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, 2002
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. (X)

The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sale price on March 28, 2003 was
approximately $2,897,646. 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 28, 2003:
27,841,941.

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

Item 14. Controls and Procedures

PART IV

Item 15. 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--Financial and Liquidity Risks--We have experienced significant
losses and operating cash flow deficits and we expect that operating cash flow
deficits will continue." 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

PRESENT SITUATION - CHINA TRANSACTION AND LIQUIDITY ISSUES

As of March 28, 2003, we have a cash balance of approximately $1.6
million. In the last half of 2002, our revenues and operations improved,
primarily as a result of our China transaction. The China transaction called for
four quarterly letters of credit, each for $2.5 million and each payable upon
the shipment of our products and the presentation of shipping documents. After
providing the first letter of credit, the China group was delinquent on the
second and third letters of credit, which were due in early December 2002 and
March 2003, respectively. During March 2003, the China group advanced us $2.0
million and indicated that they would provide a letter of credit for
approximately $5.5 million, representing the balance of the purchase order
executed in August 2002. As a result of the delayed letters of credit, we
limited our purchasing, including parts necessary to complete and ship some
products and completed products and subassemblies with existing inventory to the
extent possible. With the recent cash advance, we continue purchasing parts and
components and are completing as much product as possible, resuming shipments
when products are complete. Our current production and shipments are focused on
satisfying our delivery requirements with respect to the China group. Additional
production will depend on the future availability of cash and the timing of our
receipt of the $5.5 million letter of credit, as our cash position requires us
to focus on production and shipment to the China group in order to satisfy the
cash advance and then collect on the letter of credit.

As a result of the delayed letters of credit and resulting negative
impact on cash, we continue to have significant liquidity and capital resource
issues. Our revenues and operating results have improved during the last half of
2002, primarily due to our China transaction that resulted in $2.7 million of
revenue during the last half of 2002. We need to increase sales to the China
group and to other customers, and/or decrease expenses further before we will
reach profitability or positive cash flow. Our future working capital
requirements and our ability to continue operations are based on various factors
and assumptions which are subject to substantial uncertainty and risks beyond
our control and no assurances can be given that these expectations will prove
correct. The occurrence of adverse developments related to these risks and
uncertainties or others could result in LaserSight being unable to generate
additional sales or collect new and outstanding accounts receivable. Any such
adverse developments may also result in the incurrence of unforeseen expenses or
LaserSight being unable to control expected expenses and overhead. If we fail to

generate additional sales and collect new and outstanding accounts receivable or
incur unforeseen expenses or fail to control our expected expenses and overhead,
we will likely be unable to continue operations in the absence of obtaining
additional sources of capital.

With the new revenues being generated as a result of the China
transaction and projected sales to other customers, 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
several months. This expectation is based upon assumptions regarding cash flows
and results of operations over the next several months and is subject to
substantial uncertainty and risks beyond our control. If these assumptions prove
incorrect, the duration of the time period during which LaserSight could
continue operations could be materially shorter. We continue to face liquidity
and capital resource issues including those related to the timing of our receipt
of the $5.5 million letter of credit from the China group, accounts receivable
collection and the successful completion of new sales compared to our ongoing
payment obligations. To continue our operations, we will need to generate
increased revenues, collect them and reduce our expenditures relative to our
recent history. While we are working to achieve these improved results, we
cannot assure you that we will be able to generate increased revenues and
collections to offset required cash expenditures. We are currently unable to
borrow under our revolving credit facility.

Our working capital remains positive (approximately $1.0 million as of
the end of February 2003), 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 into cash is dependent on our ability to generate new
sales of our products and collect the sales price in a timely manner. While to
date we have been able to negotiate payment terms with our suppliers and other
creditors, there is no assurance that we can continue to do so.

Our expectations regarding future working capital requirements and our
ability to continue operations are based on various factors and assumptions that
are subject to substantial uncertainty and risks beyond our control and no
assurances can be given that these expectations will prove correct. The
occurrence of adverse developments related to these risks and uncertainties or
others could result in LaserSight incurring unforeseen expenses, being unable to
deliver under the China transaction purchase order, being unable to generate
additional sales, to collect new and outstanding accounts receivable, to control
expected expenses and overhead, or to negotiate payment terms with creditors,
and we would likely be unable to continue operations. Even if we succeed in our
attempt to secure additional funds, we cannot assure you that we will be able to
generate increased revenues and collections to fund required cash expenditures
in a timely manner.

Given our present financial position, the extent of previous efforts to
sell assets or access capital, the China transaction and the possible additional
transaction with our largest shareholder who currently owns our series H
preferred stock which, upon conversion, would result in this shareholder owning
approximately 40% of our common stock (see next paragraph and "--Recent
Developments--China Letter of Intent"), it is unlikely that there will be any
other buyer, strategic partner or major investor.

result in us acquiring the assets and the on-going revenue stream of 15
refractive laser centers currently operated within China. China is believed to
be the world's largest market for refractive procedures. If we enter into this
transaction, it would allow us to generate revenues not only through equipment
sales but also through participation in the recurring revenues that we believe
will be generated from these refractive laser centers. Under the terms of the
letter of intent, the value of the 15 existing centers would be determined by an
independent third party and, if a valuation of $6.0 million is confirmed and we
elect to proceed with the transaction, we would purchase the centers in exchange
for the issuance of approximately 26.1 million shares of our common stock at a
price of $0.23 per share. If completed on these terms, the China group,
including affiliates, would own approximately 61% of LaserSight. In addition, we
would have an option to purchase additional refractive laser centers that may be
developed in the future at a purchase price equal to 110% of the start-up costs
for such center. Each option would be in existence for a period of 18 months
following the date a center opens and the purchase price would be paid by the
issuance of shares of our common stock that would be valued at 90% of the then
30 day average closing bid price per share. The transactions contemplated by
this letter of intent are initially subject to the acceptance of the letter of
intent by LaserSight's Board of Directors and if such acceptance occurs, the
transactions are subject to satisfactory completion of due diligence, receipt of
all necessary approvals, negotiation of definitive agreements and receipt of
shareholder approval.

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, anticipated annual license renewals
on custom ablation software and by selling our keratome blades.

We have over nine 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 with an installed base of
approximately 400 scanning laser systems, including over 200 of our most
advanced laser systems, the LaserScan LSX(R) and the AstraScan. In November
1999, the Food and Drug Administration (FDA) approved our LaserScan LSX scanning
laser system for commercial sale in the U.S. for the treatment of
nearsightedness of up to -6.0 diopters using photorefractive keratectomy (PRK).
In September 2001, the FDA approved our LaserScan LSX precision microspot
scanning system for the laser in-situ keratomileusis (LASIK) treatment of myopia
with and without astigmatism up to a manifest refraction spherical equivalent
(MRSE) of -6.0 diopters with maximum refractive astigmatism approved for up to
4.5 diopters. Currently, all of our laser systems delivered into the U.S. and

international markets operate at a pulse repetition rate of 200 Hz, or pulses
per second, and in December 2002 we received FDA approval to advance our laser
pulse repetition rate to 300 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 laser
system incorporates the same precision microspot scanning features of our
LaserScan LSX along with an advanced eye tracking system, improved lighting and
a redesigned "delivery arm" on the laser to make the microscope and joystick
more functional 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(R) diagnostic workstation designed
to provide precise diagnostic measurements of the eye for many refractive
purposes, including generating data needed to plan custom ablation procedures,
our AstraPro(R) custom ablation planning software that utilizes advanced levels
of diagnostic measurements from our AstraMax diagnostic workstation to complete
the planning of custom ablation treatments, and Corneal Interactive Programmed
Topographic Ablation (CIPTA). The AstraMax integrated diagnostic workstation was
first shown in October 2000 at the Annual Meeting of the American Academy of
Ophthalmology and was commercially launched during the second quarter of 2002.
We distribute our AstraPro custom ablation planning software outside the U.S. In
addition, we have rights to distribute the CIPTA custom ablation planning
software outside the U.S. under a November 2001 distribution agreement with Ligi
Technologie Medicali, Taranto, Italy. The CIPTA custom ablation software was
introduced in January 1996 by Ligi and has received CE Mark certification. We
completed international product performance testing of our AstraPro custom
ablation planning software in early 2003 and have released it for international
distribution. Our AstraPro custom ablation planning software is currently the
subject of litigation. See "Item 3. Legal Proceedings--Italian Distributor." We
plan to begin our U.S. Investigational Device Exemption (IDE) clinical trials
for the AstraPro software during 2003.

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 2002 included: LaserSight
Technologies, Inc. (LaserSight Technologies) and LaserSight Patents, Inc.
(LaserSight Patents).

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 for sale the
AstraScan laser system, both as a new laser product and as an upgrade to our
LaserScan LSX laser system. The AstraScan uses a 0.6 millimeter precision
microspot scanning laser beam to ablate microscopic layers of corneal tissue to
reshape the cornea and to correct the eye's point of focus in persons with
nearsightedness, farsightedness and astigmatism. Our patent services segment,
consisting primarily of patents licensed by us, 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 The Farris Group (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 15 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. Effective on or about April 15,
2003, our new address is expected to be 6903 University Boulevard, Winter Park,
Florida 32792.

INDUSTRY OVERVIEW

REFRACTIVE VISION CORRECTION

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

There are currently two principal methods for performing laser vision
correction with excimer laser systems: photorefractive keratectomy, or PRK, and
LASIK. According to Market Scope, approximately 91% of the refractive vision
correction procedures performed in the U.S. in 2002 were LASIK procedures. We
believe that this trend will continue through 2003. 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 folded back, the laser beam is directed to the
exposed corneal surface, the flap is placed back and the flap and interface are
rinsed with buffered saline solution. Once the procedure is completed, surgeons
generally wait two to three minutes to ensure the corneal flap has fully
re-adhered. At this point, patients can blink normally and the corneal flap
remains secured in position by the natural suction within the cornea. Since the
surface layer of the cornea remains intact during LASIK, the patient experiences
virtually no discomfort. The LASIK procedure often results in a higher degree of
patient satisfaction due to an immediate improvement in visual acuity and
generally involves less post-operative discomfort than PRK.

LASER EPITHELIAL KERATOMILEUSIS (LASEK)

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

CUSTOM ABLATION

Most laser system manufacturers are attempting to offer a custom
ablation solution. Custom ablation is believed to offer higher quality clinical
outcomes for patients due to the fact that a specific ablation profile is
planned for each eye. Higher quality outcomes are expected to be a significant
selling point with surgeons. Custom procedures typically involve gathering
diagnostic data from the surfaces of the eye, converting the data into an
individualized laser ablation plan based on the specific diagnostic data of each
eye, and performing the refractive surgery based on the ablation plan. We
believe small spot, high repetition rate scanning lasers are the best suited to
perform custom ablation procedures. Custom ablation procedures are now
commercially available in the U.S. It is anticipated that in the future custom
planned procedures will be able to treat post-refractive surgery complications
including irregular astigmatism, decentered treatments, central islands, oblate
cornea and small optical zones. These complications are the principal causes of
loss of visual quality after a patient receives LASIK.

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. A slower U.S.
economy continued to reduce demand for refractive surgery in the U.S. during
2002. The U.S. procedure market is estimated by Market Scope to have declined by
about 14% during 2002 compared to 2001. An estimated 253,000 procedures were
performed in the U.S. during the fourth quarter 2002, compared to 248,000
procedures during the third quarter 2002 and 267,000 procedures during the
fourth quarter 2001. Similarly, sales of new laser systems declined during 2002.
Laser systems sold in the U.S. were reported to have dropped from 490 in 2000 to
264 in 2001 and 133 in 2002. 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.

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. 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 and
the recent introduction of custom ablation. 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 were reported to represent over 90% of the installed laser
systems in the U.S. in 1999. This market penetration has declined through 2002
where current reports represent that about 59% of the installed laser systems in
the U.S. are broad beam laser systems. 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 300 Hz) to achieve corneal ablations. LaserSight was the leader in the
development of precision microspot scanning technology and the first company to
commercialize it. This new generation of narrow beam scanning excimer laser
systems incorporated scanning mirrors and computer control to shape the ablation
profile, making it unnecessary to utilize mechanical elements to size and shape
the laser beam to attain the desired results. Techniques incorporated into
scanning laser technology such as purposeful overlapping of laser pulses and
random scanning patterns can lead to overall improved clinical results as
evidenced by smoother ablations, the elimination of corneal ridges and central
islands, and the reduction in the incidence of glare, halos, loss or reduction
of night vision and contrast sensitivity. Narrow beam scanning excimer laser
systems are currently the most flexible laser vision correction platforms
available as they can be adapted to expansions in treatment modalities and the
incorporation of new technologies such as higher laser pulse repetition rate,
active eye tracking and custom ablation through software and minor hardware
upgrades.

DIAGNOSTIC AND CUSTOM ABLATION PRODUCTS

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

The custom treatments using our excimer laser system demonstrate
efficacy, safety, predictability and stability and such results have been
published in peer-reviewed journals and presented at major ophthalmology venues
throughout the world. With over 200 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 either the CIPTA or
AstraPro custom ablation planning software. We plan to begin our U.S. IDE
clinical trials for AstraPro during 2003.

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). Over the
last few years there have been numerous entrants into the keratome market,
including most excimer laser manufacturing companies.

Advances in laser technology have made it possible to create the LASIK
flap by utilizing a laser rather than the conventional keratome. In this
technique, an infrared laser and special software are utilized to focally
photodisrupt the cornea at a pre-programmed depth and position. The laser
photodisrupts the corneal tissue at the predetermined depth forming plasma
bubbles of water and carbon dioxide at that plane. These bubbles coalesce to
create a separation that will become the stromal bed and flap interface.
Finally, the laser cuts the edge of the flap circumferentially in a vertical
direction from the depth of the interface up through the epithelium, leaving a
hinge. We do not make or sell this technology.

RECENT DEVELOPMENTS

NASDAQ STOCK MARKET LISTING

Our common stock is currently listed on The Nasdaq SmallCap Market via
an exception from the minimum bid price requirement. While we failed to meet

this requirement as of February 10, 2003, we were granted a temporary exception
from this standard subject to meeting certain conditions. The exception requires
that on or before April 15, 2003, we must file a definitive proxy statement with
the Securities and Exchange Commission and Nasdaq evidencing its intent to seek
shareholder approval for the implementation of a reverse stock split.
Thereafter, on or before May 30, 2003, we must demonstrate a closing bid price
of at least $1.00 per share and, immediately thereafter, a closing bid of at
least $1.00 per share for a minimum of ten consecutive trading days. Nasdaq may
require a minimum closing bid price of at least $1.00 for more than 10 days. In
addition, we must be able to demonstrate compliance with all requirements for
continued listing on the Nasdaq SmallCap Market. These listing requirements
include the following financial requirements:

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

In the event we are deemed to have met the terms of the exception, our common
stock will continue to be listed on the Nasdaq SmallCap Market. We believe that
we can meet these conditions; however, there can be no assurance that we will do
so. In that connection, we are uncertain as to whether there will be sufficient
time to obtain the required shareholder vote before May 30, 2003. If at some
future date our common stock should cease to be listed on the Nasdaq SmallCap
Market, it may continue to be listed in the OTC-Bulletin Board. For the duration
of the exception, our Nasdaq symbol will be LASEC.

CHINA LETTER OF INTENT

On March 11, 2003, we announced we have signed a non-binding letter of
intent with Shenzhen New Industries Venture Capital Company, an affiliate of New
Industries Investment Consultants (HK), Ltd., the party based in the People's
Republic of China that invested $2.0 million in our series H preferred stock in
October of 2002. The transaction contemplated by the letter of intent would
result in us acquiring the assets and the on-going revenue stream of 15
refractive laser centers currently operated within China. China is believed to
be the world's largest market for refractive procedures. If we enter into this
transaction, it would allow us to generate revenues not only through equipment
sales but also through participation in the recurring revenues that we believe
will be generated from these refractive laser centers. Under the terms of the
letter of intent, the value of the 15 existing centers would be determined by an
independent third party and, if a valuation of $6.0 million is confirmed and we
elect to proceed with the transaction, we would purchase the centers in exchange
for the issuance of approximately 26.1 million shares of our common stock at a
price of $0.23 per share. If completed on these terms, the china group,
including affiliates, would own approximately 61% of LaserSight. In addition, we
would have an option to purchase additional refractive laser centers that may be
developed in the future at a purchase price equal to 110% of the start-up costs
for such center. Each option would be in existence for a period of 18 months
following the date a center opens and the purchase price would be paid by the
issuance of shares of our common stock that would be valued at 90% of the then
30-day average closing bid price per share. The transactions contemplated by
this letter of intent are initially subject to the acceptance of the letter of
intent by LaserSight's Board of Directors and if such acceptance occurs, the
transactions are subject to satisfactory completion of due diligence, receipt of
all necessary approvals, negotiation of definitive agreements and receipt of
shareholder approval.

PRODUCT-RELATED DEVELOPMENTS

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

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

o LICENSE OF SCANNING PATENT. During 2002, we licensed the `504 Scanning
Patent on a non-exclusive basis to two other third parties for total
payments of $2.6 million in cash. One such agreement, with Alcon, also
provides that LaserSight and Alcon would cooperate in the future
enforcement of the patent and share in the funds generated by such
future enforcement. See "Reissuance of Scanning Patent" above.

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. This technology acquisition led to
the development of our AstraMax integrated diagnostic workstation. We
commercially launched the AstraMax product during 2002. The AstraMax
can be utilized as a stand-alone diagnostic unit or as part of our
CustomEyes approach to custom ablation planning. We believe that the
AstraMax integrated diagnostic workstation is the first product to
integrate precision diagnostic measurements such as anterior and
posterior corneal elevation, corneal thickness, anterior chamber depth
and measurements of photopic and scotopic pupil size into a single
instrument. 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 AstraPro
software for planning custom ablations. International clinical testing
of our internally developed AstraPro planning software has been
completed for previously untreated eyes and the product was released
for international distribution in early 2003. We plan to begin our
U.S. IDE clinical trials during 2003. Any custom ablation software
will require both 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 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 with an installed
base of approximately 400 scanning laser systems 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, described
below, 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 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 AstraScan uses patented
precision microspot scanning to deliver a high resolution, 0.6
millimeter low-energy "flying spot," in a proprietary, randomized
pattern. They are true precision scanning software-controlled lasers
that use a pair of galvanometer controlled mirrors to reflect and scan
the laser beam directly onto the corneal surface, without the
mechanical elements used by broad beam excimer laser systems.

o LOWER FLUENCE. The accuracy and resolution of ablations produced by a
refractive laser system is directly related to its laser fluence.
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 currently operate at a pulse repetition rate of

200 Hz, and we have received approval from the FDA to advance our
repetition rate to 300 Hz. Many competitive laser systems currently
operate at lower pulse repetitions, often 50 Hz or less.

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

o FLEXIBLE PLATFORM. Custom ablations have resulted in increased patient
satisfaction in international clinical use and we believe the ability
to perform custom ablations will generally result in improved visual
quality, more predictable results and less post-operative regression
relative to other refractive surgery techniques. We also believe that
custom ablation will be the technique most preferred by refractive
surgeons for correction of irregular astigmatism, decentered ablations
and other surgically induced corneal irregularities. When programmed
by custom ablation software tools like AstraPro, our laser is able to
perform custom ablations because its software has the ability to move
the "flying spot" beam to the precise predetermined areas on the
cornea requiring treatment.

