surgery, of which 65 are majority owned and 8 centers are minority-owned. In its doctor services businesses, the Company furnishes doctors and medical facilities with mobile or fixed site access to refractive and cataract surgery equipment, supplies, technicians and diagnostic products, as well as owns and manages single-specialty ambulatory surgery centers. In its eye care business, the Company provides franchise opportunities to independent optometrists under its Vision Source® brand.
The Company serves surgeons who performed approximately 56,000 and 76,000 procedures, including refractive and cataract procedures, at the Company's centers or using the Company's equipment during each of the three months ended March 31, 2009 and 2008, respectively. Being an elective procedure, laser vision correction volumes fluctuate due to changes in economic conditions, unemployment rates, consumer confidence and political uncertainty. Demand for laser vision correction also is affected by perceived safety and effectiveness concerns given the lack of long-term follow-up data. For additional information regarding the Company's decline in procedure volume and the direct impact of such decline on the Company's liquidity, refer to the section Recent Developments - Liquidity, below.
RECENT DEVELOPMENTS
Liquidity
The Company relies on the following sources of liquidity to continue to operate as a going concern: (i) cash and cash equivalents on hand; (ii) cash generated from operations; (iii) borrowings under the Company's revolving credit facility; (iv) net proceeds from asset sales; and (v) access to the capital markets. The Company's principal uses of cash are to provide for working capital to fund its operation and to service its debt and other contractual obligations. The changes in financial markets during 2008 limited the ability of companies such as TLCVision to access the capital markets. The economic recession in the United States continues to significantly impact the Company's operations, resulting in a sharp decline in the demand for refractive surgery and financial performance. The Company incurred losses attributable to TLC Vision Corporation of $1.3 million for the three months ended March 31, 2009 compared to earnings of $6.1 million for the three months ended March 31, 2008. As a result, the Company's liquidity continued to be significantly constrained during the first quarter of 2009.
Beginning in early 2008, in response to the deteriorating economic environment, the Company implemented a series of initiatives to balance its costs of operation with the new lower level of refractive procedures. The Company continues to evaluate and implement cost reduction and cash generation initiatives, including reductions in headcount, salaries and benefits, discretionary spending including direct to consumer marketing, overhead costs, capital spending, supplemented by the sale of surplus assets and the closure of underperforming refractive centers/mobile refractive routes. During the three months ended March 31, 2009, the Company closed one majority owned refractive center.
Due to the sharp decline in customer demand during the second half of fiscal 2008 and the first quarter of 2009, and the resulting decline in sales, the Company's financial performance deteriorated sharply resulting in the Company's inability to comply with its primary financial covenants under its Credit Facility as of December 31, 2008 and March 31, 2009.
On April 3, 2009 the Company obtained the Limited Waiver and Amendment No. 2 to the Credit Facility from its lenders, which provided a short-term financial debt covenant compliance waiver to cure the existing defaults, as well as further amendments to the Credit Facility. The Limited Waiver to the Credit Facility provides financial debt covenant relief effective March 31, 2009 through May 31, 2009. The Limited Waiver was amended as of April 30, 2009 to extend the time for certain deliverables, including to May 18, 2009 for a detailed operational and financial restructuring plan. See Note 7, Debt, for additional information.
In the current economic environment, it is unlikely that the Company's financial performance in 2009 will be sufficient to enable it to comply with the existing covenants for the balance of 2009 unless amended. Accordingly, the Company continues to pursue active discussions with the lenders to modify the Company's capital structure and to secure further amendments to the Credit Facility to avoid a subsequent default. There can be no assurances that the lenders will grant such restructuring, waivers or amendments on commercially reasonable terms, if at all.

