 264 14,315 (251) 362 14,690
Income (loss) attributable to common
shareholders 264 14,315 (251) 362 14,690
Income (loss) per common share-basic 0.01 0.52 (0.03) 0.04 0.78
Income (loss) per common share-diluted 0.01 0.31 (0.03) 0.04 0.52

Weighted average shares outstanding-basic 27,842 27,644 9,997 9,997 18,870
Weighted average shares outstanding-diluted 46,403 45,999 9,997 9,997 28,099

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Consolidated Operations

Our consolidated revenues totaled $7.9 million for 2004, an increase of
approximately $1.5 million or 27% compared to revenues for 2003 of $6.4 million.
The increase was primarily attributable to increased sales of our AstraScan
lasers. 25 lasers systems were sold in 2004 compared to 11 in 2003. This was
offset by reduced parts revenues of $1.9 million, 2004 parts revenues were $0.6
million compared to $2.5 million in 2003. Our operating plan for 2005 projects a
revenue gain from increased sales of our laser systems.

2004 consolidated cost of sales of $4.2 million was approximately 53% of
net revenues of $7.9 million, compared to 2003 when our cost of sales was
approximately 111% of net revenues. This improvement was caused by the inclusion
of $3.6 million of inventory obsolescence reserve in 2003. Going forward into
fiscal 2005, the emphasis will be continued unit cost reductions driven by
efficient purchasing and limited re-design of the product. Our operating plan
projects maintaining our 2004 gross margin levels in 2005.

-39-

Selling-related expenses and allowed warranty claims consist of those
items directly related to sales activities, including commissions on sales,
royalty or license fees, warranty expenses, and costs of shipping and
installation. Selling-related expenses for 2004 decreased $8.4 million, or 91%,
to $0.8 million from $9.2 million during 2003. This decrease was primarily
attributable to a $4.3 million decrease in license fees resulting from a default
in our keratome license agreement and a decrease of $4.1 million of warranty
expense related to allowed claims filed in Chapter 11 in 2003. Our 2005
operating plan projects maintaining our 2004 selling-related expense ratio at
11% of net revenues.

General and administrative expenses decreased by $5.8 million to $3.1
million in 2004 from $8.9 million in 2003. The decrease was primarily due to
reduced bad debt expense of $1.5 million, $0.3 million of reduced depreciation
expense, reduced salaries $2.8 million, and reduced operating expenses of $1.2
million. Our operating plan for fiscal 2005 projects business levels that will
require general and administrative expenses to be lower due to reduced
professional fees relating to the bankruptcy filing. Bankruptcy related fees for
legal services, financial advisor, printing and postage, new stock certificiates
and priority claims were $ 142,000 and
$ 398,000 for 2003 and 2004,
resprectively.

Research, development and regulatory expenses decreased by $0.2
million, or 50%, to $0.2 million in 2004 from $0.4 million in 2003. The decrease
was primarily due to reduced salaries and consulting expense. Our operating plan
for fiscal 2005 projects business levels that will require research, development
and regulatory expenses to be similar to 2004.

In 2004 our amortization of intangibles decreased by approximately $0.2
million to approximately $0.03 million from approximately $0.25 million in
fiscal 2003. An impairment expense of $4.1 million was taken in June of 2003 due
to the re-focus of the Company's new re-organization plan. In accordance with
our operating plan, amortization of intangibles will be at a rate of
approximately $33,000 per year.

In 2004 we recognized gain on forgiveness of debt of $15.3 million. This
includes a write off of $15.6 million for accounts payable, accrued license
fees, accrued salaries, accrued warranty, deposits/service contracts and other
accrued expenses. This income was reduced by $0.3 million, the value of the
common stock issued to the creditors.

Other income and expense for fiscal 2004 contained several items that are
generally not expected to be recurring:

o We settled litigation in the third quarter of fiscal 2004 for
a shareholder derivative lawsuit. We received gross proceeds
of $315,000, which was offset by legal costs of $3,000, for a
net gain of approximately $312,000. We have no further
litigation in which we are the plaintiff and therefore
anticipate no such gain in fiscal 2005.

o In 2004 we received $12,000 for payments on the sale of
obsolete inventory.

o In 2004 we paid $434,000 in interest to GE, the DIP financier
and the tax assessor. This included $115,000 of loan fees
payable to the DIP financier. The interest expense also
includes $52,000 of amortized financing costs and the fair
value of a warrant issued to GE. The amortization is $8,600
per month and will continue until June of 2007.

Net income for 2004 was approximately $14.7 million compared with a loss
of $23.5 million in 2003, an improvement of approximately $38.2 million. This
$38.2 million improvement in the current year was comprised approximately of:

-40-

o gain on forgiveness of debt of $15.3 million

o Reduced departmental salaries of $2.8 million

o reduced amortization of intangibles of $0.2 million

o a lack of asset impairments compared with the prior year of
$4.1 million

o reduced inventory obsolescence expenses of $3.6 million

o A lack of allowed warranty claims in bankruptcy compared
with the prior year of $4.1 million

o A lack of Ruiz license fees compared with the prior year of
$4.3 million (agreement defaulted on in 2003)

o reduced bad debt expense of $1.5 million

o reduced depreciation expense of $0.3 million

o increased interest expense of $0.2 million

o Reduced departmental operating expenses of $1.8 million

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements in conformity
with accounting principles generally accepted in the United States of America
requires us to select appropriate company accounting policies, and to make
judgments and estimates affecting the application of those accounting policies.
In applying the Company's accounting policies, different business conditions or
the use of different assumptions may result in materially different amounts
reported in our Consolidated Financial Statements.

In response to the Securities and Exchange Commission's ("SEC") Release
No. 33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies," the Company has identified the most critical accounting principles
upon which the Company's financial statements depend. The critical principles
were determined by considering accounting policies that involve the most complex
or subjective decisions or assessments. The most critical accounting principles
identified relate to: revenue recognition, estimating product warranty reserves,
the allowance for doubtful accounts, inventory obsolescence reserves and
impairment of long-lived assets. These critical accounting policies and the
Company's other significant accounting policies are further disclosed in Note 2
to the Company's Condensed Consolidated Financial Statements.

Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Revenue Recognition

We derive our revenue from primarily two sources: (i) product revenue
and (ii) royalty revenue. The Company recognizes revenue on its products upon
shipment, provided that the persuasive evidence of an arrangement is in place,

-41-

the price is fixed or determinable, collectibility is reasonably assured, and
title and risk of ownership have been transferred. Transfer of title and risk of
ownership occurs when the product is shipped to the customer, as there are no
customer acceptance provisions in our sales agreements. Should management
determine that customer acceptance provisions are modified for certain future
transactions, revenue recognition in future reporting periods could be affected.
Royalty revenue from the license of patents owned is recognized in the period
earned. When we issue paid-up licenses, the revenue is recognized over the
remaining life of the patent licensed on a straight-line basis. Revenues in
multiple element arrangements are allocated to each element based upon the
relative fair values of each element, based upon published list prices in
accordance with Emerging Issues Task Force (EITF) 00-21, "Revenue Arrangements
with Multiple Deliverables." We recognize revenue from sales of our topography
software in accordance with Statement of Position ("SOP") 97-2, "Software
Revenue Recognition" as amended by SOP 98-9, "Modification of SOP 97-2 with
Respect to Certain Transactions." In addition to the criteria listed above,
revenue is recognized when the arrangement does not require significant
customization or modification of the software.

Product Warranty Reserves

We provide for the estimated costs of product warranties at the time
revenue is recognized. Our estimate of costs to service the warranty obligations
is based on historical experience, including the types of service/parts required
to repair our products, the frequency of warranty calls, and the component cost
of the raw materials and overhead. Management believes that the warranty reserve
is appropriate; however, to the extent we experience increased warranty claim
activity or increased costs associated with servicing those claims, revisions to
the estimated warranty liability would be required.

Allowance for Doubtful Accounts

We must make estimates of the uncollectibility of our accounts and
notes receivable balances. We estimate losses based on the overall economic
climate in the countries where our customers reside, customer credit-worthiness,
and an analysis of the circumstances associated with specific accounts which are
past due. Our accounts and notes receivable balance was $2.4 million, with an
allowance for doubtful accounts of $0.6 million, as of December 31, 2004. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. We continually evaluate the adequacy of our allowance for doubtful
accounts.

In 2004 $8.4 million of accounts and notes receivable were written off.
This was necessary because of such events and circumstances as: FDA approvals on
our laser system that took longer than anticipated, economic downturns in
certain countries or regions of the world and the terrorist attacks that
affected personal spending decisions, the business levels of many of our
customers and our filing of Chapter 11 in September 2003.

We have implemented certain changes over the course of the last year in
response to the world events and in an effort to improve the collectibility of
our sales, which are primarily in international markets. The changes generally
involve significantly higher down payments prior to shipping and shorter payment
terms for the balance of the sales price of laser systems. Therefore, the
Company expects its bad debt levels to be reduced in the future while revenues
are anticipated to increase.

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Inventory Obsolescence Reserves

We maintain reserves for our estimated obsolete inventory. The reserves
are equal to the difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than those projected by us,
additional inventory write-downs may be required.

Impairment of Long-Lived Assets

We review long-lived assets and certain intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Management believes that
the estimates of future cash flows and fair value are reasonable; however,
changes in estimates of such cash flows and fair value could affect the
evaluations.

Seasonality, Backlog and Customer Payment Terms

Based on our historical activity, we do not believe that seasonal
fluctuations have a material impact on our financial performance.

To date, we have been able to ship laser units as orders are received.
As a result, order backlog is not a meaningful factor in our business.

In international markets, unless a letter of credit or other acceptable
security has been obtained, we generally require a down payment or deposit from
our laser system customers.

Effect of Recent Accounting Pronouncements

In March 2004, the FASB issued an Exposure Draft ("ED") of a proposed
Statement, "Share-Based Payments," that addresses the accounting for share based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on fair value of the enterprise's equity instruments or that may be
settled by the issuance of such equity instruments. The ED would eliminate the
ability to account for share-based compensation transactions using APB Opinion
No. 25, " Accounting for Stock Issued to Employees," and generally would require
instead that such transactions be accounted for using a fair-value-based method,
preferably one called the binomial or "lattice" method. The ED as currently
drafted would be effective for awards granted, modified or settled in fiscal
years beginning after December 15, 2004 for public entities that used the
fair-value-based methods of accounting under the original provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" for recognition or pro forma
disclosure purposes. Since the Company is using and expects to continue using
stock options in its compensation mix, the ED is likely to have the impact of
increasing our reported costs for compensation which are classified as cost of
sales, selling, general and administrative costs, and new product development
costs. It is not expected to affect cash flow unless we choose to partially or
wholly replace stock options with cash compensation.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," an interpretation of ARB No. 51 and subsequently
amended it with the issuance of Interpretation No. 46-R in December 2003. This

-43-

Interpretation and its amendment address the consolidation by business
enterprises of variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable interest
entities created after January 31, 2003, and to variable interests in variable
interest entities obtained after January 31, 2003. The adoption of this
Interpretation did not have a material effect on the Company's consolidation
financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
No. 150 establishes accounting standards for the classification and measurement
of certain financial instruments with characteristics of both liabilities and
equity. It requires certain financial instruments that were previously
classified as equity to be classified as assets or liabilities. The provisions
are effective for transactions entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect
on our consolidated financial statements. It is possible that, in the future, we
may find it desirable or necessary to seek external financing and we may enter
into an agreement that would be governed by SFAS No. 150 whereby the financing
we receive cannot be classified as equity in our consolidated balance sheet.