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 ASTRASCAN SYSTEM 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 AstraPro software. The AstraScan system is
currently available in the international market both as an upgrade to
an existing LaserScan LSX system or on a stand-alone basis. 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

Our 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 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 nearsightedness 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
nearsightedness ranging from -0.5 to less than -6 diopters manifest spherical
equivalent 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.

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 our 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. As a
comparison, Bausch & Lomb's 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 six U.S. patents assigned to LaserSight, licenses to related
technologies and a number of patent applications currently undergoing
examination in the U.S. and internationally.

ASTRAPRO AND CIPTA. We have completed the international product
performance testing of our AstraPro custom ablation planning software and it
became commercially available in early 2003. CIPTA was introduced to clinical
use during 1996 by its developer. We believe our CustomEyes approach to custom
ablations will represent a new standard of eye care that goes beyond
conventional laser vision correction by individualizing the laser treatment
utilizing a patient-specific set of diagnostic criteria intended to correct both
refractive error and optical aberrations.

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

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

KERATOME PRODUCTS

Our MicroShape family of keratome products includes our UltraShaper
durable keratome, a control console and our UltraEdge keratome blades.

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.

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 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" and
"Risk Factors and Uncertainties--Industry and Competitive Risks--We cannot
assure you that our keratome products will achieve market acceptance."

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 LIS
2.01, that provides international users with features including expanded
treatment options and patient databases. 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 provider of excimer laser systems, diagnostic and custom
ablation products and other products for the refractive vision correction
industry, focusing in China until our liquidity is improved, then we expect to
resume a higher level of activity in Europe and the U.S. (upon receipt of
further FDA approvals). We believe that our more than nine 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 INTERNATIONAL EXCIMER LASER MARKET. We believe
that our AstraScan precision microspot scanning excimer laser systems
represent a significant technological advancement over the other
scanning laser systems currently being marketed internationally, as
our precision microspot scanning lasers can provide more precise
corneal ablations, reduced visual side effects, enhanced visual acuity
and shorter procedure times. During 2002, we closed on the previously
described China transaction and are also focused on Europe. We also
believe that the availability of AstraPro and AstraMax provides 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 AstraPro or
CIPTA, we believe we will be in a position to benefit from a viable
custom ablation package in the international market during 2003. 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 EXPAND MARKET SHARE IN U.S. EXCIMER LASER MARKET. With further FDA
approvals, we believe that our LaserScan LSX and AstraScan precision
microspot scanning excimer laser systems 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 LaserSight's AstraScan and CustomEyes
custom treatments are approved in the U.S. market.

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 anticipated license fees related to use of our AstraPro ablation
planning software 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, and during the remainder of 2002 we received
four additional patents related to our AstraMax and scanning
technology. In January 2003, we received U.S. Patent No. 6,505,936
covering methods and apparatus for the ellipsoidal corneal modeling
used in the planning of custom ablations.

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 200 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.
During 2002, we stopped laser sales efforts in the U.S. pending further FDA
approvals.

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, with particular focus in China and Europe. We
currently employ three territorial managers who are responsible for sales in
international markets, both directly and through our independent distributors
and representatives within their respective territories.

All of our distributors and representatives 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 2002, approximately 79% of our refractive product sales
resulted from distributors and representatives with the balance from sales made
by employees of LaserSight. Our new China distributor was responsible for
generating sales representing 26% of our consolidated revenues in 2002 while our
previous China distributor was responsible for generating sales of 19% of our
consolidated revenues in 2002. Our Mexico and previous China distributors were
each responsible for generating sales of 11% of our consolidated revenues in
2001.

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

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 one person responsible for the sales of our
AstraMax products, in addition to our laser system sales force and distributors.
We plan to offer bundled packages including, for example, a laser system with an
AstraMax.

AstraPro and CIPTA are 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." Our laser system sales force and international distributors
are responsible for marketing and distributing our keratome products.

MANUFACTURING

EXCIMER LASER SYSTEMS

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

During 2002, we consolidated all excimer laser system manufacturing
operations in Winter Park, Florida and closed our manufacturing facility in San
Jose, Costa Rica. In October 1996, we received certification under ISO 9002, an
international system of quality assurance, for our manufacturing and quality
assurance activities in our 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 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. Our current production is focused on
products for the China group. See "--Present Situation--China Transaction and
Liquidity Issues."

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.

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

COMPETITION

EXCIMER LASER SYSTEMS

The vision correction industry is subject to intense, increasing
competition. We operate in this highly competitive environment that has numerous
well-established U.S. and foreign companies with substantial market shares, as
well as smaller companies. Many of our competitors are substantially larger,
better financed, better known, and have existing products and distribution
systems in 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, have manufactured and sold laser systems
that currently account for about 81% of the installed excimer laser systems in
the U.S. according to Market Scope.

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 2002. 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. During 2002, both Visx and
Alcon reportedly began charging an additional $100 fee for custom ablation
treatments. 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 have received FDA approval, as well as implantable
intraocular lenses and a holmium laser system and a conductive keratoplasty
system (using radio frequency waves), both 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 are primarily competing against the Orbscan. Our AstraMax instrument also
competes against another class of instruments based on wavefront technology for
use in planning custom ablation treatments. The target market for higher-priced
topographers is refractive surgeons, general ophthalmologists and optometrists.
Sales for the AstraMax have been targeted mostly to refractive surgeons. The
market has shown acceptance of new technology, and is being fueled by the need
to obtain more accurate corneal height data in an effort to provide consistent
and accurate results in LASIK surgery as well as screen out poor candidates for
the procedure.

We believe the Orbscan system has the highest market share of
topographers in the market today. We believe the AstraMax competes well against
the features offered by the Orbscan and provides the additional benefits
described earlier that should position the AstraMax as the next generation in
corneal topography.

KERATOME PRODUCTS

In the market for keratome products, Bausch & Lomb continued to hold
the largest share of the market for keratomes and keratome blades used by
refractive surgeons in the U.S. in 2002. 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 the laser-based keratome supplier,
Intralase.

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 2001 and 2002, we received a total of $7.6
million in licensing fees for the `504 Scanning Patent.

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.

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

A number of our competitors, including Visx and Alcon, have asserted
broad intellectual property rights in technology related to excimer laser
systems and related products, and intellectual property lawsuits are sometimes a
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 $4.0 million. In February
1998, we entered into an agreement with Nidek pursuant to which we retained all
of the IBM Patent rights within the U.S. and sold to Nidek, for $7.5 million,
the foreign counterparts to those patents. We also granted Nidek a non-exclusive
license to utilize the IBM Patents in the U.S. In addition, Nidek granted us an
exclusive license to the foreign counterparts to the IBM Patents in the
non-ophthalmic, non-vascular and non-cardiovascular fields. From our 1997
purchase of the IBM Patents until March 2001,we realized over $5.0 million in
royalty revenues from licenses to the patent.

In March 2001, we entered into a business arrangement with Alcon
regarding the Blum Patent. As part of the arrangement, we sold the Blum Patent
to Alcon for $6.5 million and assigned to Alcon certain licenses to the Blum
Patent. We retained a non-exclusive royalty free license under the Blum Patent
and at the time retained the license to the Blum Patent that was granted to
Visx. LaserSight and Alcon will share in royalties received from any future
licenses 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 $24.0 million from
the Blum Patent and will continue to benefit from a royalty free license in the
U.S.

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

OTHER INTELLECTUAL PROPERTY. We believe that our other intellectual
property rights are valuable assets of our business. For example, our U.S.
Patent Nos. 5,841,511 and 6,213,605 cover the checkered polar grid utilized in
our AstraMax diagnostic workstation and our U.S. Patent Nos. 6,234,631 and
6,428,168 cover the combination of advanced corneal topography and wavefront
aberration measurement into a single instrument and 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 was offset against a laser receivable
owed to us by TLC.

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 28, 2003, we have approximately 20 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) AstraPro(R), AstraMax(R) and AccuTrack(R). We have
also applied for registration of eight additional trademarks.

REGULATION

MEDICAL DEVICE REGULATION

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

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

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

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

After the PMA is reviewed and discussed, the panel issues a favorable
or unfavorable recommendation to the FDA. Although the FDA is not bound by the
panel's recommendations, it historically has given them significant weight. If
the FDA's evaluation of the PMA application is favorable, the FDA typically
issues an "approvable letter" requiring the applicant's agreement to comply with
specific conditions (such as specific labeling language) or to supply specific
additional data (such as post-approval patient follow-up data) or other
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, design controls and
quality assurance activities. Our facilities will be subject to ongoing
inspections by the FDA, and compliance with QSR/GMP regulations is required for
us to continue marketing our laser products in the U.S. In addition, our
suppliers of significant components or sub-assemblies must meet quality
requirements established and monitored by LaserSight, and some may also be
subject to FDA regulation.

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

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

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

In 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.

In March 2002, we pursued a "real time" PMA supplement seeking approval
for the use of our advanced adaptive eye tracking system in an accelerated time
frame, as few as 30 days. In April 2002, we were advised by the FDA that they
would review the submission in a 180-day timeframe. We are currently in the
process of addressing the FDA's questions related to this submission.

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

In January 2003, we submitted an IDE to begin the clinical studies
required for the approval and commercialization of our CustomEyes products; the
AstraPro custom ablation planning and programming software and our AstraScan
scanning excimer laser system.

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 510(k) clearance in May 2000. Our AstraMax diagnostic
workstation was classified by the FDA as Class I exempt, which does not require
FDA market clearance.

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

OTHER REGULATORY REQUIREMENTS. Labeling and promotional activities are
subject to scrutiny by the FDA and by the Federal Trade Commission. Current FDA
enforcement policy prohibits manufacturers from marketing and advertising their
approved medical devices for unapproved or off label uses. The scope of this
prohibition has been the subject of 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. In June 2002, the AstraMax was CE Marked. The CE Mark, certifying
that the LaserScan Models 2000, LaserScan LSX and AstraMax meet all requirements
of the European Community's medical directives, provides our products with
marketing access in all member countries of the EU. All countries in the EU
require the CE Mark certification of compliance with the EU Medical Directives
as the standard for regulatory approval for sale of excimer laser systems.

The EU Medical Directives include requirements under EU laws regarding
the placement of various categories of medical devices on the EU market. This
includes a "directive" that an approved "Notified Body" will review technical
and medical requirements for a particular device. All clinical testing of
medical devices in the EU must be done under the Declaration of Helsinki, which
means that companies must have ethics committee approval prior to commencement
of testing, must obtain informed consent from each patient tested, and the
studies must be monitored and audited. Patient records must be maintained for 15
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 was commercialized during the second quarter of
2002. We believe the AstraMax has assisted 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.

EMPLOYEES

As of December 31, 2002, we had 56 full-time employees. 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 5,000 square
feet of space that we have leased in Winter Park, Florida. This lease expires on
March 31, 2003, though our landlord has agreed to an extension until
approximately mid-April. We will be relocating this office to approximately
3,300 square feet of space nearby effective on or about April 15, 2003 with a
lease ending on or about April 15, 2006. 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, 2006. 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. 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
alleged 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 requested damages to be determined at trial,
reimbursement for leasing fees, prejudgment and postjudgment interest,
attorneys' fees and costs and other equitable relief. In this matter, a

settlement agreement has been signed by the parties. The terms of the settlement
do not require us to make any cash payments. We agreed to service and calibrate
the plaintiff's laser as well as provide certain software and equipment upgrades
at either no cost to plaintiff or at prices that were negotiated in connection
with the settlement, if and when such upgrades are available in the 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 LaserSight Technologies, Mr. Farris and James
Spivey, LaserSight Technologies' former 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,
tortuous interference with business relationships, fraudulent misrepresentation,
conversion and unjust enrichment. Plaintiffs request actual damages in excess of
$5.0 million, punitive damages, prejudgment interest, attorneys' fees and costs
and other equitable relief. We filed a motion to dismiss that was denied. We
then filed an answer and counterclaim. The plaintiffs have answered the
counterclaim and have moved to strike some of our affirmative defenses and we
have moved to strike portions of the plaintiff's answer. To date, limited
discovery has occurred. In March 2003, one of the three entities agreed to
dismiss their claims with prejudice. 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 intends 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.

ITALIAN DISTRIBUTOR. In February 2003, an Italian court issued an order
restraining LaserSight Technologies from marketing our AstraPro software at a
trade show in Italy. This restraining order was issued in favor of LIGI
Tecnologie Medicali S.p.a., a distributor of our products, and alleges that our
AstraPro software product infringes certain European patents owned by LIGI. We
have retained Italian legal counsel to defend us in this litigation, and we have
been informed that the Italian court has revoked the restraining order and has
ruled that LIGI must pay our attorney's fees in connection with our defense of
the restraining order. In addition, our Italian legal counsel has informed us
that LIGI has filed a motion for a permanent injunction, and our Italian legal
counsel is reviewing this motion. We believe that our AstraPro software does not
infringe the European Patents owned by LIGI, and we intend to vigorously defend
our rights to distribute our AstaPro software in the European markets.
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.

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). The amount of the royalty that we are required to
pay Visx and the amount that Visx paid us for the fully paid-up license to the
Blum Patent are confidential. A copy of the Settlement and License Agreement has

been filed as Exhibit 10.62 to our Form 10-Q for the period ended June 30, 2001.
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 named Mr. Farris, LaserSight's chief
executive officer, as the sole defendant and alleged 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 had 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 with respect to the starting date of the statute of
limitations related to an allegation of fraud committed by a fiduciary. We have
agreed to the terms of a settlement with the plaintiff. The terms of the
settlement require three payments totaling $140,000. The first payment of
$50,000 was paid in October 2002, the second payment of $45,000 is due in
September 2003, and the third payment of $45,000 is due in March 2004. All of
the payments are to be made without interest unless there were to be a default
in payment in which event interest would accrue at 9%. During 2002, we recorded
settlement expense of $140,000 related to this settlement.

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 approximately $1.9 million in damages, plus interest, costs and
attorney's fees. After no activity for over a year, the plaintiff filed a motion
in July 2002 to have the court set a trial date, which they set for December
2002. Subsequently, the plaintiff filed a motion for continuance of the trial to
allow the parties an opportunity to settle the dispute. In October 2002, the
court entered an order continuing the trial and will reschedule only upon the
filing of a new notice for trial by either party. 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 $1.6 million, plus interest, costs and attorney's
fees. The parties have reached a verbal agreement to have this case dismissed
without prejudice and have also agreed not to commence any proceedings for 180
days after entry of the order of dismissal for any claim or cause of action that
has been or could have been asserted in this matter. A stipulated order of
dismissal has been prepared but not yet filed. The parties have agreed to
postpone discovery and attempt to agree on the final form of a settlement with
the plaintiffs. The terms of the settlement agreement, as currently

contemplated, will not require us to make any cash payments. 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

On October 25, 2002, at the Company's annual meeting of shareholders,
the following members were elected to the Board of Directors:

Votes For Votes Against

Michael R. Farris 19,477,693 687,094
Guy W. Numann 19,585,838 578,949
Francis E. O'Donnell, Jr., M.D. 19,517,763 647,024
David T. Pieroni 19,585,963 578,824

On October 25, 2002, the holders of the Company's series H preferred
stock elected the following members to the Company's Board of Directors:

Xian Ding Weng
Steven Shi
Ying Zhi Gu

A proposal to appoint KPMG LLP as auditors was ratified as follows:

Votes for 19,710,715
Votes Against 443,739
Abstain 10,333

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
LASEC. This is a conditional listing on the Nasdaq SmallCap Market where the
fifth character "C" was appended to LaserSight's symbol, effective with the open
of business on March 5, 2003, when the trading symbol for LaserSight's
securities was changed from LASE to LASEC. The "C" will be removed from the
symbol if and when Nasdaq has confirmed compliance with the terms of an
exception related to our bid price being less than $1.00 and all other criteria
necessary for continued listing. 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.

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

2002:
----
First Quarter 0.81 0.45
Second Quarter 0.63 0.07
Third Quarter 0.44 0.04
Fourth Quarter 0.33 0.16

On March 28, 2003, the closing sale price for our common stock on the
Nasdaq National Market was $0.12 per share. As of March 24, 2003, LaserSight had
27,841,941 shares of common stock outstanding held by approximately 294
stockholders of record and, to our knowledge, approximately 8,032 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 28, 2003, 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 Royalty Shares
and, in fact, late in 2000 we abandoned the LaserSight Centers strategy due to
industry conditions and our increased focus on development and commercialization
of our refractive products.

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 28, 2003, 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. The warrants are
exercisable at any time prior to February 22, 2004. As of March 28, 2003, all of
such warrants had vested and 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 28, 2003, 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 28, 2003, all such warrants
remained outstanding.

FORMER HOLDERS OF SERIES C PREFERRED STOCK. For as long as the former
series C preferred stockholders own at least 5% of our outstanding common stock,
such holders have the right, subject to the exceptions noted below, to
participate in any below-maarket equity financing transaction so as to maintain
their percentage ownership level of common stock at the same level as
immediately prior to the closing of any such financing. This right to
participate in certain below-market third party financings does not include:

o the grant of options or warrants, or the issuance of securities,
under any employee or director stock option, stock purchase or
restricted stock plan;
o the issuance of common stock pursuant to any contingent
obligation existing as of June 5, 1998;
o the issuance of securities upon the exercise or conversion of
options, warrants or other convertible securities outstanding as
of June 5, 1998;
o the declaration of a rights dividend to holders of common stock
in connection with the adoption of a stockholder rights plan;
o the issuance of securities in connection with a merger,
acquisition, join ventiure or similar arrangement; or
o a public offering of our securities.

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, 2002 is
derived from our consolidated financial statements for such years. The financial
data presented below have been reclassified to include the gain on sale of
patent and litigation settlement expenses in results from operations.

(In thousands, except for per share amounts)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----

Net sales 10,502 $ 17,419 $ 33,697 $ 21,374 $ 17,080
Gross profit 4,753 10,034 18,892 11,753 11,031
Loss from operations (13,258) (22,761) (21,922) (14,390) (10,917)
Loss from continuing operations (13,569) (22,663) (21,021) (13,712) (11,109)
Net loss (13,569) (26,190) (21,430) (14,424) (11,882)
Conversion discount on
preferred stock (354) -- -- -- (859)
Dividends and accretion on
preferred stock -- -- -- -- (2,752)
Loss attributable to common
stockholders (13,923) (26,190) (21,430) (14,424) (15,493)
Basic loss per common share (0.51) (1.04) (1.02) (0.89) (1.26)
Diluted loss per share (0.51) (1.04) (1.02) (0.89) (1.26)

Working capital 2,940 13,864 20,680 21,648 14,875
Total assets 23,108 36,310 51,876 49,379 43,873
Long-term obligations -- 2,926 110 100 560
Stockholders' equity 3,898 15,472 37,335 39,578 34,015

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 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
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, 2002, 2001 and 2000, unless otherwise indicated.

OVERVIEW

LaserSight's loss attributable to common stockholders for 2002 was
$13,922,580, or $0.51 per basic and diluted common share, on net sales of
$10,502,135, while the net loss for 2001 was $26,189,692, or $1.04 per basic and
diluted common share, on net sales of $17,418,875. The net losses are primarily
attributable to a decline in sales of our excimer laser systems.