Given that it is unlikely that the Company will be in compliance with the covenants currently in the Credit Facility for the balance of 2009 beyond the current waiver period unless amended, borrowings of $100.1 million and $82.7 million under the Credit Facility have been recorded as current liabilities as of March 31, 2009 and December 31, 2008, respectively. Accordingly, at March 31, 2009 and December 31, 2008, the Company has working capital deficiencies of approximately $98.7 million and $99.5 million, respectively. The Company borrowed an additional $17.4 million under the revolving portion of its Credit Facility during the three months ended March 31, 2009, which reduced the open availability under the Credit Facility to approximately $0.6 million at March 31, 2009.
The Company will likely continue to incur operating losses in 2009, and its liquidity will likely remain constrained such that it may not be sufficient to meet the Company's cash operating needs in this period of economic uncertainty. The Company is in active discussions with its lenders to ensure that it has sufficient liquidity in excess of what is available under its Credit Facility, although there is no assurance that the Company can obtain additional liquidity on commercially reasonable terms, if at all. If the Company is unable to obtain or sustain the liquidity required to operate its business the Company may need to seek to modify the terms of its debts and/or to reorganize its capital structure.
The Company's independent registered public accounting firm's report issued in the December 31, 2008 Annual Report on Form 10-K included an explanatory paragraph describing the existence of conditions that raise substantial doubt about the Company's ability to continue as a going concern, including significant losses, limited access to additional liquidity and compliance with certain financial covenants. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern. Executive Management
On April 23, 2009, the Company announced that James C. Wachtman resigned as chief executive officer and as a member of the Board of Directors of the Company, effective immediately. The Company also announced that James B. Tiffany was named President and Chief Operating Officer, effective immediately.
James B. Tiffany, age 52, was previously appointed as President of Sightpath Medical, Inc. (formerly, MSS, Inc.), a subsidiary of the Company, in August 2003. Prior thereto, Mr. Tiffany served as Vice President of Sales and Marketing of LaserVision from January 1999 to July 2000 and General Manager of MSS, Inc. from July 2000 to August 2003. Mr. Tiffany received his undergraduate degree from Arizona State University and a Master of Business Administration Degree from Washington University in St. Louis, Missouri.
On April 23, 2009, the Company also announced that it created the position of Chief Restructuring Officer and formed an Office of the Chairman. Michael Gries, a principal of Conway, Del Genio, Gries & Co. LLC, a financial advisory firm based in New York, NY, accepted the position of Chief Restructuring Officer. The new three-person Office of the Chairman will report to the Board of Directors and is comprised of: Chairman Warren Rustand; President and Chief Operating Officer, James B.Tiffany; and Chief Restructuring Officer, Michael Gries.
On May 15, 2009, the Company announced that as part of its efforts to reduce costs, it terminated the employment of three executive officers, effective immediately. The three executive officers impacted were: Steven P. Rasche, Chief Financial Officer; Brian L. Andrew, General Counsel and Secretary; and Larry D. Hohl, President of Refractive Centers.
On May 15, 2009, the Company also announced that William J. McManus, a managing director of Conway, Del Genio, Gries & Co. LLC, was appointed to the position of Interim Chief Financial Officer. Mr. Andrew's non-legal responsibilities as well as Mr. Hohl's responsibilities will be assumed by James B. Tiffany. Mr. Andrew's legal responsibilities will be assumed on an interim basis by Company attorneys and external counsel.
William J. McManus, age 53, joined Conway, Del Genio, Gries & Co. LLC in February 2009. Prior to joining Conway, Del Genio, Gries & Co. LLC, Mr. McManus worked at Horizon Management since 2001 as Managing Director specializing in crisis/interim management. He has also worked as an independent consultant where he held positions in a number of assignments including: Chief Financial Officer, Chief Restructuring Officer and Chief Executive Officer. Mr. McManus is an experienced board member and has worked with private equity firms in advisory capacities. Mr. McManus graduated from Notre Dame where he received a Bachelor of Business Administration with a concentration in finance.

Acquisitions and Investments
The Company's strategy includes periodic acquisitions of, or investments in, entities that operate within its chosen markets. During the three months ended March 31, 2009 and 2008, the Company made investments of $4.6 million and $3.0 million, respectively, to acquire or invest in multiple entities, none of which was individually material. Included in acquisition and equity investments are cash payments during 2009 and 2008 of approximately $4.0 million and $2.0 million, respectively, related to the Company's 2005 TruVision™ acquisition, which were included in the purchase price allocation.

