Edgar Filing: LASERSIGHT INC /DE

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(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, 2001
OR
( ) 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) (I.R.S. Employer
Identification No.)

3300 University Blvd, Suite 140, 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
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None N/A
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Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $.001
Preferred Share Purchase Rights
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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 X No
---
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. ( )

The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sale price on March 29, 2002 was
approximately $13,904,258. 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 March 29, 2002:
26,554,168.

DOCUMENTS INCORPORATED BY REFERENCE

The information required to be included in Part III is incorporated
herein by reference to the Company's definitive proxy materials to be filed with
the Securities and Exchange Commission on or before April 30, 2002.

LASERSIGHT INCORPORATED

TABLE OF CONTENTS

PART I

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

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

PART II

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

Item 6. Selected Consolidated Financial Data

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplemental Data

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

PART III

Item 10. Directors and Executive Officers

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relations and Related Transactions

PART IV

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

The information in this Annual Report on Form 10-K 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 and
Uncertainties-We have experienced significant losses and operating cash flow
deficits and we expect that operating cash flow deficits will continue and
absent further financing or significant improvement in sales, potentially result
in our inability to continue operations." Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in Item 7
under the caption "Risk Factors and Uncertainties" 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

OVERVIEW

We develop, manufacture and market quality product technologies for
laser refractive surgery and other areas of vision correction. Our products
include precision microspot scanning excimer laser systems used to perform
procedures that correct common refractive vision disorders such as
nearsightedness (myopia), farsightedness (hyperopia) and astigmatism, software
for custom ablation planning and programming, diagnostic products for precision
measurements of the eye, as well as keratome systems, keratome blades, and other
products for use in refractive vision correction procedures. We believe that our
precision microspot scanning lasers have significant technological advantages
and produce smoother and more precise ablation areas than older, broad-beam
laser systems and other scanning systems offered by many of our competitors. We
also believe that the breadth of our product offering may provide us with a
competitive advantage relative to many other excimer laser system manufacturers
because it provides us with a platform to become a single-source supplier of
refractive vision correction products to refractive surgeons. Moreover, due to
the anticipated growth in refractive laser vision correction procedure volume,
our broad product offering affords us the opportunity to generate recurring
revenues by collecting per procedure fees and by selling our keratome blades.

We have significant liquidity and capital resource issues. See
"--LaserSight Recent Developments" for an important discussion of our
significant liquidity and capital resource issues relative to the timing of our
accounts receivable collection and the completion of new sales compared to our
ongoing payment obligations. Management expects 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 only the next two to four weeks in
the absence of LaserSight obtaining an additional source of capital or a
significant improvement in our cash flows from operations. Our expectations
regarding 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 and collect new and
outstanding accounts receivable and 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 likely be unable to continue operations for the expected two to four
week period in the absence of obtaining additional sources of capital. We are
actively seeking investors to invest in the range of $1.5 million to $3.0
million, as well as distribution agreements for certain products, which would
provide temporary relief from our current liquidity pressures. If we are able to
enter transactions to meet our liquidity needs, it could be on terms that
seriously dilute our present stockholders or significantly restrict the
flexibility of our business.

We have over eight 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. As a result, we believe that our
installed base of approximately 400 scanning laser systems, including over 220
of our most advanced laser system, the LaserScan LSX(R), is among the largest
installed bases of scanning laser systems in the industry. 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. 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 U.S. and international markets operate at a pulse repetition rate of
200 Hz, which we believe is the fastest pulse repetition rate available in our
industry. We currently have pending with the FDA Pre-Market Approval (PMA)
Supplement applications seeking approval for the use of our laser system for the
LASIK treatment of farsightedness, farsightedness with astigmatism and mixed
astigmatism. Our AstraScan features incorporate 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. 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 currently pursuing FDA
approval through a combination of a real time PMA Supplement and other
regulatory pathways.

Our family of products for custom refractive treatments (often referred
to as custom ablations) includes the AstraMax(TM) diagnostic workstation
designed to provide precise diagnostic measurements of the eye for many
refractive purposes, including generating data needed to plan custom ablation
procedures, and our Corneal Interactive Programmed Topographic Ablation (CIPTA)
and AstraPro(TM) custom ablation planning software that utilize 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
American Academy of Ophthalmology and is expected to be commercially launched
during the second quarter of 2002. LaserSight distributes the CIPTA custom
ablation planning and programming software outside the U.S. under a November
2001 distribution agreement with Ligi Technologie Medicali, Taranto, Italy. The
CIPTA software was developed to operate specifically with our precision
microspot scanning excimer laser system. The CIPTA custom ablation software was
introduced in January 1996 and has received CE Mark certification. We are
internally developing the AstraPro custom ablation planning software and
international clinical testing of the AstraPro software has begun. We plan to
begin our U.S. Investigational Device Exemption (IDE) clinical trials for the
AstraPro software during 2002.

Our MicroShape(R) family of keratome products includes our
UltraShaper(R) durable keratome, a control console used with our durable
keratomes, and our UltraEdge(R) keratome blades. Our MicroShape family of
keratome products can be used with the LaserScan LSX and other laser systems
used to perform LASIK. We began commercial shipment of our UltraShaper durable
keratome and control consoles in November 2001. We anticipate that sales of our
UltraEdge keratome blades will provide us with the opportunity to participate in
the expected growth in refractive laser vision correction procedure volume by
generating recurring revenue streams, regardless of which laser system a
refractive surgeon uses. We believe the UltraShaper compares favorably to
existing keratome products in the marketplace due to its relative ease of
assembly and consistency of performance. We have also developed the
UniShaper(TM), a single use keratome, however, we believe that to be
commercially viable the UniShaper will need to be reengineered, if possible, to
include most or all of the design features included in our UltraShaper durable
keratome.

OPERATING SEGMENTS. We have operated in the following operating
segments: refractive products, patent services and health care services. In late
2001, we decided to discontinue the health care services operations. Our
principal wholly-owned subsidiaries during 2001 included: LaserSight
Technologies, Inc. (LaserSight Technologies), LaserSight Patents, Inc.
(LaserSight Patents), and MRF, Inc. (The Farris Group or TFG).

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. We recently introduced an upgrade to
our laser system, our AstraScan, that 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 myopia
(nearsightedness), hyperopia (farsightedness) and astigmatism. Our patent
services segment, consisting primarily of patents licensed by us, included a
patent related to the use of excimer lasers to ablate biological tissue until
the patent was sold in March 2001 and a license to a patent related to the use
of scanning lasers. The health care services segment consisted of TFG until we
decided in late 2001 to discontinue its operations. TFG's financial results are
accounted for as a discontinued operation for the year ended December 31, 2001.
TFG provided health care and vision care consulting services to hospitals,
managed care companies and physicians. 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 April 1993, we acquired LaserSight Centers
Incorporated in a stock-for-stock exchange with additional shares issued in
March 1997 pursuant to an amended purchase agreement. In February 1994, we
acquired TFG. In July 1994, LaserSight was reorganized as a holding company. In
October 1995, we acquired MEC Health Care, Inc. (MEC). In July 1996, our LSI
Acquisition, Inc. (LSIA) subsidiary acquired the assets of the Northern New
Jersey Eye Institute, P.A. On December 30, 1997, we sold MEC and LSIA in
connection with a transaction that was effective as of December 1, 1997. Late in
2000, we abandoned the LaserSight Centers mobile laser strategy due to industry
conditions and our increased focus on development and commercialization of our
refractive products. In December 2001, we decided to discontinue the operations
of TFG as described in Note 3 of the Notes to Consolidated Financial Statements.
Our principal offices and mailing address are 3300 University Boulevard, Suite
140, 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 1988.

There are currently two principal methods for performing laser vision
correction with excimer laser systems: photorefractive keratectomy, or PRK, and
LASIK. According to Market Scope, approximately 92% of the refractive vision
correction procedures performed in the U.S. in 2000 were LASIK procedures. The
Company believes that this trend has continued through 2001. In both PRK and
LASIK procedures, a refractive surgeon determines the exact refractive
correction required to be made to the cornea, typically using the same
examination used to prescribe eyeglasses and contact lenses. Required
corrections are then programmed into the excimer laser system's computer. During
the procedure, the excimer laser system emits laser pulses, each of which lasts
several billionths of a second, to remove submicron layers of corneal tissue.
While the length of laser treatments range from 15 to 60 seconds, cumulative
exposure to the laser light during each procedure is less than one second. The
entire procedure, including patient preparation and post-operative dressing,
generally lasts no longer than thirty minutes.

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
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 flipped 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. Custom ablation procedures are not yet
commercially available in the U.S., though some manufacturers have commenced
clinical trials in anticipation of seeking FDA approval.

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.

Laser vision correction was a fast growing segment of the vision
correction market through 2000. According to Market Scope, total laser
refractive procedure volume in the U.S. has increased rapidly each year since
1996 to an estimated 1,400,000 procedures in 2000. During 2001 refractive
procedures in the U.S. declined 7% to 1,300,000 due to the combined effects of
an economic recession and the terrorist attacks of September 2001. An estimated
267,000 procedures were performed in the U.S. during the fourth quarter 2001,
compared to 279,000 procedures during the third quarter 2001 and 363,000
procedures during the fourth quarter 2000. Similarly, laser systems sold in the
U.S. were reported to have dropped from 490 in 2000 to 261 in 2001. According to
Banc of America Securities, the number of U.S. procedures for 2002 are projected
to grow 15% to 1,500,000 with a 15% increase to 1,725,000 procedures projected
for 2003. A procedure refers to laser treatment on a single eye, and most
patients have procedures performed on both eyes during a single visit to a
refractive surgeon. Laser vision correction's growth in the U.S. is also
reflected in the expansion of excimer laser installations and in the rise in
average annual procedure volume per laser.

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
them. The per procedure fees charged by these manufacturers vary and were
significantly reduced during 2000 due to competitive pressures and changing
market conditions. See "Business-Competition."

DEVELOPMENT OF EXCIMER LASER SYSTEM, DIAGNOSTIC AND KERATOME TECHNOLOGY

EXCIMER LASER SYSTEMS

The excimer laser systems utilized for laser vision correction have
evolved over time with improvements in laser and beam delivery technology. Until
recently, broad beam laser systems, that were initially developed during the
late 1980's, were the only systems approved by the FDA for commercial use in the
U.S. As a result, broad beam laser systems are reported to currently represent
about 65% of the installed laser systems in the U.S., down from over 90% at the
end of 1999. This downward trend appears to be continuing as the newer scanning
laser systems obtain the broader range of treatment approvals originally held by
the older broad beam systems. Certain broad beam laser systems have undergone
technical changes designed to modify their beam delivery to achieve
pseudo-scanning on the cornea. These changes have been accomplished through the
use of various optical elements with the effect of reducing beam size and
simulating a scanning pattern. These modified broad beam laser systems are still
characterized by their use of relatively large laser beams of six to eight
millimeters in diameter that deliver relatively high amounts of laser energy
(100 - 200 mj) at low laser pulse repetition rates (generally 10 Hz) to the
corneal surface. Because of the relatively large diameter of the fundamental
laser beam, these systems still require a number of mechanical elements and
optics to condition, size, shape and deliver the beam profiles necessary to
produce an ablation. These mechanical and optical means of beam shaping and
pseudo-scanning still limit the flexibility of broad beam systems and may
require additional hardware modifications in order to adapt to more complex
applications such as custom ablation.

Glare and halos when looking at lights or other bright objects and
reduction in night vision and contrast sensitivity have also been associated
with the use of broad beam systems.

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 200 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.
Fundamentally, a corneal topographer can be described as a computer linked to a
lighted bowl with a pattern of concentric rings inside it. Patients are seated
at the bowl with their forehead braced against a bar. A technician has only to
line the patient up properly and snap an image. The procedure is painless and
very fast. The computer then uses the captured image to produce a printout of
the corneal shape and elevation using colors to identify different steepnesses,
much like a topographic map of the earth describes changes in the land surface.
Elevation topography of the anterior cornea enables clinicians to more
accurately visualize the shape of abnormal corneas, which leads to more accurate
diagnoses and more consistent surgical results.

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 stereo-based technology
in our AstraMax.

The placido-based method of image analysis involves multiple concentric
light rings projected on the cornea. The reflected image is captured by a video
camera. Computer software analyzes the data and displays the results in a
variety of formats that resemble topographic maps. Elevation is not measured
directly by placido-based topographers, but certain assumptions allow the
mathematical approximation of the corneal surface and the construction of
estimated elevation maps.

The introduction of slit-scan imaging advanced the technology and
effectiveness of corneal topography. A corneal topography system manufactured by
Bausch & Lomb uses a scanning optical slit design that is fundamentally
different from the corneal topographer that analyzes the reflected images from
the anterior corneal surface. A high-resolution video camera captures individual
light slits projected at a 45(degree) angle through the cornea similar to what's
seen during an ophthalmic slit lamp examination. Using a combination of
reflective corneal topography and information from the scanning slit, the
instrument's software analyzes the data points and calculates the anterior and
posterior surfaces of the cornea and the corneal thickness. The data points
generate a higher quality elevation map than is possible with the placido-based
method.

We believe our AstraMax diagnostic workstation is the next-generation
topography instrument. The AstraMax uses a unique, patented three-video camera
imaging system and stereo ray tracing to achieve high-precision elevation
measurements of the cornea. In other words, the multiple cameras generate
geometrical calculations based on the known distances and angles of the three
cameras. Utilizing a patented checkered polar grid and other proprietary
features the 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.

Since CIPTA was introduced into international clinical use, 22
refractive surgery centers performing over 15,000 procedures per year have been
licensed to perform custom ablations using the CIPTA software and our excimer
laser systems. These CIPTA 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. With over 220 of our LaserScan LSX excimer laser
systems installed worldwide, significant opportunity exists to upgrade those
systems to our AstraScan model to perform CustomEyes procedures with the CIPTA
custom ablation planning software. Also, our AstraPro software is under
development by our software engineers and we plan to begin our U.S. IDE clinical
trials during 2002.

KERATOMES

Keratomes used to cut the thin corneal flap during the LASIK procedure
are similar in design to those used to perform earlier non-laser surgical
refractive techniques such as automated lamellar keratoplasty (ALK). The
Automated Corneal Shaper (ACS), developed by Luis A. Ruiz, M.D. and Sergio
Lenchig, is an example of an ALK keratome that is utilized extensively in
association with LASIK procedures without modification from its original design.

The ACS durable keratome, manufactured and marketed by Bausch & Lomb
pursuant to a license agreement, was the leading keratome during the early and
mid-1990's at a time when many refractive surgeons learned to perform LASIK.
After we licensed the rights to commercially market keratomes based on the same
technology in 1997, Bausch & Lomb discontinued the ACS, and has introduced an
alternative durable keratome product that requires a modified surgical
technique. Over the last few years there have been numerous entrants into the
keratome market, including most excimer laser manufacturing companies.

LASERSIGHT RECENT DEVELOPMENTS

LIQUIDITY AND FINANCING ISSUES

We have 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. We believe we will
need to generate increased revenues, collect them and reduce our expenditures
relative to our recent history. While we believe these improved results are
possible, we cannot assure you that we will be able to generate increased
revenues and collections to offset required cash expenditures.

Our working capital remains positive (approximately $8.0 million as of
the end of March 2002), though 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 is dependent on our ability to generate new sales with
our products and collect the sales price in a timely manner.

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 and collect new and outstanding accounts receivable
and 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 likely be unable to
continue operations for the expected two to four week period in the absence of
obtaining additional sources of capital.

We are actively seeking investors to invest in the range of $1.5
million to $3.0 million in equity and/or debt, as well as distribution
agreements for certain products, which would provide temporary relief from our
current liquidity pressures. However, even if we succeed in completing a
financing transaction to address our current liquidity concerns, we cannot
assure you that we will be able to generate increased revenues and collections
to offset required cash expenditures in a timely manner. Additionally, if we are
able to enter into transactions to meet our liquidity needs, it could be on
terms that seriously dilute our present stockholders or significantly restrict
the flexibility of our business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Risk Factors and Uncertainties--Industry and Competitive Risks--We cannot
assure you that we have the liquidity to survive long enough to achieve market
acceptance with our products in the U.S." and "--Financial and Liquidity
Risks--We have experienced significant losses and operating cash flow deficits
and we expect that operating cash flow deficits will continue and absent further
financing or significant improvement in sales, potentially result in our
inability to continue operations."

PRODUCT-RELATED DEVELOPMENTS

Our LaserScan LSX and our recently introduced AstraScan excimer laser
systems are based on patented precision microspot scanning technology rather
than broad beam technology, that until recently was the only commercially
available excimer laser vision correction technology in the U.S. 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, keratomes and blades 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 ('504 Scanning Patent), thereby completing the
reissue process. After a more than 3 1/2 year review of the
reissue application, including detailed analysis of a number of
public protests filed by a third party, the U.S. Patent and
Trademark Office has confirmed our broad patent rights to
precision microspot scanning laser refractive surgery and issued
LaserSight 68 additional patent claims. Prior to the reissue, the
original `679 Scanning Patent included one independent claim and
23 total claims, whereas the `504 Scanning Patent reissue has
added nine new independent claims, and a total of 68 additional
claims to better encompass the breadth of technology to which we
are entitled. The 23 original claims remain essentially unchanged.
The reissue should allow us to protect the uniqueness of our
precision microspot scanning technology since the fundamental
teachings of the original `679 Scanning Patent encompass a
refractive laser system utilizing an excimer laser with a low
fluence and high repetition rate that ablates corneal tissue using
small pulses delivered to the corneal surface in an overlapping
pattern. We believe that many of the other laser manufacturers

will have to respect the intellectual property rights granted to
us through the `504 Scanning Patent reissue.

o LICENSE OF SCANNING PATENT. In September and December 2001, we
received a total of $5.0 million in cash for a non-exclusive
license agreement with Bausch & Lomb for our `679 Scanning Patent.
See "Reissuance of Scanning Patent" above.

o COMMERCIAL LAUNCH OF OUR ULTRASHAPER KERATOME PRODUCT. We
commercially launched our UltraShaper durable keratome during the
fourth quarter of 2001. We believe that the combination of our
UltraShaper durable keratome and our UltraEdge keratome blades,
that are intended to be replaced after each procedure when used in
durable keratomes, provide us with an attractive opportunity to
generate recurring revenues on a per procedure basis.

o CUSTOM ABLATION. In March 2000, we purchased from Premier Laser
Systems, Inc. all intellectual property related to a development
project designed to provide front-to-back analysis and total
refractive measurement of the eye. The technology we acquired
included the acquisition of two U.S. patents, six foreign patents,
and a pending patent application along with an exclusive license
to nine patents that were intended to be used to complete
development of an integrated refractive diagnostic workstation.
This technology acquisition led to the development of our AstraMax
integrated diagnostic workstation. The AstraMax can be utilized as
a stand-alone diagnostic unit or as part of our CustomEyes
approach to custom ablation plans. We believe that the AstraMax
integrated diagnostic workstation is the first product to
integrate precision diagnostic measurements such as anterior and
posterior corneal elevation, corneal thickness, anterior chamber
depth and measurements of photopic and scotopic pupil size into a
single instrument. The underlying technology for the AstraMax is
the subject of 14 U.S. patents that have either been issued to us
or for which we have a license. We plan to add wavefront analysis
to the AstraMax's capabilities at a later time. The precision
measurements from the AstraMax integrated workstation will be
utilized in our CIPTA and AstraPro software for planning custom
ablations. CIPTA is a custom ablation planning software to which
LaserSight has had distribution rights on a worldwide basis since
November 2001. International clinical testing of our internally
developed AstraPro planning software has begun and we plan to
begin our U.S. IDE clinical trials during 2002. Any custom
ablation software will require clinical trials and FDA approval
prior to sale in the U.S. We believe our CustomEyes approach to
custom ablation represents 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 address and control both refractive error and
optical aberration that has either been induced by prior
refractive surgery or is naturally occurring.

PRODUCTS

EXCIMER LASERS

LaserSight was the first company to develop an advanced precision
microspot scanning excimer laser system. The LaserScan LSX and recently
announced 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
and believe our installed base of approximately 400 scanning laser systems,
including over 220 of our advanced laser system, the LaserScan LSX, is among the
largest installed bases of scanning laser systems in the industry. 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. 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 patented precision microspot scanning technology and other advanced
features incorporated into our LaserScan LSX excimer laser system offer
refractive surgeons and patients significant advantages over broad beam and
other scanning laser systems. We believe that the "SFR" technology incorporated
into our LaserScan LSX offers advantages over competitive scanning laser
systems. We believe that the incorporation of the smallest spot size (S), the
lowest laser fluence (F) and highest 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 overall improvements in clinical results with 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 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 LSX and AstraScan use
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. Laser fluence is a measurement of the amount of energy in
a laser pulse per unit area of the pulse. Lasers with lower
fluence remove less corneal tissue with each laser pulse than
lasers with higher 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. Operating at higher pulse repetition
rates can result in a number of benefits, including reduced

average procedure times and elimination or reduction of
dehydration problems associated with longer exposure of the
corneal tissue to ambient conditions. Our lasers 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, and can be
turned on or off based on the refractive surgeon's clinical
preference. The LaserSight advanced adaptive eye tracker is a high
speed, synchronous, "active" system that is capable of following
even small, involuntary eye movements. The tracking system
eliminates most errors normally introduced by eye movements during
untracked laser refractive surgery, and does not require dilation
of the pupil or any apparatus to be in contact with the eye. Our
advanced adaptive eye tracking system is currently available only
on international versions of the AstraScan, and we are currently
pursuing a "real time" PMA Supplement that seeks approval for use
of this feature in the U.S., which could result in FDA approval in
as few as 30 days.

o SOFTWARE DRIVEN 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. In
our scanning laser, ablation profiles and spot location are
determined by system software, not mechanical elements. When
programmed by custom ablation software tools, our laser is able to
perform custom ablations because its software has the ability to
move the "flying spot" beam to the precise predetermined areas on
the cornea requiring treatment. Upon receipt of FDA approvals,
software upgrades can be used to readily update U.S. models to
include features currently available only on international models,
including the ability to treat farsightedness, astigmatism and
mixed astigmatism.

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. This allows for higher utilization of the laser system.
The efficient design also enables users to transport the laser to
other locations.

o IMPROVED RELIABILITY AND LOWER MAINTENANCE REQUIREMENTS. Our laser
system uses a smaller lower energy laser and fewer optical
elements compared to broad beam laser systems and other scanning
systems on the U.S. market. This design requires less frequent
replacement of expensive optical elements and a lower volume of
laser gas. Savings achieved from less frequent replacement of
optical elements and reduced laser gas usage translate directly
into reduced down time and maintenance costs.

o ASTRASCAN IMPROVEMENTS AND UPGRADES--CUSTOM ABLATION READY. Our
AstraScan model was first introduced in November 2001 and is a
custom ablation ready excimer laser system that incorporates
performance improvement and features needed to produce the precise
custom ablations planned with CIPTA and AstraPro software. The
AstraScan incorporates the latest in technology for adaptive

active eye tracking, improvements to lighting systems for surgeon
viewing and eye tracking and increased working distance for the
surgeon. The system also has the ability to link directly with
CIPTA and AstraPro software. The AstraScan system is currently
available in the international market as an upgrade to an existing
LaserScan LSX system. In the U.S. market we are currently pursuing
FDA approval through a combination of a real time PMA Supplement
and other regulatory pathways.

CLINICAL EXPERIENCE AND OUTCOME QUALITY

We believe that there are several measures that should be evaluated
with regard to the safety and clinical effectiveness of laser vision correction
systems. These measurements include the incidence of adverse effects such as
double vision, night driving problems like glare, halos or haze, the
post-operative best visual acuity that can be obtained using corrective eyewear
such as glasses or contact lenses, BSCVA, and the post-operative uncorrected
visual acuity, or UCVA (such as whether the patient is seeing 20/20 or 20/40).