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 200
of our LaserScan LSX laser systems.

CHINA TRANSACTION

In July 2002, we signed a non-binding letter of intent with a company
based in the People's Republic of China that specializes in advanced medical
treatment services, medical device distribution and medical project investment.
Definitive agreements relating to the China transaction were executed on August
15, 2002, establishing a strategic relationship that includes the commitment to
purchase at least $10.0 million worth of our products during the 12-month period
ending August 15, 2003, distribution of our products in mainland China, Hong
Kong, Macao and Taiwan, and a $2.0 million investment in LaserSight. The
investment was completed in October 2002 by issuance, in exchange for the $2.0
million payment, of Series H convertible preferred stock that, subject to
certain restrictions, could be converted into 18,561,294 shares of our common
stock and result in the purchaser holding approximately 40% of our common stock.
The products purchased will be paid by irrevocable letters of credit, confirmed
by a U.S. bank and payable upon our shipment of products and presentation of
shipping documents. The Company started shipping products under this agreement
in August 2002. Through December 31, 2002, approximately $2.7 million worth of
products were sold under these agreements. However, we expect to continue to
incur a loss and a deficit in cash flow at least through the first quarter of
2003. Our current product production and shipments are focused on satisfying our

delivery requirements with respect to the China group. Additional production
will depend on the future availability of cash and the timing of our receipt of
the committed $5.5 million letter of credit, as our cash position requires us to
focus on product for the China group in order to produce and ship the product
necessary to collect on the committed letter of credit.

We have also licensed 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 15 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
reclassified to include the gain on sale of patent and litigation settlement
expenses in results from operations.

Percentage Increase (Decrease)
As a Percentage of Net Sales Over Prior Periods
Year Ended December 31, Year Ended December 31,
2002 2001 2000 2001 to 2002 2000 to 2001
---- ---- ---- ------------ ------------

Statements of Operations Data:
Net revenues:
Refractive products 89.5% 75.1% 92.2% (28.1)% (57.9)%
Patent services 10.5 2.2 7.8 181.1 (85.1)
Gain on sale of patent -- 22.7 -- (100.0) 100.0
----- ----- -----
Net revenues 100.0 100.0 100.0 (39.7) (48.3)
Gross profit (1) 45.3 57.6 56.1 (52.6) (46.9)
Research, development and
regulatory expenses (2) 12.6 18.8 13.7 (59.7) (29.2)
Other general and administrative
expenses 122.0 136.4 65.2 (46.1) 8.2
Selling-related expenses (3) 31.2 26.8 22.6 (29.8) (38.7)
Amortization of intangibles 4.4 2.9 7.0 (8.5) (78.7)
Litigation settlement expense 1.3 3.4 0.4 (76.3) 338.0
Impairment loss -- -- 12.2 N/M (100.0)
------ ------ ------
Loss from operations (126.2) (130.7) (65.0) (41.7) 3.8

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

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, 2002, 2001 and 2000
were 39%, 44% and 52%, respectively.

2. As a percentage of refractive product net revenues, research, development
and regulatory expenses for each of the three years ended December 31,
2002, 2001 and 2000 were 14%, 25% and 15%, respectively.

3. As a percentage of refractive product net revenues, selling-related
expenses for each of the three years ended December 31, 2002, 2001 and 2000
were 35%, 36% and 25%, respectively.

QUARTERLY RESULTS OF OPERATIONS

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

2001 2002
---- ----
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- ------- ------- ------- ------- -------

Net sales $ 4,148 7,153 2,126 3,992 1,973 1,896 2,750 3,883
Gross profit 2,223 5,601 744 1,466 581 854 1,333 1,985
Loss from continuing
operations (2,385) (8,621) (6,423) (5,234) (5,079) (4,400) (2,452) (1,638)
Loss from discontinued
operations (87) (59) (93) (3,288) -- -- -- --
Net loss (2,472) (8,680) (6,516) (8,522) (5,079) (4,400) (2,452) (1,638)
Loss attributable to common
shareholders (2,472) (8,680) (6,516) (8,522) (5,079) (4,400) (2,452) (1,992)
Loss per common share-basic
and diluted $ (0.11) (0.36) (0.25) (0.32) (0.19) (0.16) (0.09) (0.07)
Weighted average shares
outstanding 23,514 24,135 26,392 26,438 26,488 27,003 27,842 27,842

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

REVENUES. Net revenues for the year ended December 31, 2002 decreased
by $6.9 million, or 40%, to $10.5 million from $17.4 million in 2001.

During the year ended December 31, 2002, refractive products revenues
decreased $3.7 million, or 28%, to $9.4 million from $13.1 million in 2001. This
revenue decrease was primarily the result of decreased sales of our excimer
laser systems. During the year ended December 31, 2002, excimer laser system
sales accounted for approximately $6.4 million in revenues compared to $11.4
million in revenues in 2001. During the year ended December 31, 2002, 28 laser
systems were sold compared to 46 laser systems sold during 2001. Of this $5.0
million reduction in laser system sales, approximately $0.5 million resulted
from lower average selling prices, which decreased approximately 8% from 2001.

Net revenues from patent services for the year ended December 31, 2002
increased approximately $0.7 million, or 181%, to $1.1 million from $0.4 million
in 2001, due to non-exclusive license agreements we entered into in late 2001
and early 2002. Revenues in 2001 also included a one-time net gain, after
expenses associated with the sale, of $4.0 million from the sale of U.S. Patent
No. 4,784,135 (Blum Patent) in March 2001. The patent was sold for $6.5 million
and, prior to the sale, had a book value of approximately $2.4 million.

Geographically, China became our most significant market during 2002,
with $4.7 million in revenue ($2.7 million of which resulted from the China
transaction beginning in August 2002). U.S. revenues continued to decline,
approximately $2.8 million lower than 2001 levels, as we await FDA approval for
the treatment of hyperopia with or without astigmatism.

COST OF REVENUES; GROSS PROFIT. For the year ended December 31, 2002
and 2001, gross profit margins were 45% and 58%, respectively. The gross margin

decrease during the year ended December 31, 2002 was primarily attributable to
the gain on the sale of the Blum Patent in 2001 and decreased sales and lower
average selling prices of the our excimer laser system, causing overhead to be a
higher percentage of sales. Excluding the gain on the sale of patent, the gross
profit margin was 45% in 2001. The decreased number of laser sales resulted in a
decrease in general overhead expenses of $0.8 million from 2001.

RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES. Research, development
and regulatory expenses for the year ended December 31, 2002 decreased
approximately $2.0 million, or 60%, to $1.3 million from $3.3 million in 2001.
While decreasing our expenses, we continued to develop our AstraMax diagnostic
workstation and excimer laser systems and continued to pursue protocols in our
effort to attain and expand our FDA approvals for our refractive products. If we
have sufficient funds, we expect research and development expenses 2003 to be at
levels similar to the latter half of 2002. If we have sufficient funds, we
expect regulatory expenses will also be similar to or higher than the latter
half of 2002 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. The FDA has recently instituted a fee structure that will increase
the cost of pursuing new or supplemental approvals.

OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and
administrative expenses for the year ended December 31, 2002 decreased $10.9
million, or 46%, to $12.8 million from $23.8 million in 2001. This decrease was
primarily due to a decrease in expenses incurred at our refractive products
subsidiary of approximately $11.0 million that resulted from cost reductions
associated with the sales and marketing, customer support and professional
services departments of $4.7 million, $1.9 million in cost reductions in other
departments, $0.8 million in reduced bad debt expense, $0.7 million of
reductions in our European operation and a reduction of $2.9 million in 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. Conversely, we incurred approximately $0.7 million in severance costs
during 2002 related to staffing reductions.

AMORTIZATION OF INTANGIBLES. During the year ended December 31, 2002,
costs relating to the amortization of intangible assets decreased $43,000, or
9%, to $460,000 from $503,000 in 2001. This decrease was due to the sale of a
patent in March 2001 that had an unamortized book value of approximately $2.4
million. Items directly related to the amortization of intangible assets are
acquired technologies, patents and license agreements.

LITIGATION SETTLEMENT EXPENSE. During the year ended December 31, 2002,
litigation settlement expenses include $140,000 related to the settlement of
litigation with a former shareholder of TFG while 2001 includes approximately
$0.6 million in payments related to the May 2001 settlement of patent
litigation.

LOSS FROM OPERATIONS. The operating loss for the year ended December
31, 2002 was $13.3 million compared to the operating loss of $22.8 million in
2001. This decrease in the loss from operations was primarily due to reductions
in operating expenses that more than offset the decrease in sales and related
margins of our excimer laser systems.

OTHER INCOME AND EXPENSES. Interest and dividend income for the year
ended December 31, 2002 was $0.3 million, a decrease of $0.3 million from 2001.
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 year ended December 31, 2002 was $0.6 million,
an increase of $0.1 million over 2001 as a result of our loan transaction with
Heller in March 2001.

INCOME TAXES. For the years ended December 31, 2002 and 2001,
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. There were no such costs during 2002.

NET LOSS. Net loss for the year ended December 31, 2002, was $13.6
million compared to a net loss of $26.2 million in 2001. The decrease in net
loss for the year ended December 31, 2002 can be attributed to the significant
reductions in our operating expenses partially offset by the decrease in sales
of our excimer laser systems and the gain generated by the sale of the Blum
Patent in March 2001.

LOSS PER SHARE. The loss per basic and diluted share was $0.51 for the
year ended December 31, 2002 and $1.04 for in 2001. Since the beginning of 2001,
the weighted average shares of common stock outstanding increased primarily due
to the conversion of preferred stock during May 2002 and the issuance of common
stock related to our July 2001 financing.

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

REVENUES. Net revenues for the year ended December 31, 2001 decreased
by $16.3 million, or 48%, to $17.4 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. Of this $16.1 million
reduction in laser system sales, approximately $2.7 million resulted from lower
average selling prices, which decreased approximately 19% from 2000.

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. Revenues in 2001 also included a one-time net gain, after expenses
associated with the sale, of $4.0 million from the sale of U.S. Patent No.
4,784,135 (Blum Patent) in March 2001. The patent was sold for $6.5 million and,
prior to the sale, had a book value of approximately $2.4 million.

Geographically, U.S. revenues declined approximately $11.9 million from
2000 to 2001 as a result of delayed FDA approvals. International market revenues
declined about $6.1 million due to general economic slow downs and the impact of
September 11.

COST OF REVENUES; GROSS PROFIT. For the year ended December 31, 2001
and 2000, gross profit margins were 58% and 56%, respectively. The gross margin
increase during the year ended December 31, 2001 was primarily attributable to
the gain of $4.0 million on the sale of the Blum Patent, largely offset by
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.

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.

LITIGATION SETTLEMENT EXPENSE. During the year ended December 31, 2001,
litigation settlement expenses includes approximately $0.6 million in payments
related to the May 2001 settlement of patent litigation, an increase of
approximately $0.5 million over the $135,000 related to the settlement of
litigation in 2000.

LOSS FROM OPERATIONS. The operating loss for the year ended December
31, 2001 was $22.8 million compared to the operating loss of $21.9 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, offset by the gain on the sale of the Blum Patent in March 2001.

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.

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.

LIQUIDITY AND CAPITAL RESOURCES

LaserSight had approximately $1.6 million of cash and cash equivalents
available, as of March 28, 2003, to fund continuing operations. Definitive
agreements relating to the China transaction were executed in August 2002 and
include a commitment by the China-based group to purchase $10.0 million of
lasers and other products over the 12-month period ending August 15, 2003 and an
equity investment in LaserSight of $2.0 million. We started shipping products
under this agreement in August 2002 and received the equity investment in
October 2002. Our current product production and shipments are focused on
meeting the needs of the China group. Additional production will depend on the
future availability of cash and the timing of our receipt of the $5.5 million
letter of credit, as our cash position requires us to focus on satisfying our
delivery requirements with respect to the China group in order to produce and
ship the product necessary to collect on the promised letter of credit. See
"Business--Present Situation." Management continues undertaking steps as part of
a plan to attempt to continue to improve liquidity and operations. These steps
include seeking (a) to increase sales; and (b) to control overhead costs and
operating expenses.

With the new revenues being generated as a result of the China
transaction and projected sales to other customers, 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
several months. This expectation is based upon assumptions regarding cash flows
and results of operations over the next several months and is subject to
substantial uncertainty and risks beyond our control. If these assumptions prove
incorrect, the duration of the time period during which LaserSight could
continue operations could be materially shorter. We continue to face liquidity
and capital resource issues relative to the timing of our accounts receivable
collection and the successful completion of new sales compared to our ongoing
payment obligations. To continue our operations, we will need to generate
increased revenues, collect them and reduce our expenditures relative to our
recent history. While we are working to achieve these improved results, we
cannot assure you that we will be able to generate increased revenues and
collections to offset required cash expenditures. We are currently unable to
borrow under our revolving credit facility.

The risks and uncertainties regarding management's expectations are
also described under the heading "Risk Factors and Uncertainties--Financial and
Liquidity Risks."

and we would likely be unable to continue operations. Even if we succeed in our
attempt to secure additional funds, we cannot assure you that we will be able to
generate increased revenues and collections to fund required cash expenditures
in a timely manner.

Given our present financial position, the extent of previous efforts to
sell assets or access capital, the China transaction and the possible additional
transaction with our largest shareholder who currently owns our series H
preferred stock which, upon conversion, would result in this shareholder owning
approximately 40% of our common stock (see "Business--Recent Developments--China
Letter of Intent"), it is unlikely that there will be any other buyer, strategic
partner or major investor.

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, $3.0 million in 2001 and $2.0 million in
2002, 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, $67,000 in 2001 and $1,000 in
2002. 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 and $2.6
million in 2002 for paid up licenses to our `504 Scanning Patent, which will be
amortized to revenue over the life of the patent, approximately 10 years. We
have principally used these capital resources to fund operating losses, working
capital requirements, capital expenditures, acquisitions and retirement of debt.
At December 31, 2002, we had an accumulated deficit of $99.4 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 an annual rate equal to two and one-half percent (2.5%) above
the prime rate. Interest is payable monthly. As of March 28, 2003, the
outstanding principal on our term loan is approximately $2.1 million. Under the
credit facility, we have the option to borrow amounts at an annual rate equal to
one and one-quarter percent (1.25%) above the prime rate for short-term working
capital needs or such other purposes as 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 not expected to increase as a result of our decision to not actively market
our laser in the U.S. until we receive additional FDA approvals. See "Industry
and Competitive Risks--We do not intend to continue actively marketing our
LaserScan LSX laser system in the U.S. until we receive additional FDA
approvals." At the present time, we do not have the ability to borrow under the
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, including the maintenance of a minimum net worth. 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.

On August 15, 2002, Heller provided a waiver of our failure to comply
with certain financial covenants under our loan agreement pending the funding of
the equity portion of the China transaction. Upon receipt of the equity
investment in October 2002, revised covenants became effective that decreased

the required minimum level of net worth to $2.1 million, decreased minimum
tangible net worth to negative $2.8 million and decreased minimum quarterly
revenues during the third quarter of 2002 to $2.5 million, the fourth quarter of
2002 to $4.2 million and the first quarter of 2003 to $5.3 million. In exchange
for the waiver and revised covenants, we paid $150,000 in principal to Heller
upon the receipt of the equity investment in October 2002 and agreed to increase
other monthly principal payments to $60,000 in October 2002 and $40,000 during
each of November and December 2002 and January 2003, with the remaining
principal due on March 12, 2003.

On March 12, 2003, our loan agreement with Heller was extended 30 days
from March 12, 2003 to April 11, 2003. On March 31, 2003, our loan agreement
with Heller was amended again. In addition to the amendment, Heller waived our
failure to comply with the net revenue covenant for the fourth quarter of 2002.
In exchange for the amendment and waiver, we will pay approximately $9,000 in
fees to Heller and agreed to increase our monthly principal payments to $45,000
beginning in April 2003. Revised covenants became effective that decreased the
minimum level of net worth to $1.0 million, minimum tangible net worth to
negative $4.0 million and minimum quarterly net revenue during 2003 to $2.0
million. In addition, we have agreed to work in good faith with Heller to adjust
these covenants by May 31, 2003 based in part on our first quarter 2003
financial results. The remaining principal balance will be due on September 12,
2004.

In October 2002, we completed a $2.0 million private placement of
series H convertible participating preferred stock.

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

Our working capital decreased $11.0 million from $13.9 million at
December 31, 2001 to $2.9 million as of December 31, 2002. This decrease in
working capital resulted primarily from the net loss of $13.6 million offset by
cash generated from the October 2002 private placement.

Operating activities used net cash of $2.7 million during the year
ended December 31, 2002, compared to $17.7 million during the year ended
December 31, 2001. We expect to incur a loss and a deficit in cash flow from
operations for the first half of 2003. There can be no assurance that we can
regain or sustain profitability or positive operating cash flow in any
subsequent fiscal period. Net cash used by investing activities of $23,000
during the year ended December 31, 2002, can be attributed primarily to the
purchase of assets. As of December 31, 2002, we had no significant commitments
for capital expenditures. Net cash provided from financing activities during the
year ended December 31, 2002 of $1.0 million can be attributed to the $2.0
million private placement in October 2002, described above and principal
payments of $1.0 million on our term debt.

There can be no assurance as to the correctness of the other
assumptions underlying our business plan or our expectations regarding our
working capital requirements or our ability to continue operations.

Our ability to continue operations is based on factors including: the
success of our sales efforts in China where our efforts are primarily focused at
this time, the uncertain timing of additional supplemental FDA approvals for our
LaserScan LSX excimer laser system (which has resulted in our decision to not
actively market our laser system in the U.S. until additional FDA approvals are
received), potential growth in laser sales after receipt of further FDA
approvals, collection on our outstanding accounts receivable and the ability to
purchase the necessary inventory when sales increase, our present inability to

borrow under our revolving credit facility and the absence of unanticipated
product development and marketing costs. Our current product production and
shipments are focused on meeting the needs of the China group. Additional
production will depend on the future availability of cash and the timing of our
receipt of the committed $5.5 million letter of credit, as our cash position
requires us to focus on product for the China group in order to produce and ship
the product necessary to collect on the committed letter of credit. See "Risk
Factors and Uncertainties--Industry and Competitive Risks--We cannot assure you
that our keratome products will achieve market acceptance" and "--We do not
intend to continue actively marketing our LaserScan LSX laser system in the U.S.
until we receive additional FDA approvals." 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 growth of
sales in China and eventually Europe and 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 our ability to collect our receivables
on a timely basis.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement No. 146 "Accounting for Costs Associated with Exit or Disposal
Activities." This statement nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits Restructuring." Statement
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than the date of an
entity's commitment to an exit plan. We will be required to implement Statement
No. 146 on January 1, 2003. The adoption of Statement No. 146 is not expected to
have a material effect on our consolidated financial statements.

In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." Statement No. 148 amends Statement No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-base
employee compensation. In addition, Statement No. 148 amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure modifications
are required for fiscal years ending after December 15, 2002 and are included in
the notes to our consolidated financial statements for the periods ended
December 31, 2002.