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

                                                                       THREE MONTHS ENDED
                                                                            MARCH 31,
                                                                       2009           2008
OPERATING DATA (unaudited)
Number of majority-owned eye care centers at end of period                65             68
Number of minority-owned eye care centers at end of period                 8             14

Number of TLCVision branded eye care centers at end of period             73             82


Number of laser vision correction procedures:
Majority-owned centers                                                21,400         34,600

Minority-owned centers                                                 4,200          6,000


Total TLCVision branded center procedures                             25,600         40,600

Total access procedures                                               11,000         16,200


Total laser vision correction procedures                              36,600         56,800

THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2008
Total revenues for the three months ended March 31, 2009 were $69.4 million, a decrease of $21.0 million (23%) from revenues of $90.4 million for the three months ended March 31, 2008. The decrease in revenue was primarily attributable to the decline in refractive centers and refractive access procedures, partially offset by higher cataract volume and growth in eye care.
Revenues from refractive centers for the three months ended March 31, 2009 were $36.0 million, a decrease of $23.0 million (39%) from revenues of $59.0 million for the three months ended March 31, 2008. The decrease in revenues from centers resulted primarily from lower center procedure volume, which accounted for a decrease in revenues of approximately $21.8 million. The remaining revenue decline of $1.2 million was the result of decreased revenue per procedure. For the three months ended March 31, 2009, majority-owned center procedures were approximately 21,400, a decrease of 13,200 from 34,600 procedures for the three months ended March 31, 2008. The procedure decline was attributable to the weakened U.S. economy, which has negatively impacted consumer discretionary spending.
Revenues from doctor services for the three months ended March 31, 2009 were $23.6 million, a decrease of $1.5 million (6%) from revenues of $25.1 million for the three months ended March 31, 2008. The revenue decrease from doctor services was due principally to procedure shortfalls in refractive access, partially offset by increases in the Company's mobile cataract and other segments.
• Revenues from the Company's mobile cataract segment for the three months ended March 31, 2009 were $9.6 million, an increase of $0.4 million (4%) from revenues of $9.2 million for the three months ended March 31, 2008. The increase in mobile cataract revenues was due to increased surgical procedure volume of 1% and a higher surgical average sales price of 5%.

• Revenues from the refractive access services segment for the three months ended March 31, 2009 were $7.5 million, a decrease of $2.8 million (27%) from revenues of $10.3 million for the three months ended March 31, 2008. For the three months ended March 31, 2009, excimer procedures declined by 5,200 (32%) from the prior year period on lower customer demand, which accounted for a decrease in revenues of approximately $3.3 million. This decrease was partially offset by a higher average sales price of 2%, primarily caused by additional Intralase procedures, which increased revenues by approximately $0.5 million.

• Revenues from the Company's businesses that manage cataract and secondary care centers for the three months ended March 31, 2009 were $6.5 million, an increase of $0.9 million (17%) from revenues of $5.6 million for the three months ended March 31, 2008. The increase was primarily

driven by a 15% increase in majority-owned procedures primarily led by cataract growth.