We believe that the degree to which negative, and sometimes permanent,
side effects occur as a result of refractive procedures performed using a laser
system is a key measure of a laser system's performance. In some cases, the
BSCVA deteriorates following a laser vision correction procedure. In addition,
the incidence of side effects such as double vision or haze can substantially
reduce patient satisfaction, or visual quality, even if a high level of
post-operative visual acuity is achieved. The data from FDA clinical trials
shows that with respect to symptoms such as corneal haze and night vision
problems, the LaserSight LSX compared favorably to the data for the Visx and/or
Summit broad beam laser systems. We believe these qualitative improvements are a
result of the technological features of the LaserScan LSX, including larger
treatment zones and a small scanning microspot that provides a smoother corneal
ablation.

CLINICAL RESULTS

FDA clinical trials for the treatment of PRK with the LaserScan LSX
laser were conducted in the U.S. on patients with nearsightedness with required
levels of correction of 6 diopters and less. We believe that the average
pre-operative level of required correction is a significant factor that must be
taken into account in evaluating the clinical results of an excimer laser
system. The average pre-operative level of required correction in our FDA
clinical trials was 4.8 diopters. Six months following the procedure,
approximately 85% of patients could see 20/40 or better, the refractive
condition required to drive in most states without corrective lenses.

In December 2000, we submitted to the FDA a PMA supplement for the
treatment of myopia with and without astigmatism using LASIK. The prospective
clinical study was performed at 10 U.S. sites by 23 surgeons. The approval
received in September 2001 was for the reduction or elimination of myopia
ranging from -0.5 to less than -6 diopters manifest spherical refractive error
with astigmatism less than or equal to -4.5 diopters. At three months following
the surgery, 90% of patients could see 20/40 or better and at six months 93%
could see 20/40 or better.

We expect the post-procedure UCVA of patients treated with our
LaserScan LSX laser system following FDA approval to exceed the results obtained
in our FDA clinical trials as refractive surgeons gain experience using our
laser system.

Subject to satisfactorily addressing our serious liquidity and
financing needs, we intend to continue to develop and improve our technology and
to aggressively continue the process of gaining regulatory approvals for our
laser products in order to expand our access to the U.S. market for refractive

procedures. We currently have a PMA supplement pending with the FDA to expand
the use of our laser systems for the LASIK treatment of farsightedness with and
without astigmatism and mixed astigmatism.

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.

ASTRAMAX. The AstraMax is an integrated diagnostic workstation that
obtains precision diagnostic measurements such as anterior and posterior corneal
elevation, corneal thickness, anterior chamber depth 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 both the CIPTA software and
our upcoming AstraPro software for planning custom ablations.

We believe the primary benefits of the AstraMax system include:

o MULTIPLE CAMERAS - The AstraMax has three stereo cameras allowing
for the truest rendering of corneal data to date. Three stereo
cameras capture corneal depth with greater precision and accuracy.
In laser vision correction, height and depth data are essential to
perform an accurate laser surgery with reliable accurate results.
The Orbscan is a one-camera system.

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
patients 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.

o POLAR GRID - Instead of the conventional concentric rings offered
in most topography systems, the AstraMax contains a patented polar
grid allowing the surgeon to obtain both radial and tangential
information that adds to the accuracy of the data.

The technology incorporated into our AstraMax integrated workstation is
covered by a 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.

CIPTA AND ASTRAPRO. CIPTA was introduced to clinical use during 1996.
Since that time 23 refractive surgery centers in Europe have been licensed to
perform custom ablations using the CIPTA software. CIPTA is currently available
in the international market. 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 CIPTA or 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.

KERATOME PRODUCTS

Our MicroShape family of keratome products includes our UltraShaper
durable keratome, a control console and our UltraEdge keratome blades. We
commercially launched our UltraShaper durable keratome during the fourth quarter
of 2001.

The introduction of our MicroShape family of keratome products provides
refractive surgeons with the opportunity to not only utilize keratomes based on
the original design of the ACS, but to also take advantage of a number of
significant improvements intended to make the performance of the instruments
safer and more consistent. Working with refractive surgeons we were able to
develop an advanced design for our UltraShaper durable keratome incorporating
advancements that address a number of the issues encountered with current
keratome designs. Ease of assembly after cleaning has been improved by utilizing
a three-piece construction. Drive gears have been recessed to minimize the
possibility of lid or lash entrapment, a constant speed drive motor is utilized
and the applanation plate has been integrated into the keratome head. The blade
angle is 25 degrees for a more predictable flap thickness and cut. The open
design of the keratome head allows the surgeon to observe the creation of the
flap. The unique blade handling and insertion system allows the surgeon to
inspect the blade and insert it into the keratome head without the blade ever
being touched by hands or instruments. This handling system also ensures a more
positive blade location and alignment. In addition, the UltraShaper can
accommodate a surgeon's preference by creating nasal and temporal flaps.

The MicroShape control console utilized with the UltraShaper
incorporates operating and safety features not available with prior generation
systems. A high and low suction level have been incorporated into the console,
allowing use of a lower suction setting during fixation of the keratome on to
the globe of the eye. A "low suction" warning prevents the keratome from
advancing when the console detects suction below a preset limit.

We believe that future design activities may bring the performance of
the UniShaper single use keratome up to the standards demonstrated by the
UltraShaper and could provide the refractive surgeon with a sterilized, fully
assembled and tested keratome solution that eliminates the cleaning and
maintenance associated with durable keratomes.

We acquired the right to manufacture and sell our keratomes in
September 1997 from inventors Ruiz and Lenchig, who had invented the ACS (that
had been manufactured and sold by Bausch & Lomb). The UniShaper single-use
keratome and the UltraShaper durable keratome each incorporate the market proven

features found in the ACS with new enhancements and features, including
pre-assembly, transparent components for improved visibility while cutting the
flap, and a dual drive mechanism with covered gears. We launched our UltraShaper
durable keratome during the fourth quarter of 2001 after we completed the
quality evaluation phase of our product release requirements. We believe that
the UltraShaper has undergone a more rigorous clinical evaluation than any other
keratome currently on the market. See "Risk Factors - Company and Business Risks
- Required minimum payments under our keratome license agreement may exceed our
gross profits from sales of our keratome products."

PRODUCT UPGRADES AND OTHER PRODUCTS

As a convenience to our customers, we also offer a number of ancillary
products that either complement our core laser system, diagnostic products and
keratome product portfolio or leverage our laser technology. We offer various
upgrades and modules to purchasers of prior models of our excimer laser systems,
including the AstraScan upgrade to international customers for existing
LaserScan LSX systems, AccuTrack eye tracking system for international
customers, a video display system for observation or recording of refractive
procedures, and the latest version of our proprietary software, version 9.0,
that provides international users with features including expanded treatment
options and patient databases. In addition, we offer certain scientific
lasers and related equipment for medical research and scientific research
applications. Our revenue from sales of our ancillary and other products
generally is included in refractive product net revenue and represents, in the
aggregate, less than 5% of our total refractive product net revenue.

GROWTH STRATEGY

Our goal, subject to our ability to obtain adequate financing, is to
become a significant worldwide provider of excimer laser systems, diagnostic and
custom ablation products, single-use and durable keratomes and other products
for the refractive vision correction industry. We believe that our more than
eight 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 and keratome products provide us with a strong platform for future
growth as we continue to penetrate the U.S. and international markets for
refractive surgical lasers and instruments.

The following are the key elements of our growth strategy:

o EXPAND MARKET SHARE IN U.S. EXCIMER LASER MARKET. We believe that
our LaserScan LSX and AstraScan precision microspot scanning
excimer laser systems represent a significant technological
advancement over the broad beam and other scanning laser systems
currently being marketed in the U.S., 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 our precision microspot
scanning technology can provide the precision and accuracy needed
for custom ablations when custom treatments are approved in the
U.S. market.

o EXPAND MARKET SHARE IN INTERNATIONAL EXCIMER LASER MARKET. We
believe that our LaserScan LSX and 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

CIPTA and our AstraMax during 2002 will provide a custom ablation
solution internationally that will improve our sales
opportunities.

o PENETRATE WORLDWIDE DIAGNOSTIC INSTRUMENT MARKET. We believe that
our AstraMax integrated diagnostic workstation also represents a
significant technological advancement over existing corneal
topographers since it is a single instrument that more precisely
obtains a wide variety of diagnostic information not provided by
current topographers. In addition, the AstraMax's precise
measurements are over the total area of the cornea thus providing
the necessary information for planning custom ablations.

o ESTABLISH STRONG POSITION IN CUSTOM ABLATION MARKET. By combining
the capabilities of our laser system with the AstraMax and CIPTA,
we believe we will be in a position to benefit from a viable
custom ablation package in the international market during 2002.
We believe that success in the international market will translate
into customer awareness in the U.S. market, improving our custom
ablation opportunities domestically in the future.

o PENETRATE WORLDWIDE KERATOME AND KERATOME BLADE MARKETS. We
believe that a key competitive strength of our MicroShape family
of keratome products is the relative simplicity and ease of use of
our UltraShaper durable keratome and fact that the flexibility of
the keratome control console offers refractive surgeons the option
to utilize either a single-use or durable keratome based on their
clinical preference. Commercial shipments of our UltraShaper
durable keratome began in the fourth quarter of 2001.

o GENERATE RECURRING REVENUE STREAMS. We have positioned our
business to benefit from the anticipated future growth in
refractive vision correction procedure volume. In addition to
receiving the purchase price for each laser system sold in the
U.S., we believe we will generate recurring revenue streams by
participating in per procedure fees resulting from the use of our
laser systems. We also believe that the license fees related to
use of our CIPTA and AstraPro ablation planning software and our
UltraEdge keratome blades, that are intended to be replaced after
each procedure when used in durable keratomes, all provide
potential additional sources of recurring revenue for us. We are
also pursuing service contracts for customers with lasers no
longer under warranty.

o PROPRIETARY TECHNOLOGY LEADERSHIP. We believe that technological
advances in the refractive vision correction market will continue
to evolve through the advancement of existing technologies and the
introduction of new treatment modalities. Accordingly, we believe
we have developed a strong intellectual property portfolio. For
example, in March 2000, we acquired the intellectual property that
we have developed into our AstraMax integrated diagnostic
workstation. In January 2002, we received notice of allowance of
the reissuance of our scanning patent, now known as the `504
Scanning Patent, covering methods for performing ophthalmic
surgery using a scanning laser with 68 additional claims.

SALES AND MARKETING

We sell our excimer laser systems, diagnostic products, keratomes and
related products through a direct sales force, independent sales representatives
and distributors. Since 1994, we have marketed our laser systems commercially in
over 30 countries worldwide and currently have an installed base of
approximately 400 scanning lasers, including over 220 of our LaserScan LSX laser
systems.

EXCIMER LASER SYSTEMS

Following receipt of FDA approval of the LaserScan LSX in November
1999, we began to commercially market our excimer laser systems in the U.S. We
employ four sales professionals targeting key refractive markets within the U.S.
These territorial managers are responsible for sales within their respective
territories. We are currently considering the use of one or more distributors to
expand our market capabilities in the U.S.

Laser system sales in international markets are generally to hospitals,
corporate centers or established and licensed ophthalmologists. Internationally
we market our excimer laser systems in Canada, Europe, Asia, South and Central
America, and the Middle East. We currently employ four territorial managers who
are responsible for sales in international markets, both directly and through
our approximately 35 independent distributors and representatives within their
respective territories.

All of our distributors and representatives have been selected based on
their experience and knowledge of their respective ophthalmic equipment market.
In addition, the selection of international distributors and representatives is
also based on their ability to offer technical support. Distributor and
representative agreements provide for either exclusive territories, with
continuing exclusivity dependent upon achievement of mutually-agreed levels of
annual sales, or non-exclusive agreements without sales minimums. Currently,
separate distributor and representative agreements are in place for all major
market areas. During 2001, approximately 67% of our product sales resulted from
distributors and representatives with the balance from sales made by employees
of LaserSight. Our distributors in Mexico and China were each responsible for
generating sales of 11% of our consolidated revenues in 2001. No single
distributor was responsible for generating sales in excess of 10% of our
consolidated revenues in 2000.

In conjunction with our sales activities, we participate in a number of
foreign and domestic ophthalmology meetings, exhibits and seminars.
Historically, two large U.S. meetings, the American Academy of Ophthalmology and
the American Society of Cataract and Refractive Surgery, have yielded
substantial interest in our products.

We believe that educating our customers and informing them about system
developments is an important way to ensure customer satisfaction and desirable
clinical results. Our clinical specialists are available to travel to a customer
site to train the refractive surgeon on how to safely operate our excimer laser
system and keratome products and achieve optimum clinical results. We have also
developed an extensive set of written materials to inform refractive surgeons
about how our laser system and keratomes work and a series of marketing related
materials to assist the surgeon in marketing his refractive practice to his
patient base.

DIAGNOSTIC AND CUSTOM ABLATION PRODUCTS

We currently employ two people responsible for the sales of our
AstraMax products, in addition to our laser system sales force and distributors,
who will offer bundled packages including, for example, a laser system with an
AstraMax. In addition, we are in discussions with third parties to distribute
our AstraMax product. It is not clear whether we will be able to formalize an
AstraMax distribution agreement on terms acceptable to us.

CIPTA is primarily sold by the same employees or distributors who are
responsible for the sales of laser systems. Any custom ablation software will
require clinical trials and FDA approval prior to sale in the U.S.

KERATOME PRODUCTS

In 2001, all marketing and manufacturing arrangements with Becton
Dickinson were ended. See "Risk Factors and Uncertainties--Industry and
Competitive Risks--We cannot assure you that our keratome products will achieve
market acceptance." We have an employee responsible for marketing and
distributing our keratome products in the U.S. in addition to our laser system
sales force and distributors internationally, who will offer bundled packages
including, for example, a laser system with an UltraShaper. We are currently in
discussions with a managed network of independent sales representatives to
distribute our keratome related products. It is not clear whether we will be
able to formalize a distribution agreement on terms acceptable to us.

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 and is maintained internally.

We have excimer laser system manufacturing operations in Winter Park,
Florida and San Jose, Costa Rica. LaserScan LSX excimer laser systems assembled
in our Florida facility are shipped to U.S. customers and systems assembled in
our Costa Rica facility are shipped to our international customers. In October
1996, we received certification under ISO 9002, an international system of
quality assurance, for our manufacturing and quality assurance activities in our
Florida and Costa Rica facilities. Since that time we have maintained our ISO
9002 certification through a series of periodic surveillance audits and have
also been certified at our Winter Park 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 LaserScan LSX. 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. We continue
to evaluate joint ventures with critical suppliers as well as other potential
supplier relationships.

DIAGNOSTIC AND CUSTOM ABLATION PRODUCTS

Our AstraMax integrated diagnostic workstation is being manufactured in
our Winter Park 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.

The AstraPro software is under development by LaserSight's software
engineers and will be distributed from Winter Park when it has been released for
commercial shipment. 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.

KERATOME PRODUCTS

The components of the UltraShaper durable keratome are being
manufactured exclusively for us by Owens Industries, Inc. Owens is experienced
in the machining and assembly of precision instruments. The components are then
assembled and tested in our Winter Park manufacturing facility. The control
console for our keratomes is manufactured for us by Humphrey Instruments, a
division of Carl Zeiss, Inc., located in San Leandro, California.

The UniShaper single-use keratome has been manufactured for us under an
exclusive agreement with Frantz Medical Development Ltd., an ISO 9001 certified
company experienced in the manufacture of disposable medical devices from
engineering-grade polymer. This agreement had a 30-month term, expiring in May
2002, that obligated us to purchase 50,000 units during each year of the
contract following receipt of final product approval. This agreement has been
suspended indefinitely until it is determined that design changes can be
incorporated into the UniShaper to make it clinically viable.

Our UltraEdge keratome blades have historically been manufactured by
Becton Dickinson pursuant to our manufacturing agreement with them. That
agreement was terminated during 2001. See "Risk Factors and
Uncertainties--Industry and Competitive Risks--We cannot assure you that our
keratome products will achieve market acceptance." We are currently in
discussions with another company to manufacture our keratome blades. It is not
clear whether we will be able to formalize a keratome blade manufacturing
agreement on terms acceptable to us. We currently have in inventory enough
keratome blades to satisfy anticipated demand through 2002.

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 the U.S. marketplace. FDA approval requirements are a significant
barrier to entry into the U.S. market for commercial sales of medical devices.
Two of our competitors, Visx and Alcon (Summit), received FDA approval of their
broad beam laser systems several years ago, and have manufactured and sold laser
systems that currently account for about 60% of the installed excimer laser
systems in the U.S.

We believe competition in the excimer laser system market is primarily
based on safety and effectiveness, technology, price, regulatory approvals, per
procedure fee payments, royalty payments, dependability, 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, five manufacturers, Visx, Alcon, Nidek, Bausch & Lomb and
LaserSight, have excimer laser systems with the required FDA approval to
commercially sell the systems in the U.S. Some of the approvals are for broader
labeled indications, a key competitive element in the industry. A laser system
with broader labeling approvals is attractive because it enlarges the pool of
laser vision correction candidates to whom the procedure can be marketed. 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. These approvals have given Visx a competitive advantage, with
laser systems sold by Visx having performed nearly 60% of the laser vision
correction procedures performed in the U.S. in 2001. Our LaserScan LSX excimer
laser system is not presently approved to treat farsightedness or more than -6
diopters of nearsightedness in the U.S. with our PRK approval or up to a
spherical equivalent of -6 diopters of nearsightedness and astigmatism with our
LASIK approval. Our PMA supplements for treatment of farsightedness with
astigmatism and mixed astigmatism are presently pending. 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 February 2000, Visx announced that it was reducing the fee it
charges to customers from $250 to $100 for each laser vision correction
procedure performed on an excimer laser manufactured by Visx. Shortly after this
announcement, Alcon announced it would also reduce its licensing fee to $100,
plus an additional $25 for astigmatism and hyperopia correction and $150 for its
Ladarvision systems. Bausch & Lomb has indicated it will charge a fee of up to
$130 for each laser vision correction procedure performed on an excimer laser
manufactured by Bausch & Lomb. We are currently charging a per procedure fee of
up to $130. Nidek has not charged per procedure fees. The per procedure fees
received by us as well as our competitors who currently receive such fees are
subject to change based on competitive factors and changing market conditions,
and there can be no assurance that such fees will not be reduced or eliminated
in the future.

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 that recently received FDA approval, as well as implantable
intraocular lenses and a holmium laser system developed for the treatment of
farsightedness, that 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 expect to primarily compete against the Orbscan. Our AstraMax instrument will
also be competing 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 will initially be 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.

We believe the Orbscan system has the highest market share of
topographers in the market today. We believe, subject to satisfactorily
addressing our serious liquidity and financing needs, the AstraMax will compete
well against the features offered by the Orbscan as well as provide the
additional benefits described earlier that should position the AstraMax as the
next generation in corneal topography.

KERATOME PRODUCTS

In the market for keratome products, Bausch & Lomb sold a majority of
the keratomes and keratome blades used by refractive surgeons in the U.S. in
2000 and 2001. We believe competition in the market for keratome products is
primarily on the basis of performance, ease of use, design, automation, price,
availability, regulatory approvals, royalty payments, warranty coverage and
customer service capabilities. We believe that performance, ease of use, design,
automation, and price are among the most significant, and believe that we
compete favorably with respect to these factors. In addition to Bausch & Lomb,
our principal competitors in the keratome and keratome blade business include
Moria and Innovative Optics.

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, delivery systems for using laser devices in
refractive surgical procedures, keratometers, and keratomes. 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, techniques to optimize clinical outcomes of refractive
procedures, and keratome design. 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 September 2001, we received $3.0 million in
cash for a non-exclusive license agreement with Bausch & Lomb for what is now
our `504 Scanning Patent. In December 2001, Bausch & Lomb exercised an option to
license additional intellectual property owned by us for an additional payment
of $2.0 million. Of this total, approximately $0.8 million was due to TLC Laser
Eye Centers Inc. (TLC) under a separate license agreement. See "-Other
Intellectual Property."

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, Nos. 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 (stereo)
technology provides the precise corneal height measurements that will be
critical for the planning of custom ablation treatments when these treatments
are commercially available.

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
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 is the fundamental blocking patent that underlies the
technology of ultraviolet laser refractive surgery. Under the license agreements
with Visx and Alcon 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 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. Since our 1997
purchase of the IBM Patents we have realized over $5 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 to 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 million from the
Blum Patent and will continue to enjoy 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 No. 6,213,605 covers the checkered polar grid utilized in our AstraMax
diagnostic workstation and our U.S. Patent No. 6,234,631 covers the combination
of advanced corneal topography and wavefront aberration measurement into a
single instrument and relates to future plans for our AstraMax diagnostic
workstation. We entered into an agreement with a subsidiary of TLC in October
1998 that grants us an exclusive license under U.S. Patent No. 5,630,810 (TLC
Patent) relating to a treatment method for preventing the formation of central
islands during laser surgery. Central islands are a problem generally associated
with laser refractive surgery performed with broad beam laser systems used to
ablate corneal tissue. We have agreed to pay TLC for the term of the exclusive
license 20% of the aggregate net royalties we receive in the future from
licensing the TLC patent and other patents currently owned by us. We owe TLC 20%
of the net proceeds of this license, or approximately $0.8 million.
Approximately half of this amount will be offset against a laser receivable owed
to us by TLC. The TLC Patent is currently in reissue at the U.S. Patent and
Trademark Office.

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 March 29, 2002, we have approximately 30 U.S. patent
applications undergoing prosecution at the U.S. Patent and Trademark Office and
a number of counterparts to these applications filed internationally. Our patent
applications 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, and keratomes.

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) and AccuTrack(R). We have also applied for
registration of eight additional trademarks.

REGULATION

MEDICAL DEVICE REGULATION

The FDA regulates the manufacture, use, distribution and production 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
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 regulations impose certain procedural and documentation
requirements upon us with respect to our manufacturing 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 Canadian Medical Devices Bureau
in mid-1999.

In September 2001, we received notification from the FDA that the PMA
approval our laser system was expanded to the LASIK treatment of myopia and
myopic astigmatism for correction of manifest spherical refractive error of up
to -6 diopters with up to -4.5 diopters of astigmatism. We then received FDA
approval to increase our laser pulse rate to 200 Hz.

In November 2001, we submitted a PMA supplement seeking approval for
the treatment of farsightedness, with and without astigmatism, and mixed
astigmatism utilizing the LASIK procedure. The PMA supplement reflecting this
data is currently pending with the FDA.

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. The FDA issued

determinations of equivalency for our UniShaper single-use keratome in January
1998 and for our UltraShaper durable keratome in January 2000. Our UltraEdge
keratome blades received 501(k) clearance in May 2000.

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).

In January 2001, we received notification from the FDA that the Company
may begin commercial distribution of its AstraMax diagnostic workstation.

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 recent 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 is 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. The CE Mark, certifying that the LaserScan Models 2000 and
LaserScan LSX 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
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 to research and develop new laser products, laser systems,
product upgrades enhancements, keratome products, including alternate ring size
and flap thickness for our UltraShaper durable keratome, and ancillary product
lines. In March 2000, we acquired the intellectual property that we have
developed into the AstraMax that we expect to be commercialized during the
second quarter of 2002. We believe the AstraMax will assist us in developing our
custom ablation treatment plan capabilities.

Other research and development projects include the development of a
solid-state laser and enhancements for our advanced eye-tracking system that is
standard on the international model of LaserScan LSX. The solid-state laser is
the first true non-gas laser capable of delivering a laser beam in the
ultraviolet spectrum (common to all excimer lasers used for refractive surgery).
In addition, the solid-state laser could be capable of generating multiple
wavelengths, thus permitting its use for other ophthalmic procedures that now
require separate lasers.

Our historical solid-state research and development efforts have
resulted in the identification of many features that have been subsequently
incorporated into our excimer laser system. We intend to continue to direct
efforts at an appropriate level towards the development of this system as
resources allow. As is the case with many new technology products, the
commercialization of the solid-state laser is subject to potential delays.

While the risk of failure of these specific activities may be
significant, we believe that if developed, these products could provide us with
a leading edge technology that would further differentiate our products from
other companies in the industry. There is no assurance that any of these
research and development efforts will be successful.