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. When we issue paid-up licenses, the revenue is recognized over the
remaining life of the patent licensed on a straight-line basis. Revenues in
multiple element arrangements are allocated to each element based upon the
relative fair values of each element, based upon published list prices in
accordance with Emerging Issues Task Force (EITF) 00-21, "Revenue Arrangements
with Multiple Deliverables." We recognize revenue from sales of its topography
software in accordance with Statement of Position ("SOP") 97-2, "Software
Revenue Recognition" as amended by SOP 98-9, "Modification of SOP 97-2 with
Respect to Certain Transactions." In addition to the criteria listed above,
revenue is recognized when the arrangement does not require significant
customization or modification of the software.

PRODUCT WARRANTY RESERVES

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

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We must make estimates of the uncollectibility of our accounts and
notes receivable balances. We estimate losses based on the overall economic
climate in the countries where our customers reside, customer credit-worthiness,
and an analysis of the circumstances associated with specific accounts which are
past due. Our accounts and notes receivable balance was $6.6 million, net of
allowance for doubtful accounts of $5.5 million, as of December 31, 2002. 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.

Our receivable turnover ratio declined from 2.3 during 2000 to 0.9
during 2001 (excluding our gain on sale of patent), primarily as a result of
lower U.S. revenues during 2001, and increased to 1.1 during 2002, resulting
from receivables declining faster than revenues.

We sell 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 our
products. We monitor our exposure for credit losses and maintain allowances for
anticipated losses.

The increases in the provision for bad debts relates to establishing
allowances for uncollectible receivables from prior period sales. The increases
are the result of events and circumstances that could not realistically be
foreseen at the time sales were completed. In addition, during our recent period
of declining revenues, the relationship between the bad debts that resulted from
these events compared to lower revenues is magnified. Such events and
circumstances include FDA approvals on our laser system that took longer than
anticipated, economic downturns in certain countries or regions of the world and
the terrorist attacks that affected personal spending decisions, and thus the
business levels of many of our customers. Some of these items are always
possible, and have been disclosed by the Company in times past as risk factors.
Others could not be foreseen without the benefit of hindsight.

We anticipate collection at the time of shipment of each of our
products for two main reasons. First, our laser system is a revenue producing
product for our customers; the more it's used, the more revenue physicians can
generate. Second, our laser system provides for periodic passwords to customers
who have payment plans. Therefore, if a customer owes us money and wants to use
his system, the customer will need to pay the amount owed in order to use the
laser system beyond a designated period of time. This control has been
successfully used in many cases to ensure payment. However, in some cases,
magnified by the economic other factors facing us and some of our customers over
the last couple of years, the inability to use the laser was not enough
incentive to force payment.

In response, we have implemented certain changes over the course of the
last year in response to the world events and in an effort to improve the
collectibility of our sales, which are primarily in international markets. The
changes generally involve significantly higher down payments prior to shipping
and shorter payment terms for the balance of the sales price of laser systems.
Therefore, the Company expects its bad debt levels to be reduced in the future
while revenues are anticipated to increase. Some of the increased revenues are
resulting from the China transaction. The payment for these sales is covered
under irrevocable letters of credit, providing for payment upon the presentation
of shipping documents.

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.

Our inventory turnover ratio declined from 1.4 during 2000 to 0.6
during both 2001 and 2002, primarily as a result of lower sales and
correspondingly lower cost of sales. From December 31, 2000 to December 31,
2002, our inventory has decreased by approximately 26%. Our current sales
pricing continues to be well above our cost of materials plus overhead for all
products. In addition, the prospects of increased sales resulting from the China
transaction and custom ablation, as well as ongoing warranty, service contract
and parts sales needs, provide a reasonable basis for the conclusion that our
existing inventory is recoverable.

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.

Sales to the China group are secured by letters of credit and payable
upon shipment of products and presentation of shipping documents. Upon
reentering the U.S. market, 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. 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 12 systems in
2000, 14 systems in 2001 and zero systems in 2002. 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. We have decreased our focus on those markets during 2002.

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.

In the last half of 2002, our revenues and operations improved, primarily
as a result of our China transaction. The China transaction called for four
quarterly letters of credit, each for $2.5 million and each payable upon the
shipment of our products and the presentation of shipping documents. After
providing the first letter of credit, the China group was delinquent on the
second and third letters of credit, which were due in early December 2002 and
March 2003, respectively. During March 2003, the China group advanced us $2.0
million and indicated that they would provide a letter of credit for

approximately $5.5 million, representing the balance of the purchase order
executed in August 2002. As a result of the delayed letters of credit, we
limited our purchasing, including parts necessary to complete and ship some
products and completed products and subassemblies with existing inventory to the
extent possible. With the recent cash advance, we continue purchasing parts and
components and are completing as much product as possible, resuming shipments
when products are complete. Our current production and shipments are focused on
satisfying our delivery requirements with respect to the China group. Additional
production will depend on the future availability of cash and the timing of our
receipt of the $5.5 million letter of credit, as our cash position requires us
to focus on production and shipment to the China group in order to satisfy the
cash advance and then collect on the letter of credit.

Our working capital remains positive (approximately $1.0 million as of
the end of February 2003), 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 into cash is dependent on our ability to generate new
sales with our products and collect the sales price in a timely manner. While to
date we have been able to negotiate payment terms with our suppliers and other
creditors, there is no assurance that we can continue to do so.

We experienced significant net losses and deficits in cash flow from
operations for the years ended December 31, 2002, 2001 and 2000, 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,
2000 2001 2002
---- ---- ----
Net loss $21.4 million $26.2 million $13.6 million
Deficit in cash flow
from operations $15.7 million $17.7 million $ 2.7 million

In the longer term, our expectations are based on additional factors
including: the success of our sales efforts in China and in Europe where our
efforts will initially be primarily focused, the uncertain timing of additional
supplemental FDA approvals for our LaserScan LSX excimer laser system (which has
resulted in our decision to not actively market our laser system in the U.S.
until additional FDA approvals are received), potential growth in laser sales
after receipt of further FDA approvals, increases in accounts receivable and
inventory purchases when sales increase, our present inability to borrow under

our revolving credit facility, the uncertain impact of the market introduction
of our UltraShaper durable keratomes and AstraMax diagnostic workstations, and
the absence of unanticipated product development and marketing costs. These
factors and assumptions are subject to substantial uncertainty and risks beyond
our control and no assurances can be given that these expectations will prove
correct. These risks and uncertainties include:

o the willingness of trade creditors to continue to extend credit
to LaserSight;
o reductions and cancellations in orders;
o our ability to fulfill orders in light of our current financial
condition;
o our ability to sell products and collect accounts receivables at
or above the level of management's expectations;
o the occurrence of unforeseen expenses and our ability to control
expected expenses and overhead;
o the occurrence of property and casualty losses which are
uninsured or that generate insurance proceeds that cannot be
collected in a short time frame;
o our ability to improve pricing and terms of international sales;
o the loss of, or failure to obtain additional, customers; and
o changes in pricing by our competitors.

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 "--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," "--Industry and Competitive Risks--We do not intend to continue actively
marketing our LaserScan LSX laser system in the U.S. until we receive additional
FDA approvals," "--Additional Company and Business Risks--Required per procedure
fees payable to Visx under our license agreement may exceed per procedure fees
collected by us," and "--Our supply of certain critical components and systems
may be interrupted because of our reliance on a limited number of suppliers."
These risks and uncertainties can affect LaserSight's ability to continue
operations for the expected period in the absence of obtaining additional
capital resources.

IF WE FAIL TO MEET THE FINANCIAL COVENANTS IN OUR LOAN WITH HELLER, WE
WILL NOT HAVE ENOUGH AVAILABLE CASH TO PAY THE AMOUNT OWED.

Under the original terms of our term loan with Heller, we were required
to pay Heller approximately $2.1 million in March 2003. On March 12, 2003, the
due date was extended 30 days to April 11, 2003. On March 31, 2003, our loan
agreement with Heller was amended again. In addition to the amendment, Heller
waived our failure to comply with the net revenue covenant for the fourth
quarter of 2002. In exchange for the amendment and waiver, we will pay
approximately $9,000 in fees to Heller, and we have agreed to increase our
monthly principal payments to $45,000 beginning in April 2003. Revised covenants
became effective that decreased the minimum level of net worth to $1.0 million,
minimum tangible net worth to negative $4.0 million and minimum quarterly net
revenue during 2003 to $2.0 million. In addition, we have agreed to work in good
faith with Heller to adjust these covenants by May 31, 2003 based on our first
quarter 2003 financial results. The remaining principal balance will be due on
September 12, 2004. If we are unable to meet the financial covenants of the
Heller loan, Heller could declare us in default and require the entire principal
balance to be due and payable, and it is unlikely we will have enough available
cash to repay the debt, and we may not be able to continue our business
operations.

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, 2002,
will be sufficient to cover the amount of our actual write-offs over time. At
December 31, 2002, our net trade accounts and notes receivable totaled
approximately $6.6 million, and accrued commissions, the payment of which
generally depends on the collection of such net trade accounts and notes
receivable, totaled approximately $1.8 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 many
cases, we have concluded that the account should be reserved or written off as
uncollectible based on the economic condition in the region and our
understanding of the customer's business and related items. The reserves and
write-offs are generally the result of events and circumstances that could not
realistically be foreseen at the time sales were completed. In addition, during
our recent period of declining revenues, the relationship between the bad debts
that resulted from these events compared to lower revenues is magnified. Events
and circumstances that impact our bad debt expense include FDA approvals on our
laser system that took and are taking longer than anticipated, economic
downturns in certain countries or regions of the world, including the U.S. and
South and Central America, and the terrorist attacks that affected personal
spending decisions of consumers, and thus the business levels of many of our
customers. Accounts written off during the year ended December 31, 2002 and the
year ended December 31, 2001 totaled approximately 22% and 10%, respectively, of
ending receivables for each period. International revenues represented 83% of
total revenues during 2002 and 56% during the year ended December 31, 2001 (the
2001 percentage was 71% excluding the gain on the sale of patent).

INDUSTRY AND COMPETITIVE RISKS

The following Industry and Competitive Risks relate primarily to the
longer term.

WE DO NOT INTEND TO CONTINUE ACTIVELY MARKETING OUR LASERSCAN LSX LASER
SYSTEM IN THE U.S. UNTIL WE RECEIVE ADDITIONAL FDA APPROVALS.

We received the FDA approval necessary for the commercial marketing and
sale of our LaserScan LSX excimer laser system in the U.S. in late 1999 and
commercial shipments to customers in the U.S. began in March 2000. To date, our
LaserScan LSX laser system and per procedure fee business model have not
achieved a level of market acceptance sufficient to provide our cash flows from
operations to fund our business. Our excimer laser system has not been approved
by the FDA for use in the U.S. for as wide a range of treatments as have many of
our competitors' lasers. Because of the limited treatment ranges many physicians
have resisted purchasing our excimer laser. In order to become more competitive
we need to obtain FDA approval to treat patients with farsightedness,
farsightedness with astigmatism and mixed astigmatism. In the international
market, however, these limitations on treatment ranges do not exist, and we can
more effectively compete with other laser manufacturers. If we obtain FDA
approval for expanded treatment ranges for our laser system in the U.S. we
believe that we would be in a position to more effectively market our laser
system to physicians. As a result of our current liquidity and capital resource
issues, we have decided to focus on international markets, primarily China with
our LaserScan LSX laser system and Europe with a custom ablation product line,
and not to continue actively marketing our laser system in the U.S. until we
receive additional FDA approvals.

The current level of per procedure fees payable to us by existing
refractive surgeon customers in the U.S. may not continue to be accepted by the
marketplace or may exceed those charged by our competitors. 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. We are not aware of the existence
of a current trend toward reducing or eliminating per procedure fees. In the
spring of 2000 industry leader Visx reduced the per-procedure fees it was
charging the users of its laser system. Since that time, to our knowledge there
has been no trend to further reduce or eliminate per procedure fees. See also
"--Additional Company and Business Risks--Required per procedure fees payable to
Visx under our license agreement may exceed per procedure fees collected by us."

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

Keratomes are surgical devices used to create a corneal flap needed to
perform a laser vision correction procedure called Laser In-Situ Keratomileusis,
or LASIK. Once the corneal flapped is created, it is then flipped back, the
excimer laser beam is directed to the exposed corneal surface, and the flap is
placed back and re-adhered to the surface of the eye. 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. We have suspended the manufacture and
sale of our UniShaper keratome product. The decision to suspend the manufacture
and sale of our UniShaper product was made after we encountered difficulties
consistently meeting required tolerances utilizing injection-molded plastics in
the manufacturing process and it became apparent that our potential customers
preferred stainless steel, durable keratomes like our UltraShaper product. If we
decide in the future to re-focus our efforts on the manufacture and sale of our
UniShaper product, it will need to be reengineered, if possible, to include most
or all of the features included in our UltraShaper keratome for the UniShaper to

be commercially viable. In November 2001, we commercially released our
UltraShaper durable keratomes after a thorough process of engineering refinement
and validity testing. 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. 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 find a
marketing and distribution alliance with another company, our ability to
generate revenues from the sale of our keratome products will be impaired, and
if we cannot finance our business operations through operating revenues we might
not be able to continue our business. See also "--Additional 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 ARE ENCOUNTERING DIFFICULTIES
COMPETING IN THIS HIGHLY COMPETITIVE ENVIRONMENT.

The vision correction industry is subject to intense, increasing
competition, and we do not know if we will be able to compete successfully
against our current and future competitors. Many of our competitors have
established products, distribution capabilities and customer service networks in
the U.S. marketplace, are substantially larger and have greater brand
recognition and greater financial and other resources than we do. Visx, the
historical industry leader for excimer laser system sales in the U.S., sold
laser systems that performed a significant majority of the laser vision
correction procedures performed in the U.S. from 1999 through 2002. Similarly,
Bausch & Lomb sold a significant majority of the keratomes used by refractive
surgeons in the U.S. from 1999 through 2002. Alcon, one of the largest
ophthalmic companies in the world, and its narrow beam laser technology platform
also competes directly with our precision beam, scanning microspot LaserScan LSX
excimer laser system. In addition, Alcon, as a result of its acquisition of
Summit Autonomous Inc., is able to sell its narrow beam laser systems under a
royalty-free license to certain Visx patents without incurring the expense and
uncertainty associated with intellectual property litigation with Visx. Alcon
also has the ability to leverage the sale of its laser systems with its other
ophthalmic products, and has placed a significant number of its lasers systems
in the U.S. Competitors are using our weak financial condition as a reason why a
buyer shouldn't buy our laser.

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 for refractive errors such as nearsightedness,
farsightedness or astigmatism. A laser that has been approved for a wider range
of treatments is more attractive because it enlarges the pool of laser
correction candidates to whom laser correction procedures can be marketed.
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. The range of treatments is
generally described in terms of diopters. The term diopter is used to describe
the measure of severity of the particular refractive error, and the greater the
number expressed in terms of diopters, the more severe the refractive error. In
addition, diopters that are expressed as a negative number represent the
severity of nearsightedness and diopters that are expressed as a positive number
reflect the severity of farsightedness.

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 MRSE with or without a refractive
astigmatism up to 4.5 diopters and for the Photorefractive Keratectomy, or PRK,
treatment of low to moderate nearsightedness (up to -6.0 diopters) without
astigmatism. 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 directly to the corneal surface reshaping the curvature
of the cornea. Additionally, we have received FDA approval to operate our laser
systems at a repetition rate of 300 pulses per second, three times the
originally approved rate. We have submitted PMA supplements to the FDA to permit
our laser systems sold to customers in the U.S. to utilize LASIK to treat
farsightedness, farsightedness with astigmatism and mixed astigmatism. FDA
approval of these applications is anticipated in 2003, 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. Visx and Alcon have received FDA approval, in 2001 and 2000,
respectively, for the treatment of moderate levels of farsightedness with or
without astigmatism and Visx received approval for the treatment of mixed
astigmatism in 2001.

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 of farsightedness, using LASIK, 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 approved 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. In August 2002, Alcon announced the approval of its
wavefront-guided laser eye surgery application for the treatment of
nearsightedness between zero and -7.0 diopters. Competitors' earlier receipt of
LASIK and farsightedness-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 will impair our ability to generate revenues from the sale of our
products, and we may not be able to continue our business 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. If we are unable to
successfully introduce our LaserScan LSX system in the U.S. and our keratome
products worldwide, our ability to generate revenues from the sale of our
products will be impaired, and we may not be able to continue our business
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 China, the U.S. and in other countries. We believe that
if we achieve profitability and growth as a result of our focus in China, we can
increase our level of activity in the U.S. and other countries. We cannot be
certain that laser vision correction will continue to be accepted by either the
refractive surgeons or the public at large as an alternative to existing methods
of treating refractive vision disorders. The acceptance of laser vision
correction and, specifically, the LASIK procedure may be adversely affected by:

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

Unfavorable side effects and potential complications that may result
from the use of laser vision correction systems manufactured by any manufacturer
may broadly affect market acceptance of laser-based vision correction surgery.
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 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 would limit our ability to market our products which in turn would
limit our ability to generate revenues from the sale of our products. If we are
unable to generate revenue from the sale of our products, we may not be able to
continue our business operations. Even if laser vision correction achieves and
sustains market acceptance, sales of our keratome products could be adversely
impacted if a laser procedure that does not require the creation of a corneal
flap was 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, our ability to generate revenues form the sale
of our products would be limited. If we are unable to generate revenue from the
sale of our products, we may not be able to continue our business operations.

As is typical in the case of new and rapidly evolving industries, the
demand and market for recently introduced products and technologies is
uncertain, and we cannot be certain that our LaserScan LSX 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.

ADDITIONAL COMPANY AND BUSINESS RISKS

The following Additional Company and Business Risks relate primarily to
the longer term.

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 would result in a diversion of
financial and human resources in connection with recruiting and retaining a
replacement for such officers or key employees. Such a diversion of resources
could prevent us from successfully executing our business plan, and our business
will suffer. We do not carry "key person" life insurance on any officer or key
employee.

During 2001 we reduced our staff by 59 positions which represented
approximately $2.5 million in annual salaries and wages. During 2002, we further
reduced our staff by an additional 46 positions which represented approximately
$2.5 million in annual salaries and wages. Included in these reductions were the
resignations of our Chief Operating Officer, D. Michael Litscher, and our Senior
Vice President-Sales and Marketing, Christine A. Oliver. The Company regards
these resignations as consistent with its overall reductions in positions and as
not material to its present operations. Additional staff reductions are likely.
Our staff reductions 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, we could be prevented from successfully executing our
business plan, and our business will suffer.

WE HAVE MOVED ALL INTERNATIONAL MANUFACTURING OPERATIONS FROM COSTA
RICA TO THE U.S. AND MUST CONTINUE TO COMPLY WITH STRINGENT REGULATION OF OUR
MANUFACTURING OPERATIONS.

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

REQUIRED PER PROCEDURE FEES PAYABLE TO VISX UNDER OUR LICENSE AGREEMENT
MAY EXCEED PER PROCEDURE FEES COLLECTED BY US.

In addition to the risk that our refractive lasers will not be accepted
in the marketplace, we are required to pay Visx a royalty for each procedure
performed in the U.S. using our refractive lasers. The required per procedure
fees we are required to pay to Visx may exceed the per procedure fees we are
able to charge and/or collect from refractive surgeons. If the per procedure
fees we are required to pay to Visx exceed the per procedure fees we are able to
charge and/or collect from refractive surgeons, we would have to pay the Visx
per procedure fees out of our limited available cash reserves. During each of
the years 2001 and 2002, the per procedure fees we are required to pay Visx did
not exceed per procedure fees collected by us.