Revenues from eye care for the three months ended March 31, 2009 were $9.9 million, an increase of $3.6 million (56%) from revenues of $6.3 million for the three months ended March 31, 2008. This increase was primarily due to the timing of the Vision Source® National Conference, which is an annual optometric conference hosted by the Company's Vision Source®subsidiary. The 2009 Vision Source® National Conference was hosted during the three months ended March 31, 2009, whereas the 2008 conference did not take place until the three month period ended June 30, 2008. Also contributing to the increase in revenues was an 11% increase in optometric franchisee locations.
Total cost of revenues (excluding amortization expense for all segments) for the three months ended March 31, 2009 was $49.1 million, a decrease of $9.2 million (16%) from the cost of revenues of $58.3 million for the three months ended March 31, 2008.
The cost of revenues from refractive centers for the three months ended March 31, 2009 was $26.0 million, a decrease of $11.4 million (30%) from cost of revenues of $37.4 million for the three months ended March 31, 2008. This decrease was attributable to a $7.5 million cost of revenue decline related to lower procedure volume and $4.3 million in fixed cost reductions, partially offset by $0.5 million in increased variable costs per procedure. Gross margins for centers was 27.6% during the three months ended March 31, 2009, down from prior year gross margin of 36.6% as the Company's cost saving initiatives could not outweigh the revenue decline caused by the refractive center procedure decline.
The cost of revenues from doctor services for the three months ended March 31, 2009 was $18.3 million, an increase of $0.2 million (1%) from cost of revenues of $18.1 million for the three months ended March 31, 2008. Gross margins decreased to 22.1% during the three months ended March 31, 2009 from 27.6% in the prior year period. The increase in cost of revenues was due to the following:
• The cost of revenues from the Company's mobile cataract segment for the three months ended March 31, 2009 was $7.3 million, an increase of $0.4 million (6%) from cost of revenues of $6.9 million for the three months ended March 31, 2008. This percentage increase was primarily due to higher cataract procedure volume and higher lens supply costs.

• The cost of revenues from the refractive access segment for the three months ended March 31, 2009 was $6.3 million, a decrease of $1.1 million (14%) from cost of revenues of $7.4 million for the three months ended March 31, 2008. This decrease was primarily attributable to $2.4 million of lower costs associated with decreased excimer procedures, partially offset by an increase in cost of revenues of $1.3 million primarily associated with higher cost procedures and the mobile Intralase offering.

• The cost of revenues from the Company's businesses that manage cataract and secondary care centers for the three months ended March 31, 2009 was $4.7 million, an increase of $0.8 million (22%) from cost of revenues of $3.9 million for the three months ended March 31, 2008. The increase was caused primarily by the increase in procedures and higher per procedure cataract lens cost.

The cost of revenues from eye care for the three months ended March 31, 2009 was $4.8 million, an increase of $2.0 million (69%) from cost of revenues of $2.8 million for the three months ended March 31, 2008. This increase was due to the timing of the Vision Source® National Conference, as noted earlier. Also causing an increase in cost of revenues was the 11% increase in optometric franchisee locations, which required additional operating costs to manage. Gross margins fell to 51.6% during the three months ended March 31, 2009 from 55.3% in the prior year period.
General and administrative expenses of $5.9 million for the three months ended March 31, 2009 decreased $2.5 million from $8.4 million for the three months ended March 31, 2008. The decrease was primarily related to lower employee related expenses, professional fees and discretionary spending.
Marketing expenses decreased to $6.8 million for the three months ended March 31, 2009 from $11.7 million for the three months ended March 31, 2008. The $4.9 million decrease was due to a reduction in refractive center

