TearLab (TEAR) 10-Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:September 30, 2009

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

For the transition period from _______________ to _______________

Commission File Number: 000-51030

OccuLogix, Inc.

(Exact name of registrant as

specified in its charter)

Delaware	59 343 4771
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11025 Roselle Street, Suite 100, San Diego, CA 92121

(Address of principal executive offices)

(858) 455-6006

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) 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  ý  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  o  No  o

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o	Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting company)	Smaller reporting company  ý

1

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act:    Yes  o   No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 9,866,685 as of November 11, 2009

PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events and our future performance within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," “hope,” "expects," "plans," "intends," "anticipates," "believes," "estimates," "projects," "predicts," “pursue,” "potential" and similar expressions intended to identify forward-looking statements.  These forward-looking statements include, without limitation, statements relating to future events, future results, and future economic conditions in general and statements about:

· Our future strategy, structure, and business prospects;

· The planned commercialization of our current product;

· The size and growth of the potential markets for our product and technology;

· The adequacy of current, and the development of new distributor, reseller, and supplier relationships, and our efforts to expand relationships with distributors and resellers in North American, European, Asian and Latin American countries;

· Our anticipated expansion of United Stated and international sales and operations;

· Our ability to obtain and protect our intellectual property and proprietary rights;

· Our efforts to obtain certain FDA approvals;

· The results of our clinical trials;

· Our anticipated sales to additional customers in the United States if a CLIA waiver categorization is obtained;

· The adequacy of our funding, and;

· Use of cash, cash needs and ability to raise capital.

These statements involve known and unknown risks, uncertainties and other factors, including the risks described in Part II, Item 1A.  of this Quarterly Report on Form 10-Q, which may cause our actual results, performance or achievements to be materially different from any future results, performances, time frames or achievements expressed or implied by the forward-looking statements.  Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements.  Information regarding market and industry statistics contained in this Quarterly Report on Form 10-Q is included based on information available to us that we believe is accurate.  It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis.  We have not reviewed or included data from all sources and cannot assure you of the accuracy of the market and industry data we have included.

Unless the context indicates or requires otherwise, in this Quarterly Report on Form 10-Q, references to the “Company” shall mean OccuLogix, Inc. and its subsidiaries. References to “$” or “dollars” shall mean U.S. dollars unless otherwise indicated.

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OccuLogix, Inc.

PART I.	FINANCIAL INFORMATION
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS

4

OccuLogix, Inc.

CONSOLIDATED BALANCE SHEETS

(expressed in U.S. dollars)

	September 30, 2009			December 31, 2008
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	967,389		$	2,565,277
Accounts receivable, net		92,307			333,056
Inventory, net		195,613			148,201
Prepaid expenses		293,565			316,058
Deferred finance charges		28,107			—
Other current assets		37,216			21,680
Total current assets		1,614,197			3,384,272
Fixed assets, net		156,046			183,384
Patents and trademarks, net		246,969			269,398
Intangible assets, net		8,657,131			9,568,023
Total assets	$	10,674,343		$	13,405,077
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	248,669		$	314,680
Accrued liabilities		888,543			1,201,793
Due to stockholders		38,422			23,152
Deferred revenue		169,340			237,400
Obligations under warrants		13,590			57,666
Short-term liabilities and accrued interest		1,031,061			—
Total current liabilities		2,389,625			1,834,691
Deferred income tax liability		—			1,611,502
Contingently redeemable common stock, 119,629 shares issued and outstanding at both September 30, 2009 and December 31, 2008		250,000			250,000
Stockholders’ equity
Capital stock
Preferred Stock, par value $0.001, authorized 10,000,000, zero issued and outstanding at both September 30, 2009 and December 31, 2008		—			—
Common stock, par value $0.001 per share, authorized 40,000,000, issued and outstanding: September 30, 2009 – 9,747,056; December 31, 2008 – 9,708,780		9,747			9,708
Additional paid-in capital		378,360,594			377,356,547
Accumulated deficit		(370,335,623	)		(367,657,371	)
Total stockholders’ equity		8,034,718			9,708,884
Total liabilities and stockholders’ equity	$	10,674,343		$	13,405,077