REQUIRED MINIMUM PAYMENTS UNDER OUR KERATOME LICENSE AGREEMENT MAY
CONTINUE TO 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, in June of 2002 the licensors

agreed to further amend the payment schedule for the royalty payments, and the
remaining minimum royalty payments totaling approximately $3.4 million as of
March 28, 2003 will be due in monthly installments (averaging approximately
$150,000 per month through 2003) and quarterly installments (averaging
approximately $238,000 per quarter from January 2004 through October 2005)
through the term of the amendment. In connection with this June 2002 amendment
the parties also agreed that the number of notice and cure periods relating to
the delinquent payment of royalty payments would be limited to three, and only
one such notice and cure period remains under the terms of the keratome license
agreement. After this last remaining notice and cure period is used, if we fail
to make timely payments under the keratome license agreement, the licensors have
the right to immediately declare us in default and accelerate the balance of the
remaining unpaid royalty payments.

As a result of our obligations under this license arrangement, the
minimum royalty payments we are required to make to the licensors have, to date,
exceeded our gross profits from sales of our UniShaper and UltraShaper keratome
products and we expect this trend to continue. 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 prevent us from generating revenues from
the sale of our products, and if we are unable to generate revenues from the
sale of our products we may not be able to continue our business operations.

OUR BUSINESS DEPENDS ON OUR INTELLECTUAL PROPERTY RIGHTS, AND IF WE ARE
UNABLE TO PROTECT THEM, OUR COMPETITIVE POSITION MAY BE ADVERSELY AFFECTED.

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

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

Litigation involving patents is common in our industry. While we do not
believe our laser systems 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.

In February 2003, an Italian court issued an order restraining our
LaserSight Technologies subsidiary from marketing our AstraPro software at a
trade show in Italy. This restraining order was issued in favor of LIGI
Tecnologie Medicali S.p.a., a distributor of our products, and alleges that our
AstraPro software product infringes certain European patents owned by LIGI. We
have retained Italian legal counsel to defend us in this litigation, and we have
been informed that the Italian court has revoked the restraining order and has
ruled that LIGI must pay our attorney's fees in connection with our defense of
the restraining order. In addition, our Italian legal counsel has informed us
that LIGI has filed a motion for a permanent injunction, and our Italian legal
counsel is reviewing this motion. We believe that our AstraPro software does not
infringe the European Patents owned by LIGI, and we intend to vigorously defend
our rights to distribute our AstaPro software in the European markets.

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

Our international sales accounted for 83% and 56% of our total revenues
during the years ended December 31, 2002 and 2001, respectively. Excluding our
gain on sale of patent, the 2001 percentage was 71%. In the future, we expect
that sales to U.S. accounts will represent a higher percentage of our total
sales only when additional regulatory approvals are received for our LaserScan
LSX laser system in the U.S. We are presently focusing our sales efforts on
international sales in China and Europe.

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. 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 our excimer laser
systems. 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, our
ability to manufacture, sell and generate revenues from our products would be
impaired.

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

We 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.

INADEQUACY OR UNAVAILABILITY OF INSURANCE MAY EXPOSE US TO SUBSTANTIAL
PRODUCT LIABILITY CLAIMS.

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

LITIGATION COSTS OR AN UNFAVORABLE OUTCOME IN LITIGATION MAY EXCEED THE
AMOUNT OF CASH AVAILABLE.

Our LaserSight Technologies subsidiary is currently involved in
litigation with three former distributors for our excimer laser system in the
United States. The lawsuit alleges various claims related to LaserSight
Technologies' termination of the distribution arrangements 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. The distributors have requested actual damages
in excess of $5.0 million, punitive damages, prejudgment interest, attorneys'
fees and costs and other equitable relief. An unfavorable outcome in this
litigation that resulted in an award of damages anywhere near the amount of
damages requested by the distributors would exceed the amount of our available
cash on hand.

Since December 31, 2001, we have incurred legal fees related to
litigation of approximately $170,000 of which approximately $56,000 was
attributable to the distributor litigation and approximately $20,000 was
attributable to the litigation with Ligi Tecnologie. In addition, we made one
$50,000 settlement payment in October 2002 related to the previously reported
litigation involving a former shareholder of The Farris Group and our chief
executive officer. Future settlement payments related to The Farris Group
litigation are $45,000 due in September 2003 and $45,000 due in March 2004.
These amounts have been accrued in the Company's 2002 consolidated financial
statements. Other than the distributor litigation described above and the
litigation with LIGI Tecnologie described under the risk factor "Patent
infringement allegations may impair our ability to manufacture and market our
products", our other litigation has either been settled or stayed to facilitate
settlement discussions between the parties.

OUR AUDITORS' REPORT FOR THE YEAR ENDED DECEMBER 31, 2002 INCLUDES AN
EXPLANATORY PARAGRAPH REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.

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

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 or stock price
to fluctuate include:

o our significant liquidity and capital resource issues;
o the addition or loss of significant customers;
o reductions, cancellations or fulfillment of major orders;

o changes in pricing by us or our competitors;
o timing of regulatory approvals and the introduction or delays in
shipment of new products;
o the relative mix of our business; and
o increased competition.

As a result of these fluctuations, we believe that period-to-period
comparisons of our operating results cannot be relied upon as indicators of
future performance. In some quarters our operating results may fall below the
expectations of securities analysts and investors due to any of the factors
described above or other uncertainties.

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

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

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 27,841,941 shares of common stock
outstanding at March 28, 2003 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. An additional 9,280,647 shares of preferred stock, convertible into
18,561,294 shares of common stock, were issued in October 2002 upon the funding
of the equity investment portion of the China Transaction. We have agreed to
register the shares of common stock under the Securities Act of 1933, and, once
registered, the shares will be available for sale.

Other shares of common stock that we may issue in the future in
connection with 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 5,800,000 additional shares of common stock
upon the exercise of outstanding warrants and stock options. Including the China
Transaction, the number of shares we may be required to issue upon the
conversion of outstanding preferred stock and the exercise of outstanding
warrants and stock options will increase to approximately 24,400,000.

The former owners of our series C preferred stock have the right,
subject to certain limitations, to participate in our below-market certain
equity financing transactions that would allow them to maintain their ownership
level in common stock at the same level as immediately prior to the closing of
any such financing. In connection with future equity financings we may include
anti-dilution provisions that would 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.

THE TERMS OF THE CHINA TRANSACTION WILL IN ALL PROBABILITY PREVENT OR
DISCOURAGE AN ACQUISITION OR CHANGE OF CONTROL OF LASERSIGHT.

In connection with the China Transaction, we issued shares of our
series H preferred stock that, upon conversion into shares of our common stock,
would result in the series H stockholders owning 40% of our outstanding common
stock. In addition, the series H preferred stockholders have the right to elect
that number of directors that will constitute up to 40% of the membership on our
board of directors. Either or both of these factors may discourage or even
prevent a party from acquiring us or making a bid that may result in a change of
control. See also " Common Stock Risks--The China transaction includes a
provision under which the purchaser of our preferred stock can acquire
approximately 40% of our common stock. That stockholding position alone
diminishes the possibility of a competing bid for a majority of the common
stock, but the anti-takeover provision under Delaware law and in our certificate
of incorporation, our by-laws and our stockholder rights plan will nonetheless
require the board to exercise its fiduciary duty on any bid (whether by the

purchaser in the China Transaction or another) taking into consideration all of
the circumstances at that time" and "Description of Capital Stock--Series H
Preferred Stock."

THE CHINA TRANSACTION INCLUDES A PROVISION UNDER WHICH THE PURCHASER OF
OUR PREFERRED STOCK CAN ACQUIRE APPROXIMATELY 40% OF OUR COMMON STOCK. THAT
STOCKHOLDING POSITION ALONE DIMINISHES THE POSSIBILITY OF A COMPETING BID FOR A
MAJORITY OF THE COMMON STOCK, BUT THE ANTI-TAKEOVER PROVISION UNDER DELAWARE LAW
AND IN OUR CERTIFICATE OF INCORPORATION, OUR BY-LAWS AND OUR STOCKHOLDER RIGHTS
PLAN WILL NONETHELESS REQUIRE THE BOARD TO EXERCISE ITS FIDUCIARY DUTY ON ANY
BID (WHETHER BY THE PURCHASER IN THE CHINA TRANSACTION OR ANOTHER) TAKING INTO
CONSIDERATION ALL OF THE CIRCUMSTANCES AT THAT TIME.

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 board will act with respect to anti-takeover provisions with its
fiduciary duty in mind.

RISKS RELATING TO INTANGIBLES

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, 2002, approximately $4.8 million,
or 21%, were intangible assets. Any reduction in net income or increase in net
loss resulting from the amortization of intangible assets resulting from future
acquisitions by us may have an adverse impact upon the market price of our
common stock. In addition, in the event of a sale of LaserSight or our assets,
we cannot be certain that the value of such intangible assets would be
recovered.

In accordance with FASB Statement No. 144, we review intangible assets
for impairment whenever events or changes in circumstances, including a history
of operating or cash flow losses, indicate that the carrying amount of an asset
may not be recoverable. If we determine that an intangible asset is impaired, a
non-cash impairment charge would be recognized.

OTHER RISKS

The following relates to risks on both a short and longer-term basis:

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 further
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, 2002, the Company had approximately $0.1 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

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

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

Michael R. Farris 43 President, Chief Executive Officer 1995
and Director
Francis E. O'Donnell, Jr., M.D. 53 Chairman of the Board 1992
David T. Pieroni 57 Director 1996
Guy W. Numann 71 Director 2000
Xian Ding Weng 41 Director 2002
Steven Shi 47 Director 2002
Ying Zhi Gu 54 Director 2002
Gregory L. Wilson 45 Chief Financial Officer N/A
Jack T. Holladay, M.D. 56 Medical Director N/A

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

Mr. Farris has served as President and Chief Executive Officer of
LaserSight since November 1995. He had previously been President and Chief
Executive Officer of The Farris Group (a consulting firm that LaserSight
acquired from Mr. Farris in February 1994) and predecessor consulting and search
firms for more than 10 years.

Dr. O'Donnell has served as the Chairman of the Board of LaserSight
since April 1993. Dr. O'Donnell also was Chief Executive Officer of LaserSight
from April 1993 to July 1993. He founded O'Donnell Eye Institute, St. Louis,
Missouri, which has performed laser vision correction procedures since 1989. Dr.
O'Donnell is a former Professor and Chairman, Department of Ophthalmology at the
St. Louis University School of Medicine. In his role as managing partner of the
Hopkins Capital Group, L.L.C., a biotech business development company, Dr.
O'Donnell is actively involved with RetinaPharma, Inc. BioDelivery Sciences
International, Inc. and BioKeys, Inc., biopharmaceutical companies, Accentia
Specialty Pharmacy Services, Inc. and Sublase, L.L.C. All are privately held
except BioKeys, Inc.

Mr. Pieroni has been President of Independent Management Advisors,
Inc., a management consulting company, or its predecessor, Pieroni Management
Counselors, Inc., since September 1996 and during a portion of 1995. He was
President of LaserSight's The Farris Group subsidiary from November 1995 to
September 1996. From 1991 to 1995, he was President of Spencer & Spencer
Systems, Inc., an information systems consulting company. From 1977 to 1990, he
was a partner in the health care and management consulting practice of a
predecessor of Ernst & Young LLP.

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

Mr. Weng founded New Industries Investment Co., Ltd., (NII) in
Shenzhen, China in 1993. He has been President and Chief Executive Officer of
NII for nine years. Mr. Weng has also been the Chairman of the board of Venture
Capital Ltd., Medical Development Ltd. and Consultant Ltd. in NII Group.

Mr. Shi has served as a professional manager of New Industries
Investment Co., Ltd. since 1997. In NII group, Mr. Shi currently is Chief
Operating Officer of Venture Capital Ltd. Mr. Shi has also been Chief Executive
Officer of Shenzhen New Industries Medical Development Co., Ltd. since March
2002.

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

Mr. Wilson has served as Chief Financial Officer of LaserSight since
July 1994. Mr. Wilson has also served as Chief Financial Officer of our TFG
subsidiary since 1993. From 1986 to 1993, he was a management consultant with
Deloitte & Touche LLP, an international accounting and consulting firm.

Dr. Holladay has served as Medical Director of LaserSight since October
1999. Dr. Holladay has been a practicing ophthalmologist since 1978. Since 1978
Dr. Holladay has also served as a professor at the University of Texas Medical
School, and has been a visiting professor at several major ophthalmology
programs around the world. Dr. Holladay is an active member of the American
Academy of Ophthalmology, has served as chairman of its committee on low vision
and of its committee on optics, refraction and contact lenses, and is also a
member of its committee for ophthalmic technology development. He has also has
lectured extensively, authored numerous scientific articles and book chapters,
and has invented instruments and methods related to vision testing.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires LaserSight's officers and directors, and persons who own more
than 10% of the outstanding common stock, to file reports of ownership and
changes in ownership of such securities with the SEC. Officers, directors and
over-10% beneficial owners are required to furnish LaserSight with copies of all
Section 16(a) forms they file. Based solely upon a review of the copies of the
forms furnished to LaserSight, and/or written representations from certain
reporting persons that no other reports were required, LaserSight believes that
all Section 16(a) filing requirements applicable to its officers, directors and
over-10% beneficial owners during or with respect to the year ended December 31,
2002 were met.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth summary information concerning the
compensation paid or earned for services rendered to LaserSight in all
capacities during 2000, 2001 and 2002 for LaserSight's Chief Executive Officer,
each of LaserSight's other executive officers serving at December 31, 2002 whose
total annual salary and bonus for 2002 exceeded $100,000 and former executive
officers for which disclosure is required. No restricted stock or stock
appreciation rights were granted and no payouts under any long-term incentive

plan were made to any of the named executive officers in 2000, 2001 or 2002. We
use the term "named executive officers" to refer collectively to these
individuals later in this Form 10-K.

SUMMARY COMPENSATION TABLE

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

Michael R. Farris 2002 $262,765 -- $25,000 (1) 100,000 --
President and CEO 2001 278,553 -- -- 200,000 --
2000 275,625 -- -- 207,549 --

Jack T. Holladay, M.D. 2002 200,000 -- -- 75,000 --
Medical Director 2001 200,000 -- -- 25,000 --
2000 200,000 -- -- 75,000 --

Gregory L. Wilson 2002 192,400 -- 7,215 (5) 50,000 --
Chief Financial Officer 2001 185,185 -- -- 130,000 --
2000 185,000 -- -- 50,000 --

D. Michael Litscher (2) 2002 171,000 -- -- -- $24,000 (4)
Chief Operating Officer 2001 178,001 -- -- 85,000 49,085 (4)
2000 156,859 -- -- 200,000 30,750 (4)

Christine A. Oliver (3) 2002 151,578 -- -- -- --
Senior Vice President, 2001 174,813 -- -- 65,000 --
Sales & Marketing 2000 29,842 -- -- 100,000 --

(1) Consists of a one-time award approved by the board of directors in
October 2002.

(2) Mr. Litscher was not an executive officer effective in January 2002,
but is included as a named executive officer because he would have been
among the four highest paid executive officers had he been serving as
an executive officer as of December 31, 2002.

(3) Ms. Oliver was not an executive officer effective in January 2002, but
is included as a named executive officer because she would have been
among the four highest paid executive officers had she been serving as
an executive officer as of December 31, 2002.

(4) Consists of relocation and housing allowance paid.

(5) Consists of retroactive pay during 2002 to compensate for a voluntary
pay reduction taken during 2001.

The following table sets forth certain information concerning stock
options granted to the named executive officers during 2002. No SARs were
granted during 2002.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

Individual Grants
-------------------
Number of % of Total
Securities Options/ Potential Realizable
Underlying SARs Value at Assumed
Options/ Granted to Exercise or Annual Rates of Stock
SARs Employees in Base Price Expiration Price Appreciation for
Name Granted (#) Fiscal Year ($/Share) Date Option Term
---- ----------- ----------- --------- ---- -----------
5% ($) 10% ($)
------ -------

Michael R. Farris 100,000 9.7% $0.24 5/4/2012 $10,885 $25,950

Jack T. Holladay, M.D. 75,000 7.3% 0.50 2/28/2007 10,361 22,894

Gregory L. Wilson 50,000 4.8% 0.24 5/4/2012 3,315 7,326

D. Michael Litscher -- -- N/A N/A N/A N/A

Christine A. Oliver -- -- N/A N/A N/A N/A

The following table sets forth certain information relating to options
held by the named executive officers at December 31, 2002:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/
Year-End (#)(1) SARs at Year-End ($)(1)(2)
--------------- --------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($)(1) Unexercisable Unexercisable
---- ------------ --------------- ------------- -------------

Michael R. Farris -- -- 760,883/360,882 $0/0
Jack T. Holladay, M.D. -- -- 359,584/50,416 0/0
Gregory L. Wilson -- -- 227,667/127,333 0/0
D. Michael Litscher -- -- -- --
Christine A. Oliver -- -- -- --

(1) No SARs have been issued by LaserSight.

(2) Based on the $0.19 closing price of the common stock on The Nasdaq
Stock Market on December 31, 2002 when such price exceeds the exercise
price for an option.

COMPENSATION OF DIRECTORS

Each non-employee director receives a fee of $500 for each board or
committee meeting attended. Effective October 25, 2002, members of the Audit
Committee receive $1,000 per meeting and the chairman of the Audit Committee
receives $1,500 per meeting. In addition, during 2002, each non-employee
director was granted an option under LaserSight's Non-Employee Directors Stock

Option Plan to purchase 15,000 shares of common stock and each committee
chairman and the Chairman of Board was granted an additional option to purchase
5,000 shares. The exercise price of each such option on October 25, 2002, was
$0.25 per share (100% of the market price of common stock on the date of grant).
Directors who are also full-time employees of LaserSight received no additional
cash compensation for services as directors.

EMPLOYMENT AGREEMENTS

In October 1998, LaserSight entered into a revised employment agreement
with Mr. Farris, which LaserSight and Mr. Farris further amended in April 1999
(as amended, the "Farris Employment Agreement"). The Farris Employment Agreement
provides for a three-year term, an annual base salary beginning at $250,000,
increased by 5% each year, a total of 210,000 stock options granted in 1998 and
190,000 stock options granted in 1999. The Farris Employment Agreement also
provides an opportunity for an annual cash performance bonus of up to 25% of
base salary based upon specific objectives established by the Executive
Compensation and Stock Option Committee, and an opportunity for an additional
annual cash bonus in an aggregate amount of 20% of base salary if all or a
portion of certain events or goals identified from time to time by the Executive
Compensation and Stock Option Committee occur or are achieved. If the employment
of Mr. Farris is terminated by LaserSight without "cause" or by him with "good
reason" (as such terms are defined in the Farris Employment Agreement), Mr.
Farris would be entitled to all salary and other benefits under the Farris
Employment Agreement through the later of (1) the remaining term of the
Agreement or (2) one year after the date of his termination. The Farris
Employment Agreement includes non-compete and confidentiality covenants. As of
January 1, 2002, the term of the Farris Employment Agreement was extended for an
additional three-year term. The Compensation Committee reviews Mr. Farris'
employment arrangements from time to time and may grant Mr. Farris additional
stock options or otherwise modify his employment arrangements in the future
based on those reviews.