HEALTH CARE CONSULTING SERVICES

Our health care services segment has historically provided health care
and vision care consulting services to hospitals, managed care companies and
physicians through our TFG subsidiary. The core business of TFG was two-fold:
developing and maintaining physician databases for clients' needs and providing
customized strategic plans. Services included physician recruitment tools,
competitive intelligence, demand studies, community health analyses and
distribution channel mapping. TFG clients included multi-hospital health
systems, community hospitals, academic medical centers, specialty health care
providers and manufacturers and distributors of health care products.

This subsidiary's financial results had been improving. However, due to
our increased focus on refractive product development and commercialization,
management decided, with board affirmation, to wind down the subsidiary within a
reasonably short timeframe. Therefore, since this subsidiary has been accounted
for as a separate segment, the remaining goodwill associated with TFG has been
expensed in 2001 and its results are accounted for as a discontinued operation
as of December 31, 2001.

EMPLOYEES

As of December 31, 2001, we had 115 full-time employees and one
part-time employee. 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.

ITEM 2. PROPERTIES

Our principal offices, including executive offices and administrative,
marketing and laboratory facilities, are located in approximately 17,100 square
feet of space that we have leased in Winter Park, Florida. This lease expires on
June 14, 2002, however, we have the option to extend the lease through January
15, 2003. We have leased approximately 15,600 square feet of additional space in
Winter Park, Florida for administrative office space and manufacturing. The
lease of this additional space in Winter Park expires January 31, 2004. We lease
approximately 5,000 square feet of office space in St. Louis, Missouri, which
lease expires July 31, 2006. We are actively looking to sublease this space. We
lease approximately 6,400 square feet of space near San Jose, Costa Rica, that
we use as a manufacturing facility. The lease of the San Jose manufacturing
facility expires November 30, 2003. In our opinion, the various properties used
in our operations are generally in good condition and are adequate for the
purposes for which we utilize them.

ITEM 3. LEGAL PROCEEDINGS

JARSTAD. In January 2002, a customer filed a lawsuit in the Superior
Court of the State of Washington in and for the County of King. The lawsuit was
subsequently remanded to federal court. The lawsuit names LaserSight
Technologies and an unaffiliated finance company as defendants. The lawsuit
alleges various claims related to LaserSight Technologies' sale of a laser
system to the plaintiff including breach of contract, breach of express
warranty, breach of implied warranty, fraudulent inducement, negligent
misrepresentation, unjust enrichment, violation of the consumer protection act
and product liability. Plaintiffs request damages to be determined at trial,
reimbursement for leasing fees, prejudgment and postjudgment interest,
attorneys' fees and costs and other equitable relief. Management believes that
LaserSight Technologies has satisfied its obligations under the sale agreement,
and that the allegations against it are without merit and intend to vigorously
defend this lawsuit. 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. However, the outcome of litigation is
inherently uncertain, and an unfavorable outcome in this litigation could have a
material adverse effect on LaserSight's business, financial condition and
results from operations.

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 names LaserSight Technologies, Mr. Farris and James
Spivey, LaserSight Technologies' Vice President of Sales, as defendants. The
lawsuit alleges various claims related to LaserSight Technologies' termination
of the distribution arrangements with the plaintiffs including breach of
contract, breach of the covenant of good faith and fair dealing, tortious
interference with business relationships, fraudulent misrepresentation,
conversion and unjust enrichment. Plaintiffs request actual damages in excess of
$5,000,000, punitive damages, prejudgment interest, attorneys' fees and costs
and other equitable relief. Management believes that LaserSight Technologies has
satisfied its obligations under the distribution agreements, and that the
allegations against LaserSight Technologies, Mr. Farris and Mr. Spivey are

without merit and intend to vigorously defend this lawsuit. 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. However,
the outcome of litigation is inherently uncertain, and an unfavorable outcome in
this litigation could have a material adverse effect on LaserSight's business,
financial condition and results from operations.

VISX, INCORPORATED. On May 25, 2001 LaserSight settled the patent
infringement action filed by Visx against LaserSight in November 1999 in the
United States District Court for the District of Delaware. In connection with
the resolution of this litigation LaserSight and Visx entered into a Settlement
and License Agreement pursuant to which LaserSight received a license to patents
held by Visx that relate to refractive excimer lasers, including United States
Patents Nos. 4,718,418 and B1 5,108,388 and has agreed to pay a royalty for each
procedure performed in the United States using a LaserSight refractive laser. As
part of the agreement, Visx purchased a fully paid up license to U.S. Patent No.
4,784,135 (the Blum Patent). Under the Settlement and License Agreement, all
economic terms and conditions are confidential. The parties filed a stipulated
order dismissing the patent infringement action on June 1, 2001.

FORMER SHAREHOLDER OF TFG. On May 14, 2001, a motion for summary
judgment was granted in favor of Michael R. Farris in connection with a lawsuit
that was filed on November 12, 1999 in the U.S. District Court for the Eastern
District of Missouri on behalf of a former shareholder of TFG, a wholly-owned
subsidiary of LaserSight. The lawsuit names Mr. Farris, LaserSight's chief
executive officer, as the sole defendant and alleges fraud and breach of
fiduciary duty by Mr. Farris in connection with the redemption by TFG of the
former shareholder's capital stock in TFG. At the time of the redemption, which
redemption occurred prior to LaserSight's acquisition of TFG, Mr. Farris was the
president and chief executive officer of TFG. LaserSight's Board of Directors
authorized LaserSight to retain and, to the fullest extent permitted by the
Delaware General Corporation Law, pay the fees of counsel to defend Mr. Farris,
TFG and LaserSight in the litigation so long as a court has not determined that
Mr. Farris failed to act in good faith and in a manner Mr. Farris reasonably
believed to be in the best interest of TFG at the time of the redemption. The
plaintiff appealed the U.S. District Court's order granting summary judgment in
favor of Mr. Farris to the United States Court of Appeals for the 8th Circuit.
The appeal was heard in January 2002; on March 13, 2002 the 8th Circuit reversed
the District Court related to the starting date of the statute of limitations
related to an allegation of fraud committed by a fiduciary. Management believes
that the allegations made by the plaintiff are without merit and intends to
vigorously defend the action. Management believes that this action will not have
a material adverse effect on our financial condition or results from operations.

LAMBDA PHYSIK, INC. On January 20, 2000 a lawsuit was filed in the
Circuit Court of Broward County, Florida on behalf of Lambda Physik, Inc.
("Lambda") against LaserSight. The action alleges that we breached an agreement
we entered into with Lambda for the purchase of lasers from Lambda. Lambda has
requested $1,852,813 in damages, plus interest, costs and attorney's fees. We
believe that the allegations made by the plaintiff are without merit, and we
intend to vigorously defend the action. Management believes that we have
satisfied our obligations under the agreement and that this action will not have
material adverse effect on our financial condition or results from operations.

KREMER. On November 16, 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. The action alleges that LaserSight is
in breach of certain terms and conditions of an agreement it entered into with
Dr. Kremer relating to LaserSight's purchase of a patent from Dr. Kremer. Dr.

Kremer has requested equitable relief in the form of a declaratory judgment as
well as damages in excess of $1,600,000, plus interest, costs and attorney's
fees. LaserSight believes that the allegations made by the plaintiff are without
merit, and intends to vigorously defend the action. Management believes that
LaserSight has satisfied its obligations under the agreement and that this
action will not have material adverse effect on tour financial condition or
results from operations.

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 trades on The Nasdaq Stock Market(R) under the symbol
LASE. The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices for our common stock on The Nasdaq Stock Market.

1999: High Low
---- ---- ---
First Quarter $5.94 $3.88
Second Quarter 20.38 5.22
Third Quarter 17.63 12.13
Fourth Quarter 18.31 7.19

2000:
----
First Quarter $13.00 $5.50
Second Quarter 6.75 3.25
Third Quarter 5.56 3.09
Fourth Quarter 3.81 0.91

2001:
----
First Quarter $2.47 $1.00
Second Quarter 3.00 1.28
Third Quarter 2.33 1.00
Fourth Quarter 1.87 0.47

On March 29, 2002, the closing sale price for our common stock on the
Nasdaq National Market was $0.63 per share. As of March 29, 2002, LaserSight had
26,554,168 shares of common stock outstanding held by approximately 262
stockholders of record and, to our knowledge, approximately 8,426 total
stockholders, including stockholders of record and stockholders in "street
name."

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

Each of the following issuances of common stock may depress the market
price of the common stock. See "Management's Discussion and Analysis - Risk
Factors and Uncertainties - Common Stock Risks--The Significant Number of Shares
Eligible for Future Sale and Dilutive Stock Issuances may Adversely Affect Our
Stock Price."

LASERSIGHT CENTERS AND FLORIDA LASER PARTNERS. Based on
previously-reported agreements entered into in 1993 in connection with our
acquisition of LaserSight Centers (our development-stage subsidiary) and
modified in July 1995 and March 1997, we may be obligated to pay to a
partnership whose partners include our Chairman of the Board and certain of our
former officers and directors a royalty of up to $43 (payable in cash or in
shares of common stock ("Royalty Shares")), for each eye on which PRK is
performed on a fixed or mobile excimer laser system owned or operated by
LaserSight Centers or its affiliates.

As of March 29, 2002, we have not accrued any obligation to issue
Royalty Shares. We cannot assure you that any issuance of Royalty Shares will be
accompanied by an increase in our per share operating results. We are not
obligated to pursue strategies that may result in the issuance of Centers
Contingent Shares or Royalty Shares and, in fact, late in 2000 we abandoned the
LaserSight Centers mobile laser strategy due to industry conditions and our
increased focus on development and commercialization of our refractive products.
It may be in the interest of our Chairman of the Board for us to pursue business
strategies that maximize the issuance of Royalty Shares.

FOOTHILL WARRANT. In April 1997, we issued to Foothill Capital
Corporation a warrant to purchase 500,000 shares of common stock (the "Foothill
Warrant") at a price of $6.067 per share. We are required to make anti-dilution
adjustments to both the number of warrant shares and the warrant exercise price
if we sell common stock or common stock-equivalents (such as convertible
securities or warrants) at a price per share that is (or could be) less than the
fair market value of the common stock at the time of such sale (a "Below-Market
issuance"). To date, such anti-dilution adjustments have resulted in (1) an
increase in the number of Foothill Warrant shares to 598,414, and (2) a
reduction to the exercise price of the Foothill Warrant shares to $4.91 per
share. Additional anti-dilution adjustments to the Foothill Warrant could also
result from any future Below-Market Issuance. The Foothill warrants may be
exercised at any time through March 31, 2002. As of March 29, 2002, warrants for
101,414 shares of our common stock remain outstanding.

SERIES B WARRANT. In connection with our issuance of the Series B
Preferred Stock in August 1997, we issued to the former holders of the Series B
Preferred Stock warrants to purchase 750,000 shares of common stock (the "Series
B Warrant") at a price of $5.91 per share at any time before August 29, 2002. In
connection with a March 1998 agreement whereby we obtained the option to
repurchase the Series B Preferred Stock and a lock-up on conversions, the
exercise price of the Series B Warrant shares was reduced to $2.753 per share.
We are required to make anti-dilution adjustments to both the number of warrant

shares and the warrant exercise price in the event we make a Below-Market
Issuance. To date, these anti-dilution adjustments and other agreements among
the former holders of the Series B Preferred Stock and us have resulted in (1)
an increase in the number of Series B Warrant shares to 825,132, and (2) a
reduction to the exercise price of Series B Warrant shares to $2.46 per share.
Additional anti-dilution adjustments to the Series B Warrants could also result
from any future Below-Market Issuance. As of March 29, 2002, 140,625 of such
warrants had been exercised and 684,507 of such warrants remained outstanding.

SHORELINE WARRANT. In connection with our sale of the Series B
Preferred Stock in August 1997, we issued to four individuals associated with
our placement agent warrants to purchase 40,000 shares of common stock (the
"Shoreline Warrant") at a price of $5.91 per share at any time before August 29,
2002. We are required to make anti-dilution adjustments to both the number of
warrant shares and the warrant exercise price in the event we make a
Below-Market Issuance. To date, these anti-dilution adjustments have resulted in
(1) an increase in the number of Shoreline Warrant shares to 44,186, and (2) a
reduction to the exercise price of Shoreline Warrant shares to $5.28 per share.
Additional anti-dilution adjustments to the Shoreline Warrants could also result
from any future Below-Market Issuance of common stock. As of March 29, 2002,
8,589 of such warrants had been exercised and 35,597 of such warrants remained
outstanding.

MARCH 1999 PRIVATE PLACEMENT WARRANTS. In connection with our sale of
common stock in March 1999, we issued the purchasers warrants to purchase a
total of 225,000 shares of common stock at an exercise price of $5.125 per
share, the closing price of the Company's common stock on March 22, 1999. The
warrants have a term of five years. As of March 29, 2002, 45,000 of such
warrants had been exercised and 180,000 of such warrants remained outstanding.

CONSULTING WARRANTS. On February 22, 1999, in connection with a
consulting services agreement that we entered into with Guy Numann, we issued
warrants to purchase a total of 67,500 shares of our common stock at a price of
$5.00 per share. One-third of the warrants become vested on each annual
anniversary of the grant until all the warrants are vested. To the extent
vested, the warrants are exercisable at any time prior to February 22, 2004. As
of March 29, 2002, 45,000 of such warrants had vested and all such warrants
remained outstanding.

SEPTEMBER 2000 PRIVATE PLACEMENT WARRANTS. In connection with our sale
of common stock in September 2000, we issued the purchasers warrants to purchase
a total of 600,000 shares of common stock at an exercise price of $3.60 per
share. The warrants have a term of three years. As of March 29, 2002, all such
warrants remained outstanding.

HELLER WARRANTS. In connection with our March 2001 loan agreement with
Heller Healthcare Finance, Inc., we issued the Heller warrants to purchase a
total of 243,750 shares of common stock at an exercise price of $3.15 per share.
The warrants have a term of three years. As of March 29, 2002, all such warrants
remained outstanding.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The summary financial information as of
and for each of the years in the five-year period ended December 31, 2001 is
derived from our consolidated financial statements for such years. The financial
data presented below have been restated to present the discontinued operations
in accordance with Accounting Principles Board Opinion No. 30.

(In thousands, except for per share amounts)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Net sales $ 13,468 $ 33,697 $ 21,374 $ 17,080 $ 23,180
Gross profit 6,083 18,892 11,753 11,031 11,010
Loss from operations (26,121) (21,787) (14,390) (10,919) (8,141)
Gain on sale of subsidiaries -- -- -- 364 4,129
Loss from continuing operations (22,663) (21,021) (13,712) (11,109) (5,252)
Net loss (26,190) (21,430) (14,424) (11,882) (7,253)
Conversion discount on
preferred stock -- -- -- (859) (42)
Dividends and accretion
on preferred stock -- -- -- (2,752) (298)
Loss attributable to common
stockholders (26,190) (21,430) (14,424) (15,493) (7,593)
Basic loss per common share (1.04) (1.02) (0.89) (1.26) (0.80)
Diluted loss per share (1.04) (1.02) (0.89) (1.26) (0.80)

Working capital 13,864 20,680 21,648 14,875 12,730
Total assets 36,310 51,876 49,379 43,873 50,461
Long-term obligations 2,926 110 100 560 500
Redeemable convertible
preferred stock -- -- -- -- 11,477
Stockholders' equity 15,472 37,335 39,578 34,015 27,040

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of LaserSight's consolidated
results of operations and consolidated financial position should be read in
conjunction with the Selected Consolidated Financial Data and LaserSight's
consolidated financial statements, including the notes thereto, appearing
elsewhere in this report. We have significant liquidity and captial resource
issues relative to the timing of our accounts receivable collection and the
successful completion of new sales compared to our ongoing payment obligations
and our auditors have indicated that our recurring losses from operations and
net capital deficiency raises substantial doubt about our ability to continue as
a going concern. See "Liquidity and Capital Resources" and "Risk Factors and
Uncertainties--We have experienced significant losses and operating cash flow
deficits and we expect that operating cash flow deficits will continue and
absent further financing or significant improvement in sales, potentially result
in our inability to continue operations."

All references to years are to LaserSight's fiscal years ended December
31, 2001, 2000 and 1999, unless otherwise indicated.

OVERVIEW

LaserSight's net loss for 2001 was $26,189,692, or $1.04 per basic and
diluted common share, on net sales of $13,468,039, while the net loss for 2000
was $21,430,081, or $1.02 per basic and diluted common share, on net sales of
$33,697,056. The net losses are primarily attributable to the expenses generated
by our refractive products segment.

LaserSight is principally engaged in the manufacture and supply of
microspot scanning excimer laser systems, software for custom ablation planning
and programming, diagnostic products for precision measurements of the eye,
keratomes, keratome blades and other related products used to perform procedures
that correct common refractive vision disorders such as nearsightedness,
farsightedness and astigmatism. Since 1994, we have marketed our laser systems
commercially in over 30 countries worldwide and currently have an installed base
of approximately 400 scanning laser systems outside the U.S., including over 220
of our LaserScan LSX laser systems.

In November 1999, we received FDA approval for commercialization of our
LaserScan LSX laser systems in the U.S., and shipments of that product in the
U.S. began in March 2000.

Our MicroShape family of keratome products includes our UltraShaper
durable keratome, a control console, and our UltraEdge keratome blades. We began
commercial shipments of our UltraShaper durable keratomes during the second
quarter of 2001, and anticipate that sale of UltraEdge keratome blades will
provide us with the opportunity to participate in the significant growth in
refractive laser vision correction procedure volume by generating a recurring
revenue stream.

We believe that our LaserScan LSX laser system will make a more
significant contribution to our future operating results as a result of the
increased shipments of these laser systems to U.S. customers after we received
FDA approval for treatment of myopia with astigmatism in September 2001. In
addition, the commercial launch of our UltraShaper durable keratome in the
fourth quarter of 2001 and the expected commercialization of our AstraMax
diagnostic workstation during 2002 should contribute to our future operating
results. As a result of these significant developments, our historical financial
statements may not be indicative of our future performance. However, we expect
to continue to incur a loss and a deficit in cash flow at least through the
first half of 2002.

We also license our `504 scanning patent to other participants in the
excimer laser industry. 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.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, information
derived from our consolidated statements of operations expressed as a percentage
of net sales, and the percentage change in such items from the comparable prior
year period. Any trends illustrated in the following table are not necessarily
indicative of future results. The percentages presented below have been restated
to present the discontinued operations in accordance with Accounting Principles
Board Opinion No. 30.

Percentage Increase (Decrease)
As a Percentage of Net Sales Over Prior Periods
Year Ended December 31, Year Ended December 31,
2001 2000 1999 2000 to 2001 1999 to 2000
---- ---- ---- ------------ ------------

Statements of Operations Data:
Net revenues:
Refractive products 97.1% 92.2% 90.8% (57.9)% 60.1%
Patent services 2.9 7.8 9.2 (85.1) 33.6
------ ------ ------
Net revenues 100.0 100.0 100.0 (60.0) 57.7
Gross profit (1) 45.2 56.1 55.0 (67.8) 60.7
Research, development and
regulatory expenses (2) 24.3 13.7 14.7 (29.2) 47.2
Other general and administrative
expenses 176.4 65.2 74.9 8.2 37.2
Selling-related expenses (3) 34.7 22.6 22.0 (38.7) 61.8
Amortization of intangibles 3.7 7.0 10.7 (78.7) 3.1
Impairment loss -- 12.2 -- N/M N/M
------ ------ ------
Loss from operations (193.9) (64.6) (67.3) 19.9 51.4

--------------------------------------------------------------------------------

N/M Not meaningful.

1. As a percentage of net revenues, the gross profit for refractive products
only for each of the three years ended December 31, 2001, 2000 and 1999
were 44%, 52% and 50%, respectively.

2. As a percentage of refractive product net revenues, research, development
and regulatory expenses for each of the three years ended December 31,
2001, 2000 and 1999 were 25%, 15% and 16%, respectively.

3. As a percentage of refractive product net revenues, selling-related
expenses for each of the three years ended December 31, 2001, 2000 and 1999
were 36%, 25% and 24%, respectively.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

REVENUES. Net revenues for the year ended December 31, 2001 decreased
by $20.2 million, or 60%, to $13.5 million from $33.7 million in 2000.

During the year ended December 31, 2001, refractive products revenues
decreased $18.0 million, or 58%, to $13.1 million from $31.1 million in 2000.
This revenue decrease was primarily the result of decreased sales of the
LaserScan LSX excimer laser system. During the year ended December 31, 2001,
excimer laser system sales accounted for approximately $11.4 million in revenues

compared to $27.5 million in revenues in 2000. During the year ended December
31, 2001, 46 laser systems were sold compared to 90 laser systems sold in 2000.
The reduction in laser sales is primarily attributable to the delayed FDA
approval of our laser in the U.S. for the treatment of astigmatism and the
general economic slowdown in many regions of the world.

Net revenues from patent services for the year ended December 31, 2001
decreased approximately $2.2 million, or 85%, to $0.4 million from $2.6 million
in 2000, due to the March 2001 sale of most rights associated with the Blum
Patent.

COST OF REVENUES; GROSS PROFIT. For the year ended December 31, 2001
and 2000, gross profit margins were 45% and 56%, respectively. The gross margin
decrease during the year ended December 31, 2001 was primarily attributable to
decreased sales and lower average selling prices of the LaserScan LSX excimer
laser system, causing overhead to be a higher percentage of sales. In addition,
royalty revenues decreased in 2001 as a result of the sale of the Blum Patent in
March 2001. The decreased number of laser sales resulted in lower raw material
costs relating to the LaserScan LSX excimer laser system of $4.9 million and
there was a decrease in our inventory obsolescence reserve of $0.9 million from
2000.

RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES. Research, development
and regulatory expenses for the year ended December 31, 2001 decreased $1.3
million, or 29%, to $3.3 million from $4.6 million in 2000. We continued to
develop our keratome systems and excimer laser systems and continued to pursue
protocols in our effort to attain and expand our FDA approvals for our
refractive products. As a result of the continued development of our AstraMax
diagnostic workstation, we expect research and development expenses during 2002
to continue at approximately the same levels incurred during 2001. Regulatory
expenses are expected to remain constant as a result of our continued pursuit of
various FDA approvals, including pre-market approval supplements, and the
possible development of additional pre-market approval supplements and future
protocols for submission to the FDA.

OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and
administrative expenses for the year ended December 31, 2001 increased $1.8
million, or 8%, to $23.8 million from $22.0 million in 2000. This increase was
due to an increase in expenses incurred at our refractive products operations of
approximately $2.2 million related to enhancements to the customer support and
training, sales and marketing and software development departments of $0.9
million and $1.4 million of legal fees related to patent issues and litigation.
The patent litigation, which accounted for a significant portion of those legal
fees, was settled in May 2001, and we have experienced a significant decrease in
our legal expenses since that time.

SELLING-RELATED EXPENSES. Selling-related expenses 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. Commissions and royalties, in particular, can vary significantly
from sale to sale or period to period depending on the location and terms of
each sale. Selling-related expenses for the year ended December 31, 2001
decreased $2.9 million, or 39%, to $4.7 million from $7.6 million in 2000. This
decrease was primarily attributable to a $1.4 million decrease in sales
commissions resulting from lower sales and a decrease of $1.5 million of
warranty expense primarily related to decreased laser system sales.
Selling-related expenses increased as a percentage of revenue during 2001 over
2000. This increase primarily resulted from additional license fee expense for
our keratome products of $0.4 million due to minimum royalties under our January
2001 amended and restated license agreement, regardless of keratome sales, and a
higher proportion in 2001 of international laser sales, which include a royalty
based on selling price, to total sales. See "Risk Factors and Uncertainties -

Company and Business Risks - Required minimum payments under our keratome
license agreement may exceed our gross profits from sales of our keratome
products." In addition, the decrease in patent services revenue did not result
in a reduction of selling related expenses, which are related to refractive
products.

AMORTIZATION OF INTANGIBLES. During the year ended December 31, 2001,
costs relating to the amortization of intangible assets decreased $1.9 million,
or 79%, to $0.5 million from $2.4 million in 2000. This decrease was due to the
impairment loss incurred on certain intangible assets at December 31, 2000 of
approximately $4.1 million, reducing future amortization expenses, and the sale
of the Blum Patent in March 2001 that had an unamortized book value at the date
of sale of approximately $2.4 million. Our intangible assets include acquired
technologies, patents and license agreements.