Recent Accounting Pronouncements

In March 2004, the FASB approved the consensus reached on the Emerging Issues
Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The Issue's objective is
to provide guidance for identifying other-than-temporarily impaired investments.
EITF 03-1 also provides new disclosure requirements for investments that are
deemed to be temporarily impaired. In September 2004, the FASB issued a FASB
Staff Position (FSP) EITF 03-1-1 that delays the effective date of the
measurement and recognition guidance in EITF 03-1 until further notice. The
disclosure requirements of EITF 03-1 are effective with this annual report for
fiscal 2004. Once the FASB reaches a final decision on the measurement and
recognition provisions, the company will evaluate the impact of the adoption of
the accounting provisions of EITF 03-1.

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No.
123R requires employee stock options and rights to purchase shares under stock
participation plans to be accounted for under the fair value method, and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB Opinion No. 25, and allowed under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing
model for estimating fair value, which is amortized to expense over the service
periods. The requirements of SFAS No. 123R are effective for fiscal periods
beginning after June 15, 2005. If the company had applied the provisions of SFAS
No. 123R to the financial statements for the period ending December 31, 2004,
net income would have remained unchanged. SFAS No. 123R allows for either
prospective recognition of compensation expense or retrospective recognition,
which may be back to the original issuance of SFAS No. 123 or only to interim
periods in the year of adoption. The company is currently evaluating these
transition methods.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4." SFAS No. 151 amends the guidance in ARB No. 43,
"Inventory Pricing," for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) requiring that those items be
recognized as current-period expenses regardless of whether they meet the
criterion of "so abnormal." This statement also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The statement is effective for inventory
costs incurred during the fiscal years beginning after June 15, 2005. Management
does not expect this statement to have a material impact on the Company's
consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29." APB Opinion No. 29, "Accounting for
Nonmonetary Transactions," is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. SFAS No. 153 amends APB Opinion No. 29, eliminating the exception to
fair value accounting for nonmonetary exchanges of similar productive assets and
replaces it with a general exception to fair value accounting for nonmonetary
exchanges that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Management does not expect this statement to have a material impact on the
Company's consolidated financial position or results of operations.

Item 6A. Quantitative and Qualitative Disclosures about Market Risk

The Company believes that its exposure to market risk for changes in
interest and currency rates are not significant. The Company's investments are
limited to highly liquid instruments - generally cash and cash equivalents. All
of the Company's transactions with international customers and suppliers are
denominated in U.S. dollars.

Item 7. Financial Statements and Supplemental Data

Consolidated financial statements prepared in accordance with
Regulation S-X are listed in Item 14 of Part IV of this Report, are attached to
this Report and incorporated in this Item 7 by reference.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

On May 12, 2004, the Board of Directors authorized the engagement of Moore
Stephens Lovelace, P.A. to serve as independent public accountants for the
fiscal year ended December 31, 2003. KPMG LLP (KPMG) had been engaged as
independent public accountants for the Company for the most recent fiscal year
until their resignation on March 16, 2004. That determination was a decision of
KPMG LLP and was not recommended or approved by the audit committee of the board
of directors of the Registrant.

KPMG LLP's most recent audit report was on the consolidated financial
statements of the Registrant as of and for the year ended December 31, 2002. The
audit reports of KPMG LLP on the consolidated financial statements of the
Registrant as of and for the years ended December 31, 2002 and 2001 did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles, except as
follows:

KPMG LLP's reports on the consolidated financial statements of the
registrant as of and for the years ended December 31, 2002 and 2001, contained a
separate paragraph stating, "The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has
suffered recurring losses from operations and has a significant accumulated
deficit that raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in

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Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty."

During the Registrant's two fiscal years ended December 31, 2002 and
2001, and during the subsequent period preceding the date of KPMG LLP's
resignation, there were no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which if not resolved to their satisfaction, would have
caused them to make reference in connection with their report to the subject
matter of the disagreement. No other event has occurred with respect to the
Registrant and KPMG LLP for which disclosure would be required pursuant to
paragraph (a)(1)(v) of Item 304 of Regulation S-K.

KPMG LLP did not issue an audit report on the financial statements of
the Registrant as of and for the year ended December 31, 2003, or for any
subsequent period preceding the date of KPMG LLP's resignation, as the
Registrant has not filed any financial statement subsequent to March 31, 2003.
KPMG LLP did review the Registrant's financial statements included in its Form
10-Q for the quarterly period ended March 31, 2003.

Item 8A. Controls and Procedures

Based on their evaluation within 90 days prior to the filing date of
this Annual Report on Form 10-KSB, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934, as amended, are effective for gathering, analyzing, and disclosing the
information we are required to disclose in our reports filed under the Act.

There were no significant changes in our internal controls or in other
factors that could significantly affect those controls since the date of last
evaluation of those internal controls.

PART III

Item 9. Directors and Executive Officers

The Company's executive officers and directors are set forth below. The
terms of all incumbent directors expire at the next scheduled Annual Meeting of
the Company's stockholders (the "Annual Meeting") or at such later time as their
successors have been duly elected and qualified.

Name Age Title Director Since
---- --- ----- --------------

Danghui ("David") Liu 43 President and Chief Executive Officer N/A
Guy W. Numann 73 Director 2000
Xian Ding Weng 43 Chairman of the Board 2002

Ying Zhi Gu 56 Director 2002
Dorothy M. Cipolla 49 Chief Financial Officer N/A

Mr. Liu has served as President and Chief Executive Officer of
LaserSight since August 2003. He was previously the Vice President of Technical
Marketing from September 2002 until 2003. He was Director R&D for Diagnostic
products from March 2000 until January 2002. Mr. Liu received a PHD from the

-45-

University of Houston, and a masters & bachelors from the Beijing University of
Aeronautics and Astronautics.

. Mr. Numann is retired from Harris Corporation where he served as president of
the company's Communication Sector from 1989 until his retirement in 1997. From
1984 to 1989 Mr. Numann served as senior vice president and group executive for
the Communication Sector. Mr. Numann currently serves as a member of Rensselaer
Polytechnic Institute's School of Engineering Advisory Board.

Mr. Weng founded New Industries Investment Co., Ltd., (NII) in
Shenzhen, China in 1993. He has been President and Chief Executive Officer of
NII for nine years. Mr. Weng has also been the Chairman of the Board of Medical
Development Ltd. (NIMD) and Consultants Ltd. (NIIC), subsidiaries of NII.

Ms. Gu has been President of Y.F.K. Import and Export Corporation, a
privately held medical equipment distributor/consulting firm specializing in
ophthalmology and dermatology, since 1986. She has also been the Vice President
of Finance in NBM Publishing, Inc., a privately held publishing company, since
1989.

Ms. Cipolla has served as Chief Financial Officer and Secretary of
LaserSight since March 2004. Prior to joining LaserSight, she has served in
various financial management positions. From 1994 to 1999, she was Chief
Financial Officer and Treasurer of Network Six, Inc., a NASDAQ listed
professional services firm. From 1999 to 2002, Mrs. Cipolla was Vice President
of Finance with Goliath Networks, Inc., a privately held network consulting
company. From 2002 to 2003, Ms. Cipolla was Department Controller of Alliant
Energy Corporation, a regulated utility. She received a bachelors of science in
accounting from Northeastern University.

Code of Ethics for Chief Executive Officer and
Senior Financial Officers

The Company has adopted a code of ethics for the CEO and Senior
Financial Officers which is required to be signed by each such officers, and is
maintained on file by the Company.

Audit Committee and Audit Committee Financial Expert

Two members of the Company's Board of Directors, Guy Numann and Ying
Gu, currently serve as the audit committee. The Audit Committee does not
currently have a member designated as the financial expert.

Compliance With Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires LaserSight's officers and directors, and persons who own more
than 10% of the outstanding common stock, to file reports of ownership and
changes in ownership of such securities with the SEC. Officers, directors and
over-10% beneficial owners are required to furnish LaserSight with copies of all
Section 16(a) forms they file. Based solely upon a review of the copies of the
forms furnished to LaserSight, and/or written representations from certain
reporting persons that no other reports were required, LaserSight believes that
all Section 16(a) filing requirements applicable to its officers, directors and
over-10% beneficial owners during or with respect to the year ended December 31,
2004 were met.

-46-

Item 10. Executive Compensation

The following table sets forth summary information concerning the
compensation paid or earned for services rendered to LaserSight in all
capacities during 2003 and 2004 for LaserSight's Chief Executive Officer, each
of LaserSight's other executive officers serving at December 31, 2004 whose
total annual salary and bonus for 2004 exceeded $100,000 and former executive
officers for which disclosure is required. No restricted stock or stock
appreciation rights were granted and no payouts under any long-term incentive
plan were made to any of the named executive officers in 2003 or 2004. We use
the term "named executive officers" to refer collectively to these individuals
later in this Form 10-KSB.

Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
------------------- ------
Other Annual Securities
Compen- Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) sation Options/SARs Compensation
--------------------------- ---- ---------- --------- ------ ---------------- ------------
(#)
---

Gregory L. Wilson Former 2004 -- -- -- -- 4,650 (1)
Chief Financial Officer (2) 2003 134,127 -- -- -- --
-- -- --
Danghui Liu 2004 180,000 54,200 50 -- --
President and CEO 2003 153,958 25,800 -- -- --

Michael R. Farris 2004 -- -- -- -- 4,650 (1)
Former President and CEO (5) 2003 216,814 -- -- -- 15,000 (3)
--
Dorothy M. Cipolla 2004 84,294 -- 50 -- --
CFO (4) 2003 -- -- -- -- --
--

Richard K. Davis 2004 130,000 -- 50 -- --
Vice President 2003 127,917 -- -- -- --

(1) Consists of priority payments made pursuant to the confirmed
re-organization plan of the Company in bankruptcy. Priority
claims were for severance agreements.

(2) Mr. Wilson resigned on April 5, 2003. All options expired
after 30 days.

(3) Forgiveness of $15,000 in personal debt on corporate credit
card.

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(4) Mrs. Cipolla started as CFO on March 15, 2004. She was
appointed secretary on May 12, 2004. (5) Mr. Farris resigned
on August 22, 2003. All options expired after 30 days.

No Options / SARs were granted during 2003 or 2004. On June 30, 2004,
all Outstanding Options were cancelled per the Company's re-organization plan.

The following table sets forth certain information relating to options
held by the named executive officers at December 31, 2003:

Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of Securities
Underlying Unexercised
Options/SARs at Value of Unexercised
Year-End (#)(1) In-the-Money Options/
---------------
SARs at Year-End ($)(1)(2)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($)(1) Unexercisable Unexercisable
---- ------------ --------------- ------------- -------------

Danghui Liu -- -- 35,000 / 0 0 / 0
Richard K. Davis -- -- 170,000 / 10,000 0 / 0

(1) No Options / SARs have been issued by LaserSight in 2003 or
2004.

(2) Based on the $0.01 closing price of the common stock on The
NASDAQ Stock Market for December 31, 2003 when such price
exceeds the exercise price for an option.

Compensation of Directors

Each non-employee director receives a fee of $1,000 for each board or
$500 for each committee meeting attended. Effective June 30, 2004, directors
receive $10,000 per year as compensation. It is paid quarterly in arrears.
Directors who are also full-time employees of LaserSight will receive no
additional cash compensation for services as directors.

Employment Agreements

When the Company filed for Chapter 11 protection on September 5, 2003
all employment agreements in effect prior to that time were canceled. At
December 31, 2004 there were no employment contracts in effect.

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Relocation Agreements

When the Company filed for Chapter 11 protection on September 5, 2003
all relocation agreements in effect prior to that time were canceled. At
December 31, 2004 there were no relocation agreements in effect.