marketing spend in order to reduce costs during the economic downturn.
Other operating expenses increased to $2.5 million for the three months ended March 31, 2009 from other operating income of $0.2 million for the three months ended March 31, 2008. The $2.7 million unfavorable change was primarily related to center closing costs of $0.3 million, employee severance expense of $0.3 million and $2.2 million of financial and legal advisor expenses incurred during the three months ended March 31, 2009.
Interest expense increased to $3.1 million for the three months ended March 31, 2009 from $2.5 million for the three months ended March 31, 2008. This $0.6 million increase was primarily due to higher borrowings under the Credit Facility. The average interest rate for the three months ended March 31, 2009 and 2008 was approximately 10.1% and 9.3%, respectively, which includes the impact of deferred loan costs and other fees.
Earnings from equity investments were $0.4 million for the three months ended March 31, 2009 compared to $0.2 million for the three months ended March 31, 2008. The $0.2 million increase primarily resulted from improved operating results in the Company's minority owned Ambulatory Surgical Center locations.
For the three months ended March 31, 2009, the Company recognized income tax expense of $0.2 million, which was determined using an estimate of the Company's 2009 total annual tax expense based on the forecasted taxable income for the full year. For the three months ended March 31, 2008, the Company recognized income tax expense of $0.4 million.
Net income attributable to noncontrolling interest increased to $2.9 million for the three months ended March 31, 2009 from $2.8 million for the three months ended March 31, 2008 due primarily to higher profits in non-wholly owned entities.
Net loss attributable to TLC Vision Corporation for the three months ended March 31, 2008 was ($1.3) million, or ($0.03) per basic and diluted share, compared to net income attributable to TLC Vision Corporation of $6.1 million, or $0.12 per basic and diluted share, for the three months ended March 31, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company relies on the following sources of liquidity to continue to operate as a going concern: (i) cash and cash equivalents on hand; (ii) cash generated from operations; (iii) borrowings under the Company's revolving credit facility; (iv) net proceeds from asset sales; and (v) access to the capital markets. The Company's principal uses of cash are to provide for working capital to fund its operation and to service its debt and other contractual obligations. The changes in financial markets during 2008 limited the ability of companies such as TLCVision to access the capital markets. The economic recession in the United States continues to significantly impact the Company's operations, resulting in a sharp decline in the demand for refractive surgery and financial performance. The Company incurred losses attributable to TLC Vision Corporation of $1.3 million for the three months ended March 31, 2009 compared to earnings of $6.1 million for the three months ended March 31, 2008. As a result, the Company's liquidity continued to be significantly constrained during the first quarter of 2009.
Beginning in early 2008, in response to the deteriorating economic environment, the Company implemented a series of initiatives to balance its costs of operation with the new lower level of refractive procedures. The Company continues to evaluate and implement cost reduction and cash generation initiatives, including reductions in headcount, salaries and benefits, discretionary spending including direct to consumer marketing, overhead costs, capital spending, supplemented by the sale of surplus assets and the closure of underperforming refractive centers/mobile refractive routes. During the three months ended March 31, 2009, the Company closed one majority owned refractive center.
Due to the sharp decline in customer demand during the second half of fiscal 2008 and the first quarter of 2009, and the resulting decline in sales, the Company's financial performance deteriorated sharply resulting in the Company's inability to comply with its primary financial covenants under its Credit Facility as of December 31, 2008 and March 31, 2009.

On April 3, 2009 the Company obtained the Limited Waiver and Amendment No. 2 to the Credit Facility from its lenders, which provided a short-term financial debt covenant compliance waiver to cure the existing defaults, as well as further amendments to the Credit Facility. The Limited Waiver to the Credit Facility provides financial debt covenant relief effective March 31, 2009 through May 31, 2009. The Limited Waiver was amended as of April 30, 2009 to extend the time for certain deliverables, including to May 18, 2009 for a detailed operational and financial restructuring plan. See Note 7, Debt, for additional information.
In the current economic environment, it is unlikely that the Company's financial performance in 2009 will be sufficient to enable it to comply with the existing covenants for the balance of 2009 unless amended. Accordingly, the Company continues to pursue active discussions with the lenders to modify the Company's capital structure and to secure further amendments to the Credit Facility to avoid a subsequent default. There can be no assurances that the lenders will grant such restructuring, waivers or amendments on commercially reasonable terms, if at all.
Given that it is unlikely that the Company will be in compliance with the covenants currently in the Credit Facility for the balance of 2009 beyond the current waiver period unless amended, borrowings of $100.1 million and $82.7 million under the Credit Facility have been recorded as current liabilities as of March 31, 2009 and December 31, 2008, respectively. Accordingly, at March 31, 2009 and December 31, 2008, the Company has working capital deficiencies of approximately $98.7 million and $99.5 million, respectively. The Company borrowed an additional $17.4 million under the revolving portion of its Credit Facility during the three months ended March 31, 2009, which reduced the open availability under the Credit Facility to approximately $0.6 million at March 31, 2009.
The Company will likely continue to incur operating losses in 2009, and its liquidity will likely remain constrained such that it may not be sufficient to meet the Company's cash operating needs in this period of economic uncertainty. The Company is in active discussions with its lenders to ensure that it has sufficient liquidity in excess of what is available under its Credit Facility, . . .