LOSS FROM OPERATIONS. The operating loss for the year ended December
31, 2001 was $26.1 million compared to the operating loss of $21.8 million in
2000. This increase in the loss from operations was primarily due to the
decrease in sales of our LaserScan LSX excimer laser system and an increase in
other general and administrative expenses related to our refractive products
operations.

OTHER INCOME AND EXPENSES. Interest and dividend income for the year
ended December 31, 2001 was $0.6 million, a decrease of $0.3 million from 2000.
Interest and dividend income was earned from the investment of cash and cash
equivalents and the collection of long-term receivables related to laser system
sales. Interest expense of approximately $0.5 million for the year ended
December 31, 2001 was primarily attributable to the loan and credit facility we
established in March 2001. Other income included a net gain, after expenses
associated with the sale, of $4.0 million from the sale of the Blum Patent in
March 2001. The patent was sold for $6.4 million net of related expenses and,
prior to the sale, had a book value at the date of sale of approximately $2.4
million. Other expenses for the year ended December 31, 2001 included
approximately $0.6 million in payments related to the settlement of patent
litigation.

INCOME TAXES. For the year ended December 31, 2001 and 2000,
LaserSight had no income tax expense.

DISCONTINUED OPERATIONS. Costs related to the discontinued operations
of the health care services segment were $3.5 million during the year ended
December 31, 2001 compared to $0.4 million during the year ended December 31,
2000. The increase included approximately $3.0 million of goodwill impairment
resulting from the decision to discontinue the operations and a provision for
losses during the phase out period of $0.1 million.

NET LOSS. Net loss for the year ended December 31, 2001, was $26.2
million compared to a net loss of $21.4 million in 2000. The increased net loss
for the year ended December 31, 2001 can be attributed to the decrease in sales
of our LaserScan LSX excimer laser system, an increase in other general and
administrative expenses related to our refractive products operations and the
discontinued health care services operations, partially offset by the gain
generated by the sale of the Blum Patent.

LOSS PER SHARE. The loss per basic and diluted share was $1.04 for the
year ended December 31, 2001 and $1.02 in 2000. During the year ended December
31, 2001, the weighted average shares of common stock outstanding increased
primarily due to the conversion of preferred stock during 2000 and 2001, the
September 2000 private placement of common stock, the issuance of common stock
related to our July 2001 financing and the issuance of shares related to the
amended and restated license and royalty agreement related to our keratome
products.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

REVENUES. Net revenues for the year ended December 31, 2000 increased
by $12.3 million, or 58%, to $33.7 million from $21.4 million in 1999.

During the year ended December 31, 2000, refractive products revenues
increased $11.7 million, or 60%, to $31.1 million from $19.4 million in 1999.
This revenue increase was primarily the result of increased sales of the
LaserScan LSX due to our ability to sell laser systems in the U.S., the higher
price of the LaserScan LSX excimer laser system and the introduction of our
blade and keratome related products. See "Risk Factors and
Uncertainties--Industry and Competitive Risks--We cannot assure you that our
keratome products will achieve market acceptance." During the year ended
December 31, 2000, excimer laser system sales accounted for approximately $27.5
million in revenues compared to $17.0 million in 1999. During the years ended
December 31, 2000 and 1999, respectively, LaserScan LSX system sales accounted
for substantially all excimer laser system sales. During the year ended December
31, 2000, 90 laser systems were sold, compared to 65 laser system sales in 1999.
Of the 90 laser systems sold in 2000, 7 were discounted sales to existing
customers compared to 65 laser systems sold that included 14 discounted sales to
existing customers in 1999.

Net revenues from patent services for the year ended December 31, 2000
increased approximately $0.6 million, or 34%, to $2.6 million from $2.0 million
in 1999, due to increased licensing fees.

COST OF REVENUE; GROSS PROFITS. For the years ended December 31, 2000
and 1999, gross profit margins were 56% and 55%, respectively. The gross margin
increase during the year ended December 31, 2000 was primarily attributable to
increased sales of the LaserScan LSX excimer laser system and higher patent and
health care services revenues. These increased sales were partially offset by
higher raw material costs relating to the LaserScan LSX excimer laser system and
an increase in our inventory obsolescence reserve of $1.0 million. This
additional reserve primarily relates to a write down of our aesthetic inventory,
consisting mainly of erbium lasers used for skin resurfacing. This product line
is not part of our focus on refractive products.

RESEARCH, DEVELOPMENT AND REGULATORY EXPENSE. Research, development and
regulatory expenses for the year ended December 31, 2000 increased $1.5 million,
or 47%, to $4.6 million from $3.1 million in 1999. We continued to develop our
keratome systems, excimer laser systems and continued to pursue expanded FDA
approvals for our refractive products and added the development of new
technologies like our AstraMax diagnostic workstation. Regulatory expenses
continued as a result of our continued pursuit of FDA approvals, protocols added
during 1999 related to the potential use of our laser systems for treatments
utilizing the LASIK procedure, pre-market approval supplements added during 2000
and the possible development of additional pre-market approval supplements and
future protocols for submission to the FDA.

OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and
administrative expenses for the year ended December 31, 2000 increased $6.0
million, or 37%, to $22.0 million from $16.0 million in 1999. This increase was
due to an increase in expenses incurred at our refractive products subsidiary of
approximately $6.3 million over 1999. These included enhancements primarily to
the customer support and training, sales and marketing departments, including
the establishment of a U.S. sales department, of $3.0 million, the establishment
of our European operation of $0.6 million, higher depreciation costs of $0.4
million and $1.2 million of legal fees related to patent issues and litigation.

See "Risk Factors and Uncertainties--Financial and Liquidity Risks--If our
uncollectible receivables exceed our reserves we will incur additional
unanticipated expenses, and we may experience difficulty collecting restructured
receivables with extended payment terms."

SELLING-RELATED EXPENSES. Selling-related expenses 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. Commissions and royalties, in particular, can vary significantly
from sale to sale or period to period depending on the location and terms of
each sale. Selling-related expenses for the year ended December 31, 2000
increased $2.9 million, or 62%, to $7.6 million from $4.7 million in 1999. This
increase was primarily attributable to a $1.0 million increase in sales
commissions resulting from increased laser system sales, an increase of $1.1
million in license fees primarily resulting from the introduction of our
keratome products and an increase of $1.0 million of warranty expense primarily
related to increased laser system sales. During the last six months of 2000,
$0.8 million of keratome-related royalties resulted from minimum royalty
obligations. See "Risk Factors and Uncertainties - Company and Business Risks -
Required minimum payments under our keratome license agreement may exceed our
gross profits from sales of our keratome products."

AMORTIZATION OF INTANGIBLES. During the year ended December 31, 2000,
costs relating to the amortization of intangible assets was $2.4 million,
approximately the same as in 1999. Items directly related to the amortization of
intangible assets are acquired technologies, patents and license agreements.

IMPAIRMENT LOSS. During the fourth quarter of 2000, we recorded an
impairment loss of approximately $2.3 million related to goodwill of our
LaserSight Centers subsidiary. The combination of increased price competition
and resulting losses in many other laser centers businesses during 2000 and our
increased focus on refractive product development and commercialization resulted
in management's decision in late 2000 to abandon the strategy of a mobile laser
business. As a result, management performed an evaluation of the recoverability
of such goodwill, and concluded that a significant impairment of intangible
assets had occurred. An impairment charge was required because the carrying
value of the assets could not be recovered through estimated net cash flows.

During the fourth quarter of 2000, we also recorded an impairment loss
of approximately $1.8 million related to the PMA application acquired in 1997.
In December 2000, we submitted to the FDA our own PMA supplement representing
data from clinical trials performed on our LSX laser system, an advantage over
the PMA application acquired in 1997. In addition, the FDA has audited and
approved our manufacturing operation for the LSX laser system. This December
2000 submission resulted in management's decision to abandon further efforts
related to the PMA application acquired in 1997. As a result, management
performed an evaluation of the recoverability of such intangible asset, and
concluded that a significant impairment of it had occurred. An impairment charge
was required because the carrying value of the assets could not be recovered
through estimated net cash flows.

LOSS FROM OPERATIONS. The operating loss for the year ended December
31, 2000 was $21.8 million compared to the operating loss of $14.4 million in
1999. This increase in the loss from operations was primarily due to the
increase in sales of our LaserScan LSX excimer laser system and an improvement
in the operating gain generated by our patent services subsidiary, more than
offset by an increase in other general and administrative expenses related to
our refractive products operations as well as impairment loss of $4.1 million.

OTHER INCOME AND EXPENSE. Interest and dividend income for the year
ended December 31, 2000 was $0.9 million, an increase of $0.1 million over the
comparable period in 1999. Interest and dividend income was earned from the
investment of cash and cash equivalents and the collection of long-term
receivables related to laser system sales. Interest expense for the years ended
December 31, 2000 and 1999 was not material.

INCOME TAXES. For the years ended December 31, 2000 and 1999,
LaserSight had no income tax expense as a result of net losses.

DISCONTINUED OPERATIONS. Costs related to the discontinued operations
of the health care services segment were $0.4 million during the year ended
December 31, 2000 compared to $0.7 million during the year ended December 31,
1999. The improvement resulted from increased revenues during 2000.

NET LOSS. Net loss for the year ended December 31, 2000, was $21.4
million compared to a net loss of $14.4 million in 1999. The increase in net
loss for the year ended December 31, 2000 can be attributed to the increase in
sales of our LaserScan LSX excimer laser system and an improvement in the
operating gain generated by our patent services subsidiary, more than offset by
an increase in other general and administrative expenses related to our
refractive products operations as well as an impairment loss of $4.1 million.

LOSS PER SHARE. The loss per basic and diluted share was $1.02 for the
year ended December 31, 2000 and $0.89 in 1999. During the year ended December
31, 2000, the weighted average shares of common stock outstanding increased
primarily due to the conversion of preferred stock, private placements of common
stock and the exercise of options and warrants.

LIQUIDITY AND CAPITAL RESOURCES

We have 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. We believe 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.

Our working capital remains positive (approximately $8.0 million as of
the end of March 2002), though 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 is dependent on our ability to generate new sales of
our products and collect the sales price in a timely manner.

Management expects 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 only the next two to four weeks in the absence of
LaserSight obtaining an additional source of capital or a significant
improvement in our cash flows from operations. Our expectations regarding 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 and collect new and outstanding accounts receivable

and 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 likely be unable to
continue operations for the expected two to four week period in the absence of
obtaining additional sources of capital.

We are actively seeking investors to invest in the range of $1.5
million to $3.0 million in equity and/or debt, as well as distribution
agreements for certain products, which would provide temporary relief from our
current liquidity pressures. However, even if we succeed in completing a
financing transaction, we cannot assure you that we will be able to generate
increased revenues and collections to offset required cash expenditures in a
timely manner. Additionally, if we are able to enter transactions to meet our
liquidity needs, it could be on terms that seriously dilute our present
stockholders or significantly restrict the flexibility of our business. See
"Risk Factors and Uncertainties--Industry and Competitive Risks--We cannot
assure you that we have the liquidity to survive long enough to achieve market
acceptance with our products in the U.S." and "--Financial and Liquidity
Risks--We have experienced significant losses and operating cash flow deficits
and we expect that operating cash flow deficits will continue and absent further
financing or significant improvement in sales, potentially result in our
inability to continue operations."

Our principal sources of funds have historically been from sales of
preferred stock and common stock, sales of subsidiaries and patent rights and,
to a lesser extent, our operating cash flows. We issued equity securities
totaling approximately $14.8 million in 1997, $15.8 million in 1998, $8.9
million in 1999, $19.1 million in 2000 and $3.0 million in 2001, and received
proceeds from the exercise of stock options, warrants and our Employee Stock
Purchase Plan of approximately $98,000 in 1997, $0.5 million in 1998, $10.4
million in 1999, $85,000 in 2000 and $67,000 in 2001. In addition, we sold
subsidiaries and various patent rights, resulting in proceeds to us of
approximately $10.5 million in 1997, $12.7 million in 1998 and $6.5 million in
2001. Additionally, we received $5.0 million in 2001 for a paid up license to
our `679 Scanning Patent. We have principally used these capital resources to
fund operating losses, working capital requirements, capital expenditures,
acquisitions and retirement of debt. At December 31, 2001, we had an accumulated
deficit of $85.8 million.

On March 1, 2001, we completed the sale of U.S. Patent No. 4,784,135
(Blum Patent) for a cash payment of $6.4 million, net of related expenses. We
retained a non-exclusive royalty free license under the patent, which relates to
the use of ultraviolet light for the removal of organic tissue. Our net book
value of the patent at the date of the sale was approximately $2.4 million.

On March 12, 2001, we established a $3.0 million term loan and $10.0
million revolving credit facility with Heller. We borrowed $3.0 million under
the term loan at a rate per annum equal to two and one-half percent (2.5%) above
the prime rate. Interest is payable monthly and the loan must be repaid on March
12, 2003. Under the credit facility, we have the option to borrow amounts at a
rate per annum equal to one and one-quarter percent (1.25%) above the prime rate
for short-term working capital needs or such other purposes as may be approved
by Heller. Borrowings are limited to 85% of eligible accounts receivable related
to U.S. sales. Eligible accounts receivable will primarily be based on future
U.S. sales, which are expected to increase with the recent FDA approval of our
laser for the treatment of nearsightedness with astigmatism. Borrowings under
the loans are secured 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 extend to March 12,
2003. In addition to the costs and fees associated with the transaction, we
issued to Heller a warrant to purchase 243,750 shares of common stock at an

exercise price of $3.15 per share. The warrant expires on March 12, 2004. At
March 29, 2002, we had no borrowings under the revolving credit facility. Future
availability under the revolving credit facility is dependent upon ongoing U.S.
sales of products.

In July 2001, we completed a $3.0 million private placement of series F
convertible participating preferred stock.

Effective February 15, 2002, the Company's covenants on the term note
payable to Heller 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 begin
in February 2002, increasing to $20,000 monthly in June 2002 and $30,000 monthly
in October 2002.

Our working capital decreased $6.8 million from $20.7 million at
December 31, 2000 to $13.9 million as of December 31, 2001. This decrease in
working capital resulted primarily from the net loss of $26.2 million offset by
cash generated from the sale of a patent, the licensing of patents, the July
2001 private placement and the proceeds of the term loan, for net proceeds of
$18.6 million.

Operating activities used net cash of $17.7 million during the year
ended December 31, 2001, compared to $15.7 million during the year ended
December 31, 2000. We expect to incur a loss and a deficit in cash flow from
operations for the first half of 2002. There can be no assurance that we can
regain or sustain profitability or positive operating cash flow in any
subsequent fiscal period. Net cash provided by investing activities of $6.1
million during the year ended December 31, 2001, can be attributed primarily to
the sale of the Blum patent. As of December 31, 2001, we had no significant
commitments for capital expenditures. Net cash provided from financing
activities during the year ended December 31, 2001 of $5.8 million can be
attributed to entering into the term loan agreement and the $3.0 million private
placement in July 2001, described above.

LaserSight had approximately $0.3 million of cash and cash equivalents
available, as of April 1, 2002, to fund continuing operations and is currently
facing significant liquidity and capital resource concerns. Management expects
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
two to four weeks in the absence of LaserSight obtaining an additional source of
capital or a significant improvement in our cash flows from operations. This
expectation is based upon assumptions regarding cash flows and results of
operations over the next two to four weeks 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. The risks and uncertainties regarding
management's expectations are more fully described under the heading "Risk
Factors and Uncertainties--Financial and Liquidity Risks--We have experienced
significant losses and operating cash flow deficits and we expect that operating
cash flow deficits will continue and absent further financing or significant
improvement in sales, potentially result in our inability to continue
operations." There can be no assurance that sales and collection of accounts
receivables will meet the level of management's expectations.

There can be no assurance:

o that our recent FDA approval for the treatment of nearsightedness
with or without astigmatism, in September 2001, will result in
increased sales and a corresponding increase in cash flows from
operations, or

o 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.

Since September 2001, we have experienced a modest increase in U.S.
sales (and collection of accounts receivable) as a result of our recent FDA
approval. We will require additional financing to continue operations unless:

o our recent FDA approval results in a significant increase in U.S.
sales of our LaserScan LSX excimer laser system (with a
corresponding increase in cash flows from operations), and
o there are no unanticipated delays in the commercial release of our
AstraMax diagnostic workstation.

We are currently seeking opportunities for additional financing through
a private placement of our common stock or debt financing and, more broadly,
have retained McColl Partners LLC as our financial advisor to assist us in
exploring strategic options (including the possible sale of LaserSight or its
assets). There can be no assurance that our exploration of financing
opportunities and strategic options will result in our obtaining sufficient
financing, on acceptable terms, to permit our continued operations or identify
any other viable option for LaserSight. Additionally, to the extent we are able
to obtain additional financing to address our current liquidity concerns we may
be required to seek additional debt or equity financing in the future to
implement our business plan or any changes thereto in response to future
developments or unanticipated contingencies. There can be no assurance that any
additional financing would be available or that the terms of any available
financing would be acceptable. Future availability of our existing $10.0 million
credit facility is totally dependent upon future U.S. sales of products. See
"Risk Factors and Uncertainties--Financial and Liquidity Risks--We could require
additional financing, which might not be available if we need it."

Our expectations regarding future working capital requirements are
based on various factors and assumptions including: the successful reduction of
our cost structure, anticipated cash flows from operations (including our
success in making sales and the collection of accounts receivable), the
uncertain timing of additional supplemental FDA approvals for our LaserScan LSX
excimer laser system (which could continue to negatively impact our sales during
2002), potential growth in laser sales after receipt of further FDA approvals,
increases in accounts receivable and inventory purchases when sales increase,
the potential for borrowing under our revolving credit facility, the uncertain
impact of the market introduction of our UltraShaper durable keratomes and
AstraMax diagnostic workstations, commercial acceptance of our UltraEdge
keratome blades, the anticipated timely collection of receivables and the
absence of unanticipated product development and marketing costs. See "Risk
Factors and Uncertainties--Industry and Competitive Risks--We cannot assure you
that our keratome products will achieve market acceptance" and "--We cannot
assure you that our LaserScan LSX laser system will achieve market acceptance in
the U.S., and our business model for selling our laser system in the U.S. is new
and unproven." These factors and assumptions are subject to certain
contingencies and uncertainties, some of which are beyond our control and no
assurances can be given that these expectations will prove correct. Similarly,
our long-term liquidity will be dependent on the successful entrance into the
U.S. market of our laser systems, the successful entrance into U.S. and
international markets of our diagnostic workstation and keratome products, and
our ability to collect our receivables on a timely basis.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations", and Statement No. 142, "Goodwill and
Other Intangible Assets." Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. We adopted the
provisions of Statement No. 141 on July 1, 2001 and the provisions of Statement
No. 142 on January 1, 2002. We do not expect Statement No. 142 to have a
material effect on the consolidatee financial statements.

In October 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Statement No. 144 also supercedes the accounting and reporting
provisions of APB Opinion No. 30 "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." Statement No. 144 is
intended to establish one accounting model for long-lived assets to be disposed
of by sale and to address significant implementation issues. We adopted
Statement No. 144 on January 1, 2002. We do not expect Statement No. 144 to have
a material effect on the consolidated financial statements.

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 make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our estimates, judgments and assumptions
are continually evaluated based on available information and experience. Because
of the use of estimates inherent in the financial reporting process, actual
results could differ from those estimates.

Certain of our accounting policies require higher degrees of judgment
than others in their application. These include revenue recognition, estimating
product warranty reserves, the allowance for doubtful accounts, inventory
obsolescence reserves and impairment of long-lived assets. In addition, Note 2
to the Consolidated Financial Statements includes further discussion of our
significant accounting policies.

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,
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.

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, as well as expectations of future conditions.
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 uncollectability of our accounts and
notes receivable balances. We estimate losses based on the overall economic
climate in the countries where are 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 $13.4 million, net of
allowance for doubtful accounts of $5.5 million, as of December 31, 2001. 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.

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 the U.S., we expect that sales of our laser systems will generally
be to customers with approved credit, and we anticipate that the purchase price
for such laser systems will generally be paid to us within 60 days of shipment.
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 at or before installation. On occasion, it is necessary to meet
a competitor's more liberal terms of payment. In those and other cases, we may
provide term financing. Our internally-financed sales with repayment periods
exceeding 18 months (measured from the installation date) were five systems in
1999, 12 systems during 2000 and 14 systems in 2001. In our experience, sales of
major capital equipment such as excimer laser systems in certain areas,
including much of South and Central America, often require payment terms ranging
from 12 to 24 months.

RISK FACTORS AND UNCERTAINTIES

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:

FINANCIAL AND LIQUIDITY RISKS

WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND OPERATING CASH FLOW DEFICITS
AND WE EXPECT THAT OPERATING CASH FLOW DEFICITS WILL CONTINUE AND ABSENT FURTHER
FINANCING OR SIGNIFICANT IMPROVEMENT IN SALES, POTENTIALLY RESULT IN OUR
INABILITY TO CONTINUE OPERATIONS.

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. We believe 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 in a timely manner.

In addition, we are actively seeking investors to invest in the range
of $1.5 million to $3.0 million in equity and/or debt, as well as distribution
agreements for certain products, which would provide temporary relief from our
current liquidity pressures. However, even if we succeed in completing a
financing transaction to address our current liquidity concerns, we cannot
assure you that we will be able to generate increased revenues and collections
to offset required cash expenditures in a timely manner. Additionally, if we are
able to enter transactions to meet our liquidity needs, it could be on terms
that seriously dilute our present stockholders or significantly restrict the
flexibility of our business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Risk Factors and Uncertainties--Industry and Competitive Risks--We cannot
assure you that we have the liquidity to survive long enough to achieve market
acceptance with our products in the U.S."

We experienced significant net losses and deficits in cash flow from
operations for the years ended December 31, 2001, 2000 and 1999, 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,
1999 2000 2001
---- ---- ----
Net loss $14.4 million $21.4 million $26.2 million
Deficit in cash flow
from operations $11.7 million $15.7 million $17.7 million

As of December 31, 2001, we had an accumulated deficit of $85.8
million. LaserSight had approximately $0.3 million of cash and cash equivalents
available, as of April 1, 2002, to fund continuing operations and is currently
facing significant liquidity and capital resource concerns. Management expects
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 only the
next two to four weeks in the absence of LaserSight obtaining an additional
source of capital or a significant improvement in our cash flows from
operations. Our expectations regarding future working capital requirements and
our ability to continue operations are based on various factors and assumptions
including: the successful reduction of our cost structure, anticipated cash
flows from operations (including our success in making sales and the collection
of accounts receivable), the uncertain timing of additional supplemental FDA
approvals for our LaserScan LSX excimer laser system (which could continue to
negatively impact our sales during 2002), potential growth in laser sales after
receipt of further FDA approvals, increases in accounts receivable and inventory
purchases when sales increase, the potential for borrowing under our revolving
credit facility, the uncertain impact of the market introduction of our
UltraShaper durable keratomes and AstraMax diagnostic workstations, commercial
acceptance of our UltraEdge keratome blades, the anticipated timely collection
of receivables, 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 our ability to sell products and collect accounts receivables at
or above the level of management's expectations,
o the willingness of trade creditors to continue to extend credit to
LaserSight,
o the occurrence of unforeseen expenses and our ability to control
expected expenses and overhead,
o reductions and cancellations in orders,
o our ability to fulfill orders in light of our current financial
condition,
o our ability to improve pricing and terms of international sales,
o our ability to introduce new refractive products that complement
excimer laser systems,
o the loss of, or failure to obtain additional, customers,
o changes in pricing by our competitors,
o our ability to comply with the financial and other covenants
associated with our term loan and revolving credit facility, and
o the occurrence of property and casualty losses which are
uninsured or that generate insurance proceeds cannot be collected
in a short time frame.