Compensation Committee Interlocks and Insider Participation

During 2004, the role of the Compensation Committee was performed by
the board of directors as a whole.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding ownership
of LaserSight's voting securities, as of December 31, 2004:

o each person known to LaserSight to own beneficially more than 5% of
LaserSight's outstanding voting securities; o each of LaserSight's directors; o
each of LaserSight's executive officers named in the summary compensation table;
and o all of LaserSight's directors and executive officers as a group.

The beneficial ownership of LaserSight's voting securities set forth in
this table is determined in accordance with the rules of the Securities and
Exchange Commission. Unless otherwise indicated in the footnotes below, the
persons and entities named in the table have sole voting and investment power as
to all shares beneficially owned, subject to community property laws where
applicable.
Common
Stock
Name and Address of Beneficial Owner Ownership
------------------------------------ ---------
Directors and Executive Officers:
David Liu 193

Dorothy M. Cipolla *

Richard K. Davis *
Guy W. Numann *

Ying Zhi Gu 1,884*

Xian Ding Weng 225*

New Industries Investment Consultants (H.K.) 7,229,868
Hong Kong, People's Republic of China 72%
* Less than 1%.

Sergio Lenchig Bogata, Columbia 546,259 5%
Dr. Liuz Ruiz Bogata, Columbia 546,259 5%

-49-

(1)

Item 12. Certain Relations and Related Transactions

Indebtedness of Management. In accordance with an arrangement that has
been in place since Mr. Farris first became employed by LaserSight, Mr. Farris
utilized a company credit card for both business and non-business expenses and
then reimbursed LaserSight for the non-business expenses, historically at a rate
of $1,000 per month. Since the beginning of 2003 the aggregate amount of these
non-business expenses has not exceeded $67,000. Mr. Farris continued to
reimburse approximately $1,000 per month until he resigned in August of 2003. As
part of his severance agreement, the board agreed to bonus Mr. Farris the
$15,000 balance. Mr. Farris was not charged interest in connection with these
loans.

NIMD transaction. Through December 31, 2003, approximately $3.6 million worth of
products were sold to Shenzhen New Industries Medical Development Co. Ltd. As a
result of the Chapter 11 re-structuring, NIMD's affiliate, NIIC loaned $2.0
million to the Company. $1 million was converted for 6,850,000 (68.5%) shares of
the 9,997,195 newly issued common stock. In addition, NIIC can convert the
remaining $1.0 million of that loan, subject to certain restrictions, to
2,500,000 shares of the Company's common stock and result in the purchaser
holding approximately 76% of the Company's common stock.

Item 13. Principal Accounting Fees and Services

During 2004 and 2003 the Company was billed by Moore Stephens Lovelace,P.A.
("MSL") for 2004 and KPMG for 2003 for the following services:

2004 2003
---- ----
(a) Audit fees: 105,000 106,156
(b) Audit-related fees 3,467 110,733
(c) Tax fees 9,500 1,250
(d) All other fees - 37,375

117,967 255,514

All MSL related work was approved in advance by the Audit Committee.
All work performed by auditors was approved by the two members of the audit
committee, Ms. Gu and Mr. Numann.

On March 23, 2004, the Company announced the resignation of KPMG. On
May 20, 2004 the Company announced the appointment of Moore Stephens Lovelace,
P.A., a Winter Park, Florida based CPA firm qualified to do SEC audit
engagements.

-50-

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Financial Statements and Schedules.

(a)(1)The following financial statements and related items commence on page F-1:

Independent Auditors' Reports

Consolidated Balance Sheet as of December 31, 2004.

Consolidated Statements of Operations for the years ended
December 31, 2004 and 2003.

Consolidated Statements of Stockholders' Deficit for the years
ended December 31, 2004 and 2003.

Consolidated Statements of Cash Flows for the years ended
December 31, 2004 and 2003.

Notes to Consolidated Financial Statements.

(2)Financial Statement Schedules:

None

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

The Exhibit Index set forth on page 79 of this Form 10-KSB is
hereby incorporated herein by this reference.

INDEX TO EXHIBITS

Exhibit
Number Description
------ -----------

3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Form 10-Q filed on November 14, 2002*).

3.2 Bylaws, as amended (filed as Exhibit 3.2 to the Company's Form 10-Q/A filed
on November 21, 2002*).

3.3 Rights Agreement, dated as of July 2, 1998, between LaserSight
Incorporated and American Stock Transfer & Trust Company, as Rights
Agent, which includes (I) as Exhibit A thereto the form of Certificate

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of Designation of the Series E Junior Participating Preferred Stock,
(ii) as Exhibit B thereto the form of Right Certificate (separate
certificates for the Rights will not be issued until after the
Distribution Date) and (iii) as Exhibit C thereto the Summary of
Stockholder Rights Agreement (incorporated by reference to Exhibit 99.1
to the Form 8-K filed by the Company on July 8, 1998*).

10.1 Incorporated (filed as Exhibit 10.39 to the Company's Form 10-K filed
on March 31, 1999

10.2 Product Purchase Agreement dated Februay 2, 2004 between LaserSight
Technologies, Inc. and Shenzhen New Industries Medical Development Co.,
Ltd.(filed as Exhibit 99.8 to the Company's Form 8-K/A filed
on May 4,2004).

10.3 Distribution Agreement dated August 15, 2002 LaserSight Technologies,
Inc. and Shenzhen New Industries Medical Development Co., Ltd. (filed
as Exhibit 99.5 to the Company's Form 8-K filed on August 30, 2002*)**.

10.4 Chief Executive Officer and Chief Financial Officer certifications
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed under Item 9 to the Company's
Form 8-K filed on August 14, 2002*).

10.5 Amendment No. 2 to Loan and Security Agreement dated as of August 15,
2002 among LaserSight Incorporated and subsidiaries and Heller
Healthcare Finance, Inc. (filed as Exhibit 10.1 to the Company's Form
10-Q filed on November 14, 2002*).

10.6 Extension to Loan and Security Agreement dated as of March 12, 2003
among LaserSight Incorporated and subsidiaries and Heller Healthcare
Finance, Inc.

10.7 Amendment No. 3 to Loan and Security Agreement dated as of March 31,
2003 among LaserSight Incorporated and subsidiaries and Heller
Healthcare Finance, Inc.

10.8 Amendment No. 4 to Loan and Security Agreement and Limited Waiver dated
as of June 30, 2004 among LaserSight Incorporated and subsidiaries and
General Electric Capital Corporation as successor to GEHFS Holdings,
Inc.,formerly know as Healthcare Finance, Inc.

10.9 Amended and Restated Registration Rights Agreement dated June 30, 2004
between LaserSight Incorporated and General Electric Capital
Corporation as successor to GEHFS Holdings,Inc.,formerly know as
Healthcare Finance, Inc.

10.10 Restated Promissary note for $1,000,000, effective June 30,2004 made in
favor of New Industries Investment Consultants (HK) Ltd. by LaserSight
Incorporated and subsidiaries LaserSight Technologies Inc.

10.11 Certificate of Amendment of Certificate of Incorporation, filed March
2, 2005>

Exhibit 11 Statement of Computation of Loss Per Share (Included in
Financial Statements in Item 1 hereof)

Exhibit 21 Subsidiaries of the Registrant

Exhibit 23 Consent of Moore Stephens Lovelace, P.A.

31.1.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)

31.2 Certification of Chief Financial Officer Pursuant
to Rule 13a-14(a)

32 Certifications of CEO and CFO Pursuant to Section 1350

----------------------
*Incorporated herein by reference. File No. 0-19671.

**Confidential treatment has been granted for portions of this document. The
redacted material has been filed separately with the commission.

-52-

SIGNATURES

Pursuant to the requirements of Section 13 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.

Dated: March 22, 2005 LASERSIGHT INCORPORATED

By: /s/ Danghui ("David") Liu
----------------------------------
Danghui ("David"), President and
Chief Executive Officer

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

/s/ Danghui ("David") Liu Dated: March 22, 2005
---------------------------------------------------
Danghui ("David") Liu, President,
Chief Executive Officer and Director

/s/ Xian Ding Weng. Dated: March 22, 2005
---------------------------------------------------
Xian Ding Weng,
Chairman of the Board, Director

/s/ Guy W. Numann Dated: March 22, 2005
---------------------------------------------------
Guy W. Numann, Director

/s/ Ying Gu Dated: March 22, 2005
---------------------------------------------------
Ying Gu, Director

/s/ Dorothy M. Cipolla Dated: March 22, 2005
---------------------------------------------------
Dorothy M. Cipolla, Chief Financial Officer
(Principal accounting officer)

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
LaserSight Incorporated:

We have audited the accompanying consolidated balance sheet of LaserSight
Incorporated and Subsidiaries (the Company) as of December 31, 2004, and the
related consolidated statements of operations, changes in stockholders' deficit,
and cash flows for years ended December 31,2004 and 2003. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LaserSight
Incorporated and Subsidiaries at December 31, 2004, and the results of their
operations and their cash flows for the years ended December 31, 2004 and 2003,
in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred substantial losses
since its inception, has a working capital deficit at December 31, 2004, and has
incurred negative cash flow from operations. These factors, among others, raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ Moore Stephens Lovelace, P.A.

Certified Public Accountants
Orlando, Florida
February 23,2005

F-1

LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

December 31, 2004

ASSETS 2004
-------------
Current assets:
Cash and cash equivalents ............................. $ 377,512
Accounts receivable - trade, net ...................... 1,734,824
Notes receivable - current portion, net ............... 58,115
Inventories ........................................... 1,715,924
Prepaid expenses ...................................... 23,724
-------------
Total Current Assets 3,910,099
Property and equipment, net ............................. 109,349
Patents, net............................................. 449,912
Deposits with suppliers ................................. 401,867
Deferred financing costs, net............................ 254,343
-------------
Total Assets $ 5,125,570
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note Payable ............................................ $ 1,748,179
Accounts payable ........................................ 163,843
Accrued expenses ........................................ 330,340
Accrued license fees .................................... 146,226
Accrued Warranty ........................................ 403,200
Deferred revenue ........................................ 895,240
-------------
Total Current Liabilities 3,687,028
Note Payable Related party .............................. 1,000,000
Note Payable tax assessor long term portion ............. 90,337
Deferred royalty revenue ................................ 3,907,461
Commitments and contingencies
Stockholders' equity(deficit):
Convertible preferred stock, par value $.001 per share;
authorized 10,000,000 shares: none issued .... -
Common stock - par value $.001 per share; authorized
100,000,000 shares; 9,997,195 shares issued (including
1,134,000 shares issuable per approved bankruptcy plans.. 9,997
Additional paid-in capital .............................. 104,618,069
Accumulated deficit ..................................... (108,187,322)
-------------
Total Stockholders' Deficit (3,559,256)
-------------
Total Liabilities and Stockholders' Deficit $ 5,125,570
=============

See accompanying notes to the consolidated financial statements.