In October 1999, LaserSight entered into an employment agreement with
Dr. Holladay (the "Holladay Employment Agreement"). The Holladay Employment
Agreement provides for a three-year term with automatic renewals of one-year
each unless either party provides the other with at least 60 days notice prior
to the end of the then current term that such party intends not to renew the
agreement, an annual base salary of $200,000 and a grant of 200,000 stock
options. The Holladay Employment Agreement includes non-compete and
confidentiality covenants. The Compensation Committee reviews Dr. Holladay's
employment arrangements from time to time and may grant Dr. Holladay additional
stock options or otherwise modify his employment arrangements in the future
based on those reviews.

In February 2000, LaserSight entered into an employment agreement with
Mr. Litscher (the "Litscher Employment Agreement"). The Litscher Employment
Agreement provided for a three-year term with automatic renewals of one-year
each unless either party provided the other with at least 60 days notice prior
to the end of the then current term that such party intended not to renew the
agreement, an annual base salary of $140,000 and a grant of 100,000 stock
options. The Litscher Employment Agreement included non-compete and
confidentiality covenants. Mr. Litscher was named Chief Operating Officer and
his annual base salary was subsequently adjusted to $190,000 effective on April
1, 2000. In January 2002, LaserSight entered into a resignation and release
agreement with Mr. Litscher (the "Litscher Resignation Agreement"). Pursuant to
the terms of the Litscher Resignation Agreement, Mr. Litscher and LaserSight
mutually agreed that Mr. Litscher's employment with LaserSight would terminate
on January 31, 2002. During the period commencing on February 1, 2002 and
continuing until July 31, 2003, Mr. Litscher will continue to receive his base
salary at an annual rate of $171,000.

In October 2000, LaserSight entered into an employment agreement with
Ms. Oliver (the "Oliver Employment Agreement"). The Oliver Employment Agreement
provided for a three-year term with automatic renewals of one-year each unless
either party provided the other with at least 60 days notice prior to the end of
the then current term that such party intends not to renew the agreement, an
annual base salary of $165,000 and a grant of 100,000 stock options. The Oliver
Employment Agreement included non-compete and confidentiality covenants. In
January 2002, LaserSight entered into a resignation and release agreement with
Ms. Oliver (the "Oliver Resignation Agreement"). Pursuant to the terms of the
Oliver Resignation Agreement, Ms. Oliver and LaserSight agreed that Ms. Oliver's
employment with LaserSight would terminate on January 31, 2002. During the
period commencing on February 1, 2002 until January 31, 2003, Ms. Oliver
continued to receive her base salary at an annual rate of $148,500.

RELOCATION AGREEMENT

In October 1999, LaserSight entered into a relocation agreement with
Mr. Wilson (the "Wilson Relocation Agreement"). The Wilson Relocation Agreement
provides for a severance payment of one year's compensation if his employment is
terminated without cause, as defined in the Wilson Relocation Agreement,
subsequent to his relocation to Orlando, Florida.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2002, the role of the Compensation Committee was performed by
the board of directors as a whole. As a result, Mr. Farris, who was an officer
of LaserSight during 2002, and Mr. Pieroni, who from November 1995 to September
1996 served as President of LaserSight's TFG subsidiary, participated in certain
deliberations regarding the compensation of LaserSight's executive officers. Mr.
Farris did not participate in the board of director's deliberations regarding
his compensation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding ownership
of LaserSight's voting securities, as of March 28, 2003, by:

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

The beneficial ownership of LaserSight's voting securities set forth in
this table is determined in accordance with the rules of the Securities and
Exchange Commission. Unless otherwise indicated in the footnotes below, the
persons and entities named in the table have sole voting and investment power as
to all shares beneficially owned, subject to community property laws where
applicable.

Common Stock Series H
Name and Address of Beneficial Owner Ownership (1) Preferred
------------------------------------ ------------- ---------
Directors and Executive Officers:
Michael R. Farris 784,683 (2)(3)
2.7%
Jack T. Holladay, M.D. 361,584 (2)
1.3%
Francis E. O'Donnell, Jr., M.D. 339,745 (2)(4)
1.2%
Gregory L. Wilson 273,833 (2)
*
Steven Shi 172,300 (5)
*
Guy W. Numann 102,500 (2)
*
Ying Zhi Gu 97,660
*
David T. Pieroni 92,500 (2)
*
Xian Ding Weng 0
*
All directors, nominees and executive officers
as a group (9 persons) 2,224,805 (2)
7.5%

Other 5% Stockholders:
TLC Laser Eye Centers Inc. 3,221,883 (6)
5280 Solar Drive 11.6%
Suite 300
Mississauga, Ontario
Canada L4W 5M8

New Industries Investment Consultants
(H.K.) Ltd. 8,980,647(7)
Shenzhen, People's Republic of China 96.8%
--------------------------
* Less than 1%.

(1) Each number of shares of common stock shown as owned in this column
assumes the exercise of all currently-exercisable options and warrants
and all options and warrants that will become exercisable within 60
days of March 28, 2003. Each percentage shown in this column assumes
the exercise of all such options and warrants by the applicable person
or group, but assumes that no options or warrants held by any other
persons are exercised or converted. The exercise price of each of the
options and warrants are significantly above the current trading price
of common stock.

(2) Includes options (and 67,500 warrants in the case of Mr. Numann) to
acquire shares of common stock which are now exercisable or will become
exercisable within 60 days of March 28, 2003, as follows: Dr. O'Donnell
(110,000); Mr. Farris (780,883); Mr. Pieroni (90,000); Dr. Holladay
(359,584); Mr. Wilson (258,833) and Mr. Numann (102,500)); and all
directors and executive officers as a group (1,701,800).

(3) SunTrust Bank, the holder of 412,200 shares of common stock pledged by
Mr. Farris to secure a personal borrowing, has given notice of its
intention to sell those shares in compliance with Rule 144 (k) under
the Securities Act of 1933 and to apply the net proceeds of the sales

first to expenses and then to reduction of Mr. Farris' borrowing, with
any excess to be remitted to Mr. Farris. Counsel to LaserSight has
delivered its opinion that the shares may be sold in compliance with
Rule 144 (k) and counsel for the bank has been authorized to, and has
undertaken to, provide notice of any sale in sufficient time to permit
Mr. Farris to file a Form 4 in time to comply with the current two day
filing requirement of the Securities and Exchange Commission. Mr.
Farris has had discussions with the bank and, to March 28, 2003, no
notice of sale has been received.

(4) Includes 181,245 shares held by the Irrevocable Trust No. 7 for the
benefit of the Francis E. O'Donnell, Jr., M.D. Trust or shares held by
the Francis E. O'Donnell, Jr. Descendants Trust. Ms. Kathleen M.
O'Donnell, the sister of Dr. O'Donnell, is trustee of both Trusts. Dr.
O'Donnell disclaims beneficial ownership of such shares.

(5) Includes 172,300 shares of common stock owned by Mr. Shi's spouse.

(6) Represents (a) 3,171,833 shares of common stock presently owned by TLC
(based on information supplied to LaserSight as of March 6, 2003), and
(b) 50,000 shares of common stock issuable to TLC upon exercise of all
of its 50,000 warrants at a price of $5.125 per share.

(7) The holders of each share of series H preferred stock shall be entitled
to the number of votes equal to the number of shares of series H
preferred stock held by such stockholder at the Record Date.

ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS

LASERSIGHT CENTERS. In March 1997, LaserSight amended its
previously-reported royalty agreement (as so amended, the "Amended Royalty
Agreement") with Laser Partners, a Florida general partnership, that it had
entered into shortly before the LaserSight Centers acquisition. The Amended
Royalty Agreement reduces the maximum per eye royalty to be paid by LaserSight
from $86 to $43. LaserSight's obligations under the Amended Royalty Agreement
are perpetual. LaserSight understands that one of the O'Donnell Trusts is a
partner of Laser Partners with a 36% partnership interest.

The Amended Royalty Agreement provides that LaserSight is not required
to pay a royalty in connection with any of the following: (1) procedures which
do not involve both an excimer laser and PRK, (2) laser procedures performed by
a third party in connection with any license granted by LaserSight, and (3)
laser procedures performed pursuant to a contract with a managed care company or
an employer, pursuant to which LaserSight agrees to arrange for the delivery of
eye care services other than PRK or for eye care services which include PRK
without any identifiable fee attributable thereto. The management of LaserSight
believes that these exclusions reduce the scope of LaserSight's obligation to
make royalty payments. In late 2000, management abandoned the LaserSight Centers
laser strategy due to industry conditions and our increased focus on development
and commercialization of our refractive products.

CONSULTING ARRANGEMENT. In May 1997, LaserSight's LaserSight
Technologies subsidiary entered into an agreement, effective as of January 1,
1997, with Dr. Byron A. Santos, an ophthalmologist employed by the O'Donnell Eye
Institute, a corporation of which Dr. O'Donnell, the Chairman of the Board of
LaserSight, is the Medical Director and owner. The agreement terminated on
December 31, 2001. The amount that became payable to Dr. Santos under this
agreement during 2001 was $96,000. Under the agreement, Dr. Santos was required
to be available to provide a minimum of 40 hours of services each month. Such
services have related to the development of the LaserScan 2000 excimer laser
system, the development of clinical protocols, and training and other consulting
services. The consulting arrangement was not substantially comparable to

LaserSight's other contracts, though management believes the value paid under
the arrangement was consistent with Dr. Santos' obligations.

SALE OF LASER SYSTEM. As previously reported, during 2000 the Company
sold one laser system to a clinic associated with a Dr. O'Donnell for $240,000.
At the time of the sale, we expected the clinic to obtain third party financing
for the system and to be paid in full. Since that time, the clinic financed and
paid the Company $100,000 in early 2002 and later began making monthly payments
towards the balance. As of December 31, 2002, $124,000 is included in accounts
receivable and we are receiving approximately $4,000 per month, including
interest. During the year ended December 31, 2002, the Company additionally
recognized procedure fee revenues of approximately $23,000 related to this
laser.

INDEBTEDNESS OF MANAGEMENT. In accordance with an arrangement that has
been in place since Mr. Farris first became employed by LaserSight, Mr. Farris
utilizes a company credit card for both business and non-business expenses and
then reimburses LaserSight for the non-business expenses, historically at a rate
of $1,000 per month. Since the beginning of LaserSight's last fiscal year the
aggregate amount of these non-business expenses has not exceeded $67,000. Mr.
Farris reimbursed LaserSight $50,000 in October 2002 and continues to reimburse
approximately $1,000 per month. Mr. Farris is not charged interest in connection
with these expenses. Mr. Farris has committed to no longer use a company credit
card for non-business expenses and will repay the outstanding balance.

INDEMNIFICATION OBLIGATION. As previously disclosed, LaserSight's Board
of Directors authorized LaserSight, to the fullest extent permitted by the
Delaware General Corporation Law, to indemnify and pay the fees of legal counsel
to defend Mr. Farris in connection with a lawsuit that was filed on behalf of a
former shareholder of MRF, Inc., a wholly-owned subsidiary of LaserSight. Since
the beginning of 2002, LaserSight has incurred approximately $41,000 in legal
fees in connection with this matter, which was settled in October 2002. The
settlement resulted in a $50,000 payment in October 2002, with additional
payments of $45,000 each due in September 2003 and March 2004.

CHINA TRANSACTION. Through December 31, 2002, approximately $2.7
million worth of products were sold to Shenzhen New Industries Medical
Development Co. Ltd. In October 2002, their affiliate, invested $2.0 million in
exchange for 9,280,647 shares of Series H Convertible Preferred Stock that,
subject to certain restrictions, could be converted into 18,561,294 shares of
the Company's Common Stock and result in the purchaser holding approximately 40%
of the Company's Common Stock.

ITEM 14. CONTROLS AND PROCEDURES

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

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

PART IV

ITEM 15. 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, 2002 and 2001.

Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000.

Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2002, 2001 and 2000.

Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000.

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 79 of this Form 10-K is
hereby incorporated herein by this reference.

(b) Reports on Form 8-K

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

INDEX TO EXHIBITS

Exhibit
Number Description
------ -----------
2.1 See Exhibits 10.8, 10.10, 10.11 and 10.23.

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

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

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

3.7 Fourth Amendment to Rights Agreement, dated as of August 15, 2002,
between LaserSight Incorporated and American Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to Exhibit 3.3
to Form 10-Q filed by the Company on November 14, 2002*).

4.1 See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 10.13, 10.14, 10.17,
10.18, 10.19, 10.20, 10.21, 10.22, 10.24, 10.25, 10.27, 10.28,
10.30, 10.31, 10.34 and 10.35.

10.1 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*).

10.2 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*).

10.3 LaserSight Incorporated Amended and Restated 1996 Equity Incentive
Plan (filed as Exhibit 10.9 to the Company's Form 10-K filed on
April 1, 2002*).

10.4 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*).

10.5 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*).

10.6 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*).

10.7 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*).

10.8 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*).

10.9 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*).

10.10 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*).

10.11 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*).

10.12 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*).

10.13 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*).

10.14 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*).

10.15 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*).

10.16 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*).

10.17 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*).

10.18 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*).

10.19 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*).

10.20 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*).

10.21 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*).

10.22 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*).

10.23 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*)**.

10.24 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*).

10.25 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*).

10.26 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*).

10.27 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*).

10.28 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*).

10.29 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*).**

10.30 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*).

10.31 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*).

10.32 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*).

10.33 Amendment No. 1 to Loan and Security Agreement dated as of February
15, 2002 among LaserSight Incorporated and subsidiaries and Heller
Healthcare Finance, Inc. (filed as Exhibit 10.52 to the Company's
Form 10-K filed on April 1, 2002*).

10.34 Securities Purchase Agreement dated August 15, 2002 between
LaserSight Incorporated and New Industries Investment Consultants
(H.K.) 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 August 30, 2002*).

10.35 Series H Registration Rights Agreement dated August 15, 2002 between
LaserSight Incorporated and New Industries Investment Consultants
(H.K.) Ltd. (filed as Exhibit 99.3 to the Company's Form 8-K filed
on August 30, 2002*).

10.36 Product Purchase Agreement dated August 15, 2002 between LaserSight
Technologies, Inc. and Shenzhen New Industries Medical Development
Co., Ltd. The Company undertakes to provide to the Commission upon
its request the schedules omitted from this exhibit (filed as
Exhibit 99.4 to the Company's Form 8-K filed on August 30, 2002*)**.

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

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

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

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

10.41 Amendment No. 3 to Loan and Security Agreement dated as of March 31,
2003 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

Exhibit 99 Chief Executive Officer and Chief Financial Officer
certifications pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. A signed
original of this written statement required by Section 906 has been
provided to LaserSight Incorporated and will be retained by
LaserSight Incorporated and furnished to the Securities and Exchange
Commission or its staff upon request.

----------------------
*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: March 31, 2003 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: March 31, 2003
--------------------------------------------------
Michael R. Farris, President,
Chief Executive Officer and Director

/s/ Francis E. O'Donnell, Jr., M.D. Dated: March 31, 2003
--------------------------------------------------
Francis E. O'Donnell, Jr., M.D.,
Chairman of the Board, Director

/s/ Guy W. Numann Dated: March 31, 2003
--------------------------------------------------
Guy W. Numann, Director

/s/ David T. Pieroni Dated: March 31, 2003
--------------------------------------------------
David T. Pieroni, Director

/s/ Xian Ding Weng Dated: March 31, 2003
--------------------------------------------------
Xian Ding Weng, Director

/s/ Ying Zhi Gu Dated: March 31, 2003
--------------------------------------------------
Ying Zhi Gu, Director

Dated: March 31, 2003
--------------------------------------------------
Steven Shi, Director

/s/ Gregory L. Wilson Dated: March 31, 2003
--------------------------------------------------
Gregory L. Wilson, Chief Financial Officer
(Principal accounting officer)

CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED

I, Michael R. Farris, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of LaserSight
Incorporated ("LaserSight");

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;

4. LaserSight's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared.

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;

5. LaserSight's other certifying officer and I have disclosed,
based on our most recent evaluation, to LaserSight's auditors
and the audit committee of LaserSight's board of directors:

a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect LaserSight's ability to record, process,
summarize and report financial data and have
identified for LaserSight's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in LaserSight's internal controls; and

6. LaserSight's other certifying officer and I have indicated in
this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

/s/ Michael R. Farris
---------------------
Michael R. Farris
Principal Executive Officer
March 31, 2003

I, Gregory L. Wilson, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of LaserSight
Incorporated ("LaserSight");

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;

5. LaserSight's other certifying officer and I have disclosed,
based on our most recent evaluation, to LaserSight's auditors
and the audit committee of LaserSight's board of directors:

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in LaserSight's internal controls; and

/s/ Gregory L. Wilson
---------------------
Gregory L. Wilson
Principal Financial Officer
March 31, 2003

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, 2002 and 2001,
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,
2002. 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, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, 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 21, 2003

F-1

LASERSIGHT INCORPORATED
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001

ASSETS 2002 2001
---- ----

Current assets:
Cash and cash equivalents $ 1,065,778 2,762,062
Accounts receivable - trade, net 3,811,065 8,100,993
Notes receivable - current portion, net 1,763,106 3,219,289
Inventories 8,928,099 12,005,108
Deferred tax assets 28,850 40,214
Other current assets 593,842 691,474
----------- -----------
Total current assets 16,190,740 26,819,140

Notes receivable, less current portion, net 1,020,731 2,129,652
Property and equipment, net 444,049 1,373,494
Other assets, net 5,452,101 5,987,631
----------- -----------
$23,107,621 36,309,917
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, net of discount of $12,246 at December 31, 2002 $ 2,077,754 --
Accounts payable 2,755,358 3,846,906
Accrued expenses 1,993,993 1,804,528
Accrued license fees 1,504,400 1,672,383
Accrued warranty 1,667,656 2,521,924
Accrued commissions 1,594,634 1,650,299
Deferred revenue 1,657,352 1,459,592
----------- -----------
Total current liabilities 13,251,147 12,955,632

Accrued expenses, less current portion 187,449 315,595
Deferred royalty revenue, less current portion 5,741,941 4,600,000
Deferred income taxes 28,850 40,214
Note payable, net of discount of $73,530 at December 31, 2001 -- 2,926,470
Commitments and contingencies

Stockholders' equity:
Convertible preferred stock, par value $.001 per share; authorized
10,000,000 shares:
Series F - zero and 1,276,596 shares issued and outstanding at
December 31, 2002 and 2001, respectively -- 1,277
Series H - 9,280,647 and zero shares issued and outstanding at
December 31, 2002 and 2001, respectively 9,281 --
Common stock-par value $0.001 per share; authorized 100,000,000 shares;
27,987,141 and 26,596,062 shares issued at December 31, 2002 and
2001, respectively 27,987 26,596
Additional paid-in capital 103,796,812 102,918,836
Stock subscription receivable (32,336) (1,140,000)
Accumulated deficit (99,360,863) (85,792,056)
Less treasury stock, at cost; 145,200 common shares at December 31,
2002 and 2001 (542,647) (542,647)
----------- -----------
Total stockholders' equity 3,898,234 15,472,006
----------- -----------
$23,107,621 36,309,917
=========== ===========

See accompanying notes to consolidated financial statements.