See accompanying notes to interim consolidated financial statements

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OccuLogix, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(expressed in U.S. dollars except number of shares)

(Unaudited)

	Three months ended
	September 30,
	2009			2008
Revenue
TearLab	$	263,221		$	—
Retina		—			23,900
Total revenue		263,221			23,900
Cost of goods sold
TearLab – product cost		138,831			—
Retina – product cost		—			1,945
Total cost of goods sold		138,831			1,945
		124,389			21,955
Operating expenses
Amortization of intangible assets		303,631			317,377
General and administrative		566,435			630,453
Clinical , regulatory and research & development		228,796			671,612
Sales and marketing		117,381			218,895
Restructuring charges		—			74,128
		1,216,243			1,912,465
Loss from operations		(1,091,854	)		(1,890,510	)
Other income (expense)
Interest income		8			17,946
Changes in fair value of warrant obligation		12,639			—
Impairment of investments		—			(68,281	)
Interest expense		(40,752	)		(169,540	)
Amortization of deferred financing charges, warrants & beneficial conversion values		(135,245	)		(48,000	)
Other		(17,820	)		131,655
Total other income (expense)		(181,170	)		(136,220	)
Loss from continuing operations before income taxes		(1,273,024	)		(2,026,730	)
Income tax recovery (expense)		618,371			(1,649,632	)
Net loss for the period		(654,653	)		(3,676,362	)
Net loss attributable to non-controlling interest, net of tax		—			1,393,410
Net loss attributable to OccuLogix, Inc.	$	(654,653	)	$	(2,282,952	)
Weighted average number of shares outstanding attributable to OccuLogix, Inc. - basic and diluted		9,866,685			2,292,280
Loss per share attributable to OccuLogix, Inc. – basic and diluted	$	(0.07	)	$	(1.00	)

See accompanying notes to interim consolidated financial statements

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OccuLogix, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(expressed in U.S. dollars except number of shares)

(Unaudited)

	Nine months ended
	September 30,
	2009			2008
Revenue
TearLab	$	603,328		$	—
Retina		—			158,300
Total revenue		603,328			158,300
Cost of goods sold
TearLab – product cost		388,648			—
Retina – product cost		—			26,501
Total cost of goods sold		388,648			26,501
		214,680			131,799
Operating expenses
Amortization of intangible assets		910,892			903,399
General and administrative		2,459,766			2,914,487
Clinical , regulatory and research & development		867,727			2,502,792
Sales and marketing		500,235			629,337
Restructuring charges		—			1,029,646
		4,738,620			7,979,661
Loss from operations		(4,523,940	)		(7,847,862	)
Other income (expense)
Interest income		2,277			68,495
Changes in fair value of warrant obligation		44,076			(68,281	)
Impairment of investments		—			(450,072	)
Interest expense		(40,752	)		(305,256	)
Amortization of deferred financing charges, warrants & beneficial conversion values		(135,245	)		(180,000	)
Other		7,749			151,893
Total other income (expense)		(121,895	)		(783,221	)
Loss from continuing operations before income taxes		(4,645,835	)		(8,631,083	)
Income tax recovery (expense)		1,967,583			(430,465	)
Net loss for the period		(2,678,252	)		(9,061,548	)
Net loss attributable to non-controlling interest, net of tax		—			1,964,540
Net loss attributable to OccuLogix, Inc.	$	(2,678,252	)	$	(7,097,008	)
Weighted average number of shares outstanding attributable to OccuLogix, Inc. - basic and diluted		9,845,155			2,292,280
Loss per share attributable to OccuLogix, Inc. – basic and diluted	$	(0.27	)	$	(3.10	)