F-2

LASERSIGHT INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2004 and 2003

2004 2003
------------ ------------
Revenues, net:
Products (1)....................................................... $ 6,972,910 $ 5,497,937
Royalties ......................................................... 939,240 939,240
------------ ------------
7,912,150 6,437,177
Cost of revenues:
Product cost ...................................................... 4,190,165 7,152,206
------------ ------------
Gross profit (Loss)................................................ 3,721,985 (715,029)

Research, development, and regulatory expenses .................... 176,128 351,779

Other general and administrative expenses ......................... 3,101,472 8,919,075
Selling related expenses .......................................... 820,690 4,558,538
Allowed warranty claims ........................................... - 4,640,319
Amortization of intangibles ....................................... 33,516 246,690
Impairment of patents ............................................. - 4,098,607
------------ ------------
3,955,678 22,463,229
------------ ------------
Loss from operations .............................................. (409,821) (23,530,037)

Other income and expenses:
Interest and other income ......................................... 332,343 305,977
Interest expense .................................................. (520,143) (350,120)
Gain on extinguishment of debt .................................... 15,287,634 -
------------ ------------

Income (Loss) before income Tax expense (benefit) ................. 14,690,013 (23,574,180)

Income tax benefit ................................................ - (57,708)
------------ ------------
Net Income (Loss) ................................................. 14,690,013 (23,516,472)
Conversion discount on preferred stock ............................ - (1,581,587)
------------ ------------
Net Income (Loss) attributable to common shareholders ............. $ 14,690,013 $(25,098,059)
============ ============

Net Income (Loss) per common share - basic ...................... 0.78 (0.90)
============ ============
Net Income (Loss) per common share - diluted .................... 0.52 (0.90)
============ ============
Weighted average number of shares outstanding
- basic .......................................................... 18,870,000 27,842,000
============ ============
- diluted ........................................................ 28,100,000 27,842,000
============ ============

(1) Including revenues from related parties of $ 6,176,666 and $ 4,233,577, respectively.

See accompanying notes to consolidated financial statements

F-3

LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2004 and 2003

Preferred Stock Common Stock Additional
--------------- ------------ Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------

Balances at December 31, 2002 ..... 9,280,647 9,281 27,987,141 27,987 103,796,812
Settlement of stock subscription
receivable ...................... - - - - -
Issuance of options to consultant - - - - 4,252
Net loss .......................... - - - - -
--------- ----- ---------- ------ -----------
Balances at December 31, 2003 ..... 9,280,647 9,281 27,987,141 27,987 103,801,064
Bankruptcy Plan:
Conversion of preferred stock ... (9,280,647) (9,281) 360,000 360 8,921
Reverse split of existing common - - (27,447,144) (27,447) 27,447
Issue common to LSI creditors ... - - 1,116,000 1,116 161,820
Issue common to LST creditors ... - - 1,134,000 1,134 164,430
Issue common for DIP conversion . - - 6,850,000 6,850 993,150
Cancel treasury stock ........... - - (2,802) (3) (542,644)
Warrants issued to GE ........... - - - - 3,881
Net Income ........................ - - - - -
--------- ----- ---------- ------ -----------
Balances at December 31, 2004 ..... - - 9,997,195 9,997 104,618,069
========= ===== ========== ====== ===========

Stock Total
Subscription Accumulated Treasury Stockholders'
Receivable Deficit Stock Equity (Deficit)
--------- ------- ----- -------

Balances at December 31, 2002 .... (32,336) (99,360,863) (542,647) 3,898,234
Settlement of stock subscription
receivable ...................... 32,336 - - 32,336
Issuance of options to consultant - - - 4,252
Net loss .......................... - (23,516,472) - (23,516,472)
------- ----------- -------- ----------

Balances at December 31, 2003 ..... 0 (122,877,335) (542,647) (19,581,650)
Bankruptcy Plan:
Conversion of preferred stock ... - - - -
Adjustment to existing common - - - -
Issue common to LSI creditors ... - - - 162,936
Issue common to LST creditors ... - - - 165,564
Issue common for DIP conversion . - - - 1,000,000
Cancel treasury stock ........... - - 542,647 -
Warrants issued to GE ............. - - - 3,881
Net Income ........................ - 14,690,013 - 14,690,013
------- ------------ -------- ----------
Balances at December 31, 2004 ..... 0 (108,187,322) - (3,559,256)
======= ============ ======== ==========

See accompanying notes to consolidated financial statements.

F-4

LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 and 2003

2004 2003
----------- ------------
Cash flows from operating activities
Net income (loss) ............................ $ 14,690,013 $(23,516,472)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization ................ 99,385 628,627
Loss on disposal of fixed assets ............. -- 22,725
Additions to Notes Payable for Penalities and
Interest ..................................... 305,211 --
Gain on forgiveness of debt .................. (15,287,634) --
Amortization of discount on note payable...... 648 --
Write off of inventory ....................... -- 3,588,040
Impairment of patents ........................ -- 4,098,607
Stock options issued for consulting services . -- 4,251
Provision for uncollectable accounts ......... -- 3,028,304
Changes in assets and liabilities:
Accounts and notes receivable, net ........ (1,712,548) 3,486,207
Inventories ............................... 1,646,061 1,978,074
Accounts payable .......................... 184,672 184,451
Accrued expenses and commissions .......... 474,242 5,615,225
Deferred revenue .......................... (1,039,240) (939,240)
Other, net ................................ (261,360) 798,644
------------ ------------
Net cash used in operating activities ........ (900,550) (1,022,557)

Cash flows from investing activities
Purchases of property and equipment, net ..... (109,689) (13,897)
------------ ------------
Net cash used in investing activities ........ (109,689) (13,897)
Cash flows from financing activities
Payments on debt financing ................... (427,222) (246,687)
Proceeds from DIP Financing .................. 1,250,000 750,000
Proceeds from stock subscription receivable .. -- 32,336
------------ ------------

Net cash provided by financing activities .... 822,778 535,649
------------ ------------

Decrease in cash and cash equivalents ........ (187,461) (500,805)

Cash and cash equivalents, beginning of period 564,973 1,065,778
------------ ------------

Cash and cash equivalents, end of period ..... $ 377,512 $ 564,973
============ ============
Non-cash investing and financing activity:

Issuance of warrants in conjunction with
debt financing $ 3,882 $ -

See accompanying notes to the consolidated financial statements.

F-5

LASERSIGHT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2004 and 2003

NOTE 1 ORGANIZATION AND HISTORY; LIQUIDITY MATTERS

Organization and History

LaserSight Incorporated ("LaserSight" or the Company) is the parent
company of the following major wholly-owned operating subsidiaries: LaserSight
Technologies, Inc., which develops, manufactures and sells ophthalmic lasers and
related products primarily for use in laser vision correction, including laser
in-situ keratomileusis (LASIK) and photorefractive keratectomy (PRK) procedures
and currently licenses patents related to refractive surgical equipment; and
LaserSight Patents, Inc., which currently licenses patents related to refractive
surgical procedures. The Company was incorporated in Delaware in 1987, but was
inactive until 1991. In July 1994, LaserSight was reorganized as a holding
company. In September 2003 the Company filed a Chapter 11 bankruptcy petition,
discontinued its keratomes and cosmetic product lines due to cash flow problems,
these lines never generated significant revenues, and re-focused its marketing
and sales efforts to the international market, mainly China. Our principal
offices and mailing address are 6848 Stapoint Court, Winter Park, Florida 32792,
our telephone number is (407) 678-9900 and our address on the World Wide Web is
www.lase.com.

Liquidity Matters

On September 5, 2003 the Company and two of its subsidiaries ("the
Debtors") filed a voluntary petition for relief in the United States Bankruptcy
Court, Middle District of Florida, Orlando Division, ("the Bankruptcy Court")
under Chapter 11 of Title 11 of the U.S. Bankruptcy Code ("the Bankruptcy Code
or Chapter 11"). The Debtors continued to operate their businesses as
debtors-in-possession ("DIP") through the close of business June 9, 2004. The
Company filed a plan of reorganization (the Plan) with the Bankruptcy Court on
April 28, 2004. In May 2004, the Bankruptcy Court confirmed the Plan. The
Company emerged from Chapter 11 on June 10, 2004 with an effective date of the
plan being June 30,2004. A final decree was obtained on December 22, 2004.

The Company has incurred significant losses and negative cash flows
from operations in each of the years in the two-year period ended December 31,
2004 and has an accumulated deficit of approximately $108.2 million at December
31, 2004. The substantial portion of the losses is attributable to delays in
Food and Drug Administration (FDA) approvals for the treatment of various
procedures on the Company's excimer laser system in the U.S. (a key approval for
the treatment of nearsightedness with or without astigmatism was received in
late September 2001) and the continued development efforts to expand clinical
approvals of the Company's excimer laser and other products.

The Company had significant liquidity and capital resource issues
relative to the timing of accounts receivable collection and the successful
completion of new sales compared to ongoing payment obligations. In July 2002,
the Company announced it had entered a letter of intent with affiliated
companies based in the People's Republic of China (hereafter referred to as the
"China Group" or the "China Transaction")(see note 15). The China Group provided
$2.0 million of debtor-in-possession (DIP) financing, with $750,000 received as
of year-end 2003. An agreement was signed with the China Group in February 2004;
under the agreement the China Group agreed to purchase $12 million of lasers and
products over the next twelve months. The agreement allowed for two one-year
extensions. As a result of the conversion of $1 million of DIP financing and the
conversion of its converible prefrered stock, the China Group became the
controlling shareholder of the Company in June of 2004, owning 72% of the common
stock.

Management of the Company continues undertaking steps as part of a plan
to attempt to continue to improve liquidity and operating results with the goal
of sustaining Company operations. These steps include seeking (a) to increase
sales; and (b) to control overhead costs and operating expenses.

There can be no assurance the Company can successfully accomplish these
steps. Accordingly, the Company's ability to continue as a going concern is

F-6

uncertain and dependent upon continuing to achieve improved operating results
and cash flows or obtaining additional equity capital and/or debt financing.
These consolidated financial statements do not include any adjustments to the
amounts and classification of assets and liabilities that might be necessary
should the Company be unable to continue in business.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These Consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company
transactions have been eliminated in consolidation.

Management makes estimates and assumptions during the preparation of
the consolidated financial statements relating to the reported amount of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the period. Significant items subject to such
estimates and assumptions include the carrying amount of property and equipment
and intangibles; and valuation allowances for receivables and inventories.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents consist of short-term, highly liquid
investments with original maturities of three months or less when purchased.

Credit Risk and Concentrations inherent in financial instruments that
potentially subject the Company to concentrations of credit risk consist
principally of trade accounts and notes receivable.

During 2004 and 2003, the Company received the vast majority of its
revenue from one customer, the China Group. Approximately $ 1,625,000 was due
from the China Group as of December 31, 2004. The loss this customer would have
a significant adverse affect on the Company's ability to continue as a going
concern.

The Company currently has two sole source providers for certain
inventory components. The loss of either of these two providers could have an
adverse effect on the company's operations

The Company formerly sold products to customers extending credit for
such sales. Exposure to losses on receivables was principally dependent on each
customer's financial condition and their ability to generate revenue from the
Company's products. The Company monitored its exposure for credit losses and
maintained allowances for anticipated losses. In 2003 a substantial portion of
its accounts and notes receivable were reserved as bad debt. Management believed
the bankruptcy filing; the change in the Company's management and the
elimination of warranty obligations made collections on these accounts highly
unlikely and wrote off $8.5 million against the allowance for doubtful accounts
in June of 2004.

Income taxes are accounted for under the asset and liability method.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based upon enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.

Inventories consist primarily of laser systems parts and components,
and are stated at the lower of cost or market. Cost is determined using the
standard cost method, which approximates cost determined on the first-in,
first-out method. In 2003 with the bankruptcy filing and the re-focus of the
Company on the China market, an inventory obsolescence reserve of $3.6 million
was recorded. In June and July 2004 $7.0 million of inventory was written off
against this reserve.

Property and Equipment is stated at cost. Furniture and equipment are
depreciated using the straight-line method over the estimated lives (three to
seven years) of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or estimated useful life
of the asset. Such depreciation and amortization is included in other general
and administrative expenses on the consolidated statements of operations.

F-7

Patents costs associated with obtaining patents are capitalized as
incurred and are amortized over their remaining useful lives (generally 17 years
or less).

Goodwill and Acquired Technology represented the excess of cost over
the fair value of net assets acquired and was amortized on a straight-line basis
over estimated useful lives up to 20 years. Management evaluated the carrying
value of goodwill using projected future undiscounted operating cash flows of
the acquired businesses.