F-2

LASERSIGHT INCORPORATED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002, 2001 and 2000

2002 2001 2000
---- ---- ----

Revenues:
Products $ 9,400,316 13,076,039 31,064,505
Royalties 1,101,819 392,000 2,632,551
Gain on sale of patent -- 3,950,836 --
----------- ----------- -----------
10,502,135 17,418,875 33,697,056
Cost of revenues:
Product cost 5,748,989 7,385,303 14,804,797
----------- ----------- -----------

Gross profit 4,753,146 10,033,572 18,892,259

Research, development, and regulatory expenses 1,318,808 3,271,724 4,621,783

Other general and administrative expenses 12,812,954 23,753,773 21,958,518
Selling related expenses 3,279,523 4,674,752 7,620,844
Amortization of intangibles 460,236 503,094 2,361,574
Litigation settlement expense 140,000 591,289 135,000
Impairment loss -- -- 4,116,504
----------- ----------- -----------
16,692,713 29,522,908 36,192,440
----------- ----------- -----------

Loss from operations (13,258,375) (22,761,060) (21,921,964)

Other income and expenses:
Interest and dividend income 276,316 578,734 930,040
Interest expense (586,748) (480,411) (29,119)
------------ ----------- -----------
Loss from continuing operations before
income tax expense (13,568,807) (22,662,737) (21,021,043)

Income tax expense -- -- --
------------ ----------- -----------

Loss from continuing operations (13,568,807) (22,662,737) (21,021,043)

Discontinued operations:
Loss from the operation of discontinued health
care services business -- (3,371,423) (409,038)
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)
------------ ----------- -----------

Net loss (13,568,807) (26,189,692) (21,430,081)

Conversion discount on preferred stock (353,773) -- --
------------ ----------- -----------

Loss attributable to common shareholders $(13,922,580) (26,189,692) (21,430,081)
============ =========== ===========

Loss per common share - basic and diluted $ (0.51) (1.04) (1.02)
============ =========== ===========

Weighted average number of shares outstanding
- basic and diluted 27,299,000 25,131,000 21,061,000
============ =========== ===========

See accompanying notes to consolidated financial statements.

F-3

LASERSIGHT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2002, 2001 and 2000

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,
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

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)
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-4a

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

F-4b

Issuance of shares
from ESPP 11,177 11 -- -- 1,129 -- -- -- -- 1,140

Issuance of shares
in conjunction
with professional
services 103,306 103 -- -- 54,774 -- -- -- -- 54,877

Settlement of stock
subscription
receivable -- -- -- -- (993,646) -- 1,107,664 -- -- 114,018

Issuance of shares
from financing,
net of financing
costs -- -- 9,280,647 9,281 1,815,719 -- -- -- -- 1,825,000

Conversion of
preferred stock 1,276,596 1,277 (1,276,596) (1,277) -- -- -- -- -- --

Net loss -- -- -- -- -- -- -- (13,568,807) -- (13,568,807)
---------- ------ ---------- ------ ---------- --------- ---------- ----------- -------- -----------
Balances at
December 31,
2002 27,987,141 $27,987 9,280,647 $9,281 103,796,812 -- (32,336) (99,360,863)(542,647) 3,898,234
========== ====== ========== ====== =========== ========= ========== =========== ======== ===========

See accompanying notes to consolidated financial statements.

F-4c

LASERSIGHT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000

2002 2001 2000
---- ---- ----

Cash flows from operating activities:
Net loss $(13,568,807) (26,189,692) (21,430,081)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of patent -- (3,950,836) --
Depreciation and amortization 1,600,826 2,275,974 3,746,919
Impairment on discontinued operation -- 2,984,493 --
Impairment loss -- -- 4,116,504
Provision for uncollectible accounts 1,413,947 2,258,252 2,354,366
Stock, options and warrants issued in
conjunction with consulting agreements,
settlement and services 54,877 94,184 --
Changes in assets and liabilities:
Accounts and notes receivable, net 4,991,085 737,533 (5,567,448)
Inventories 3,142,847 118,769 (3,714,054)
Accounts payable (1,091,548) (23,885) 1,176,297
Accrued expenses and commissions (1,016,597) (1,035,092) 3,471,367
Income taxes -- -- --
Deferred revenue 1,339,701 4,910,177 96,038
Other, net 429,762 151,396 23,484
------------ ------------ ------------
Net cash used in operating activities (2,703,907) (17,668,727) (15,726,608)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (22,535) (296,592) (1,600,654)
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 (22,535) 6,068,408 (6,114,319)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- -- 19,102,451
Proceeds from issuance of preferred stock, net 1,825,000 2,925,000 --
Proceeds from stock subscription receivable 114,018 -- --
Proceeds from exercise of stock options,
warrants and ESPP 1,140 66,725 84,533
Payments on debt financing (910,000) -- --
Proceeds from debt financing -- 2,776,798 --
------------ ------------ ------------
Net cash provided by financing activities 1,030,158 5,768,523 19,186,984
------------ ------------ ------------

Decrease in cash and cash equivalents (1,696,284) (5,831,796) (2,653,943)

Cash and cash equivalents:
Beginning of year 2,762,062 8,593,858 11,247,801
------------ ------------ ------------
End of year $ 1,065,778 2,762,062 8,593,858
============ ============ ============

Non-cash investing and financing activity:
Royalties prepaid by offset to existing
accounts receivable $ 450,000 -- --
Issuance of common stock as prepayment of
keratome license -- 1,118,658 --
Issuance of warrants in conjunction with
debt financing -- 122,557 --

See accompanying notes to consolidated financial statements.

F-5

LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000

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; and
LaserSight Patents, Inc., which currently licenses patents related to refractive
surgical procedures. During 2001, the wholly-owned subsidiary, MRF, Inc. d/b/a
The Farris Group, a consulting firm servicing health care providers, ceased
operations and is presented as a discontinued operation in the consolidated
statements of operations for the years ended December 31, 2001 and 2000.

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, 2002
and has an accumulated deficit of approximately $99.4 million at December 31,
2002. 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 accounts receivable collection and the successful completion of
new sales compared to ongoing payment obligations. In July 2002, the Company
announced it had entered a letter of intent with affliated companies based in
the People's Republic of China (hereafter referred to as the China group or
China transaction). Definitive agreements relating to the transaction were
executed in August 2002 and include the China group's commitment to purchase
$10.0 million of lasers and other products over a 12-month period ending in
August 2003 and an equity investment in the Company of $2.0 million. The Company
started shipping products under those agreements in August 2002 and received the
equity investment in October 2002. As a result of the China transaction, the
Company's short-term liquidity improved and its operating results are improving.
Management of the Company continues undertaking steps as part of a plan to
attempt to continue to improve liquidity and operating results with the goal of
sustaining Company operations. These steps include seeking (a) to increase
sales; and (b) to control overhead costs and operating expenses.

There can be no assurance the Company can successfully accomplish these steps.
Accordingly, the Company's ability to continue as a going concern is uncertain
and dependent upon continuing to achieve improved operating results and cash
flows or obtaining additional equity capital and/or debt financing. These
consolidated financial statements do not include any adjustments to the amounts
and classification of assets and liabilities that might be necessary should the
Company be unable to continue in business.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

INVENTORIES

Inventories, which consist primarily of laser systems parts and components, are
stated at the lower of cost or market. Cost is determined using the standard
cost method, which approximates cost determined on the first-in, first-out
method.

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).

F-7

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.

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (Statement) No. 142, "Goodwill and Other Intangible Assets." Under
Statement No. 142, intangible assets with definite lives are required to be
amortized to expense over the estimated useful live, and tested for impairment
at least annually, or on an interim basis when a triggering event occurs, in
accordance with Statement No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets." During the first quarter of 2002, the Company performed an
initial evaluation of its intangibles and determined that the fair value of its
intangibles was in excess of the book value. At December 31, 2002, there were no
such impairments of intangible assets during the periods presented. See note 8.

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, 2002, 2001 and 2000 were, approximately $851,000, $2,287,000 and
$3,165,000, 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.

The activity related to the Company's warranty reserve as of December 31, 2002
and 2001 is as follows:

Balance, December 31, 2000 $ 2,602,125
Warranty expense 1,050,000
Costs incurred (1,130,201)
-----------
Balance, December 31, 2001 2,521,924
Warranty expense 482,000
Costs incurred (1,336,268)
-----------
Balance, December 31, 2002 $ 1,667,656
===========

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. The Company recognizes revenue from
the sale of authorized procedure passwords at the time non-refundable payment is
received and a password is provided to perform procedures.

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

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

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

COST OF REVENUES

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

LOSS PER SHARE

Basic loss per common share is computed using the weighted average number of
common shares outstanding. 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, 2002,
2001 and 2000 is the same as basic loss per share.

F-9

Pursuant to EITF Nos. 98-5 and 00-27, the value of the conversion discount on
the Series H Convertible Participating Preferred Stock (Series H Preferred
Stock) issued in October 2002 will be reflected as an increase to the loss
attributable to common stockholders through the period ending October 25, 2003.
The total conversion discount of $2,000,000 was limited by the proceeds from the
Series H Preferred Stock. Of this total, $1,935,350 will be accreted to the
Company's loss attributable to common stockholders ratably over the twelve month
period ending October 25, 2003 or earlier, should the Company fulfill the
purchase order and receive payment prior to October 25, 2003. The remaining
$64,650 will increase the Company's loss attributable to common stockholders
during the period that an effective registration statement is in place for the
Series H Preferred Stock. During the year ended December 31, 2002, approximately
$354,000 of such conversion discount was included in the Company's loss
attributable to common stockholders.

The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the years ended December 31, 2002, 2001
and 2000:

2002 2001 2000
---- ---- ----
Numerator, basic and diluted:
Net loss $(13,568,807) (26,189,692) (21,430,081)
Conversion discount on
preferred stock (353,773) -- --
------------ ----------- -----------
Loss attributable to
common stockholders $(13,922,580) (26,189,692) (21,430,081)
============ =========== ===========

Denominator, basic and diluted:
Weighted average
shares outstanding 27,299,000 25,131,000 21,061,000
============ =========== ===========

Basic and diluted loss per share:

Loss from continuing
operations $ (0.50) (0.90) (1.00)
Loss from discontinued
operations -- (0.13) (0.02)
Loss from disposal of
discontinued operations -- (0.01) --
------------ ----------- -----------
Net loss (0.50) (1.04) (1.02)
Conversion discount on
preferred stock (0.01) -- --
------------ ----------- -----------
Loss attributable to
common stockholders $ (0.51) (1.04) (1.02)
============ =========== ===========

Common share equivalents, including contingently issuable shares, options,
warrants, and convertible Preferred Stock totaling 4,087,000, 1,406,000 and
2,507,000 common stock equivalents at December 31, 2002, 2001 and 2000,
respectively, are not included in the computation of diluted loss per share
because they had an antidilutive effect.

F-10

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

Statement No. 144 provides a single accounting model for long lived assets to be
disposed of. Statement No. 144 also changes the criteria for classifying an
asset as held for sale; and broadens the scope of businesses to be disposed of
that qualify for reporting as discontinued operations and changes the timing of
recognizing losses on such operations. The Company adopted Statement No. 144 on
January 1, 2002. The adoption of Statement No. 144 did not affect the Company's
consolidated financial statements.

In accordance with Statement No. 144, 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.

Prior to the adoption of Statement No. 144, the Company accounted for long-lived
assets in accordance with Statement No. 121, "Accounting for Impairment of Long
Lived Assets and for Long Lived Assets to be Disposed Of."

SHIPPING AND HANDLING COSTS

The Company includes shipping and handling fees billed to customers in product
revenues. Shipping and handling costs associated with outbound freight are
included in selling related expenses and totaled $179,000, $187,000 and $295,000
for the years ended December 31, 2002, 2001 and 2000.

ISSUANCES OF EQUITY INSTRUMENTS TO NON-EMPLOYEES

The Company periodically issues common stock, stock options or warrants to
non-employees in exchange for services provided. The fair value of such
issuances are determined when the performance commitment by the non-employee is
reached using the Black Scholes option-pricing model. The fair value is recorded
as operating expense in the period over which the service is provided.

F-11

STOCK OPTION ACCOUNTING

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

2002 2001 2000
---- ---- ----
NET LOSS AS REPORTED: $ (13,568,808) (26,189,692) (21,430,081)
Less: Total compensation
expense determined under
fair value method,
net of tax (2,011,405) (2,508,780) (2,109,961)
Pro forma net loss $ (15,580,213) (28,698,472) (23,540,042)

BASIC AND DILUTED EPS:
As reported $ (0.50) (1.04) (1.02)
Pro forma (0.57) (1.14) (1.12)

NEW ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." This
statement nullifies EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits Restructuring." Statement No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than the date of an entity's commitment to
an exit plan. The Company will be required to implement Statement No. 146 on
January 1, 2003. The adoption of Statement No. 146 is not expected to have a
material effect on the Company's consolidated financial statements.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." Statement No. 148 amends Statement No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-base employee
compensation. In addition, Statement No. 148 amends the disclosure requirements
of Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.

F-12

RECLASSIFICATIONS

Certain prior years' amounts have been reclassified to conform with the current
year presentation.

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 phased out its remaining
client projects in early 2002.

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

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

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

The 2001 loss from discontinued operations, $3,371,423, included an impairment
loss of approximately $2,984,000 related to the goodwill of the Company's 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 were 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. Through the year ended
December 31, 2002, actual losses subsequent to 2001 approximated the losses
estimated.

F-13

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.

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.

F-14

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 $288,000, $392,000 and $2,633,000
for the years ended December 31, 2002, 2001 and 2000, respectively.

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

On March 1, 2001, the Company completed the sale of the IBM Patents for a cash
payment of $6.5 million. The Company retained a non-exclusive royalty free
license under the patent. The Company's net gain on the sale of the patent was
approximately $4.0 million. As of December 31, 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 keratome for the LASIK procedure and entered into a limited
exclusive license agreement for intellectual property related to the keratome
products. The agreement called for the Company to share the product's gross
profit with the licensors with defined minimum quarterly royalties. In January
2001, the Company entered into an amended and restated license and royalty
agreement related to the Company's keratome products. Under the terms of the
amendment, 730,552 shares of Common Stock were issued, valued at approximately
$1.1 million, in prepayment for royalties during the term of the license. The
term was extended until July 31, 2005.

In June 2002, the agreement was further amended to revise the payment schedule
and provide that the number of notice and cure periods relating to deliquent
payments would be limited to three. After the last notice and cure period is
used, if the Company fails to make a timely payment under the agreement, the
licensors have the right to immediately declare the Company in default and
accelerate the balance of the remaining unpaid payments.

As of December 31, 2002, minimum royalty payments totaling approximately $3.8
million remain due in varying installments through the term of the amendment.
See note 17. The royalty rate was reduced from 50% to 10% of gross profits. The
value of the Common Stock issued and the minimum royalty payments are being
expensed on a straight-line basis through July 31, 2005 at a rate of
approximately $1.6 million annually, and is included in selling related
expenses. As of December 31, 2002 and 2001, the prepaid royalties under the
keratome license were included in other current assets.

F-15

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 achieved certain
performance objectives.

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, 2002 and 2001 were net of
allowance for uncollectibles of approximately $5,464,000 and $5,521,000,
respectively. During 2002 and 2001, approximately $1,471,000 and $1,398,000,
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, 2002 are as follows:

Due in 2004 $ 921,522
2005 71,065
2006 28,144
-----------
$ 1,020,731
===========

F-16

NOTE 6 -- INVENTORIES

The components of inventories at December 31, 2002 and 2001 are summarized as
follows:

2002 2001
---- ----
Raw materials $ 5,994,564 7,699,939
Work in process 245,195 92,030
Finished goods 2,057,672 3,563,796
Test equipment-clinical trials 630,668 649,343
------------ -----------
$ 8,928,099 12,005,108
============ ===========

As of December 31, 2002 and 2001, the Company had one and two laser systems,
respectively, being used under arrangements for clinical trials.

NOTE 7 -- PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2002 and 2001 are as follows:

2002 2001
---- ----
Leasehold improvement $ 646,431 646,431
Furniture and equipment 1,312,293 1,370,958
Laboratory equipment 2,333,352 2,330,727
------------ -----------
4,292,076 4,348,116
Less accumulated depreciation 3,848,027 2,974,622
------------ -----------
$ 444,049 1,373,494
============ ===========

F-17

NOTE 8 -- OTHER ASSETS

Other assets at December 31, 2002 and 2001 are as follows:

2002 2001
---- ----
Acquired technology, net of
accumulated amortization of
$1,085,628 in 2002 and
$939,624 in 2001 $ 666,372 812,376
Diagnostic patents, net of
accumulated amortization
of $665,445 in 2002 and
$423,465 in 2001 3,448,220 3,690,200
Keratome patents and license,
net of accumulated
amortization of $380,667 in
2002 and $308,415 in 2001 714,133 786,385
Deposits 584,744 466,874
Deferred financing costs, net 38,632 231,796
------------ -----------
$ 5,452,101 5,987,631
============ ===========

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.

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.

F-18

ACQUIRED INTANGIBLE ASSETS

As of December 31, 2002, acquired intangible assets were comprised of the
following:

Gross
Carrying Accumulated
Amount Amortization
-------- ------------
Acquired technology $ 1,752,000 (1,085,628)
Diagnostic patents 4,113,665 (665,445)
Keratome patent 1,094,800 (380,667)
------------ -----------
Totals $ 6,960,465 (2,131,740)
============ ===========

Aggregate amortization expense for
the year ended December 31, 2002 $ 460,236
===========
Estimated amortization expense for
the year ending December 31,
2003 $ 460,236
2004 460,236
2005 460,236
2006 460,236
2007 396,588

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, 2002, 2001 and 2000, expense incurred related to the 401(k) plan,
including employer-matching contributions, if any, was approximately $9,000,
$9,000 and $78,000, respectively.

EMPLOYEE STOCK PURCHASE PLAN

The Company has a qualified Employee Stock Purchase Plan (ESPP), the terms of
which allow for qualified employees (as defined) to participate in the purchase
of designated shares of the Company's Common Stock at a price equal to the lower
of 85% of the closing price at the beginning or end of each semi-annual stock
purchase period. The Company issued 11,177, 56,327 and 12,681 shares of Common
Stock during 2002, 2001 and 2000, respectively, pursuant to this plan at an
average price per share of $0.10, $1.18 and $3.24, respectively.

F-19

NOTE 10 -- NOTES PAYABLE

On March 12, 2001, the Company entered into a loan agreement with Heller
Healthcare Finance, Inc. (Heller), an affiliate of GE Capital, for a $3.0
million term loan at an annual interest rate of prime plus 2.5% (6.75% at
December 31, 2002) 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% (5.5% at December 31, 2002). Including
amortization of financing costs, discount on note payable and other fees, the
effective interest rate on the term loan was 23% and 19% during 2002 and 2001,
respectively. In connection with the loans, the Company paid an origination fee
of $130,000 and issued warrants to purchase 243,750 shares of Common Stock. The
warrants were recorded as a discount to note payable based on their fair value
on the date of issuance, approximately $123,000, determined using the Black
Scholes option-pricing model, and are amortized to interest expense over the
original life of the loan. 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 original loan agreement required the Company to meet
certain covenants, including the maintenance of a minimum level of net worth.