See accompanying notes to interim consolidated financial statements

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OccuLogix, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(expressed in U.S. dollars)

(Unaudited)

	Nine months ended September 30,
	2009			2008
OPERATING ACTIVITIES
Net loss for the period	$	(2,678,252	)	$	(7,097,008	)
Adjustments to reconcile net loss to cash used in operating activities:
Stock-based compensation and stock-based restructuring charges		394,050			85,442
Depreciation of fixed assets		54,700			42,296
Amortization and write-down of patents and trademarks		22,429			16,174
Amortization of intangible asset		910,892			903,400
Amortization of deferred financing charges, warrants and beneficial conversion values		135,245			180,000
Changes in fair value of warrant obligation		(44,076	)		68,281
Impairment of investments		—			450,072
Deferred tax liability, net		(1,967,583	)		430,465
Non-controlling interest		—			(1,964,540	)
(Gain) Loss on disposal of fixed assets		(3,519	)		7,584
Net change in non-cash working capital balances related to operations		(81,001	)		572,692
Cash used in operating activities		(3,257,115	)		(6,305,142	)
INVESTING ACTIVITIES
Additions to fixed assets, net of proceeds		(23,842	)		(50,686	)
Additions to patents and trademarks		—			(95,571	)
Cash restricted in use		—			(200,000	)
Cash used in investing activities		(23,842	)		(346,257	)
FINANCING ACTIVITIES
Proceeds from issuance of convertible debt funding		1,750,077			6,703,500
Costs of issuance of convertible debt funding		(67,008	)		(180,000	)
Cash provided by financing activities		1,683,069			6,523,500
Net decrease in cash and cash equivalents during the period		(1,597,888	)		(127,899	)
Cash and cash equivalents, beginning of period		2,565,277			2,235,832
Cash and cash equivalents, end of period	$	967,389		$	2,107,933

See accompanying notes to interim consolidated financial statements

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OccuLogix, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(expressed in U.S. dollars except as otherwise stated)

 (Unaudited)

1. BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY

Basis of presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, referred to as U.S. GAAP. These unaudited interim consolidated financial statements contain all normal recurring adjustments and estimates necessary to present fairly the financial position of OccuLogix, Inc. , ( “OccuLogix” or the Company), as at September 30, 2009 and the results of its operations for the three and nine months ended September 30, 2009 and 2008. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s latest Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the SEC, on March 31, 2009. Interim results are not necessarily indicative of results for a full year. Further in connection with the preparation of the interim consolidated financial statements and in accordance with the FASB’s recently issued authoritative guidance on subsequent events, the Company evaluated subsequent events after the balance sheet date of September 30, 2009 through November 13, 2009, the date of the filing of the unaudited financial statements.

Reclassifications

Effective January 1, 2009, the Company implemented the FASB’s authoritative guidance on non-controlling interests. This standard changed the accounting for and reporting of minority interest (now called non-controlling interest) in the consolidated financial statements. Upon adoption, certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on the previously reported financial position or results of operations, refer to Note 2 of this Form 10-Q for additional information on the adoption of this new guidance.

Going concern uncertainty

The consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. However, the Company has sustained substantial losses of $14,181,433 for the year ended December 31, 2008 and $2,678,252 and $7,097,008 for the nine months ended September 30, 2009 and 2008, respectively. The Company’s working capital deficit at September 30, 2009 is $775,428, which represents a $2,325,009 decrease in its working capital from $1,549,581 at December 31, 2008.  As a result of the Company’s history of losses and financial condition, there is substantial doubt about the ability of the Company to continue as a going concern.  Management believes the Company’s existing cash as of September 30, 2009 will be sufficient to cover its operating and other cash demands only until the end of December 2009, if it does not successfully complete additional fund raising activities.