The occurrence of adverse developments related to these risks and
uncertainties or others could result in LaserSight being unable to generate
additional sales and collect new and outstanding accounts receivable and 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 likely be unable to continue
operations for the expected two to four week period in the absence of obtaining
additional sources of capital. We are currently seeking additional equity and/or
debt financing and, more broadly, have retained McColl Partners LLC as our
financial advisor to assist us in exploring strategic options (including the
possible sale of LaserSight or its assets). There can be no assurance that our
exploration of financing opportunities and strategic options will result in our
obtaining sufficient financing, on acceptable terms, to permit our continued
operations or identify any other viable option for LaserSight. If LaserSight is
unable to obtain additional sources of capital and its operating activities fail
to substantially improve to a level that LaserSight can continue operations, we
may file, or be forced to file, bankruptcy or insolvency proceedings or
otherwise sell our assets to satisfy creditors. Bankruptcy or insolvency
proceedings or a sale of assets to satisfy creditors would be unlikely to result
in any value to LaserSight's stockholders. If we are able to enter transactions
to meet our liquidity needs, it could be on terms that seriously dilute our
present stockholders or significantly restrict the flexibility of our business.

With respect to management's expectations regarding LaserSight's
ability to continue operations for the expected period and the risks and
uncertainties relating to those expectations, readers are encouraged to review
the discussions under the captions "Risk Factors and Uncertainties--If our
uncollectible receivables exceed our reserves we will incur additional
unanticipated expenses, and we may experience difficulty collecting restructured
receivables with extended payment terms," "--We require additional financing,
which we might not be able to obtain," "--We cannot assure you that our
LaserScan LSX laser system will achieve market acceptance in the U.S., and our
business model for selling our laser system in the U.S. is new and unproven,"
"--Required per procedure fees payable to Visx under our license agreement may
exceed per procedure fees collected by us," "--Our supply of certain critical
components and systems may be interrupted because of our reliance on a limited
number of suppliers," as well as the other items discussed under the heading
"Risks Factors and Uncertainties" and Note 1 of our Notes to Consolidated
Financial Statements for the year ended December 31, 2001. These risks and
uncertainties can affect LaserSight's ability to continue operations for the
expected period in absence of obtaining additional capital resources.

IF OUR UNCOLLECTIBLE RECEIVABLES EXCEED OUR RESERVES WE WILL INCUR
ADDITIONAL UNANTICIPATED EXPENSES, AND WE MAY EXPERIENCE DIFFICULTY COLLECTING
RESTRUCTURED RECEIVABLES WITH EXTENDED PAYMENT TERMS.

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 $5.5 million at December 31, 2001,
will be sufficient to cover the amount of our actual write-offs over time. At
December 31, 2001, our net trade accounts and notes receivable totaled
approximately $13.4 million, and accrued commissions, the payment of which
generally depends on the collection of such net trade accounts and notes
receivable, totaled approximately $2.0 million. Actual write-offs that exceed
amounts reserved could have a material adverse effect on our consolidated
financial condition and results of operations. The amount of any loss that we
may have to recognize in connection with our inability to collect receivables is
principally dependent on our customers' ongoing financial condition, their
ability to generate revenues from our laser systems, and our ability to obtain
and enforce legal judgments against delinquent customers.

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. In most cases, we have been able to resolve the customer's
issues and continue to collect our receivable, either on the original schedule
or under restructured terms. If such issues are not resolved, we evaluate our
legal and other alternatives based on existing facts and circumstances. In most
such cases, we have concluded that the account should be written off as
uncollectible.

At December 31, 2001, we had extended the original payment terms of
laser customer accounts totaling approximately $1.9 million by periods ranging
from 5 to 60 months. Such restructured receivables represent approximately 9.9%
of our gross receivables as of that date. Our liquidity and operating cash flow
would be adversely affected if additional extensions become necessary in the
future. In addition, it would be more difficult to collect laser system
receivables if the payment schedule extends beyond the expected or actual
economic life of the system, which we estimate to be approximately five to seven
years. To date, we do not believe any payment schedule extends beyond the
economic life of the applicable laser system.

WE REQUIRE ADDITIONAL FINANCING, WHICH WE MIGHT NOT BE ABLE TO OBTAIN.

During the years ended December 31, 2001 and 2000, we experienced
deficits in cash flow from operations of $17.7 million and $15.7 million,
respectively. Consequently, we do not have sufficient capital resources to
continue operations beyond two to four weeks in the absence of our obtaining an
additional source of capital resources, unless:

We are currently seeking additional equity and/or debt financing and,
more broadly, have retained McColl Partners LLC as our financial advisor to
assist us in exploring strategic options (including the possible sale of
LaserSight or its assets). There can be no assurance that our exploration of
financing opportunities and strategic options will result in our obtaining
sufficient financing, on acceptable terms, to permit our continued operations or
identify any other viable option for LaserSight. Our expectations regarding
future working capital requirements are based on various factors and assumptions
including: the successful reduction of our cost structure, anticipated cash
flows from operations (including our success in making sales and the collection
of accounts receivable), the uncertain timing of additional supplemental FDA
approvals for our LaserScan LSX excimer laser system (which could continue to
negatively impact our sales during 2002), potential growth in laser sales after
receipt of further FDA approvals, increases in accounts receivable and inventory
purchases when sales increase, the potential for borrowing under our revolving
credit facility, the uncertain impact of the market introduction of our
UltraShaper durable keratomes and AstraMax diagnostic workstations, commercial
acceptance of our UltraEdge keratome blades, the anticipated timely collection

of receivables, and the absence of unanticipated product development and
marketing costs. See "Risk Factors and Uncertainties--Industry and Competitive
Risks--We cannot assure you that our keratome products will achieve market
acceptance" and "--We cannot assure you that our LaserScan LSX laser system will
achieve market acceptance in the U.S., and our business model for selling our
laser system in the U.S. is new and unproven." These factors and assumptions are
subject to certain contingencies and uncertainties, some of which are beyond our
control and no assurances can be given that these expectations will prove
correct. Similarly, our long-term liquidity will be dependent on the successful
entrance into the U.S. market of our laser systems, the successful entrance into
U.S. and international markets of our diagnostic workstation and keratome
products, and our ability to collect our receivables on a timely basis.

On March 12, 2001, we established a $3.0 million term loan and $10.0
million revolving credit facility with Heller. We borrowed $3.0 million under
the term loan at a rate per annum equal to two and one-half percent (2.5%) above
the prime rate. Interest is payable monthly and the loan must be repaid on March
12, 2003. Under the credit facility, we have the option to borrow amounts at a
rate per annum equal to one and one-quarter percent (1.25%) above the prime rate
for short-term working capital needs or such other purposes as may be approved
by Heller. Borrowings are limited to 85% of eligible accounts receivable related
to U.S. sales. Eligible accounts receivable will totally be based on future U.S.
sales, which are expected to increase with the recent FDA approval of our laser
for the treatment of nearsightedness with astigmatism. Currently, we cannot
borrow under our revolving credit facility. Borrowings under the loans are
secured by substantially all of the Company's assets. The term loan and credit
facility require us to meet certain covenants. Effective February 15, 2002, the
Company's covenants on the term note payable to Heller were amended to decrease
the required minimum level of net worth to $10.0 million, establish a minimum
tangible net worth of $4.5 million and establish 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.

The terms of the loans extend to March 12, 2003. In addition to the
costs and fees associated with the transaction, we issued to Heller a warrant to
purchase 243,750 shares of common stock at an exercise price of $3.15 per share.
The warrant expires on March 12, 2004. At March 29, 2002, we had no borrowings
under the revolving credit facility.

Additionally, to the extent we are able to obtain additional financing
to address our current liquidity concerns, we may be required to seek additional
debt or equity financing in the future to implement our business plan or any
changes thereto in response to future developments or unanticipated
contingencies. There can be no assurance that any additional financing would be
available or that the terms of any available financing would be acceptable. If
we raise additional funds by issuing equity or convertible debt securities, the
terms of the new securities could have rights, preferences and privileges senior
to those of our common stock. If we raise additional funds through debt
financing, the terms of the debt could require a substantial portion of our cash
flow from operations to be dedicated to the payment of principal and interest
and may render us more vulnerable to competitive pressures and economic
downturns. If we are not able to obtain financing necessary to meet our working
capital needs, it could have a material adverse effect on our financial
condition and results of operations.

INDUSTRY AND COMPETITIVE RISKS

WE CANNOT ASSURE YOU THAT WE HAVE THE LIQUIDITY TO SURVIVE LONG ENOUGH
TO ACHIEVE MARKET ACCEPTANCE WITH OUR PRODUCTS IN THE U.S.

We have significant short-term liquidity issues relative to the timing
of our accounts receivable collection and the successful completion of new sales
compared to our ongoing payment obligations. We believe we will need to generate
increased revenues, collect them and reduce our expenditures relative to our
recent history. While we believe these improved results are possible, we cannot
assure you that we will be able to generate increased revenues and collections
to offset required cash expenditures.

In addition, we are actively seeking investors to invest in the range
of $1.5 million to $3.0 million in equity and/or debt, as well as distribution
agreements for certain products, which would provide temporary relief from our
current liquidity pressures. However, even if we succeed in completing a
financing transaction to address our current liquidity concerns, we cannot
assure you that we will be able to generate increased revenues and collections
to offset required cash expenditures in a timely manner. If we cannot maintain
liquidity long enough to achieve market acceptance of our products in the U.S.,
we would not be able to execute our business plan, which would have a material
adverse effect on our business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Risk Factors and
Uncertainties--Financial and Liquidity Risks--We have experienced significant
losses and operating cash flow deficits and we expect that operating cash flow
deficits will continue and absent further financing or significant improvement
in sales, potentially result in our inability to continue operations."

WE CANNOT ASSURE YOU THAT OUR LASERSCAN LSX LASER SYSTEM WILL ACHIEVE
MARKET ACCEPTANCE IN THE U.S., AND OUR BUSINESS MODEL FOR SELLING OUR LASER
SYSTEM IN THE U.S. IS NEW AND UNPROVEN.

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.

The anticipated level of per procedure fees payable to us by refractive
surgeons resulting from our recent receipt of FDA approval for treatment of
nearsightedness with or without astigmatism may not be accepted by the
marketplace or may exceed those charged by our competitors. While we believe
that gaining access to our scanning microspot laser technology justifies the
required per procedure fee levels, we cannot assure you that this business model
will be accepted by a large number of refractive surgeons. If our competitors
reduce or do not charge per procedure fees to users of their systems, we could

be forced to reduce or eliminate the fees charged under this business model,
which could significantly reduce our revenues. For example, Nidek Co., Ltd., one
of our competitors, has publicly stated that it will not charge per procedure
fees to users of its laser systems in the U.S. and internationally. See also
"--Company and Business Risks--Required per procedure fees payable to Visx under
our license agreement may exceed per procedure fees collected by us."

Successful implementation of this business model is crucial to our
success in selling our LaserScan LSX laser system in the U.S. and may require
the expenditure of significant financial and other resources to create awareness
of the LaserScan LSX laser system and create demand by refractive surgeons. If
our laser system fails to achieve market acceptance in the U.S., we may not be
able to execute our business plan, which would have a material adverse effect on
our business, financial condition and results of operations.

WE CANNOT ASSURE YOU THAT OUR KERATOME PRODUCTS WILL ACHIEVE MARKET
ACCEPTANCE.

Keratomes are surgical devices used to create a corneal flap
immediately prior to LASIK laser vision correction procedures. We began to roll
out our MicroShape family of keratome products with the commercial launch of our
UltraEdge keratome blades in July 1999 and of our UniShaper single-use keratomes
and control consoles in December 1999. In November 2001, we commercially
released our UltraShaper durable keratomes after a thorough process of
engineering refinement and validity testing. In order for our UniShaper
single-use keratome to be commercially viable it will need to be reengineered,
if possible, to include most or all of the features included in our UltraShaper
keratome. Our UltraShaper durable keratome incorporates the features found in
the ACS keratome previously marketed by Bausch & Lomb, Inc. with new
enhancements and features. However, Bausch & Lomb has not aggressively marketed
or serviced the ACS since 1997 when we licensed the rights to commercially
market keratomes based on the same technology, and has successfully transitioned
a large number of refractive surgeons from the ACS to its Hansatome durable
keratome product. We believe that many refractive surgeons learned to perform
the LASIK procedure using the ACS and prefer the surgical technique required by
the ACS, which is also used to operate our UltraShaper durable keratome, to the
surgical technique required to operate the Hansatome keratome product. However,
we cannot assure you that we will be successful in commercially introducing or
achieving broad market acceptance of our UltraShaper durable keratome or our
other keratome products.

We have previously indicated that the successful implementation of our
keratome product sales strategy was in part dependent upon our marketing and
distribution alliance with Becton Dickinson. Due to the delay in the commercial
launch of our UltraShaper durable keratome we initiated discussions with Becton
Dickinson in order to modify our manufacturing and marketing agreements. While
these discussions were ongoing we received notices from Becton Dickinson
claiming that they have the right to end our marketing arrangement and that they
were not bound by the terms of our manufacturing agreement. Following our
receipt of these notices, Becton Dickinson indicated a willingness to discuss
modified terms for a marketing and manufacturing relationship. During 2001, we
mutually agreed to terminate both agreements. If we cannot successfully market
and sell our keratome products or if we are unable to successfully replace our
marketing and distribution alliance with another company, we may not be able to
execute our business plan, which would have a material adverse effect on our
business, financial condition and results of operations. See also "--Company and
Business Risks--Required minimum payments under our keratome license agreement
may exceed our gross profits from sales of our keratome products."

THE VISION CORRECTION INDUSTRY CURRENTLY CONSISTS OF A FEW ESTABLISHED
PROVIDERS WITH SIGNIFICANT MARKET SHARES AND WE MAY ENCOUNTER 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. in 1999, 2000 and 2001. Similarly,
Bausch & Lomb sold a significant majority of the keratomes used by refractive
surgeons in the U.S. in 1999, 2000 and 2001. In 2000, Alcon acquired Summit
Autonomous Inc. The merger resulted in a combined entity with enhanced market
presence, technology base and distribution capabilities and provided Alcon with
a narrow beam laser technology platform that will compete more directly with our
precision beam scanning microspot LaserScan LSX excimer laser system. In
addition, as a result of the acquisition, the combined entity will be able to
sell 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. We anticipate that Alcon will
leverage the sale of its laser systems with its other ophthalmic products.

MANY OF OUR COMPETITORS RECEIVED EARLIER REGULATORY APPROVALS THAN US
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 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 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. Initial FDA approvals of excimer laser vision
correction systems historically have been limited to the treatment of low to
moderate nearsightedness, with additional approvals for other and broader
treatments granted only as a result of subsequent FDA applications and clinical
trials. Our LaserScan LSX is currently approved for the LASIK treatment of
nearsightedness with and without astigmatism for a range of treatment of
refractive errors up to -6.0 diopters manifest refraction spherical equivalent
MRSE with or without a refractive astigmatism up to 4.5 diopters and the 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 200 Hz pulse repetition rate, twice the originally approved rate.
We have submitted PMA supplements to the FDA to permit our laser systems sold to
customers in the U.S. to utilize LASIK to treat hyperopia, hyperopic astigmatism
and mixed astigmatism. FDA approval of these applications is anticipated in
2002, though we cannot ensure if or when the approval will be received. Our
ability to sell our laser systems in the U.S. may be severely impaired if the
FDA does not give timely approval to these supplements.

Currently, excimer laser vision correction systems manufactured by
Visx, Alcon, Bausch & Lomb and Nidek have been approved for higher levels of
nearsightedness than the LaserScan LSX. Alcon's Apex Plus and Ladarvision
Excimer Laser Workstations, Visx's Star S2 Excimer Laser System and Nidek's
EC-5000 Excimer Laser System have received FDA approval for the LASIK treatment
of nearsightedness with or without astigmatism. The approvals for many of the
systems are for the correction of nearsightedness in the range of 0 diopters to
-14.0 diopters and nearsightedness with astigmatism generally in the range of
-0.5 diopters to -5.0 diopters. Bausch & Lomb's Technolas 217 excimer laser has
also received FDA approval for the treatment of nearsightedness from -1.0
diopter up to -7.0 diopters with up to -3.0 diopters of astigmatism. The Visx
and Alcon excimer laser systems are also approved for the treatment of moderate
farsightedness. In September 2000, the FDA approved Alcon's Ladarvision system
for the correction using LASIK of farsightedness of up to +6.0 diopters and an
astigmatism range of up to 6.0 diopters. In October 2000, the FDA approved
Visx's Star S2 and S3 systems for the correction using PRK of farsightedness of
up to +5.0 diopters and an astigmatism range of up to 3.0 diopters. In February
2001, the FDA approval of Visx's Custom-Contoured Ablation Pattern Method for
treatment of decentered ablations under a Humanitarian Device Exemption (HDE).
An HDE authorizes the use and marketing of a device that is intended to benefit
patients in the treatment of conditions that affect fewer than 4,000
individuals. Competitors' earlier receipt of LASIK and hyperopia-specific FDA
regulatory approvals could give them a significant competitive advantage that
could impede our ability to successfully sell our LaserScan LSX system in the
U.S. Our failure to successfully market our product could have a material
adverse effect on our business, financial condition and results of operations.

All of our principal competitors in the keratome business, including
current market leader Bausch & Lomb, received FDA clearance prior to the
commercialization of our keratome products and have substantial experience
marketing their keratome products. The established market presence in the U.S.
of previously approved laser systems and keratome products, as well as the entry
of new competitors into the market upon receipt of new or expanded regulatory
approvals, could impede our ability to successfully introduce our LaserScan LSX
system in the U.S. and our keratome products worldwide and may have a material
adverse effect on our business, financial condition and results of operations.

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. To date, we have established only a limited number of
strategic relationships, and many of these relationships are in the early stages
of development. There can be no assurance as to the terms, timing or
consummation of any future strategic relationships. If we lose any of these
strategic relationships or 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.

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 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.
Potential patients may not distinguish between our precision beam scanning spot
technology and the laser technology incorporated by our competitors in their
laser systems, and customers may not differentiate laser systems and procedures
that have not received FDA approval from FDA-approved systems and procedures.
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 that involves more significant immediate expense than eyeglasses or contact
lenses, adverse changes in the U.S. or international 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 and sales of
single-use products such as our UltraEdge keratome blades.

The failure of laser vision correction to achieve continued market
acceptance could have a material adverse effect on our business prospects. Even

if laser vision correction achieves and sustains market acceptance, sales of our
keratome products could be adversely impacted if a laser procedure that does not
require the creation of a corneal flap were to emerge as the procedure of
choice.

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, which are
pending FDA approval, 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
keratome products, 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, it would have a material adverse effect on our
business, financial condition and results of 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 laser system,
UltraShaper durable keratome, UltraEdge keratome blades, UniShaper single-use
keratome 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.

COMPANY AND BUSINESS RISKS

WE WILL BE REQUIRED TO SIGNIFICANTLY EXPAND OUR U.S. MANUFACTURING
OPERATIONS TO MEET OUR BUSINESS PLAN AND MUST COMPLY WITH STRINGENT REGULATION
OF OUR MANUFACTURING OPERATIONS.

We manufacture our LaserScan LSX laser systems for sale in the U.S. at
our manufacturing facility in Winter Park, Florida, and continue to manufacture
our laser systems for sale in international markets at our manufacturing
facility in Costa Rica. Our U.S. personnel have limited experience manufacturing
laser systems. We cannot, therefore, 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 have a material
adverse effect on our business, financial condition and results of 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, which could result in a
material adverse effect on our financial condition and results of operations.

REQUIRED MINIMUM PAYMENTS UNDER OUR KERATOME LICENSE AGREEMENT MAY
EXCEED OUR GROSS PROFITS FROM SALES OF OUR KERATOME PRODUCTS.

We are required to make certain minimum payments to the licensor under
our keratome license agreement that was amended and restated on January 4, 2001.
This amendment replaced a January 18, 2000 amendment in its entirety. Under the
terms of the amendment we issued 730,552 shares of common stock to the
licensors, valued at approximately $1.1 million, in partial payment for
royalties during the term of the license. The term of the license was extended
three years until July 31, 2005. In addition, remaining minimum royalty payments
totaling approximately $4.6 million as of March 29, 2002 will be due in monthly
installments (averaging approximately $130,000 per month through August 2003) or
quarterly installments (averaging approximately $240,000 per quarter from
October 2003 through October 2005) through the term of the amendment. As a
result of our obligations under this license arrangement, the minimum royalty
payments we are required to make to the licensors may exceed our gross profits
from sales of our UniShaper and UltraShaper keratome products. The amendment
eliminated a restriction on us manufacturing, marketing and selling other
keratomes, but the sale of other keratomes will be included in the gross profit
to be shared with the licensors. The licensor's share of the gross profit, as
defined in the amendment, decreased from 50% to 10%.

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 and
keratome 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
additional uses on a timely basis could have a material adverse effect on our
business, financial condition and results of 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. See "--Patent infringement allegations may
impair our ability to manufacture and market our products."

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, which would have a material
adverse effect on our business, financial condition and results of operations.

Litigation involving patents is common in our industry. While we do not
believe our laser systems or keratome products infringe 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
intellectual property of third parties that might be required for our products
will be available on commercially reasonable terms, or at all.

WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL
SALES.

Our international sales accounted for 73% and 47% of our total revenues
during the year ended December 31, 2001 and December 31, 2000, respectively. In
the future, we expect that sales to international accounts will represent a
lower percentage of our total sales as a result of our recent additional
regulatory approval for our LaserScan LSX laser system in the U.S. and the
commercial launch of our UltraShaper durable keratome in November 2001. See
"--Industry and Competitive Risks--We cannot assure you that our keratome
products will achieve market acceptance."

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 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.

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 and keratome products from a
limited number of suppliers, and certain key components are provided by a single
vendor. For example, all of our keratome blades have historically been
manufactured exclusively by Becton Dickinson, though we are currently in
discussions with a replacement manufacturer, and the majority of our UltraShaper
components are manufactured exclusively by Owens Industries pursuant to our
agreement with them. 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 the LaserScan LSX. Any interruption in the supply of critical laser or
keratome components could have a material adverse effect on our business,
financial condition and results of operations. 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, it would have a material adverse effect on our
business, financial condition and results of operations.

UNLAWFUL TAMPERING OF OUR SYSTEM CONFIGURATIONS COULD RESULT IN REDUCED
REVENUES AND ADDITIONAL EXPENSES.

We include 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.

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,
especially Michael R. Farris, our president and chief executive officer. A loss
of one or more such officers or key employees could have a material adverse
effect on our business. We do not carry "key person" life insurance on any
officer or key employee.

As we commercially launch our laser system and keratome products in the
U.S., we will need to continue to implement and expand our operational, sales
and marketing, financial and management resources and controls. While to date we
have not experienced problems recruiting or retaining the personnel necessary to
expand our business, we cannot assure you that we will not have such problems in
the future. Our recent layoff may have a negative impact on our ability to
attract and retain personnel. If we fail to attract and retain qualified
individuals for necessary positions, and if we are unable to effectively manage
growth in our domestic or international operations, it could have a material
adverse effect on our business, financial condition and results of operations.

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 in the event of a successful product liability claim,
could have a material adverse effect on our business, financial condition and
results of operations. Further, product liability insurance may not continue to
be available, either at existing or increased levels of coverage, on
commercially reasonable terms.

COMMON STOCK RISKS

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. For example, historically a significant portion of our
laser system orders for a particular quarter have been received and shipped near
the end of the quarter. 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 to fluctuate
include:

o timing of regulatory approvals and the introduction or delays in
shipment of new products;
o reductions, cancellations or fulfillment of major orders;
o the addition or loss of significant customers;
o the relative mix of our business;
o changes in pricing by us or our competitors;
o costs related to expansion 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.

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.

THE SIGNIFICANT NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE AND DILUTIVE
STOCK ISSUANCES MAY ADVERSELY AFFECT OUR STOCK PRICE.

Sales, or the possibility of sales, of substantial amounts of our
common stock in the public market could adversely affect the market price of our
common stock. Substantially all of our 26,554,168 shares of common stock
outstanding at March 29, 2002 were freely tradable without restriction or
further registration under the Securities Act of 1933, except to the extent such
shares are held by "affiliates" as that term is defined in Rule 144 under the
Securities Act or subject only to the satisfaction of a prospectus delivery
requirement.