Effective July 1, 2002, the Company adopted Statement of Financial
Accounting Standards (Statement) No. 142, "Goodwill and Other Intangible
Assets." Under Statement No. 142, intangible assets with definite lives are
required to be amortized to expense over the estimated useful life, and tested
for impairment at least annually, or on an interim basis when a triggering event
occurs, in accordance with Statement No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets." During the second quarter of 2003, the Company
performed an evaluation of its intangibles and determined that the fair value of
its intangibles was impaired and booked a $4.1 million adjustment.

Research and Development costs are charged to operations as incurred.
The cost of certain equipment used in research and development activities which
have alternative uses is capitalized as equipment and depreciated using the
straight-line method over the estimated lives (five to seven years) of the
assets.

Product Warranty Costs estimate future warranty obligations related to
the Company's products, typically for a period of one year. They are provided by
charges to operations in the period in which the related revenue is recognized.
In 2003, all approved claims received in bankruptcy, which were greater than the
accrued warranty balance, were recorded at $4.6 million. These warranty claims
would typically not have been recognized but future warranty reserves would have
been adjusted based on actual warranty costs.

The activity related to the Company's warranty reserve as of December 31, 2004
is as follows:

Balance, December 31, 2003 6,201,730
Warranty expense 408,034
Bankruptcy claims (6,123,730)
Costs incurred (82,834)
-----------
Balance, December 31, 2004 $ 403,200
===========

In June of 2004, as of the effective date of the reorganization plan, $6.1
million of the warranty reserves were relieved.

Extended Service Contracts were sold for product service contracts
covering periods beyond the initial warranty period. Revenues from the sale of
such contracts were deferred and amortized on a straight-line basis over the
term of the contracts. Service contract costs were charged to operations as
incurred. All open service contracts obligations were released in bankruptcy.
The Company no longer offers extended service contracts.

Revenue is generally recognized from the sale of products in the period
that the products are shipped to the customers. The Company recognizes revenue
from the sale of authorized procedure passwords at the time non-refundable
payment is received and a password is provided to perform procedures.

Royalty revenues from the license of patents owned are recognized in
the period earned. When the Company issues paid-up licenses, the revenue is
recognized over the remaining life of the patent licensed on a straight-line
basis.

F-8

The Company recognizes revenue from sales of its topography software in
accordance with Statement of Position (SOP) 97-2, "Software Revenue Recognition"
as amended by SOP 98-9, "Modification of SOP 97-2 with Respect to Certain
Transactions." Revenue is recognized when persuasive evidence of an arrangement
exits and delivery has occurred, provided the fee is fixed or determinable,
collectibility is probable and the arrangement does not require significant
customization or modification of the software.

Revenues in multiple element arrangements are allocated to each element
based upon the relative fair values of each element, based upon published list
prices in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables."

Cost of Revenues consist of product cost. Product cost relates to the
cost from the sale of the Company's products in the period that the products are
shipped to the customers.

Income (Loss) Per Share is computed using the weighted average number
of common shares outstanding. Diluted income (loss) per common share is computed
using the weighted average number of common shares and common share equivalents
outstanding during each period. Common share equivalents include options,
warrants to purchase Common Stock, and convertible Preferred Stock and are
included in the computation using the treasury stock method if they would have a
dilutive effect. Diluted loss per share for the year ended December 31, 2003 is
the same as basic loss per share.

Pursuant to EITF Nos. 98-5 and 00-27, the value of the conversion
discount on the Series H Convertible Participating Preferred Stock (Series H
Preferred Stock) issued in October 2002 was reflected as an increase to the loss
attributable to common stockholders through the period ending October 25, 2003.
The total conversion discount of $2,000,000 was limited by the proceeds from the
Series H Preferred Stock. Of this total, $1,935,350 was accreted to the
Company's loss attributable to common stockholders ratably over the twelve-month
period ending October 25, 2003. The remaining $64,650 would have increased the
Company's loss attributable to common stockholders during the period that an
effective registration statement was in place for the Series H Preferred Stock.
During 2003, approximately $1.6 million of such conversion discount was included
in the Company's loss attributable to common stockholders. On June 30, 2004 the
Preferred Stock was converted into Common Stock pursuant to the Company's
approved bankruptcy plan.

The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the years ended December 31, 2004 and
2003:

2004 2003
Numerator, basic and diluted:
Net income (loss) $ 14,690,013 (23,516,472)
Conversion discount on preferred stock - (1,581,587)
------------ -----------
Income (loss) attributable to common stockholders $ 14,690,013 (25,098,059)
============ ===========

Denominator, basic and diluted:
Weighted average shares outstanding,basic 18,870,000 27,842,000
============ ===========
Weighted average shares outstanding,diluted 28,100,000 27,842,000
============ ===========

Basic and diluted income (loss) per share:

Net income (loss) 0.78 (0.84)
Conversion discount on Preferred stock - (0.06)
------ -----
Income (loss) attributable to common stockholders-basic $ 0.78 (0.90)
====== =====
Income (loss) attributable to common stockholders-diluted $ 0.52 (0.90)
====== =====

F-9

In 2004, all options and warrants were deemed to be antidilutive due to
their exercise price. Preferred stock was included in the fully diluted
computation through the date of their conversion (June 30,2004). In 2003, all
options, warrants and convertible preferred stock were antidilutive.
The following unaudited table presents earnings per share figures as if this
reorganization of the capital structure had taken place as of the period
presented:
2004 2003
---- ----
Net income (loss) per common share - basic and diluted $1.47 $(2.51)
(unaudited)

Weighted average number of common shares outstanding -
basic and diluted (unaudited) 9,997,195 9,997,195

Long-lived assets are accounted for in accordance with Statement on
Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 provides a single accounting model
for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria
for classifying an asset as held for sale; and broadens the scope of businesses
to be disposed of that qualify for reporting as discontinued operations and
changes the timing of recognizing losses on such operations.

In accordance with SFAS No. 144, long-lived assets, such as property and
equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the estimated, undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.

Goodwill and intangible assets not subject to amortization are tested
annually for impairment, and are tested for impairment more frequently if events
and circumstances indicate that the asset might be impaired. An impairment loss
is recognized to the extent that the carrying amount exceeds the asset's fair
value. Under the provisions of SFAS No. 144, the Company did not recognize any
impairment charges in 2004, an impairment of $4.1 million was recognized in
2003.

Shipping and Handling Costs includes shipping and handling fees billed to
customers in product revenues. Shipping and handling costs associated with
outbound freight are included in selling related expenses and totaled $137,000
and $58,000 for the years ended December 31, 2004 and 2003, respectively.

Issuances of Equity Instruments to Non-Employees for services provided may
be periodically issued for common stock, stock options or warrants. The fair
value of such issuances are determined when the performance commitment by the
non-employee is reached using the Black Scholes option-pricing model. The fair
value would be recorded as operating expense in the period over which the
service is provided.

Stock Option Accounting applies the intrinsic value based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including FASB Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation," an interpretation of APB Opinion No. 25, issued
in March 2000, to account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. Statement No. 123,
"Accounting for Stock Based Compensation," established accounting and disclosure
requirements using a fair value based method of accounting for stock based
employee compensation plans. As allowed by Statement No. 123, the Company has
elected to continue to apply the intrinsic value based method of accounting
described above, and has adopted only the disclosure requirements of Statement
No. 123. The following table illustrates the effect on net income if the fair
value based method had been applied to all outstanding and unvested awards in
each period:

F-10

2004 2003
---- ----
Numerator, basic and diluted:
Net income(loss) attributable to common
stockholders $ 14,690,013 $ (25,098,059)
Additional compensation expense determined using
the fair value method - (762,108)
-----------------------------------
Pro forma Income(loss) $ 14,690,013 $ (25,860,167)
===================================

Denominator, basic and diluted:
Weighted average shares outstanding - basic 18,870,000 27,842,000
===================================
Weighted average shares outstanding - diluted 28,100,000 27,842,000
===================================

Basic and diluted income (loss) per share:

-----------------------------------
As reported Basic $ 0.78 $ (0.90)
===================================
Proforma Basic $ 0.78 $ (0.93)
===================================
As reported Diluted $ 0.52 $ (0.90)
===================================
Proforma Diluted $ 0.52 $ (0.93)
===================================

The per share weighted-average fair value of stock options granted
during the years ended December 31, 2003, was $0.03, on the dates of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions:

2003
Expected dividend yield 0%
Volatility 50%
Risk-free interest rate 4.5%
Expected life (years) 1.69

New Accounting Pronouncements

In December 2003, the FASB revised Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51"
which it had originally issued in January 2003. As revised, FIN 46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. As revised, application of
FIN 46 is required for interests in special-purpose entities for periods ending
after December 15, 2003. Application for all other types of entities covered by
FIN 46 is required in financial statements for periods ending after March 15,
2004. The adoption of FIN 46 as revised, is not expected to have a material
impact on our financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity". SFAS 150 requires that certain
financial instruments, which under previous guidance were accounted for as
equity, must now be accounted for as liabilities. The financial instruments

F-11

affected include mandatory redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares in exchange for
cash or other assets and certain obligations that can be settled with shares of
stock. SFAS 150 is effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, although certain aspects
have been delayed pending further clarifications. We do not expect the adoption
of SFAS 150 to have a material impact on our financial position or results of
operations.

In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No.
104 "Revenue Recognition" which codifies, revises and rescinds certain sections
of SAB No. 101, "Revenue Recognition", in order to make this interpretive
guidance consistent with current authoritative accounting and auditing guidance
and SEC rules and regulations. The changes noted in SAB No. 104 did not have a
material effect on our financial position or results of operations.

Recent Accounting Pronouncements

In March 2004, the FASB approved the consensus reached on the Emerging
Issues Task Force (EITF) Issue No. 03-1, "he Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The Issue's objective is
to provide guidance for identifying other-than-temporarily impaired investments.
EITF 03-1 also provides new disclosure requirements for investments that are
deemed to be temporarily impaired. In September 2004, the FASB issued a FASB
Staff Position (FSP) EITF 03-1-1 that delays the effective date of the
measurement and recognition guidance in EITF 03-1 until further notice. The
disclosure requirements of EITF 03-1 are effective with this annual report for
fiscal 2004. Once the FASB reaches a final decision on the measurement and
recognition provisions, the company will evaluate the impact of the adoption of
the accounting provisions of EITF 03-1. In December 2004, the FASB issued SFAS
No. 123R, "Share-Based Payment." SFAS No. 123R requires employee stock options
and rights to purchase shares under stock participation plans to be accounted
for under the fair value method, and eliminates the ability to account for these
instruments under the intrinsic value method prescribed by APB Opinion No. 25,
and allowed under the original provisions of SFAS No. 123. SFAS No. 123R
requires the use of an option pricing model for estimating fair value, which is
amortized to expense over the service periods. The requirements of SFAS No. 123R
are effective for fiscal periods beginning after June 15, 2005. If the company
had applied the provisions of SFAS No. 123R to the financial statements for the
period ending December 31, 2004, net income would have remained unchanged. SFAS
No. 123R allows for either prospective recognition of compensation expense or
retrospective recognition, which may be back to the original issuance of SFAS
No. 123 or only to interim periods in the year of adoption. The company is
currently evaluating these transition methods.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4." SFAS No. 151 amends the guidance in ARB No.
43, "Inventory Pricing," for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) requiring that those items be
recognized as current-period expenses regardless of whether they meet the
criterion of "so abnormal." This statement also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The statement is effective for inventory
costs incurred during the fiscal years beginning after June 15, 2005. Management
does not expect this statement to have a material impact on the Company's
consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29." APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. SFAS No. 153 amends APB Opinion No. 29, eliminating the
exception to fair value accounting for nonmonetary exchanges of similar
productive assets and replaces it with a general exception to fair value
accounting for nonmonetary exchanges that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The
statement is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Management does not expect this statement
to have a material impact on the Company's consolidated financial position or
results of operations.