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

On August 15, 2002, the Company's loan agreement with Heller was amended a
second time. Heller provided a waiver of the Company's failure to comply with
certain financial covenants under the loan agreement pending the funding of the
equity portion of the China transaction (see note 12). Upon receipt of the
equity investment in October 2002, revised covenants became effective that
decreased the required minimum level of net worth to $2.1 million, decreased
minimum tangible net worth to negative $2.8 million and decreased minimum
quarterly revenues during the third quarter of 2002 to $2.5 million, the fourth
quarter of 2002 to $4.2 million and the first quarter of 2003 to $5.3 million.
In exchange for the waiver and revised covenants, the Company paid $150,000 in
principal to Heller upon the receipt of the equity investment in October 2002
and agreed to increase other monthly principal payments to $60,000 in October
2002 and $40,000 during each of November and December 2002 and January 2003. The
remaining principal balance was originally due on March 12, 2003. See note 18.
The Company is currently unable to borrow under its revolving credit facility.

F-20

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, 2002, no such
warrants remained outstanding. The warrants were valued at $119,330 at December
31, 2001 and were classified as accrued expenses.

Interest paid during 2002, 2001 and 2000 approximated $335,000, $525,000 and
$14,000, respectively.

NOTE 11 -- DEFERRED REVENUE

Deferred revenue at December 31, 2002 and 2001 is as follows:

2002 2001
---- ----
Service contracts and deposits $ 718,112 751,592
Deferred royalty revenue 6,681,181 5,308,000
------------ -----------
7,399,293 6,059,592
Less long-term portion 5,741,941 4,600,000
------------ -----------
$ 1,657,352 1,459,592
============ ===========

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

F-21

NOTE 12 -- STOCKHOLDERS' EQUITY

On August 15, 2002, the Company executed definitive agreements with a company
based in the People's Republic of China that specializes in advanced medical
treatment services, medical device distribution and medical project investment.
The transaction established a strategic relationship that include the commitment
to purchase at least $10.0 million worth of Company products during the 12-month
period following the signing of the definitive agreements, distribution of
Company products in mainland China, Hong Kong, Macao and Taiwan, and a $2.0
million investment in the Company. Under the terms of the agreements, the
products purchased are being paid by irrevocable letters of credit, confirmed by
a U.S. bank and payable upon presentation of shipping documents. See note 16. In
October 2002, the investment called for under the agreements with the
China-based group was completed. In exchange for its $2.0 million investment,
the Company issued the China-based group 9,280,647 shares of Series H
Convertible Preferred Stock that, subject to certain restrictions, could be
converted into 18,561,294 shares of the Company's Common Stock and result in the
purchaser holding approximately 40% of the Company's Common Stock. Of the
9,280,647 shares of Series H Preferred Stock that were issued, 8,980,647 shares
may not be converted until the first to occur of (i) the one-year anniversary of
the date the Series H Preferred Stock was issued, (ii) the Company's failure to
deliver products in accordance with the delivery schedule set forth under the
terms of the agreements with the China group, or (iii) the Company has received
payment for at least $10.0 million worth of its products to be sold pursuant to
the terms of the agreements with the China-based group. The remaining 300,000
shares held by Benchmark Capital & Finance, Inc. may be converted when a
registration statement has been declared effective related to the Common Stock
underlying the Series H Preferred Stock. After October 25, 2004, each share of
Series H Preferred Stock then outstanding will automatically convert into two
shares of common stock. A conversion discount on the Series H Preferred Stock of
$2.0 million will be accreted to the Company's loss over a period of one year
from October 25, 2002 issuance date. See note 2.

In April 2002, the Company settled litigation related to its stock subscription
receivable and, during 2002, received approximately $82,000 with a commitment
for an additional total of approximately $64,000 to be paid in four quarterly
installments beginning in July 2002. The first three installments were received
in July and October 2002 and January 2003, respectively. Upon receipt of the
remaining installment in a timely manner, the Company will release all claims in
this matter.

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 was
convertible into Common Stock on a share for share basis. All Series F Preferred
Stock was converted into Common Stock during 2002. 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.

F-22

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.

During the years ended December 31, 2002, 2001 and 2000, LaserSight received
approximately $1,000, $67,000 and $85,000, respectively, in cash from the
exercise of warrants, stock options and the Employee Stock Purchase Plan,
resulting in the issuance of 11,177, 56,327 and 19,649 shares respectively, of
Common Stock.

Stock warrant activity during the periods indicated is as follows:

Weighted
Shares Average
Under Exercise
Warrants Price
-------- -----
Balance at December 31, 1999 1,020,002 $ 3.54
Granted 600,000 3.60
Anti-dilution issuances 27,426 --
------------
Balance at December 31, 2000 1,647,428 3.56
Granted 243,750 3.15
Anti-dilution issuances 21,590 --
------------
Balance at December 31, 2001 1,912,768 3.43
Terminated (821,518) 2.88
------------
Balance at December 31, 2002 1,091,250 3.84
============

All warrants outstanding as of December 31, 2002 are exercisable.

F-23

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 $9.0
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, 2002, 180,000 such warrants were outstanding.

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.

In the event that a person acquires beneficial ownership (except as otherwise
permitted by the Board of Directors) 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.

F-24

NOTE 13 -- STOCK OPTION PLANS

The Company has options outstanding at December 31, 2002 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.

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, 2002, 2001 and 2000, was $0.10, $0.35 and $2.90,
respectively, on the dates of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions:

2002 2001 2000
---- ---- ----
Expected dividend yield 0% 0% 0%
Volatility 50% 50% 50%
Risk-free interest rate 4.12-5.32% 4.39-5.27% 6.12-6.84%
Expected life (years) 3-10 5-10 5-10

F-25

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

Weighted
Shares Average
Under Exercise
Option Price
------ -----
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
Granted 1,152,500 0.27
Terminated (1,293,099) 4.74
------------
Balance at December 31, 2002 4,718,084 4.22
============

The following table summarizes the information about stock options outstanding
and exercisable at December 31, 2002:

Range of Exercise Prices
------------------------
$0.24-$3.03 $3.75-$8.13 $9.72-$16.63
----------- ----------- ------------
Options outstanding:
Number outstanding at
December 31, 200 22,660,500 1,319,334 738,250
Weighted average remaining
contractual life 5.90 years 2.61 years 2.83 years
Weighted average exercise
price $ 1.06 5.43 13.48

Options exercisable:
Number exercisable at
December 31, 2002 1,807,137 1,115,674 663,125
Weighted average exercise
price $ 0.96 5.41 13.53

F-26

NOTE 14 -- INCOME TAXES

There was no federal or state income tax expense for each of the years ended
December 31, 2002, 2001 and 2000.

Deferred tax assets and liabilities consist of the following components as of
December 31, 2002 and 2001:

2002 2001
---- ----
Deferred tax liabilities:
Acquired technology $ 239,656 291,947
------------ -----------
239,656 291,947
Deferred tax assets:
Inventory 1,445,596 1,387,481
Receivable allowance 2,072,216 2,101,840
License fees 2,454,944 1,950,259
Commissions 68,877 115,956
Warranty accruals 583,394 897,232
Property and equipment 388,759 241,398
NOL carry forward 30,974,149 26,444,965
Other tax credits 256,173 256,173
Other 69,722 15,464
------------ -----------
38,313,830 33,410,768

Valuation allowance (38,074,174) (33,118,821)
------------ -----------
Net deferred tax asset (liability) $ -- --
============ ===========

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

There were no payments for income taxes during the years ended December 31,
2002, 2001 or 2000.

At December 31, 2002, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $84.0 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-27

For the years ended December 31, 2002, 2001 and 2000, 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:

2002 2001 2000
---- ---- ----

"Expected" tax benefit $ (4,613,364) (8,904,440) (7,286,228)
State income taxes, net of
federal income tax benefit (370,809) (669,053) (508,028)
Intangible amortization -- (433,325) 950,575
Nondeductible expenses 28,818 115,244 63,387
Tax deduction from exercise
of options and warrants -- -- (8,826)
Valuation allowance 4,955,355 9,877,607 6,789,120
Other items, net -- 13,967 --
------------ ----------- -----------
Income tax expense $ -- -- --
============ =========== ===========

At December 31, 2002, of the approximately $84.0 million net operating loss
carryforward, approximately $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 if recognized.

NOTE 15 -- SEGMENT INFORMATION

At December 31, 2002, the Company's continuing operations principally include
refractive products and patents. Refractive product operations primarily involve
the development, manufacture, and sale of ophthalmic lasers and related devices
for use in vision correction procedures. Patent services involve the revenues
and expenses generated from the ownership of certain refractive laser procedure
patents. 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.

F-28

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.

2002 2001 2000
---- ---- ----
Operating revenues:
Refractive products $ 9,400,316 13,076,039 31,064,505
Patent services 1,101,819 392,000 2,632,551
Gain on sale of patent -- 3,950,836 --
------------ ----------- -----------
Total revenues $ 10,502,135 17,418,875 33,697,056
============ =========== ===========

Operating profit (loss):
Refractive products $(12,631,473) (25,605,689) (19,490,091)
Patent services 1,101,819 4,342,836 2,114,230
General corporate (1,728,723) (1,498,207) (1,998,211)
Developmental stage
company-LaserSight
Centers Incorporated -- -- (2,547,892)
------------ ----------- -----------
Loss from operations $(13,258,375) (22,761,060) (21,921,964)
============ =========== ===========

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.

F-29

2002 2001 2000
---- ---- ----
Identifiable assets:
Refractive products $ 21,811,526 33,212,199 36,555,402
Patent services -- -- 3,160,538
Discontinued operations -- 66,145 3,437,181
General corporate assets 1,307,459 3,031,573 8,723,331
------------ ----------- -----------
Total assets $ 23,118,985 36,309,917 51,876,452
============ =========== ===========

Depreciation and amortization:
Refractive products $ 1,343,542 1,737,698 2,666,031
Patent services -- -- 517,320
Discontinued operations -- 325,378 276,438
General corporate 2,836 9,340 10,434
Development stage
company-LaserSight
Centers Incorporated -- -- 276,696
------------ ----------- -----------
Total depreciation
and amortization $ 1,346,378 2,072,416 3,746,919
============ =========== ===========

Amortization of deferred financing costs and accretion of discount on note
payable of $254,448 and $203,558 for the years ended December 31, 2002 and 2001,
respectively, is included as interest expense in the table below.

2002 2001 2000
---- ---- ----
Capital expenditures:
Refractive products $ 22,535 249,048 1,581,378
Discontinued operations -- 47,544 17,586
General corporate -- -- 1,690
------------ ----------- -----------
Total capital expenditures $ 22,535 296,592 1,600,654
============ =========== ===========

Interest income:
Refractive products $ 263,254 300,522 228,878
General corporate 13,062 278,212 697,901
Development stage
company-LaserSight
Centers Incorporated -- -- 3,261
------------ ----------- -----------
Total interest income $ 276,316 578,734 930,040
============ =========== ===========

Interest expense:
General corporate $ 586,748 480,411 29,119
============ =========== ===========

F-30

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, 2002. 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.

2002 2001 2000
---- ---- ----
Geographic area:
China $ 4,673,304 1,726,798 *
Mexico * 1,508,960 *
Netherlands 1,107,950 * *
United States * 3,481,045 15,377,354
Other 3,619,062 6,359,236 15,687,151
------------ ----------- -----------
Total refractive products
revenues $ 9,400,316 13,076,039 31,064,505
============ =========== ===========

* Less than 10% of annual segment revenues.

Export sales are as follows:

2002 2001 2000
---- ---- ----
North and Central America $ 646,931 1,649,461 3,039,027
South America 393,750 2,679,420 2,216,751
Asia 5,291,489 2,811,797 5,162,721
Europe 2,125,991 2,243,868 4,483,410
Africa 215,140 210,448 785,242
------------ ----------- -----------
$ 8,673,301 9,594,994 15,687,151
============ =========== ===========

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, the Company had approximately $19,000 in assets located
at a manufacturing facility in Costa Rica and $12,000 in assets located at an
administrative office in Europe. As of December 31, 2002, both of these
facilities were closed and 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
approximately $2.7 million in 2002, or 26%, of the Company's consolidated
revenues. See note 16.

F-31

NOTE 16 -- 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, the Company sold one laser system to a physician associated with a
director of the Company for $240,000. At the time of the sale, the Company
expected the physician to obtain third party financing for the system and to be
paid in full. Since that time, the physician financed and paid the Company
$100,000 and began making monthly payments towards the balance. As of December
31, 2002, $124,000 is included in accounts receivable and the Company is
receiving approximately $4,000 per month. During the year ended December 31,
2002, the Company additionally recognized procedure fee revenues of
approximately $23,000 related to this laser.

As of December 31, 2002, TLC Laser Eye Centers Inc. owned approximately 14% of
the Company's Common Stock.

On August 15, 2002, the Company executed definitive agreements with affiliated
companies based in the People's Republic of China that specializes in advanced
medical treatment services, medical device distribution and medical project
investment. The transaction established a strategic relationship that includes
the commitment to purchase at least $10.0 million worth of Company products
during the 12-month period following the signing of the definitive agreements,
distribution of Company products in mainland China, Hong Kong, Macao and Taiwan,
and a $2.0 million investment in the Company. Under the terms of the agreements,
the products purchased are being paid by irrevocable letters of credit,
confirmed by a U.S. bank and payable upon presentation of shipping documents.
Through December 31, 2002, approximately $2.7 million worth of products were
sold under these agreements. In October 2002, the investment called for under
the agreements with the China-based group was completed. In exchange for its
$2.0 million investment, the Company issued the China-based group 9,280,647
shares of Series H Convertible Preferred Stock that, subject to certain
restrictions, could be converted into 18,561,294 shares of the Company's Common
Stock and result in the purchaser holding approximately 40% of the Company's
Common Stock. See note 12.

F-32

NOTE 17 -- 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 its 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
named the Company's chief executive officer as the sole defendant and alleged
fraud and breach of fiduciary duty in connection with the redemption by the
Subsidiary of the former shareholder's capital stock in the Subsidiary. At the
time of the redemption, which redemption occurred prior to the Company's
acquisition of the Subsidiary, the Company's chief executive officer was the
president and chief executive officer of the Subsidiary. The Company's Board of
Directors authorized the Company to retain and, to the fullest extent permitted
by the Delaware General Corporation Law, pay the fees of counsel to defend the
Company's chief executive officer, the Subsidiary and the Company in the
litigation so long as a court had not determined that the Company's chief
executive officer failed to act in good faith and in a manner he reasonably
believed to be in the best interest of the Subsidiary at the time of the
redemption. During 2002, the Company agreed to the terms of a settlement with
the plaintiff. The terms of the settlement require three payments totaling
$140,000. The first payment of $50,000 was paid in October 2002. The second
payment of $45,000 is due in September 2003, and the third payment of $45,000
due in March 2004. All of the payments are to be made without interest unless
there were to be a default in payment in which event interest would accrue at
9%. During 2002, the Company recorded expense of $140,000 related to this
settlement.

F-33

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
approximately $1.9 million in damages, plus interest, costs and attorney's fees.
The Company has since successfully argued for a change in venue to Orange
County, Florida. After no activity for over a year, the plaintiff filed a motion
in July 2002 to have the court set a trial date, which they set for December
2002. Subsequently, the plaintiff filed a motion for continuance of the trial to
allow the parties an opportunity to settle the dispute. In October 2002, the
court entered an order continuing the trial and will reschedule only upon the
filing of a new notice for trial by either party. The Company believes that the
allegations made by the plaintiff 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 $1.6 million, plus interest, costs and attorney's fees. The parties
have agreed to postpone discovery while and attempt to agree on the final form
of a settlement with the plaintiffs. The terms of the settlement agreement, as
currently contemplated, will not require the Company to make any cash payments.
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 $5.0 million, punitive damages, prejudgment interest,
attorneys' fees and costs and other equitable relief. The Company filed a motion
for summary judgment that was denied. The Company then filed an answer and
counterclaim. The plaintiffs have answered the counterclaim and have moved to
strike some of the Company's affirmative defenses and the Company has moved to
strike portions of the plaintiff's answer. To date, limited discovery has
occurred. In March 2003, one of the three entities agreed to dismiss all of
their claims with prejudice. 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 on the Company's financial condition or results of operations.

F-34

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. In this matter, a settlement
agreement has been signed by the parties. The terms of the settlement do not
require the Company to make any cash payments. The Company agreed to service and
calibrate the plaintiff's laser as well as provide certain software and
equipment upgrades at either no cost to plaintiff or at prices that were
negotiated in connection with the settlement, if and when such upgrades are
available in the U.S.

ITALIAN DISTRIBUTOR

In February 2003, an Italian court issued an order restraining the Company from
marketing its AstraPro software at a trade show in Italy. This restraining order
was issued in favor of LIGI Tecnologie Medicali S.p.a.,(LIGI), a distributor of
the Company's products, and alleges that its AstraPro software product infringes
certain European patents owned by LIGI. The Company has retained Italian legal
counsel to defend the Company in this litigation, and the Company has been
informed that the Italian court has revoked the restraining order and has ruled
that LIGI must pay the Company's attorney's fees in connection with its defense
of the restraining order. In addition, the Company's Italian legal counsel has
informed the Company that LIGI has filed a motion for a permanent injunction,
and they are reviewing this motion. The Company believes that its AstraPro
software does not infringe the European Patents owned by LIGI, and the Company
intends to vigorously defend its rights to distribute the AstaPro software in
the European markets. Management believes that the outcome of this litigation
will not have a material adverse impact on the Company's financial condition or
results of operations.

F-35

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, 2002, are
approximately as follows:

2003 $ 362,000
2004 134,000
2005 111,000
2006 65,000

Rent expense during 2002, 2001 and 2000 was approximately $634,000, $1,168,000
and $1,028,000, respectively.

OTHER COMMITMENTS

The Company owes royalties to third parties on certain products sold, primarily
international laser sales, generally at a rate of 6% of the sales price after
certain adjustments. Such royalties are expensed at the time of sale and paid
quarterly based on cash collections in accordance with the license agreement. In
addition, future minimum payments under the Company's keratome license
agreement, as amended (see note 4), are approximately as follows:

2003 $ 1,873,000
2004 1,000,000
2005 900,000

NOTE 18 -- SUBSEQUENT EVENT

AMENDED LOAN AGREEMENT

On March 12, 2003, the Company and Heller agreed to extend the term loan 30 days
from March 12, 2003 to April 11, 2003. On March 31, 2003, the Company's loan
agreement with Heller was amended. In the amendment, Heller provided a waiver of
the Company's failure to comply with the net revenue covenant for the fourth
quarter of 2002. In exchange for the amendment and waiver, the Company will pay
approximately $9,000 in fees to Heller and agreed to increase its monthly
principal payments to $45,000 beginning in April 2003. Revised covenants became
effective that decreased the minimum level of net worth to $1.0 million, minimum
tangible net worth to negative $4.0 million and minimum quarterly net revenue
during 2003 to $2.0 million. In addition, the Company agreed to work in good
faith with Heller to adjust these covenants by May 31, 2003, based on the
Company's first quarter 2003 financial results. The remaining principal balance
will be due on September 12, 2004.

F-36