Shares of common stock that we may issue in the future in connection
with acquisitions or financings or pursuant to outstanding warrants or
agreements could also adversely affect the market price of our common stock and
cause significant dilution in our earnings per share and net book value per
share. We may be required to issue more than 8,200,000 additional shares of
common stock upon the conversion of outstanding preferred stock, the exercise of
outstanding warrants and stock options, and the satisfaction of certain
contingent contractual obligations. See "Possible Dilutive Issuances of Common
Stock."

The anti-dilution provisions of certain of our existing securities and
obligations require us to issue additional shares if we issue shares of common
stock below specified price levels. If a future share issuance triggers these
adjustments, the beneficiaries of such provisions effectively receive some
protection from declines in the market price of our common stock, while our
other stockholders incur additional dilution of their ownership interest. We may
include similar anti-dilution provisions in securities issued in connection with
future financings.

ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW AND IN OUR CERTIFICATE OF
INCORPORATION, BY-LAWS AND STOCKHOLDER RIGHTS PLAN MAY MAKE AN ACQUISITION OF
LASERSIGHT MORE DIFFICULT AND COULD PREVENT YOU FROM RECEIVING A PREMIUM OVER
THE MARKET PRICE OF OUR STOCK.

Certain provisions of our certificate of incorporation, by-laws,
stockholder rights plan and Delaware law could delay or frustrate the removal of
incumbent directors, discourage potential acquisition proposals and delay, defer
or prevent a change in control of us, even if such events could be beneficial,
in the short term, to the economic interests of our stockholders. For example,
our certificate of incorporation allows us to issue preferred stock with rights
senior to those of the common stock without stockholder action, and our by-laws
require advance notice of director nominations or other proposals by
stockholders. We also are subject to provisions of Delaware corporation law that
prohibit a publicly-held Delaware corporation from engaging in a broad range of
business combinations with a person who, together with affiliates and
associates, owns 15% or more of the corporation's common stock (an interested
stockholder) for three years after the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. We also have
adopted a stockholder rights agreement, or "poison pill," and declared a
dividend distribution of one preferred share purchase right for each share of
common stock. The rights would cause substantial dilution to a person or group
that attempts to acquire 15% or more of our common stock on terms not approved
by our board of directors.

ACQUISITION RISKS

PAST AND POSSIBLE FUTURE ACQUISITIONS THAT ARE NOT SUCCESSFULLY
INTEGRATED WITH OUR EXISTING OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS.

We have made several significant acquisitions since 1994, and we may in
the future selectively pursue strategic acquisitions of, investments in or enter
into joint ventures or other strategic alliances with companies whose business
or technology complement our business. We may not be able to identify suitable
candidates to acquire or enter into joint ventures or other arrangements with
entities, and we may not be able to obtain financing on satisfactory terms for
such activities. In addition, we could have difficulty assimilating the
personnel, technology and operations of any acquired companies, which could
prevent us from realizing expected synergies, and may incur unanticipated
liabilities and contingencies. This could disrupt our ongoing business and
distract our management and other resources.

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, 2001, approximately $5.3 million,
or 15%, 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. 121, 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--New Accounting
Pronouncements."

OTHER RISKS

The risks described above are not the only risks facing LaserSight.
There may be additional risks and uncertainties not presently known to us or
that we have deemed immaterial which could also negatively impact our business
operations. If any of the foregoing risks actually occur, it could have a
material adverse effect on our business, financial condition and results of
operations. In that event, the trading price of our common stock could decline,
and you may lose all or part of your investment.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company believes that its exposure to market risk for changes in
interest and currency rates is not significant. The Company's investments are
limited to highly liquid instruments with maturities generally three months or
less. At December 31, 2001, the Company had approximately $0.4 million of
short-term investments classified as cash and equivalents. All of the Company's
transactions with international customers and suppliers are denominated in U.S.
dollars.

ITEM 8. 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 8 by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Information with respect to the Company's directors and executive
officers is incorporated herein by reference to the definitive form of the
Company's proxy materials to be filed with the Commission on or before April 30,
2002.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive compensation is incorporated
herein by reference to the definitive form of the Company's proxy materials to
be filed with the Commission on or before April 30, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to the security ownership of certain
beneficial owners and management is incorporated herein by reference to the
definitive form of the Company's proxy materials to be filed with the Commission
on or before April 30, 2002.

ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS

Information with respect to certain relations and related transactions
is incorporated herein by reference to the definitive form of the Company's
proxy materials to be filed with the Commission on or before April 30, 2002.

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 Sheets as of December 31, 2001 and 2000.

Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999.

Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2001, 2000 and 1999.

Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.

Notes to Consolidated Financial Statements.

(2) Financial Statement Schedules:

Schedules not filed:

All schedules have been omitted as the required information is
inapplicable or the information is presented in the
consolidated financial statements or related notes.

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

The Exhibit Index set forth on page 68 of this Form 10-K is
hereby incorporated herein by this reference.

b) Reports on Form 8-K

None

INDEX TO EXHIBITS

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

2.1 See Exhibits 10.1, 10.2, 10.6, 10.7, 10.11, 10.16, 10.19, 10.20,
10.34 and 10.41.

3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 1 of Form 8-A/A (Amendment No. 6) filed by
the Company on August 10, 2001*).

3.2 Bylaws, as amended (filed as Exhibit 3.2 to the Company's Form 8-K
filed on December 20, 1999*).

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 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*).

3.4 First Amendment to Rights Agreement, dated as of March 22, 1999,
between LaserSight Incorporated and American Stock Transfer &
Trust Company, as Rights Agent (incorporated by reference to
Exhibit 2 to Form 8-A/A filed by the Company on March 29, 1999*).

3.5 Second Amendment to Rights Agreement, dated as of January 28,
2000, between LaserSight Incorporated and American Stock Transfer
& Trust Company, as Rights Agent (incorporated by reference to
Exhibit 99.6 to Form 8-K filed by the Company on February 8,
2000*).

3.6 Third Amendment to Rights Agreement, dated as of June 29, 2001,
between LaserSight Incorporated and American Stock Transfer &
Trust Company, as Rights Agent (incorporated by reference to
Exhibit 99.5 to Form 8-K filed by the Company on July 18, 2001*).

4.1 See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 10.13, 10.17, 10.23,
10.24, 10.25, 10.28, 10.29, 10.30, 10.31, 10.32, 10.33, 10.37,
10.38, 10.39, 10.40, 10.42, 10.43, 10.45, 10.46, 10.49 and 10.50.

10.1 Agreement for Purchase and Sale of Stock by and among LaserSight
Centers Incorporated, its stockholders and LaserSight Incorporated
dated January 15, 1993 (filed as Exhibit 2 to the Company's Form
8-K/A filed on January 25, 1993*).

10.2 Amendment to Agreement for Purchase and Sale of Stock by and among
LaserSight Centers Incorporated, its stockholders, and LaserSight
Incorporated dated April 5, 1993 (filed as Exhibit 2 to the
Company's Form 8-K/A filed on April 19, 1993*).

10.3 Royalty Agreement by and between LaserSight Centers Incorporated
and LaserSight Partners dated January 15, 1993 (filed as Exhibit
10.5 to the Company's Form 10-K for the year ended December 31,
1995*).

10.4 Exchange Agreement dated January 25, 1993 between LaserSight
Centers Incorporated and Laser Partners (filed as Exhibit 10.6 to
the Company's Form 10-K for the year ended December 31, 1995*).

10.5 Stipulation and Agreement of Compromise, Settlement and Release
dated April 18, 1995 among James Gossin, Francis E. O'Donnell,
Jr., J.T. Lin, Wen S. Dai, Emanuela Dobrin-Charlton, C.H. Huang,
W. Douglas Hajjar, and LaserSight Incorporated (filed as Exhibit
10.7 to the Company's Form 10-K for the year ended December 31,
1995*).

10.6 Agreement for Purchase and Sale of Stock dated December 31, 1993,
among LaserSight Incorporated, MRF, Inc., and Michael R. Farris
(filed as Exhibit 2 to the Company's Form 8-K filed on December
31, 1993*).

10.7 First Amendment to Agreement for Purchase and Sale of Stock by and
among MRF, Inc., Michael R. Farris and LaserSight Incorporated
dated December 28, 1995 (filed as Exhibit 10.9 to the Company's
Form 10-K for the year ended December 31, 1995*).

10.8 Patent License Agreement dated December 21, 1995 by and between
Francis E. O'Donnell, Jr. and LaserSight Centers, Inc. (filed as
Exhibit 10.21 to the Company's Form 10-K for the year ended
December 31, 1995*).

10.9 LaserSight Incorporated Amended and Restated 1996 Equity Incentive
Plan.

10.10 LaserSight Incorporated Amended and Restated Non-Employee
Directors Stock Option Plan (filed as Exhibit 10.12 to the
Company's Form 10-Q filed on November 14, 2000*).

10.11 Second Amendment to Agreement for Purchase and Sale of Stock by
and among LaserSight Centers Incorporated, its stockholders and
LaserSight Incorporated dated March 14, 1997 (filed as Exhibit
99.1 to the Company's Form 8-K filed on March 27, 1997*).

10.12 Amendment to Royalty Agreement by and between LaserSight Centers
Incorporated, Laser Partners and LaserSight Incorporated dated
March 14, 1997 (filed as Exhibit 99.2 to the Company" Form 8-K
filed on March 27, 1997*).

10.13 Warrant to purchase 500,000 shares of common stock dated March 31,
1997 by and between LaserSight Incorporated and Foothill Capital
Corporation (filed as Exhibit 10.44 to the Company's Form 10-Q
filed on August 14, 1997*).

10.14 License Agreement dated May 20, 1997 by and between Visx
Incorporated and LaserSight Incorporated (filed as Exhibit 10.45
to the Company's Form 10-Q filed on August 14, 1997*).

10.15 Patent Purchase Agreement dated July 15, 1997 by and between
LaserSight Incorporated and Frederic B. Kremer, M.D. (filed as
Exhibit 2.(I) to the Company's Form 8-K filed on August 13,
1997*).

10.16 Agreement and Plan of Merger dated July 15, 1997 by and among
LaserSight Incorporated, Photomed Acquisition, Inc., Photomed,
Inc., Frederic B. Kremer, M.D., Linda Kremer, Robert Sataloff,
Trustee for Alan Stewart Kremer and Robert Sataloff, Trustee for
Mark Adam Kremer (filed as Exhibit 2.(ii) to the Company's Form
8-K filed on August 13, 1997*).

10.17 Warrant to purchase 750,000 shares of common stock dated August
29, 1997 by and between LaserSight Incorporated and purchasers of
Series B Convertible Participating Preferred Stock of LaserSight
Incorporated (filed as Exhibit 10.39 to the Company's Form 10-Q
filed on November 14, 1997*).

10.18 Agreement dated April 1, 1992 between International Business
Machines Corporation and LaserSight Incorporated (filed as Exhibit
10.1 on Form 10-K for the year ended December 31, 1995*).

10.19 Letter Agreement dated September 11, 1998, amending the Agreement
and Plan of Merger dated July 15, 1997, by and among LaserSight
Incorporated, Photomed Acquisition, Inc., Photomed, Inc., Frederic
B. Kremer, M.D., Linda Kremer, Robert Sataloff, Trustee for Alan
Stewart Kremer and Robert Sataloff, Trustee for Mark Adam Kremer
(filed as Exhibit 10.31 to the Company's Form 10-Q filed on
November 16, 1998*).

10.20 Exclusive License Agreement dated August 20, 1998, by and between
LaserSight Technologies, Inc. and TLC The Laser Center Patents
Inc. (filed as Exhibit 10.32 to the Company's Form 10-Q filed on
November 16, 1998*).

10.21 Manufacturing Agreement, dated September 10, 1997, by and between
LaserSight Technologies, Inc. and Frantz Medical Development Ltd.
(filed as Exhibit 10.3 to the Company's Form S-3, Pre-Effective
Amendment No. 1 filed on February 1, 1999*).

10.22 Employment Agreement by and between LaserSight Incorporated and
Michael R. Farris dated October 30, 1998 (filed as Exhibit 10.37
to the Company's Form 10-K filed on March 31, 1999*).

10.23 Securities Purchase Agreement by and between LaserSight
Incorporated and purchasers of common stock dated March 22, 1999
(filed as Exhibit 10.38 to the Company's Form 10-K filed on March
31, 1999*).

10.24 Warrant to purchase 225,000 shares of common stock dated March 22,
1999 by and between LaserSight Incorporated and purchasers of
common stock of LaserSight Incorporated (filed as Exhibit 10.39 to
the Company's Form 10-K filed on March 31, 1999*).

10.25 Warrant to purchase 67,500 shares of common stock dated February
22, 1999 by and between LaserSight Incorporated and Guy Numann
(filed as Exhibit 10.40 to the Company's Form 10-Q filed on May
17, 1999*).

10.26 Relocation Agreement, by and between LaserSight Incorporated and
Gregory L. Wilson, dated October 13, 1999 (filed as Exhibit 10.45
to the Company's Form 10-Q filed on November 15, 1999*).

10.27 Employment Agreement, by and between LaserSight Technologies, Inc.
and Jack T. Holladay, dated October 27, 1999 (filed as Exhibit
10.47 to the Company's Form 10-Q filed on November 15, 1999*).

10.28 Securities Purchase Agreement by and between LaserSight
Incorporated and TLC Laser Eye Centers Inc. dated January 31, 2000
(filed as Exhibit 99.2 to the Company's Form 8-K filed on February
8, 2000*).

10.29 Registration Rights Agreement dated January 31, 2000 by and
between LaserSight Incorporated and TLC Laser Eye Centers Inc.
(filed as Exhibit 99.3 to the Company's Form 8-K filed on February
8, 2000*).

10.30 Securities Purchase Agreement by and between LaserSight
Incorporated, BayStar Capital, L.P. and BayStar International,
Ltd. dated January 31, 2000 (filed as Exhibit 99.4 to the
Company's Form 8-K filed on February 8, 2000*).

10.31 Registration Rights Agreement dated January 31, 2000 by and
between LaserSight Incorporated, BayStar Capital, L.P. and BayStar
International, Ltd. (filed as Exhibit 99.5 to the Company's Form
8-K filed on February 8, 2000*).

10.32 Securities Purchase Agreement by and between LaserSight
Incorporated, Engmann Options, Inc. and MDNH Partners, L.P. dated
February 18, 2000. The Company undertakes to provide to the
Commission upon its request the schedules omitted from this
exhibit (filed as Exhibit 10.54 to the Company's Form 10-K filed
on March 30, 2000*).

10.33 Registration Rights Agreement dated February 18, 2000 by and
between LaserSight Incorporated, Engmann Options, Inc. and MDNH
Partners, L.P. (filed as Exhibit 10.55 to the Company's Form 10-K
filed on March 30, 2000*).

10.34 Technology Purchase Agreement dated as of March 8, 2000 by and
between LaserSight Technologies, Inc., Premier Laser Systems, Inc.
and Eyesys-Premier, Inc. The Company undertakes to provide to the
Commission upon its request the schedules omitted from this
exhibit (filed as Exhibit 10.56 to the Company's Form 10-K filed
on March 30, 2000*).

10.35 Employment Agreement, by and between LaserSight Technologies, Inc
and Donald M. Litscher dated February 23, 2000 (filed as Exhibit
10.57 to the Company's Form 10-Q filed on May 12, 2000*).

10.36 Amended and Restated Employment Agreement, by and between
LaserSight Technologies, Inc. and L. Stephen Dalton dated
effective as of August 1, 2001 (filed as Exhibit 10.50 to the
Company's Form 10-Q filed on August 14, 2001*).

10.37 Securities Purchase Agreement dated September 8, 2000 among
LaserSight Incorporated, BayStar Capital, L.P. and BayStar
International, Ltd. The Company undertakes to provide to the
Commission upon its request the schedules omitted from this
exhibit (filed as Exhibit 99.2 to the Company's Form 8-K filed on
September 22, 2000*).

10.38 Warrant agreement dated September 8, 2000 among LaserSight
Incorporated and BayStar Capital, L.P. (filed as Exhibit 99.3 to
the Company's Form 8-K filed on September 22, 2000*).

10.39 Warrant agreement dated September 8, 2000 among LaserSight
Incorporated and BayStar International, Ltd. (filed as Exhibit
99.4 to the Company's Form 8-K filed on September 22, 2000*).

10.40 Registration Rights Agreement dated September 8, 2000 among
LaserSight Incorporated, BayStar Capital, L.P. and BayStar
International, Ltd. (filed as Exhibit 99.5 to the Company's Form
8-K filed on September 22, 2000*).

10.41 Assignment Agreement dated as of February 27, 2001 among
LaserSight Patents, Inc. and Alcon Laboratories, Inc. (filed as
Exhibit 99.1 to the Company's Form 8-K filed on March 16,
2001*)**.

10.42 Amended and Restated License and Royalty Agreement dated as of
January 3, 2001 by and between LaserSight Technologies, Inc., Luis
A. Ruiz, M.D. and Sergio Lenchig (filed as Exhibit 10.56 to the
Company's Form 10-K filed on March 30, 2001*).

10.43 Registration Rights Agreement dated January 3, 2001 among
LaserSight Incorporated, Luis A. Ruiz, M.D. and Sergio Lenchig
(filed as Exhibit 10.57 to the Company's Form 10-K filed on March
30, 2001*).

10.44 Loan and Security Agreement dated March 12, 2001 among LaserSight
Incorporated and subsidiaries and Heller Healthcare Finance, Inc.
(filed as Exhibit 10.58 to the Company's Form 10-K filed on March
30, 2001*).

10.45 Warrant agreement dated March 12, 2001 among LaserSight
Incorporated and Heller Healthcare Finance, Inc. (filed as Exhibit
10.59 to the Company's Form 10-K filed on March 30, 2001*).

10.46 Registration Rights Agreement dated March 12, 2001 among
LaserSight Incorporated and Heller Healthcare Finance, Inc. (filed
as Exhibit 10.60 to the Company's Form 10-K filed on March 30,
2001*).

10.47 Employment Agreement, by and between LaserSight Technologies,
Inc and Christine A. Oliver effective as of October 30, 2000
(filed as Exhibit 10.61 to the Company's Form 10-Q filed on August
14, 2001*).

10.48 Settlement and License Agreement dated as of May 25, 2001 between
LaserSight Incorporated and Visx, Incorporated (filed as Exhibit
10.62 to the Company's Form 10-Q filed on August 14, 2001*).**

10.49 Securities Purchase Agreement dated July 6, 2001 among LaserSight
Incorporated, BayStar Capital, L.P. and BayStar International,
Ltd. (file as Exhibit 99.2 to the Company's Form 8-K filed on July
18, 2001*).

10.50 Series F Registration Rights Agreement dated July 6, 2001 among
LaserSight Incorporated, BayStar Capital, L.P. and BayStar
International, Ltd. (filed as Exhibit 99.3 to the Company's Form
8-K filed on July 18, 2001*).

10.51 Non-Exclusive License Agreement dated September 7, 2001 among
LaserSight Incorporated, LaserSight Technologies, Inc. and Bausch
& Lomb Incorporated (filed as Exhibit 10.66 to the Company's Form
10-Q filed on November 14, 2001*).

10.52 Amendment No. 1 to Loan and Security Agreement dated as of
February 15, 2002 among LaserSight Incorporated and subsidiaries
and Heller Healthcare Finance, Inc.

Exhibit 11 Statement of Computation of Loss Per Share

Exhibit 21 Subsidiaries of the Registrant

Exhibit 23 Consent of KPMG LLP

----------------------
*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.

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: April 1, 2002 LASERSIGHT INCORPORATED

By: /s/ Michael R. Farris
--------------------------------------
Michael R. Farris, 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/ Michael R. Farris Dated: April 1, 2002
-----------------------------------------------------
Michael R. Farris, President,
Chief Executive Officer and Director

/s/ Francis E. O'Donnell, Jr., M.D. Dated: April 1, 2002
-----------------------------------------------------
Francis E. O'Donnell, Jr., M.D.,
Chairman of the Board, Director

Dated: April 1, 2002
-----------------------------------------------------
D. Michael Litscher, Chief Operating Officer and Director

/s/ Terry A. Fuller, Ph.D. Dated: April 1, 2002
-----------------------------------------------------
Terry A. Fuller, Ph.D., Director

/s/ Guy W. Numann Dated: April 1, 2002
-----------------------------------------------------
Guy W. Numann, Director

/s/ David T. Pieroni Dated: April 1, 2002
-----------------------------------------------------
David T. Pieroni, Director

/s/ Gregory L. Wilson Dated: April 1, 2002
-----------------------------------------------------
Gregory L. Wilson, Chief Financial Officer
(Principal accounting officer)

Independent Auditors' Report

The Board of Directors and Stockholders
LaserSight Incorporated:

We have audited the accompanying consolidated balance sheets of LaserSight
Incorporated and Subsidiaries (the Company) as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2001. 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 auditing standards generally accepted
in the United States of America. 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 provide 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 as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

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

/s/ KPMG LLP

St. Louis, Missouri
March 22, 2002
F-1

LASERSIGHT INCORPORATED
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2001 and 2000

ASSETS 2001 2000
---- ----

Current assets:
Cash and cash equivalents $ 2,762,062 8,593,858
Accounts receivable - trade, net 8,100,993 9,546,368
Notes receivable - current portion, net 3,219,289 4,065,958
Inventories 12,005,108 12,123,877
Deferred tax assets 40,214 55,522
Other current assets 691,474 272,745
-------------- --------------
Total current assets 26,819,140 34,658,328

Notes receivable, less current portion, net 2,129,652 2,833,393
Property and equipment, net 1,373,494 2,398,292
Other assets, net 5,987,631 11,986,439
-------------- --------------
$ 36,309,917 51,876,452
============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,846,906 3,870,791
Accrued expenses 5,998,835 7,030,657
Accrued commissions 1,650,299 1,926,996
Deferred revenue 1,459,592 1,149,415
-------------- --------------
Total current liabilities 12,955,632 13,977,859

Accrued expenses, less current portion 315,595 398,767
Deferred royalty revenue, less current portion 4,600,000 --
Deferred income taxes 40,214 55,522
Long-term obligations -- 109,730
Note payable, net of discount of $73,530 at December 31, 2001 2,926,470 --
Commitments and contingencies

Stockholders' equity:
Convertible preferred stock:
Series C - par value $.001 per share; authorized 10,000,000 shares; zero
and 2,000,000 shares issued and outstanding at
December 31, 2001 and 2000, respectively -- 2,000
Series F - par value $.001 per share; authorized 10,000,000
shares; 1,276,596 and zero shares issued and outstanding at
December 31, 2001 and 2000, respectively 1,277 --
Common stock-par value $0.001 per share; authorized 100,000,000 shares;
26,596,062 and 22,920,278 shares issued at December 31, 2001 and
2000, respectively 26,596 22,920
Additional paid-in capital 102,918,836 98,594,665
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (85,792,056) (59,602,364)
Less treasury stock, at cost; 145,200 common shares at December 31,
2001 and 2000 (542,647) (542,647)
-------------- --------------
Total stockholders' equity 15,472,006 37,334,574
-------------- --------------
$ 36,309,917 51,876,452
============== ==============

See accompanying notes to consolidated financial statements.