NOTE 3 -- INTELLECTUAL PROPERTY

Patents
In August 1997, the Company finalized an agreement with International
Business Machines Corporation (IBM), in which the Company acquired certain
patents (IBM Patents) relating to ultraviolet light ophthalmic products and
procedures for ultraviolet ablation for $14.9 million. The total value was
capitalized and was being amortized over approximately 8 years prior to its sale
in March 2001. Under the agreement, IBM transferred to the Company all of IBM's
rights under its patent license agreements with certain licensees. Amortized
royalties from such assigned patent licenses totaled approximately $288,000, for
the year ended December 31, 2004.

In February 1998, the Company sold certain rights in certain of the IBM
Patents to Nidek Co., Ltd. for $6.3 million in cash (of which $200,000 was
withheld for the payment of Japanese taxes). The Company transferred all rights
in those patents issued in countries outside of the U.S. but retained the
exclusive right to use and sublicense the non-U.S. patents in all fields other
than ophthalmic, cardiovascular and vascular. The Company received a
non-exclusive license to the non-U.S. patents in the ophthalmic field. In
addition, the Company has granted a non-exclusive license to use those patents
issued in the U.S., which resulted in $1.2 million of deferred royalties that
were amortized to income over three years. The transaction did not result in any
current gain or loss, but reduced the Company's amortization expense over the
remaining useful life of the U.S. patents.

On March 1, 2001, the Company completed the sale of the IBM Patents for
a cash payment of $6.5 million. The Company retained a non-exclusive royalty
free license under the patent. The Company's net gain on the sale of the patent
was approximately $4.0 million. As of December 31, 2003, the unamortized
carrying value of the IBM patents was zero.

Keratome License
In September 1997, the Company acquired worldwide distribution rights
to the Ruiz-Lenchig keratome for the LASIK procedure and entered into a limited
exclusive license agreement for intellectual property related to the keratome
products. The agreement called for the Company to share the product's gross
profit with the licensors with defined minimum quarterly royalties. In January
2001, the Company entered into an amended and restated license and royalty
agreement related to the Company's keratome products. Under the terms of the
amendment, 730,552 shares of Common Stock were issued, valued at approximately
$1.1 million, in prepayment for royalties during the term of the license. The
term was extended until July 31, 2005.

In June 2002, the agreement was further amended to revise the payment
schedule and provide that the number of notice and cure periods relating to
delinquent payments would be limited to three. After the last notice and cure

F-12

period is used, if the Company fails to make a timely payment under the
agreement, the licensors have the right to immediately declare the Company in
default and accelerate the balance of the remaining unpaid payments.

The royalty rate was reduced from 50% to 10% of gross profits. The
value of the Common Stock issued and the minimum royalty payments was being
expensed on a straight-line basis through July 31, 2005 at a rate of
approximately $1.6 million annually, and was included in selling related
expenses. In May 2003 the Company received a default notice and the remaining
balance of $3,471,613 was expensed to selling related expenses.

NOTE 4 -- ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable at December 31, 2004 were net of
allowance for uncollectibles of approximately $624,000. During 2004
approximately $8,410,000 in accounts and notes receivable, net of associated
commissions and bad debt recoveries, were written off against allowance for
doubtful accounts.

The Company formerly provided internal financing for sale of its laser
systems. Sales for which there are no stated interest rate are discounted at a
rate of eight percent, an estimate of the prevailing market rate for such
purchases. Note receivable payments due within one year are classified as
current. Maturity dates of long-term notes receivable balances, less an
allowance for uncollectibles, at December 31, 2004 are as follows:

Due in 2005 $ 58,115

NOTE 5 -- INVENTORIES

The components of inventories, net of reserves, at December 31, 2004
are summarized as follows:

Raw materials $ 1,412,787
Work in process 362,348
Finished goods 90,789
-----------
1,865,924
Allowance for obsolescence (150,000)
------------
$ 1,715,924
===========

F-13

NOTE 6 -- PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2004 are as follows:

Leasehold improvement $ 305,014
Furniture & equipment 832,859
Laboratory equipment 1,811,130
----------
2,949,003

Less accumulated Depreciation and amortization 2,839,654
----------
$ 109,349
==========

NOTE 7 -- OTHER ASSETS

Patents, acquired intangibles and other assets at December 31, 2004 are
as follows:

2004
----
Diagnostic patents, net of accumulated
amortization of $50,088 in 2004 $ 449,912

Deposits 401,867
Deferred financing costs, net 254,343
-----------
$ 1,106,122
===========

During 2003, the Company recorded an impairment loss of approximately
$4.1 million related to Keratome, acquired technology and diagnostic patents.
Management decided to write-off the assets due to a lack of a potential market
for its acquired technology.

Acquired Intangible Assets

As of December 31, 2004 acquired intangible assets were comprised of the
following:

Gross Carrying
December 31, 2004 Amount Accumulated Amortization

Diagnostic Patents $ 500,000 $ (50,088)
========= =========
December 31, 2003
Diagnostic Patents $ 500,000 $ (16,572)
========= =========

Aggregate amortization expense for
the year ended December 31, 2004 $ 33,516
=========
Aggregate amortization expense for
The year ended December 31, 2003 $ 246,690
=========

F-14

Estimated amortization expense for
The five years subsequent to December 31,

2005 33,516
2006 33,516
2007 33,516
2008 33,516
2009 33,516

NOTE 8 -- EMPLOYEE BENEFIT PLANS

401(k) Plan
The Company has a 401(k) plan for the benefit of substantially all of
its full-time employees. The plan provides, among other things, for
employer-matching contributions to be made at the discretion of the Board of
Directors. Employer-matching contributions vest over a seven-year period. The
Company pays administrative expenses of the plan. For the years ended December
31, 2004 and 2003, expense incurred related to the 401(k) plan, including
employer-matching contributions, if any, was approximately $11,000 and $6,000,
respectively.

Employee Stock Purchase Plan
The Company has a qualified Employee Stock Purchase Plan (ESPP), the
terms of which allow for qualified employees (as defined) to participate in the
purchase of designated shares of the Company's Common Stock at a price equal to
the lower of 85% of the closing price at the beginning or end of each
semi-annual stock purchase period. The Company issued no shares of Common Stock
during 2004 and 2003, pursuant to this plan.

NOTE 9 -- NOTES PAYABLE

On March 12, 2001, the Company entered into a loan agreement with GE,
for a $3.0 million term loan at an annual interest rate of prime plus 2.5%
(7.75% at December 31, 2004) and a revolving loan in an amount of up to 85% of
eligible receivables related to U.S. sales, but not more than $10.0 million, at
an annual interest rate of prime plus 1.25% (6.5% at December 31, 2004).
Including amortization of financing costs, discount on note payable and other
fees, the effective interest rate on the term loan was 13%, during 2004 and
2003. In connection with the loans, the Company paid an origination fee of
$130,000 and issued warrants to purchase 243,750 shares of Common Stock. The
warrants were recorded as a discount to note payable based on their fair value
on the date of issuance, approximately $123,000, determined using the Black
Scholes option-pricing model, and were amortized to interest expense over the
original term of the loan. At the termination of the loan, an additional fee of
$148,125 will be payable to GE. This was amortized over the life of the note.
The warrants were exercisable at any time from March 12, 2001 through March 12,
2004 at an exercise price per share of $3.15. These warrants expired on March

F-15

12, 2004 Borrowings under the loan agreement were collateralized by
substantially all of the Company's assets. The original loan agreement required
the Company to meet certain covenants, including the maintenance of a minimum
level of net worth.

Effective February 15, 2002, the Company's covenants on the term note
payable to GE were amended to decrease the required minimum level of net worth
and establish a minimum level of tangible net worth and minimum quarterly
revenues during 2002. In addition, monthly principal payments of $10,000 began
in February 2002, increasing to $20,000 monthly in June 2002 and $30,000 monthly
in October 2002.

On August 15, 2002, the Company's loan agreement with GE was amended a
second time. GE provided a waiver of the Company's failure to comply with
certain financial covenants under the loan agreement pending the funding of the
equity portion of the China Transaction (see note 11). Upon receipt of the
equity investment in October 2002, revised covenants became effective that
decreased the required minimum level of net worth to $2.1 million, decreased
minimum tangible net worth to negative $2.8 million and decreased minimum
quarterly revenues during the third quarter of 2002 to $2.5 million, the fourth
quarter of 2002 to $4.2 million and the first quarter of 2003 to $5.3 million.
In exchange for the waiver and revised covenants, the Company paid $150,000 in
principal to GE upon the receipt of the equity investment in October 2002 and
agreed to increase other monthly principal payments to $60,000 in October 2002
and $40,000 during each of November and December 2002 and January 2003. The
remaining principal balance was originally due on March 12, 2003. The Company
was never able to borrow under its revolving credit facility due to eligible
receivables related to U.S. sales. The term loan was in default at December
31,2003.

On August 30, 2004 the Company signed a three-year amended note
expiring on June 30, 2007. The note bears interest of 9%. Certain covenants were
modified as follows: net worth $750,000, tangible net worth $1,000,000 and
quarterly revenues of $1,000,000. The Company currently is in default on some of
its loan covenants and is attempting to negotiate amended loan terms;
accordingly, the loan balance has been classified as a current liability. GE was
issued a warrant to purchase 100,000 shares of common stock at $0.25 per share,
or $0.40 per share if the China Group converts their DIP loan to equity. The
warrant expires June 30, 2008.

Interest paid during 2004 and 2003 approximated $ 434,000 and $350,000,
respectively.

As part of the confirmed re-organization plan of bankruptcy the 2002
and 2003 property taxes assessed were converted into a six-year note which bears
12% interest. The note was established on June 30, 2004 for aproximately
$120,500.

Future minimum principal payments for the next five years are as
follows:

2005 $ 1,748,000
2006 $ 20,000
2007 $ 1,020,000
2008 $ 20,000
2009 $ 20,000
Thereafter $ 11,000
-----------
$ 2,839,000
===========
F-16

NOTE 10 -- DEFERRED REVENUE

Deferred revenue at December 31, 2004 is as follows:

2004

Deferred royalty revenue 4,802,701
Less long-term portion 3,907,461
-----------
current Portion $ 895,240
===========

During 2001, the Company received a total of $6.5 million in cash from
two third parties for a non-exclusive license agreement to its U.S. Patent No.
RE 37,504 (`504 Scanning Patent) and another patent. Of the total, $0.8 million
was recorded as a payable to TLC Laser Eye Centers Inc. under a license sharing
agreement. This obligation was settled in bankruptcy. In May 2002, the Company
received a total of $2.6 million in cash from two third parties for
non-exclusive license agreements to its `504 Scanning Patent. These receipts
were recorded as deferred revenue and is being amortized to revenue over the
life of the patent, approximately 10 years.

NOTE 11 -- STOCKHOLDERS' EQUITY

On August 15, 2002, the Company executed definitive agreements with the
China Group that specializes in advanced medical treatment services, medical
device distribution and medical project investment. The transaction established
a strategic relationship that includes the commitment to purchase at least $10.0
million worth of Company products during the 12-month period following the
signing of the definitive agreements, distribution of Company products in
Mainland China, Hong Kong, Macao and Taiwan, and a $2.0 million investment in
the Company. Under the terms of the agreements, the products purchased were
being paid by irrevocable letters of credit, confirmed by a U.S. bank and
payable upon presentation of shipping documents.