F-2

LASERSIGHT INCORPORATED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2001, 2000 and 1999

2001 2000 1999
---- ---- ----

Revenues:
Products $ 13,076,039 31,064,505 19,403,781
Royalties 392,000 2,632,551 1,970,504
-------------- -------------- --------------
13,468,039 33,697,056 21,374,285
Cost of revenues:
Product cost 7,385,303 14,804,797 9,621,351
-------------- -------------- --------------

Gross profit 6,082,736 18,892,259 11,752,934

Research, development, and regulatory expenses 3,271,724 4,621,783 3,139,906

Other general and administrative expenses 23,753,773 21,958,518 16,001,891
Selling related expenses 4,674,752 7,620,844 4,710,288
Amortization of intangibles 503,094 2,361,574 2,291,140
Impairment loss -- 4,116,504 --
-------------- -------------- --------------
28,931,619 36,057,440 23,003,319
-------------- -------------- --------------

Loss from operations (26,120,607) (21,786,964) (14,390,291)

Other income and expenses:
Interest and dividend income 578,734 930,040 770,967
Interest expense (480,411) (29,119) (93,085)
Gain on sale of patent 3,950,836 -- --
Other, net (591,289) (135,000) --
-------------- -------------- --------------

Loss from continuing operations before income tax expense (22,662,737) (21,021,043) (13,712,409)

Income tax expense -- -- --
-------------- -------------- --------------
Loss from continuing operations (22,662,737) (21,021,043) (13,712,409)

Discontinued operations:
Loss from the operation of discontinued health care
services business (3,371,423) (409,038) (711,571)
Loss on disposal of health care services business,
including provision of $110,000 for operating losses
during phase-out period (155,532) -- --
-------------- -------------- --------------

Loss from discontinued operations (3,526,955) (409,038) (711,571)
-------------- -------------- --------------

Net loss $ (26,189,692) (21,430,081) (14,423,980)
============== ============== ==============

Loss per common share - basic and diluted $ (1.04) (1.02) (0.89)
============== ============== ==============

Weighted average number of shares outstanding
- basic and diluted 25,131,000 21,061,000 16,207,000
============== ============== ==============

See accompanying notes to consolidated financial statements.

F-3

LASERSIGHT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years ended December 31, 2001, 2000 and 1999

Issued
Common Stock Preferred Stock Additional Shares Stock Total
------------ --------------- Paid-in Held In Subscription Accumulated Treasury Stockholders'
Shares Amount Shares Amount Capital Escrow Receivable Deficit Stock Equity
------ ------ ------ ------ ------- ------ ---------- ------- ----- ------

Balances at
December 31,
1998 13,332,835 $13,333 4,000,000 $4,000 59,407,392 -- (1,140,000) (23,748,303) (521,084) 34,015,338

Issuance of shares
from exercise of
stock options,
warrants and
ESPP 2,257,478 2,257 -- -- 10,873,627 -- -- -- (21,563) 10,854,321

Issuance of
options and
warrants in
conjunction with
consulting
agreements -- -- -- -- 187,192 -- -- -- -- 187,192

Issuance of shares
into escrow in
conjunction with
acquisition of
intangible
assets 200,000 200 -- -- 2,936,050 (2,936,250) -- -- -- --

Issuance of stock
options in
conjunction with
acquisition of
intangible
assets -- -- -- -- 94,800 -- -- -- -- 94,800

Issuance of shares
from financing,
net of financing
costs 2,250,000 2,250 -- -- 8,847,750 -- -- -- -- 8,850,000

Net loss -- -- -- -- -- -- -- (14,423,980) -- (14,423,980)
---------- ------- ---------- ------ ------------ ----------- ------------ ------------ --------- --------------
Balances at
December 31,
1999 18,040,313 18,040 4,000,000 4,000 82,346,811 (2,936,250) (1,140,000) (38,172,283) (542,647) 39,577,671

F-4a

Issuance of shares
from exercise of
stock options,
warrants and
ESPP 19,649 20 -- -- 84,513 -- -- -- -- 84,533

Issued shares
returned from
escrow and
cancelled (200,000) (200) -- -- (2,936,050) 2,936,250 -- -- -- --

Issuance of shares
from financing,
net of financing
costs 3,060,316 3,060 -- -- 19,099,391 -- -- -- -- 19,102,451

Conversion of
preferred stock 2,000,000 2,000 (2,000,000)(2,000) -- -- -- -- -- --

Net loss -- -- -- -- -- -- -- (21,430,081) -- (21,430,081)
---------- ------- ---------- ------ ------------ ----------- ----------- ------------- --------- --------------
Balances at
December 31,
2000 22,920,278 22,920 2,000,000 2,000 98,594,665 -- (1,140,000) (59,602,364) (542,647) 37,334,574

F-4b

Issuance of shares
from ESPP 56,327 56 -- -- 66,669 -- -- -- -- 66,725

Issuance of shares
in conjunction
with license
agreement 730,552 731 -- -- 1,117,927 -- -- -- -- 1,118,658

Issuance of shares
in conjunction
with
professional
services 50,000 50 -- -- 60,419 -- -- -- -- 60,469

Issuance of
warrants in
conjunction with
debt financing -- -- -- -- 122,557 -- -- -- -- 122,557

Issuance of
options in
conjunction with
consulting
agreement -- -- -- -- 33,715 -- -- -- -- 33,715

Issuance of shares
from financing,
net of financing
costs 838,905 839 1,276,596 1,277 2,922,884 -- -- -- -- 2,925,000

Conversion of
preferred stock 2,000,000 2,000 (2,000,000)(2,000) -- -- -- -- -- --

Net loss -- -- -- -- -- -- -- (26,189,692) -- (26,189,692)
---------- ------- ---------- ------ ------------ ----------- ----------- ------------- --------- --------------
Balances at
December 31,
2001 26,596,062 $26,596 1,276,596 $1,277 102,918,836 -- (1,140,000) (85,792,056) (542,647) 15,472,006
========== ======= ========== ====== ============ =========== =========== ============= ========= ==============

See accompanying notes to consolidated financial statements.

F-4c

LASERSIGHT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2001, 2000 and 1999

2001 2000 1999
---- ---- ----

Cash flows from operating activities:
Net loss $ (26,189,692) (21,430,081) (14,423,980)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of patent (3,950,836) -- --
Depreciation and amortization 2,275,974 3,746,919 3,263,894
Impairment loss -- 4,116,504 --
Impairment on discontinued operation 2,984,493 -- --
Provision for uncollectible accounts 2,258,252 2,354,366 1,965,234
Stock, options and warrants issued in conjunction with
consulting agreements, settlement and services 94,184 -- 187,192
Changes in assets and liabilities:
Notes receivable, net 1,160,595 (537,162) 595,280
Accounts receivable, net (423,062) (5,030,286) (3,495,128)
Inventories 118,769 (3,714,054) (315,451)
Accounts payable (23,885) 1,176,297 474,449
Accrued expenses and commissions (1,035,092) 3,471,367 566,624
Income taxes -- -- (9,239)
Deferred revenue 4,910,177 96,038 (317,558)
Other, net 151,396 23,484 (174,328)
-------------- -------------- --------------
Net cash used in operating activities (17,668,727) (15,726,608) (11,683,011)
-------------- -------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (296,592) (1,600,654) (704,298)
Net proceeds from sale of patent 6,365,000 -- --
Acquisition of other intangible assets -- (4,513,665) --
-------------- -------------- --------------
Net cash provided by (used in) investing activities 6,068,408 (6,114,319) (704,298)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 19,102,451 8,850,000
Proceeds from preferred stock financing, net 2,925,000 -- --
Proceeds from exercise of stock options, warrants and ESPP 66,725 84,533 10,367,051
Proceeds from debt financing 2,776,798 -- --
Repayment of capital lease obligation -- -- (19,659)
-------------- -------------- --------------
Net cash provided by financing activities 5,768,523 19,186,984 19,197,392
-------------- -------------- --------------

Increase (decrease) in cash and cash equivalents (5,831,796) (2,653,943) 6,810,083

Cash and cash equivalents:
Beginning of year 8,593,858 11,247,801 4,437,718
-------------- -------------- --------------
End of year $ 2,762,062 8,593,858 11,247,801
============== ============== ==============

See accompanying notes to consolidated financial statements.

F-5

LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999

NOTE 1 -- BUSINESS AND LIQUIDITY

LaserSight Incorporated (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; LaserSight
Patents, Inc., which currently licenses patents related to refractive surgical
procedures; and MRF, Inc. d/b/a The Farris Group, a consulting firm servicing
health care providers.

The Company has incurred significant losses and negative cash flows from
operations in each of the years in the three-year period ended December 31, 2001
and has an accumulated deficit of $85,792,056 at December 31, 2001. 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 has 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. Management expects the
Company's cash and cash equivalent balances and funds from operations will be
sufficient to meet its anticipated operating cash requirements for a very
limited period of time. As a result, management of the Company is undertaking
steps as part of a plan to attempt to improve liquidity and operations with the
goal of sustaining Company operations for the next twelve months and beyond.
These steps include attempting to (a) raise additional equity capital and/or
debt financing; (b) control overhead and expenses; (c) increase U.S. laser sales
and revenues based on the recent FDA approvals received and improve collections
on related receivables; (d) improve pricing and terms of international sales
with custom ablation products like the recently announced Corneal Interactive
Programmed Topographic Ablation (CIPTA); and (e) introduce new refractive
products that complement excimer laser systems.

There can be no assurance the Company can successfully accomplish these steps.
Accordingly, the Company's ability to continue as a going concern is uncertain
and dependent upon obtaining additional equity capital and/or debt financing and
achieving improved operational results and cash flows. 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

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.

As discussed in Note 3, the Company's health care services business has been
accounted for as discontinued operations. Unless otherwise noted, disclosures
herein pertain to the Company's continuing operations.

F-6

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. 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

For financial reporting purposes, the Company considers short-term, highly
liquid investments with original maturities of three months or less to be cash
equivalents.

CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts and notes receivable.

The Company sells products to customers, at times extending credit for such
sales. Exposure to losses on receivables is principally dependent on each
customer's financial condition and their ability to generate revenue from the
Company's products. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.

INCOME TAXES

The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the consolidated
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.

F-7

INVENTORY

Inventory, which consists primarily of laser systems parts and components, is
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.

PROPERTY AND EQUIPMENT

Property and equipment are 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.

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

Goodwill 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.
During 2001 and 2000, impairment losses were recorded for the unamortized value
of goodwill related to certain acquisitions. See note 8.

Acquired technology is recorded as an intangible asset and is amortized over a
period of 12 years based on the Company's estimate of the useful life of the
solid-state laser product and related patent acquired. The Company continually
assesses the potential market for solid-state as an improvement to existing
excimer laser technology.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations in the year 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. Total expenditures on research and development for the years ended
December 31, 2001, 2000 and 1999 were, approximately $2,287,000, $3,165,000 and
$2,084,000, respectively.

PRODUCT WARRANTY COSTS

Estimated future warranty obligations related to the Company's products,
typically for a period of one year, are provided by charges to operations in the
period in which the related revenue is recognized.

F-8

EXTENDED SERVICE CONTRACTS

The Company sells product service contracts covering periods beyond the initial
warranty period. Revenues from the sale of such contracts are deferred and
amortized on a straight-line basis over the life of the contracts. Service
contract costs are charged to operations as incurred.

REVENUE RECOGNITION

The Company recognizes revenue from the sale of its products in the period that
the products are shipped to the customers.

Royalty revenues from the license of patents owned are recognized in the period
earned.

COST OF REVENUES

Cost of revenues consist of product cost. Product cost relates to the cost from
the sale of its products in the period that the products are shipped to the
customers.

LOSS PER SHARE

Basic loss per common share is computed using the weighted average number of
common shares. Diluted 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 years ended December 31, 2001, 2000 and
1999 is the same as basic loss per share.

The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the years ended December 31, 2001, 2000
and 1999:

F-9

2001 2000 1999
---- ---- ----
Numerator:
Net loss $(26,189,692) (21,430,081) (14,423,980)
============ =========== ===========

Denominator, basic and diluted:
Weighted average
shares outstanding 25,131,000 21,061,000 16,207,000
============ =========== ===========

Basic and diluted loss per share:
Loss from continuing
operations (0.90) (1.00) (0.85)
Loss from discontinued
operations (0.13) (0.02) (0.04)
Loss from disposal of
discontinued operations (0.01) -- --
------------ ----------- -----------
Net loss $ (1.04) (1.02) (0.89)
============ =========== ===========

Common share equivalents, including contingently issuable shares, options,
warrants, and convertible Preferred Stock totaling 1,406,000, 2,507,000 and
5,538,000 common stock equivalents at December 31, 2001, 2000 and 1999,
respectively, are not included in the computation of diluted loss per share
because they had an antidilutive effect.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

Long-lived assets and certain identifiable intangibles 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 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 exceed 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.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement No. 141, "Business Combinations", and
Statement No. 142, "Goodwill and Other Intangible Assets." Statement No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Statement No. 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement No. 142. The Company adopted the provisions of
Statement No. 141 on July 1, 2001 and the provisions of Statement No. 142 on
January 1, 2002. Management does not expect Statement No. 142 to have a material
effect on the consolidated financial statements.

F-10

In October 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". Statement No. 144 also supercedes the accounting and reporting
provisions of APB Opinion No. 30 "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." Statement No. 144 is
intended to establish one accounting model for long-lived assets to be disposed
of by sale and to address significant implementation issues. The Company adopted
Statement No. 144 on January 1, 2002. Management does not expect Statement No.
144 to have a material effect on the consolidated financial statements.

NOTE 3 -- DISCONTINUED OPERATIONS

In November 2001, the Company decided to discontinue the operations of its
health care services business as a result of its increased focus on refractive
product development and commercialization. The health care services business
continued its operations through the end of 2001 and is phasing out its
remaining client projects in early 2002.

Results from discontinued operations for the years ended December 31, 2001, 2000
and 1999 were as follows:

2001 2000 1999
---- ---- ----
Net revenues $ 897,457 820,545 354,167
Operating loss:
Loss from discontinued
operations (3,371,423) (409,038) (711,571)
Loss from disposal of
discontinued operations (155,532) -- --
------------ ----------- -----------
Loss from discontinued
operations $ (3,526,955) (409,038) (711,571)
============ =========== ===========

Losses from discontinued operations included the results of operations from the
business to be disposed of through December 31, 2001. Losses related to the
business subsequent to year-end were estimated and provided for in the loss on
the disposition of the business.

F-11

The 2001 loss from discontinued operations, $3,371,423, included an impairment
loss of approximately $2,984,000 related to the goodwill of its health care
services subsidiary. The Company's increased focus on refractive product
development and commercialization resulted in management's decision in late 2001
to phase out the health care services business. As a result, management
performed an evaluation of the recoverability of such goodwill, and concluded
that a significant impairment of intangible assets had occurred. An impairment
charge was required because the carrying value of the assets could not be
recovered through estimated net cash flows.

The loss from the disposal recorded in 2001 totaled $155,532. The losses
associated with the disposition of the business was based on an estimate of
results of operations for the business from the date the decision was made to
dispose of the business through the phase-out period. The amounts ultimately
realized by the Company could differ materially from the amounts assumed in
arriving at the loss from disposal of discontinued operations.

NOTE 4 -- ACQUISITIONS

INTELLECTUAL PROPERTY

In March 2000, the Company acquired all intellectual property related to a
development project designed to provide front-to-back analysis and total
refractive measurement of the eye from Premier Laser Systems, Inc. Of the total
consideration of approximately $4.0 million before transaction costs,
approximately $2.8 million was paid at closing, $0.5 million was paid in April
2000 and approximately $0.7 million was paid in May 2000. Assets purchased
included U.S. and foreign patents and pending patent applications and an
exclusive license to nine patents that are intended to be used to complete
development of an integrated refractive diagnostic work station. The total cost
is included in other assets and is being amortized over the life of the patents,
17 years.

TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT

In October 1999, the Company entered into a technology development and exclusive
license agreement with Quadrivium, L.L.C. covering patents and patent
applications related to a corneal reshaping procedure that achieves a refractive
correction utilizing low levels of infrared energy. The Company issued 200,000
shares of Common Stock, valued at approximately $2.9 million, which were placed
into escrow. If the Company determined the technology to be capable of producing
a commercially viable system in accordance with the agreement, 100,000 shares
would have been released from escrow. Otherwise, all shares would be returned to
the Company. On the date that clinical trials using this technology were
completed, if the Company determined that the international commercialization of
the system was viable, the remaining 100,000 shares would have been released
from escrow. Otherwise, the remaining shares would be returned to the Company.
At December 31, 1999, the value of these shares was classified as Issued Shares
Held in Escrow in the Stockholders' Equity section of the consolidated balance
sheet. During the year ended December 31, 2000, the Company determined the
technology was not capable of producing a commercially viable system and, in
accordance with the agreement, all 200,000 shares of Common Stock were released
from escrow, returned to the Company, and cancelled.

F-12

PHOTOMED, INC.

In July 1997, the Company acquired from Photomed, Inc. the rights to a
Pre-Market Approval (PMA) application filed with the FDA for a laser to perform
LASIK, a refractive surgery alternative to surface PRK. In addition, the Company
purchased from a stockholder of Photomed, Inc. U.S. patent number 5,586,980 for
a keratome, the instrument necessary to create the corneal "flap" in the LASIK
procedure. The Company issued a combination of 535,515 unregistered shares of
Common Stock (valued at $3,416,700) and $333,300 in cash as consideration for
the PMA application and the keratome patent. The seller is entitled to receive a
percentage of any licensing fees or sale proceeds related to the patent. The
total value was capitalized as the cost of PMA application and patent and is
being amortized over 5 and 15 years, respectively. In September 1998, the
Company entered into an amendment with Photomed based on a FDA approval received
in July 1998, and paid Photomed a total of $1,740,000, of which $990,000 was
paid in cash and the balance paid through the issuance of 187,500 shares of
Common Stock. As of December 31, 2001, the unamortized carrying value of the
keratome patent was included in other assets. In December 2000, an impairment
loss was taken for the unamortized value of the PMA application. See note 8.

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. Royalties from such
assigned patent licenses totaled approximately $392,000, $2,633,000 and
$1,971,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

In September 1997, the Company sold an exclusive worldwide royalty-free patent
license covering the vascular and cardiovascular rights included in the IBM
Patents for $4 million, reducing the Company's basis in the IBM Patents. No gain
or loss was recognized as a result of this sale.

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.

F-13

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, 2000, the unamortized carrying
value of the patents was included in other assets.

KERATOME LICENSE

In September 1997, the Company acquired worldwide distribution rights to the
Ruiz-Lenchig disposable keratome for the LASIK procedure and entered into a
limited exclusive license agreement for intellectual property related to the
keratome products formerly known as the Automated Disposable Keratome (A.D.K).
The trade name for this single use keratome is now the LaserSight UniShaper(TM)
single use keratome. In exchange, the Company paid $400,000 in cash at closing
and supplied to the licensors one excimer laser. Six months after the first
shipment of the disposable keratome product, the Company paid an additional
$150,000 to the licensors. The total value was capitalized, including the net
book value of the laser, and is being amortized over 31 months. The Company will
also share the product's gross profit with the licensors with minimum quarterly
royalties of $400,000 beginning approximately seven months after the initial
shipment date. Under the arrangement, gross profit is defined as the selling
price less certain costs of sales and commissions. 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
three years until July 31, 2005. In addition, minimum royalty payments totaling
approximately $4.8 million at December 31, 2001, will be due in installments
through the term of the amendment. The royalty rate was reduced from 50% to 10%
of gross profits. As of December 31, 2001 and 2000, the prepaid royalties under
the keratome license were included in other current assets.

LASERSIGHT CENTERS INCORPORATED

In 1993, the Company acquired all of the outstanding stock of LaserSight Centers
Incorporated (Centers), a privately held corporation, whose former owners
included two of the Company's former presidents and its chairman. Centers was a
development stage corporation that intended to provide services for ophthalmic
laser surgical centers using excimer and other lasers. The terms for the closing
of this transaction provided for the issuance of 500,000 unregistered shares of
the Company's Common Stock and the agreement of the Company to issue up to an
additional 1,265,333 unregistered shares of its Common Stock based on the
outcome of certain future events and whether Centers achieves certain
performance objectives.

F-14

In March 1997, the Company amended the purchase and royalty agreements related
to the 1993 acquisition of Centers. The amended purchase agreement provided for
the Company to issue approximately 625,000 unregistered common shares with
600,000 additional shares contingently issuable based upon future operating
profits. This replaced the provision calling for 1,265,333 contingently issuable
shares based on cumulative revenues or other future events and the uncertainties
associated therewith. The amended royalty agreement reduced the royalty from $86
to $43 per refractive procedure and delayed the obligation to pay such royalties
until the sooner of five years or the issuance of all contingently issuable
shares as described above. The value of shares issued in March 1997, $3,320,321,
was accounted for as additional purchase price based upon historical and
expected growth in the excimer laser industry and undiscounted projected cash
flows.

In December 2000, an impairment loss was taken for the unamortized value of the
goodwill related to Centers. See note 8.

NOTE 5 -- ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable at December 31, 2001 and 2000 were net of
allowance for uncollectibles of approximately $5,521,000 and $4,661,000,
respectively. During 2001 and 2000, approximately $1,398,000 and $1,569,000,
respectively, in accounts and notes receivable, net of associated commissions
and bad debt recoveries, were written off as uncollectible.

The Company currently provides internal financing for sale of its laser systems.
Sales for which there is 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, 2001 are as follows:

Due in 2003 $ 1,818,676
2004 285,948
2005 25,028
-----------
$ 2,129,652
===========

F-15

NOTE 6 -- INVENTORIES

The components of inventories at December 31, 2001 and 2000 are summarized as
follows:

2001 2000
---- ----
Raw materials $ 7,699,939 6,704,447
Work in process 92,030 121,474
Finished goods 3,563,796 4,482,276
Test equipment-clinical trials 649,343 815,680
------------ -----------
$ 12,005,108 12,123,877
============ ===========

As of December 31, 2001 and 2000, the Company had two laser systems being used
under arrangements for clinical trials.

NOTE 7 -- PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2001 and 2000 are as follows:

2001 2000
---- ----
Leasehold improvement $ 646,431 675,556
Furniture and equipment 1,370,958 1,819,398
Laboratory equipment 2,330,727 3,122,289
------------ -----------
4,348,116 5,617,243
Less accumulated depreciation 2,974,622 3,218,951
------------ -----------
$ 1,373,494 2,398,292
============ ===========

F-16

NOTE 8 -- OTHER ASSETS

Other assets at December 31, 2001 and 2000 are as follows:

2001 2000
---- ----
Goodwill, net of accumulated
amortization of $1,274,484
in 2000 $ -- 3,232,425
Acquired technology, net of
accumulated amortization of
$939,624 in 2001 and $793,620
in 2000 812,376 958,380
Ultraviolet patents, net of
accumulated amortization of
$1,973,733 in 2000 -- 2,414,164
Diagnostic patents, net of
accumulated amortization
of $423,465 in 2001 and
$181,485 in 2000. 3,690,200 3,932,180
Keratome patents and license,
net of accumulated
amortization of $305,622 in
2001 and $1,344,826 in 2000 786,385 1,130,063
Deposits 466,874 319,227
Deferred financing costs, net 231,796 --
------------ -----------
$ 5,987,631 11,986,439
============ ===========

In late 2001, the Company recorded an impairment loss of approximately $3.0
million related to goodwill of its MRF, Inc. subsidiary. Management decided to
discontinue the operations of its health care services business as a result of
its increased focus on refractive product development and commercialization. See
note 3.

During the fourth quarter of 2000, the Company recorded an impairment loss of
approximately $2.3 million related to goodwill of its LaserSight Centers
subsidiary. The combination of increased price competition and resulting losses
in many other laser centers businesses during 2000 and the Company's increased
focus on refractive product development and commercialization resulted in
management's decision in late 2000 to abandon the strategy of a mobile laser
business. As a result, management performed an evaluation of the recoverability
of such goodwill, and concluded that a significant impairment of intangible
assets had occurred. An impairment charge was required because the carrying
value of the assets could not be recovered through estimated net cash flows.

F-17

During the fourth quarter of 2000, the Company also recorded an impairment loss
of approximately $1.8 million related to the PMA application acquired in 1997.
In December 2000, the Company submitted to the FDA its own PMA supplement
representing data from clinical trials performed on the Company's LSX laser
system, an advantage over the PMA application acquired in 1997. In addition, the
FDA has audited and approved the Company's manufacturing operation for the LSX
laser system. This December 2000 submission resulted in management's decision to
abandon further efforts related to the PMA application acquired in 1997. As a
result, management performed an evaluation of the recoverability of such
intangible asset, and concluded that a significant impairment of intangible
assets had occurred. An impairment charge was required because the carrying
value of the assets could not be recovered through estimated net cash flows.

NOTE 9 -- 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.
Administrative expenses of the plan are paid by the Company. For the years ended
December 31, 2001, 2000 and 1999, expense incurred related to the 401(k) plan,
including employer-matching contributions, was approximately $9,000, $78,000 and
$60,000, respectively.

EMPLOYEE STOCK PURCHASE PLAN

During 1999, the Company established a qualified Employee Stock Purchase Plan,
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 56,327, 12,681 and 6,126
shares of Common Stock during 2001, 2000 and 1999, respectively, pursuant to
this plan at an average price per share of $1.18, $3.24 and $8.50, respectively.

NOTE 10 -- NOTES PAYABLE

On March 12, 2001, the Company entered into a loan agreement with Heller
Healthcare Finance, Inc. (Heller) for a $3.0 million term loan at an annual
interest rate of prime plus 2.5% (7.25% at December 31, 2001) 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% at December 31, 2001). Eligible accounts receivable will primarily be based
on future U.S. sales. There have been no borrowings under the revolving loan to
date. The term loan and the revolving loan mature on March 12, 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. At the termination
of the loan, an additional fee of $148,125 will be payable to Heller. The
warrants are exercisable at any time from March 12, 2001 through March 12, 2004
at an exercise price per share of $3.15. Borrowings under the loan agreement are
secured by substantially all of the Company's assets. The loan agreement
required the Company to meet certain covenants, including the maintenance of a
minimum level of net worth. In February 2002, the Company and Heller entered
into an amended loan agreement that included a revised net worth covenant
beginning with the Company's December 31, 2001 financial statements. See note
17.

F-18

In connection with a loan agreement in 1997, the Company issued warrants to
purchase 500,000 shares of Common Stock. The warrants are exercisable at any
time through April 1, 2002 and currently have an exercise price per share of
$4.91. Subject to certain conditions based on the market price of the Common
Stock, any warrants that remain outstanding on April 1, 2002 are subject to
mandatory repurchase by the Company currently at a price of $1.21 per warrant.
The warrants have certain anti-dilution features that resulted in approximately
98,000 additional shares being issuable under the warrants, primarily due to the
issuance of the Series B, C, D & F Preferred Stock and the September 2000
private placement. A total of 497,000 warrants have been exercised through
December 31, 2001. As a result of a cashless exercise, a total of 314,941 shares
of Common Stock have been issued as a result of such exercises. The recorded
amount of the obligation will change with the fair value of the warrants, with
the corresponding adjustment to interest expense. At December 31, 2001, 101,414
such warrants remained outstanding. The warrants were valued at $119,330 and
$109,730 at December 31, 2001 and 2000, respectively, and were classified as
accrued expenses and long-term obligations, respectively.

Interest paid during 2001, 2000 and 1999 approximated $525,000, $14,000 and
$25,000, respectively.

NOTE 11 -- STOCKHOLDERS' EQUITY

On July 6, 2001, the Company closed a transaction for the sale of 1,276,596
shares of Series F Preferred Stock to a total of two investors in exchange for
the Company receiving $3.0 million in cash. The Series F Preferred Stock is
convertible into Common Stock on a share for share basis. In addition, the
investors received a total of 838,905 shares of Common Stock under price
protection provisions of the Company's September 2000 private placement.

On September 8, 2000, the Company closed a transaction for the sale of 1,714,286
shares of Common Stock to a total of two investors in exchange for the Company
receiving $6.0 million in cash. In addition, the investors received warrants to
purchase a total of 600,000 shares of Common Stock at an exercise price of $3.60
per share.

On January 31, 2000, the Company closed a transaction for the sale of 1,269,841
shares of Common Stock to a total of two investors, including TLC Laser Eye
Centers Inc. (TLC), in exchange for the Company receiving $12.5 million in cash.
On February 22, 2000, the Company closed a transaction for the sale of 76,189
shares of Common Stock to one investor in exchange for the Company receiving
$750,000 in cash.

F-19

During the years ended December 31, 2001, 2000 and 1999, LaserSight received
approximately $67,000, $85,000 and $10.4 million, respectively, in cash from the
exercise of warrants, stock options and the Employee Stock Purchase Plan,
resulting in the issuance of 56,327, 19,649 and 2,257,478 shares respectively,
of Common Stock. Additionally, approximately $500,000 was applied to additional
paid-in capital resulting from the cashless exercise of a portion of Foothill's
warrants in 1999. See note 10.

On March 23, 1999, the Company closed a transaction for the sale of 2,250,000
shares of Common Stock to a total of six investors, including Pequot Capital
Management, Inc. (Pequot) and TLC, in exchange for the Company receiving $9
million in cash. In addition, the investors received a total of 225,000 warrants
to purchase Common Stock at $5.125 each, the Common Stock closing price on March
22, 1999. At December 31, 2001, 180,000 such warrants were outstanding.

In connection with the dismissal and release of claims from an action filed by
Mercacorp, Inc. against the Company in August 1998, the Company issued the
plaintiff two separate warrants to purchase Common Stock. Under the first
warrant, the plaintiff was entitled to purchase up to 750,000 shares of Common
Stock at an exercise price of $4.00 per share, the closing bid price on November
10, 1998, and under the second warrant, the plaintiff was entitled to purchase
up to 750,000 shares of Common Stock at an exercise price of $5.00 per share.
The fair value of the warrants and other costs related to the matter are
included in other expenses in 1998. During 1999, all 1,500,000 warrants were
exercised.

The Board of Directors of the Company declared a dividend distribution of one
preferred stock purchase right (the "Rights") for each share of the Company's
Common Stock owned as of July 2, 1998, and for each share of the Company's
Common Stock issued until the Rights become exercisable. Each Right, when
exercisable, will entitle the registered holder to purchase from the Company
one-thousandth of a share of the Company's Series E Junior Participating
Preferred Stock, $.001 par value (the Series E Preferred Stock), at a price of
$20 per one- thousandth of a share. The Rights are not exercisable and are
transferable only with the Company's Common Stock until the earlier of 10 days
following a public announcement that a person has acquired ownership of 15% or
more of the Company's outstanding Common Stock, or the commencement or
announcement of a tender offer or exchange offer, the consummation of which
would result in the ownership by a person of 15% or more of the Company's
outstanding Common Stock. The Series E Preferred Stock will be nonredeemable and
junior to any other series of preferred stock that the Company may issue in the
future. Each share of Series E Preferred Stock, upon issuance, will have a
quarterly preferential dividend in an amount equal to the greater of $1.00 per
share or 1,000 times the dividend declared per share of the Company's Common
Stock. In the event of the liquidation of the Company, the Series E Preferred
Stock will receive a preferred liquidation payment equal to the greater of
$1,000 per share or 1,000 times the payment made on each share of the Company's
Common Stock. Each one- thousandth of a share of Series E Preferred Stock
outstanding will have one vote on all matters submitted to the stockholders of
the Company and will vote together as one class with the holders of the
Company's Common Stock.

F-20

In the event that a person acquires beneficial ownership of 15% or more of the
Company's Common Stock, holders of Rights (other than the acquiring person or
group) may purchase, at the Rights' then current purchase price, shares of the
Company's Common Stock having a value at that time equal to twice such exercise
price. In the event that the Company merges into or otherwise transfers 50% or
more of its assets or earnings power to any person after the Rights become
exercisable, holders of Rights (other than the acquiring person or group) may
purchase, at the then current exercise price, common stock of the acquiring
entity having a value at that time equal to twice such exercise price.

In June 1998, the Company entered into a Securities Purchase Agreement with TLC,
pursuant to which the Company issued 2,000,000 shares of Series C Preferred
Stock with a face value of $4.00 per share, resulting in an aggregate offering
price of $8 million. The Series C Preferred Stock was converted into 2,000,000
shares of Common Stock in June 2001.

In June 1998, the Company entered into a Securities Purchase Agreement with
Pequot Private Equity Fund, L.P., Pequot Scout Fund, L.P., and Pequot Offshore
Private Equity Fund, Inc. (Pequot Funds), pursuant to which the Company issued,
collectively, 2,000,000 shares of the newly-created Series D Preferred Stock
with a face value of $4.00 per share, resulting in an aggregate offering price
of $8 million. The Series D Preferred Stock was converted into 2,000,000 shares
of Common Stock during 2000.

In August 1997, the Company completed a private placement of 1,600 of shares
Series B Preferred Stock yielding net proceeds, after costs of financing, of
$14.83 million. The Company also issued warrants to purchase 790,000 shares of
Common Stock for a period of five years at $5.91 per share to the investors and
placement agent. The warrant price to the investors was reduced to $2.75 in
February 1998 in exchange for certain amendments to the agreement as approved by
the Company's shareholders. The warrants have certain anti-dilution features
that have resulted in approximately 80,000 additional shares being issuable
under the warrants, primarily due to the issuance of the Series C, D and F
Preferred Stock and the September 2000 private placement and a corresponding
reduction in the exercise price to approximately $2.46. At December 31, 2001,
720,104 such warrants remain outstanding. The Series B Preferred Stock was
converted or redeemed by the end of June 1998.

NOTE 12 -- STOCK OPTION PLANS

The Company has options outstanding at December 31, 2001 related to two stock
based compensation plans (the 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.

F-21

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.

The per share weighted-average fair value of stock options granted during the
years ended December 31, 2001, 2000 and 1999, was $0.35, $2.90 and $6.40,
respectively, on the dates of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions:

2001 2000 1999
---- ---- ----
Expected dividend yield 0% 0% 0%
Volatility 50% 50% 50%
Risk-free interest rate 4.39-5.27% 6.12-6.84% 4.57-6.14%
Expected life (years) 5-10 5-10 3-10

The Company applies Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its Plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans. Had compensation cost for
the Company's stock-based compensation plans been determined consistent with
SFAS No. 123, the Company's net loss and loss per share would have been reduced
to the pro forma amounts indicated below:

2001 2000 1999
---- ---- ----
NET LOSS:
As reported $(26,189,692) (21,430,081) (14,423,980)
Pro forma (28,674,040) (23,496,356) (16,209,237)

BASIC AND DILUTED EPS:
As reported $ (1.04) (1.02) (0.89)
Pro forma (1.14) (1.12) (1.00)

F-22

In accordance with SFAS No. 123, the pro forma net loss reflects only options
granted on or after January 1, 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss amounts presented above because compensation cost does not
reflect options granted prior to January 1, 1995, that vested in 1999.

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

Weighted
Shares Average
Under Exercise
Option Price
------ -----

Balance at January 1, 1999 1,657,000 $ 6.25
Granted 1,121,000 12.85
Exercised (382,822) 5.99
Terminated (190,900) 5.84
------------
Balance at December 31, 1999 2,204,278 9.68
Granted 1,555,049 5.51
Exercised (6,968) 6.23
Terminated (243,815) 10.74
------------
Balance at December 31, 2000 3,508,544 7.76
Granted 2,057,500 1.64
Terminated (707,361) 6.90
------------
Balance at December 31, 2001 4,858,683 5.30
============

The following table summarizes the information about stock options outstanding
and exercisable at December 31, 2001:

Range of Exercise Prices
------------------------
$1.25-$3.03 $3.75-$8.13 $9.72-$16.63
----------- ----------- ------------
Options outstanding:
Number outstanding at
December 31, 2001 2,114,200 1,787,983 956,500
Weighted average remaining
contractual life 4.56 years 3.55 years 3.60 years
Weighted average exercise
price $ 1.73 5.35 13.09

Options exercisable:
Number exercisable at
December 31, 2001 212,701 1,037,166 582,667
Weighted average exercise
price $ 2.02 5.39 13.27

F-23

NOTE 13 -- INCOME TAXES

There was no federal or state income tax expense for each of the years ended
December 31, 2001, 2000 and 1999.

Deferred tax assets and liabilities consist of the following components as of
December 31, 2001 and 2000:

2001 2000
---- ----
Deferred tax liabilities:
Acquired technology $ 291,947 344,239
------------ -----------
291,947 344,239
Deferred tax assets:
Intangibles -- 337,403
Inventory 1,387,481 1,007,933
Receivable allowance 2,101,840 1,785,941
License fees 1,950,259 --
Commissions 115,956 146,496
Warranty accruals 897,232 928,782
Property and equipment 241,398 78,585
NOL carry forward 26,444,965 18,985,971
Other tax credits 256,173 256,173
Other 15,464 58,169
------------ -----------
33,410,768 23,585,453

Valuation allowance (33,118,821) (23,241,214)
------------ -----------
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
risk that these deferred tax assets may expire unused and, accordingly, has
established a valuation allowance against them.

Payments for income taxes during the year ended December 31, 1999 were $71,000.

At December 31, 2001, the Company has net operating loss carryforwards for
federal income tax purposes of $71.7 million which are 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 carryforwards may
be limited under Section 382 of the Internal Revenue Code in the event of a
change in ownership. In addition, the Company has other tax credit carryforwards
of approximately $256,000 that begin to expire in the year 2007.

F-24

For the years ended December 31, 2001, 2000 and 1999, 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:

2001 2000 1999
---- ---- ----
"Expected" tax benefit $ (8,904,440) (7,286,228) (4,904,100)
State income taxes, net of
federal income tax benefit (669,053) (508,028) (911,999)
Intangible amortization (433,325) 950,575 178,374
Nondeductible expenses 115,244 63,387 101,578
Tax deduction from exercise of
options and warrants -- (8,826) (6,608,671)
Valuation allowance 9,877,607 6,789,120 12,289,810
Other items, net 13,967 -- (144,992)
------------ ----------- -----------
Income tax expense $ -- -- --
============ =========== ===========

At December 31, 2001, of the $71.7 million net operating loss carryforward,
$19.5 million is associated with the exercise of nonqualified stock options,
disqualifying dispositions of incentive stock options and warrants. This tax
benefit will be recorded as an increase to additional paid-in capital when
recognized.

NOTE 14 -- SEGMENT INFORMATION

At December 31, 2001, the Company's continuing operations principally include
refractive products. 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. Health care services provided health and vision care consulting
services to hospitals, managed care companies and physicians, and is reflected
as a discontinued operation. See note 3.

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; discontinued operations; expenses
attributable to Centers, a developmental stage company; 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.

F-25

2001 2000 1999
---- ---- ----
Operating revenues:
Refractive products $ 13,076,039 31,064,505 19,403,781
Patent services 392,000 2,632,551 1,970,504
------------ ----------- -----------
Total revenues $ 13,468,039 33,697,056 21,374,285
============ =========== ===========
Operating profit (loss):
Refractive products $(25,014,400) (19,490,091) (13,376,160)
Patent services 392,000 2,114,230 1,452,231
General corporate (1,498,207) (1,863,211) (2,189,666)
Developmental stage
company-LaserSight
Centers Incorporated -- (2,547,892) (276,696)
------------ ----------- -----------
Loss from operations $(26,120,607) (21,786,964) (14,390,291)
============ =========== ===========

Impairment losses of $1,845,322 for Refractive Products and $2,271,182 for
LaserSight Centers for the year ended December 31, 2000, are included in the
operating loss in the table above.

2001 2000 1999
---- ---- ----
Identifiable assets:
Refractive products $ 33,212,199 36,555,402 28,049,316
Patent services -- 3,160,538 3,652,788
Discontinued operations 66,145 3,437,181 3,563,517
General corporate assets 3,031,573 8,723,331 11,345,800
Developmental stage
company-LaserSight
Centers Incorporated -- -- 2,767,512
------------ ----------- -----------
Total assets $ 36,309,917 51,876,452 49,378,933
============ =========== ===========

Depreciation and amortization:
Refractive products $ 1,737,698 2,666,031 2,184,727
Patent services -- 517,320 517,320
Discontinued operations 325,378 276,438 276,766
General corporate 9,340 10,434 8,385
Development stage
company-LaserSight
Centers Incorporated -- 276,696 276,696
------------ ----------- -----------
Total depreciation
and amortization $ 2,072,416 3,746,919 3,263,894
============ =========== ===========

F-26

Amortization of deferred financing costs and accretion of discount on note
payable of $203,558 for the year ended December 31, 2001, is included as
interest expense in the table below.

2001 2000 1999
---- ---- ----
Capital expenditures:
Refractive products $ 249,048 1,581,378 688,432
Discontinued operations 47,544 17,586 3,441
General corporate -- 1,690 12,425
------------ ----------- -----------
Total capital expenditures $ 296,592 1,600,654 704,298
============ =========== ===========

Interest income:
Refractive products $ 300,522 228,878 251,066
General corporate 278,212 697,901 509,425
Development stage
company-LaserSight
Centers Incorporated -- 3,261 10,476
------------ ----------- -----------
Total interest income $ 578,734 930,040 770,967
============ =========== ===========

Interest expense:
Refractive products $ -- -- 20,685
General corporate 480,411 29,119 72,400
---------- ----------- -----------
Total interest expense $ 480,411 29,119 93,085
============ =========== ===========

The following table presents the Company's refractive products segment net
revenues by geographic area, based on location of customer, for the three years
ended December 31, 2001. 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.

2001 2000 1999
---- ---- ----
Geographic area:
Canada $ * * 2,385,000
China 1,726,798 * *
Mexico 1,508,960 * *
United States 3,481,045 15,377,354 3,945,161
Other 6,359,236 15,687,151 13,073,620
------------ ----------- -----------
Total refractive products
revenues $ 13,076,039 31,064,505 19,403,781
============ =========== ===========

* Less than 10% of annual segment revenues.

F-27

Export sales are as follows:

2001 2000 1999
---- ---- ----
North and Central America $ 1,649,461 3,039,027 4,359,962
South America 2,679,420 2,216,751 1,935,855
Asia 2,811,797 5,162,721 1,254,194
Europe 2,243,868 4,483,410 7,348,609
Africa 210,448 785,242 560,000
------------ ----------- -----------
$ 9,594,994 15,687,151 15,458,620
============ =========== ===========

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 and Israel. 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.

As of December 31, 2001 and 2000, the Company had approximately $19,000 and
$16,000, respectively, in assets located at a manufacturing facility in Costa
Rica and $12,000 and $85,000, respectively, in assets located at an
administrative office in Europe. As of December 31, 2001, the Company did not
have any other subsidiaries in countries where it does business. As a result,
substantially all of the Company's operating losses and assets apply to the U.S.

Revenues from one customer of the refractive products segment totaled $3,006,000
in 1999, or 14%, of the Company's consolidated revenues. See note 15.

NOTE 15 -- RELATED PARTY TRANSACTIONS

During January 1993, Centers entered into a royalty agreement with Florida Laser
Partners, a Florida general partnership, in which two of the Company's former
presidents and the Company's chairman are partners. The royalty agreement
provides, among other things, for a perpetual royalty payment to Florida Laser
Partners of a number of shares of Centers' common stock, as determined by a
formula defined in the royalty agreement. Also during January 1993, the Company
entered into an exchange agreement with Florida Laser Partners, which provides
among other things, that Laser Partners shall exchange, from time to time,
shares of Centers' common stock that it acquires pursuant to the royalty
agreement for shares of the Company's stock. This agreement was amended in March
1997. See note 4.

During 2000 and 1999, the Company sold one and nine laser systems, respectively,
for $375,000 and $2,700,000 respectively, to TLC. As discussed in Note 11, TLC
has invested in securities of the Company in June 1998, March 1999 and January
2000. The Company received full payment for the systems sold in 1999.

F-28

During 2000, the Company sold one laser system to a physician associated with a
director of the Company, which is included in accounts receivable at December
31, 2001.

NOTE 16 -- COMMITMENTS AND CONTINGENCIES

VISX, INCORPORATED

On November 15, 1999, the Company was served with a complaint filed by Visx
asserting that the Company's technology infringed one of Visx's U.S. patents for
equipment used in ophthalmic surgery. On February 1, 2000, the Company filed
suit against Visx claiming non-infringement and invalidity of the Visx patent
and asserting that Visx infringes U.S. Patent No. 5,630,810. In May 2001, the
Company settled this litigation in exchange for payments and related costs of
approximately $591,000.

NORTHERN NEW JERSEY EYE INSTITUTE

In March 1999, the Company received notice of an action filed by the former
owners of Northern New Jersey Eye Institute, or NNJEI, and related assets and
entities against the Company alleging breach of contract in connection with a
provision in our July 1996 acquisition agreements related to the assets of NNJEI
and related assets and entities. Such provision provided for additional issuance
of the Company's Common Stock if such stock price was not at certain levels in
July 1998. The Company issued the additional Common Stock in July 1998 in
accordance with the provisions of the agreements. The plaintiffs alleged that,
based on the price of the Company's Common Stock in July 1998, additional
payments were required of approximately $540,000. In November 2000, the Company
settled this litigation in exchange for a one-time payment of $135,000.

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
names the Company's chief executive officer as the sole defendant and alleges
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 chief executive officer was the
president and chief executive officer of the Subsidiary. The Company's Board of
Directors has authorized the Company to retain and, to the fullest extent
permitted by the Delaware General Corporation Law, pay the fees of counsel to
defend the Company's chief executive officer, the Subsidiary and the Company in
the litigation so long as a court has 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. Management has reviewed the lawsuit and believes that the
allegations set forth therein are without merit, and that the Company's
obligations with respect to the legal defense will not have a material adverse
effect on the Company's financial condition or results of operations.

F-29

LAMBDA PHYSIK

In January 2000, a lawsuit was filed on behalf of Lambda Physik, Inc. (Lambda)
alleging that the Company is in breach of an agreement it entered into with
Lambda for the purchase of lasers from Lambda. Lambda has requested $1,852,813
in damages, plus interest, costs and attorney's fees. The Company has since
successfully argued for a change in venue to Orange County, Florida. The Company
believes that the allegations made by the plaintiff are without merit, and
intends to vigorously defend the action. Management believes that the Company
has satisfied its obligations under the agreement and that this action will not
have a material adverse effect on the Company's financial condition or results
of operations.

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 is 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 has requested
equitable relief in the form of a declaratory judgment as well as damages in
excess of $1,600,000, plus interest, costs and attorney's fees. The Company
believes that the allegations made by the plaintiff are without merit, and
intends to vigorously defend the action. Management believes that the Company
has satisfied its obligations under the agreement and that this action will not
have a material adverse effect on the Company's financial condition or results
of operations.

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 names the Company, its chief executive officer and vice president of
sales, as defendants. The lawsuit alleges 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, tortious interference with business relationships, fraudulent
misrepresentation, conversion and unjust enrichment. Plaintiffs request actual
damages in excess of $5,000,000, punitive damages, prejudgment interest,
attorneys' fees and costs and other equitable relief. Management believes that
the Company has satisfied its obligations under the distribution agreements, and
that the allegations against it are without merit and intends to vigorously
defend this lawsuit. Management believes that the outcome of this litigation
will not have a material adverse impact the Company's financial condition or
results of operations.

F-30

JARSTAD

In January 2002, a customer filed a lawsuit in the Superior Court of the State
of Washington in and for the County of King. The lawsuit was subsequently
remanded to federal court. The lawsuit names the Company and an unaffiliated
finance company as defendants. The lawsuit alleges various claims related to the
Company's sale of a laser system to the plaintiff including breach of contract,
breach of express warranty, breach of implied warranty, fraudulent inducement,
negligent misrepresentation, unjust enrichment, violation of the consumer
protection act and product liability. Plaintiffs request damages to be
determined at trial, reimbursement for leasing fees, prejudgment and
postjudgment interest, attorneys' fees and costs and other equitable relief.
Management believes that the Company has satisfied its obligations under the
sale agreement, and that the allegations against it are without merit and
intends to vigorously defend this lawsuit. Management believes that the outcome
of this litigation will not have a material adverse impact the Company's
financial condition or results of operations.

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, 2001, are approximated
as follows:

2002 $566,000
2003 402,000
2004 134,000
2005 111,000
2006 65,000

Rent expense during 2001, 2000 and 1999 was approximately $1,168,000,
$1,028,000 and $895,000, respectively.

Future minimum purchase commitments for laser related inventory are
approximately $2,700,000 cumulatively by June 2004.

NOTE 17 -- SUBSEQUENT EVENT

AMENDED LOAN AGREEMENT

Effective February 15, 2002, the Company's covenants on the term note payable to
Heller 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 begin in
February 2002, increasing to $20,000 monthly in June 2002 and $30,000 monthly in
October 2002.

F-31