In October 2002, the investment called for under the agreements with
the China Group was completed. In exchange for its $2.0 million investment, the
Company issued the China Group 9,280,647 shares of Series H Convertible
Preferred Stock that, subject to certain restrictions, could be converted into
18,561,294 shares of the Company's Common Stock and result in the purchaser
holding approximately 40% of the Company's Common Stock. Of the 9,280,647 shares
of Series H Preferred Stock that were issued, 8,980,647 shares could not be
converted until the first to occur of (i) the one-year anniversary of the date
the Series H Preferred Stock was issued, (ii) the Company's failure to deliver
products in accordance with the delivery schedule set forth under the terms of
the agreements with the China Group, or (iii) the Company has received payment
for at least $10.0 million worth of its products to be sold pursuant to the
terms of the agreements with the China Group. The remaining 300,000 shares were
held by Benchmark Capital & Finance, Inc. and were purchased by the China Group
in 2003. After October 25, 2004, each share of Series H Preferred Stock then
outstanding would have automatically converted into two shares of common stock.
A conversion discount on the Series H Preferred Stock of approximately $2.0
million was accreted to the Company's loss over a period of one year from the
October 25, 2002 issuance date. See note 2. These shares were cancelled in
bankruptcy, see note 17.

In April 2002, the Company settled litigation related to its stock
subscription receivable and, during 2002, received approximately $82,000 with a
commitment for an additional total of approximately $64,000 to be paid in four
quarterly installments beginning in July 2002. Two installments were received in
July and October 2002. The remaining installments were received in January and
April 2003.

F-17

During the years ended December 31, 2004 and 2003, LaserSight received
no money from the exercise of warrants, stock options and the Employee Stock
Purchase Plan.

Stock warrant activity during the periods indicated is as follows:

Weighted
Shares Average
Under Exercise
Warrant Price

Balance at December 31, 2002 1,912,768 $ 3.43
Terminated (821,518) $ 2.88
-----------------

Balance at December 31, 2003 491,250 $ 4.13
Granted 100,000 $ 0.25
Terminated (491,250) $ 4.13
-----------------

Balance at December 31, 2004 100,000 $ 0.25
=================

In June 2004 all outstanding warrants were cancelled pursuant to the
Company's re-organization plan. See note 17.

F-18

NOTE 12 -- STOCK OPTION PLANS

Options are currently issuable by the Board of Directors under the 1996
Equity Incentive Employee Plan (1996 Incentive Plan) and the LaserSight
Incorporated Non-employee Directors Stock Option Plan (Directors Plan), both of
which were approved by the Company's stockholders in June 1996, and which were
last amended in July 2001 and June 1999, respectively.

Under the 1996 Incentive Plan, as amended, employees of the Company are
eligible to receive options, although no employee may receive options to
purchase greater than 750,000 shares of Common Stock during any one year.
Pursuant to terms of the 1996 Incentive Plan, as amended, 5,250,000 shares of
Common Stock may be issued at exercise prices of no less than 100% of the fair
market value at date of grant, and options generally become exercisable in four
annual installments on the anniversary dates of the grant.

The Directors Plan, as amended, provides for the issuance of up to
500,000 shares of Common Stock to directors of the Company who are not officers
or employees. Grants to individual directors are based on a fixed formula that
establishes the timing, size, and exercise price of each option grant. At the
date of each annual stockholders' meeting, 15,000 options will be granted to
each outside director, and 5,000 options will be granted to each outside
director that chairs a standing committee, at exercise prices of 100% of the
fair market value as of that date, with the options becoming fully exercisable
on the first anniversary date of the grant. The options will expire in ten years
or three years after an outside director ceases to be a director of the Company.

Stock option activity for all plans during the periods is as follows:

Wtd. Avg.
Shares Exercise
Under Price
Option -----
------

Balance at December 31, 2002 4,718,084 $ 4.22
Granted 150,000 $ 0.10
Terminated (3,789,196) $ 4.46
---------- ----

Balance at December 31, 2003 1,078,888 $ 2.82
Granted -
Terminated (1,078,888) $ 2.82
----------
Balance at December 31, 2004 - $ 0.0
==========
All outstanding options were cancelled June 30, 2004 pursuant to the
Company's re-organization plan. See note 17. The following table summarizes the
information about stock options outstanding and exercisable at December 31,
2003:

F-19

Range of Exercise Prices
------------------------
$0.10-$3.03 $3.75-$8.13 $9.72-$16.63
----------- ----------- ------------
Options outstanding:
Number outstanding at
December 31, 2003 788,667 168,221 122,000
Weighted average
remaining contractual
life 5.05 years 2.56 years 2.03 years
Weighted average
exercise price $ 0.79 4.96 13.53

Options exercisable:
Number exercisable at
December 31, 2003 764,668 169,221 124,000
Weighted average
exercise price $ 0.81 4.93 13.31

NOTE 13 -- INCOME TAXES

There was no federal or state income tax expense for each of the years
ended December 31, 2004 and 2003. In 2003 a federal tax refund from tax year
1995 was received of $57,708.

Deferred tax assets and liabilities consist of the following components as of
December 31, 2004:

2004
----

Deferred tax liabilities: -

Deferred tax assets:
Acquired technology 1,159,000
Inventory 75,000
Receivable allowance 235,000
License fees 1,807,000
Warranty accruals 152,000
Property and equipment 153,000
NOL carry forward 34,182,000
Other tax credits 397,000
---------------
38,160,000
Valuation allowance (38,160,000)
---------------
Net deferred tax asset (liability) -
===============

Realization of deferred tax assets is dependent upon generating
sufficient taxable income prior to their expiration. Management believes that
there is a significant risk that these deferred tax assets may expire unused
and, accordingly, has established a valuation allowance against them.

F-20

There were no payments for income taxes during the years ended December
31, 2004 and 2003.

At December 31, 2004, the Company has net operating loss carry forwards
for federal income tax purposes of approximately $94 million which may be
available to offset future federal taxable income and begin to expire in the
year 2018. The utilization of the Company's net operating losses and credit
carry forwards are severely limited under Section 382 of the Internal Revenue
Code due to changes in the ownership of the company. In addition, the Company
has other tax credit carry forwards of approximately $256,000 that begin to
expire in the year 2007.

For the years ended December 31, 2004 and 2003, the difference between the
Company's effective income tax provision and the "expected" tax provision,
computed by applying the federal statutory income tax rate to loss before
provision for income taxes, is reconciled below:

2004 2003
---- ----

"Expected" tax benefit $ 4,994,604 $ (7,995,601)
State income taxes, net
of federal income tax benefit 403,975 (646,703)

Nondeductible expenses 10,326 13,168

Valuation allowance (5,408,905) 8,629,136
Other items, net - -
-----------------------------------
Income tax expense $ - $ -
===================================

NOTE 14 -- SEGMENT INFORMATION

At December 31, 2004, the Company's continuing operations principally
include refractive products and patents. Refractive product operations primarily
involve the development, manufacture, and sale of ophthalmic lasers and related
devices for use in vision correction procedures. Patent services involve the
revenues and expenses generated from the ownership of certain refractive laser
procedure patents.

Operating profit is total revenue less operating expenses. In
determining operating profit for operating segments, the following items have
not been considered: general corporate expenses; non-operating income and
expense; and income tax expense. Identifiable assets by operating segment are
those that are used by or applicable to each operating segment. General
corporate assets consist primarily of cash, marketable equity securities and
income tax accounts.

Segment information is as follows:

F-21

2004 2003
---- ----
Operating revenues:
Refractive products $ 6,972,910 $ 5,497,937
Patent services 939,240 939,240
--------------------------------
Total revenues $ 7,912,150 $ 6,437,177
================================
Operating profit (loss):
Refractive products 266,538 (22,988,209)
Patent services 939,240 939,240
General corporate (795,957) (1,481,068)
--------------------------------
Loss from operations $ (409,821) $ (23,530,037)
================================

Impairment and inventory reserve costs of $8.0 million are included in
operating loss of refractive products in 2003.

2004 2003
---- ----
Identifiable assets:
Refractive products $ 4,870,266 $ 4,557,092
Patent services - -
General corporate assets 255,304 417,788
-------------------------------
Total assets $ 5,125,570 $ 4,974,880
===============================

Depreciation and amortization:
Refractive products $ 99,385 $ 627,786
Patent services - -
General corporate - 841
-------------------------------
Total depreciation and amortization $ 99,385 $ 628,627
===============================

Amortization of deferred financing costs and accretion of discount on
note payable of $81,036 and $12,246 for the years ended December 31, 2004 and
2003, respectively, is included as interest expense in the table below.

F-22

2004 2003
---- ----
Capital expenditures:
Refractive products $ 109,689 $ 13,897
General corporate - -
-------------------------------
Total capital expenditures $ 109,689 $ 13,897
===============================

Interest & other income:
Refractive products $ 20,297 $ 50,424
General corporate 312,046 255,553
-------------------------------
Total interest income $ 332,343 $ 305,977
===============================

Interest expense:
General corporate $ 520,143 $ 35,120
===============================

The following table presents the Company's refractive products segment
net revenues by geographic area, based on location of customer, for the two
years ended December 31, 2004. The individual countries shown generated net
revenues of at least 10% of the total segment net revenues for at least one of
the years presented.

2004 2003
---- ----
Geographic area:
China $ 6,176,666 $ 4,373,545
Africa * 744,678
Other 796,244 379,714
-------------------------------
Total refractive product revenues $ 6,972,910 $ 5,497,937
===============================

* Less than 10% of annual segment revenues.

Export sales are as follows:
2004 2003
---- ----
North and Central America $ 160,442 $ 352,087
South America 33,404 27,627
Asia 6,176,666 4,367,013
Europe 505,275 -
Africa 130,527 744,678
-------------------------------
$ 6,972,910 $ 5,497,937
===============================

The geographic areas above include significant sales to the following
countries: North and Central America -Mexico; South America - Brazil; Asia -
China and Malaysia; Europe - Spain, Italy, Israel and Africa. In the Company's
experience, sophistication of ophthalmic communities varies by region, and is
better segregated by the geographic areas above than by individual country.

F-23

Revenues from one customer of the refractive products segment totaled
approximately $6.2 million in 2004 or 78% and $4.2 million in 2003 or 66% of the
Company's consolidated revenues. See notes 15 and 17. This customer is a related
party who owns 72% of the Company's stock.

NOTE 15 --RELATED PARTY TRANSACTIONS

During 2000, the Company sold one laser system to a physician
associated with a director of the Company for $240,000. At the time of the sale,
the Company expected the physician to obtain third party financing for the
system and to be paid in full. Since that time, the physician financed and paid
the Company $100,000 and began making monthly payments towards the balance. As
of December 31, 2003, $72,765 is included in notes receivable and the Company
is receiving approximately $4,000 per month. During the year ended December 31,
2003, the Company additionally recognized procedure fee revenues of
approximately $13,550 related to this laser. As of December 31, 2004, $58,115 is
included in notes receivable and the Company is receiving approximately $3,000
per month. During the year ended December 31, 2004, the Company additionally
recognized procedure fee revenues of approximately $6,000 related to this laser.

On August 15, 2002, the Company executed definitive agreements with the
China Group. The China Group specializes in advanced medical treatment services,
medical device distribution and medical project investment. The transaction
established a strategic relationship that included the commitment to purchase at
least $10.0 million worth of Company products during the 12-month period
following the signing of the definitive agreements, distribution of Company
products in mainland China, Hong Kong, Macao and Taiwan, and a $2.0 million
investment in the Company. Under the terms of the agreements, the products
purchased were being paid by irrevocable letters of credit, confirmed by a U.S.
bank and payable upon presentation of shipping documents. In October 2002, the
investment called for under the agreements with the China Group was completed.
In exchange for its $2.0 million investment, the Company issued the China Group
9,280,647 shares of Series H Convertible Preferred Stock that, subject to
certain restrictions, could be converted into 18,561,294 shares of the Company's
Common Stock and result in the purchaser holding approximately 40% of the
Company's Common Stock. In 2003 and 2004, The China Group provided $2.0 million
of debtor-in-possession financing, with $750,000 received as of year-end 2003.
The DIP financing was an interest only note, at 9%. The note matured when the
Company's re-organization was conformed by the bankruptcy court or April 30,
2004, which ever occurred first. The re-organization plan as confirmed included
a provision for $1 million to be converted to 6,850,000 new common shares. The
remaining $1 million was converted into a three-year interest only note. The
note bears an interest rate of 9% and has a balloon payment due June 30, 2007.
The China Group has the option to convert the remaining $1 million for an
additional 2,500,000 common shares.

A new purchase agreement was signed with the China Group in February
2004, where they agreed to purchase $12 million of lasers and products over the
next twelve months and the previous agreement was cancelled. The new agreement
allows for two one-year extensions. The extentions are currently under
negotiation.

Revenues from the China Group approximated $ 6.2 million and $ 4.2
million for the years ended December 31, 2004 and 2003, respectively.

NOTE 16--COMMITMENTS AND CONTINGENCIES

Former MRF, Inc. Shareholder

In November 1999, a lawsuit was filed on behalf of a former shareholder
of MRF, Inc. (the Subsidiary), a wholly owned subsidiary of the Company. The
lawsuit named the Company's then chief executive officer as the sole defendant
and alleged fraud and breach of fiduciary duty in connection with the redemption
by the Subsidiary of the former shareholder's capital stock in the Subsidiary.
At the time of the redemption, which redemption occurred prior to the Company's
acquisition of the Subsidiary, the Company's former chief executive officer was
the president and chief executive officer of the Subsidiary. The Company's Board
of Directors authorized the Company to retain and, to the fullest extent
permitted by the Delaware General Corporation Law, pay the fees of counsel to

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defend the Company's chief executive officer, the Subsidiary and the Company in
the litigation so long as a court had not determined that the Company's chief
executive officer failed to act in good faith and in a manner he reasonably
believed to be in the best interest of the Subsidiary at the time of the
redemption. During 2002, the Company agreed to the terms of a settlement with
the plaintiff. The terms of the settlement required three payments totaling
$140,000. The first payment of $50,000 was paid in October 2002. The second
payment of $45,000 was due in September 2003, and the third payment of $45,000
was due in March 2004. All of the payments were to be made without interest
unless there were to be a default in payment in which event interest would
accrue at 9%. During 2002, the Company recorded expense of $140,000 related to
this settlement. This creditor did not file a proof of claim in the bankruptcy
case and accordingly the claim was discharged in bankruptcy.

Lambda Physik
-------------

In January 2000, a lawsuit was filed on behalf of Lambda Physik, Inc.
(Lambda) alleging that the Company was in breach of an agreement it entered into
with Lambda for the purchase of lasers from Lambda. Lambda had requested
approximately $1.9 million in damages, plus interest, costs and attorney's fees.
The Company has since successfully argued for a change in venue to Orange
County, Florida. After no activity for over a year, the plaintiff filed a motion
in July 2002 to have the court set a trial date, which they set for December
2002. Subsequently, the plaintiff filed a motion for continuance of the trial to
allow the parties an opportunity to settle the dispute. In October 2002, the
court entered an order continuing the trial and will reschedule only upon the
filing of a new notice for trial by either party. The Company believes that the
allegations made by the plaintiff were without merit. Management believed that
the Company had satisfied its obligations under the agreement and that this
action would not have a material adverse effect on the Company's financial
condition or results of operations. This action was eliminated in bankruptcy.
See note 17.

Kremer
------

In November 2000, a lawsuit was filed in the United States District
Court for the Eastern District of Pennsylvania on behalf of Frederic B. Kremer,
M.D. and Eyes of the Future, P.C. alleging that the Company was in breach of
certain terms and conditions of an agreement it entered into with Dr. Kremer
relating to the Company's purchase of a patent from Dr. Kremer. Dr. Kremer had
requested equitable relief in the form of a declaratory judgment as well as
damages in excess of $1.6 million, plus interest, costs and attorney's fees. The
parties had agreed to postpone discovery and attempted to agree on the final
form of a settlement with the plaintiffs. The terms of the settlement agreement,
as contemplated, would not require the Company to make any cash payments. The
Company believed that the allegations made by the plaintiff were without merit.
Management believed that the Company had satisfied its obligations under the
agreement and that this action would not have had a material adverse effect on
the Company's financial condition or results of operations. This action was
eliminated in bankruptcy. See note 17.

Former U.S. Distributors
------------------------

In October 2001, three entities that previously served as distributors
for LaserSight's excimer laser system in the United States, Balance, Inc. d/b/a
Bal-Tech Medical, Sun Medical, Inc. and Surgical Lasers, Inc., filed a lawsuit
in the Circuit Court of the Ninth Judicial Circuit, Orange County, Florida. The
lawsuit named the Company, its then chief executive officer and then vice
president of sales, as defendants. The lawsuit alleged various claims related to
the Company's termination of the distribution arrangements with the plaintiffs
including breach of contract, breach of the covenant of good faith and fair
dealing, tortuous interference with business relationships, fraudulent
misrepresentation, conversion and unjust enrichment. Plaintiffs requested actual
damages in excess of $5.0 million, punitive damages, prejudgment interest,
attorneys' fees and costs and other equitable relief. The Company filed a motion
for summary judgment that was denied. The Company then filed an answer and
counterclaim. The plaintiffs had answered the counterclaim and had moved to

F-25

strike some of the Company's affirmative defenses and the Company had moved to
strike portions of the plaintiff's answer. In March 2003, one of the three
entities agreed to dismiss all of their claims with prejudice. Management
believed that LaserSight Technologies had satisfied its obligations under the
distribution agreements, and that the allegations against LaserSight
Technologies, Mr. Farris and Mr. Spivey were without merit. As a result of the
September 2003 Chapter 11 petition, and subsequent re-structuring, claims such
as these have been resolved with the issuance of a portion of the 9,997,195 new
common shares.

Italian Distributor

In February 2003, an Italian court issued an order restraining the
Company from marketing its AstraPro software at a trade show in Italy. This
restraining order was issued in favor of LIGI Tecnologie Medicali S.p.a. (LIGI),
a distributor of the Company's products, and alleges that its AstraPro software
product infringes certain European patents owned by LIGI. The Company retained
Italian legal counsel to defend the Company in this litigation, and the Company
was informed that the Italian court has revoked the restraining order and had
ruled that LIGI must pay the Company's attorney's fees in connection with its
defense of the restraining order. In addition, the Company's Italian legal
counsel informed the Company that LIGI had filed a motion for a permanent
injunction. The Company believes that its AstraPro software does not infringe
the European Patents owned by LIGI, but due to cash flow constraints the Company
has not been able to continue to defend its rights to distribute the AstraPro
software in the European markets. Management believes that the outcome of this
litigation will not have a material adverse impact on the Company's financial
condition or results of operations. Since the Chapter 11 petition does not apply
to foreign courts, this action is still pending.

Lease Obligations

The Company leases office space and certain equipment under operating
lease arrangements.

Future minimum payments under non-cancelable operating leases, with
initial or remaining terms in excess of one year, as of December 31, 2004 are
approximately as follows:

2005 192,000
2006 77,000

Rent expense during 2004 and 2003 was approximately $183,000 and
$397,000, respectively.

Other Commitments

The Company owes royalties to third parties on certain products sold,
primarily international laser sales, generally at a rate of 6% of the sales
price after certain adjustments. Such royalties are expensed at the time of sale
and paid quarterly based on cash collections in accordance with the license
agreement.

NOTE 17 - VOLUNTARY REORGANIZATION UNDER CHAPTER 11

Bankruptcy Proceedings

On September 5, 2003, the Company and two of its subsidiaries filed a
voluntary petition for relief in the Bankruptcy Court under Chapter 11. The
Debtors continued to operate their businesses as debtors-in-possession through
the close of business June 9, 2004. The Company filed a plan of reorganization
(the Plan) with the Bankruptcy Court on April 28, 2004 the Bankruptcy Court
confirmed the Plan. The Company emerged from Chapter 11 on June 10, 2004. A
final decree was issued on December 22, 2004.

F-26

Under Chapter 11, certain claims against the Company in existence prior
to the filing of the petitions for relief under the federal bankruptcy laws were
stayed while the Company continued business operations as debtor-in-possession.
These claims were relieved by the issuance of stock to creditors in 2004. The
majority of secured claims were held by Heller Healthcare Finance, Inc and GE
Healthcare Financial Services, Inc., as successor-in-interest to Heller
(collectively "GE").

Restructuring Charge

Additionally, the company recognized reorganization charges of
approximately $7.6 million during 2003. The Company recognized the following
expenses in 2003:

Write off patents $ 4,098,607
Inventory obsolescence 3,588,039
Other (54,373)
-----------
$ 7,632,273
===========

The inventory obsolescence was classified as part of cost of revenues.

Bad debt reserve 2,578,304
Accrued commissions/licenses (2,210,174)
-----------
Net bad debt expense 368,130
===========

Additional expenses recognized per approved bankruptcy claims:

Warranty reserve $ 4,640,319
Salaries/severance 791,307
General & administrative 68,253
-----------
$ 5,499,879
===========

The China Group owned 40% of the Company before bankruptcy and they own
72% of the Company after bankruptcy. The fresh start provisions of SOP 90-7 are
followed if the pre-petition shareholders do not control more than 50% of the
post-petition entity. The Company determined that since this was not the case,
that fresh start reporting could not be adopted.

All professional expenses related to the bankruptcy have been expensed
as occurred. $110,000 of professional fees for legal services was paid for in
2003 and $400,000 in 2004. As a result of the September 2003 Chapter 11
petition, and subsequent re-structuring, all legal claims, except for the LIGI
claim, have been resolved with the issuance of a portion of the 9,997,195 new
common shares. Since the Chapter 11 petition does not apply to foreign courts,
the LIGI action is still pending.

Confirmation

On April 28, 2004, the Bankruptcy Court confirmed the Re-organization
Plan. The effective date of the Plan was June 30, 2004. On December 22, 2004 a
final decree of bankruptcy was issued.

On June 30, 2004, the Company cancelled all outstanding stock, options and
warrants and issued 9,997,195 new shares of common stock. The shares were
distributed as follows:

F-27

Creditors of LSI 1,116,000
Creditors of LST 1,134,000 (1)
Old Preferred Stockholders 360,000
Old common stockholders 539,997 (2)
Cancel treasury stock (2,802)
Conversion of $1 million DIP
Financing 6,850,000
---------
9,997,195
=========

(1) These shares were issued in January of 2005, after a creditor objection to
claim was settled.

(2) The old common stock was converted at a ratio of 51.828 to 1. Due to
rounding on conversion only 539,997 shares were issued.

In June of 2004, the effective date of the re-organization plan, the
following liabilities were relieved:

Accounts Payable $ 2,905,814
Accrued TLC license fee 825,500
Accrued salaried/severance 235,367
Accrued warranty 6,125,730
Accrued Ruiz license fees 3,471,613
Deposits/service contracts 720,399
Other accrued expenses 1,331,711
------------
15,616,134
Stock issued to creditors (328,500)
------------
Gain on forgiveness of debt $ 15,287,634
============

In June 2004, $8.4 million of accounts and notes receivable were written
off against the allowance for doubtful accounts.

F-28