A successful transition to attaining profitable operations is dependent upon obtaining additional financing adequate to fund its planned expenses and achieving a level of revenues adequate to support the Company’s cost structure.  The Company is seeking additional equity financing to support its operations until it becomes cash flow positive.  There can be no assurances that there will be adequate financing available to the Company on acceptable terms or at all.  If the Company is unable to obtain additional financing, the Company would need to significantly curtail or reorient its operations during 2010, which could have a material adverse effect on the Company’s ability to achieve its business objectives and as a result may require the Company to file for bankruptcy or cease operations.  The unaudited interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.

2. SIGNIFICANT ACCOUNTING POLICIES

These unaudited interim consolidated financial statements have been prepared using significant accounting policies that are consistent with the policies used in preparing the Company’s audited consolidated financial statements for the year ended December 31, 2008.

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited consolidated financial statements for the interim periods presented. The preparation of financial statements in conformity with U.S. GAAP 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to the impairment of long-lived and intangible assets, valuation of investments in marketable securities and the value of stock options and warrants.

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OccuLogix, Inc.

Recent Accounting Pronouncements

On June 3, 2009, the FASB approved the FASB Accounting Standards Codification, or the Codification, as the single source of authoritative nongovernmental Generally Accepted Accounting Principles, or GAAP, in the United States. The Codification is effective for interim and annual periods ending after September 15, 2009. Upon the effective date, the Codification will be the single source of authoritative accounting principles to be applied by all nongovernmental U.S. entities. All other accounting literature not included in the Codification will be nonauthoritative. The Codification does not change or alter existing GAAP and there was no impact on our consolidated financial position or results of operations.

The FASB issued authoritative guidance on subsequent events on May 28, 2009, which we adopted on a prospective basis beginning April 1, 2009. The guidance is intended to establish general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date. The application did not have an impact on our consolidated financial position, results of operations or cash flows. We evaluated all events or transactions that occurred through November 13, 2009, the date we issued these financial statements. During this period we did not have any material recognizable subsequent events.

In December 2007, the FASB issued authoritative guidance, which changes the accounting and reporting of ownership interests in subsidiaries held by parties other than the parent, and the allocation of net income attributable to the parent and the non-controlling interest.  The new guidance also establishes disclosure requirements to separately identify the interests of the parent and the interests of the non-controlling owners.  This new guidance became effective for all fiscal years beginning after December 15, 2008. The Company adopted the provisions of the new guidance in the first quarter of 2009. The adoption of the guidance changed the presentation format of the Company’s consolidated statements of earnings and consolidated balance sheets, but did not have an impact on net earnings or equity attributable to the Company’s shareholders.

3. INVENTORY

Inventory is recorded at the lower of cost and net realizable value and consists of finished goods. Cost is accounted for on a first-in, first-out basis. Deferred cost of sales (included in finished goods) consists of products shipped but not recognized as revenue because they did not meet the revenue recognition criteria.

The Company evaluates inventory for estimated excess quantities and obsolescence, based on expected future sales levels and projections of future demand, with the excess inventory provided for. In addition, the Company assesses the impact of changing technology and market conditions. The net balance of $195,613 as at September 30, 2009 represents production materials held for the TearLab™ activities. At September 30, 2009 and December 31, 2008, the Company had set up provisions for excess inventory of $124,402 and $68,062, respectively.

As a result of the Company's financial position at November 1, 2007, the Company announced an indefinite suspension of the RHEO™ System clinical development program for AMD.  That decision was made following a comprehensive review of the respective costs and development timelines associated with the products in the Company's portfolio and in particular the fact that if the Company was unable to raise additional capital, it would not have had sufficient cash to support its operations beyond early 2008.  Accordingly, the Company wrote down the value of its treatment sets and Octo Nova pumps, the components of the RHEO™ System, to zero as at December 31, 2007 since the Company did not expect to be able to sell or utilize these treatment sets and Octo Nova pumps prior to their expiration dates, in the case of the treatment sets, or before the technologies become outdated.  In the nine months ended September 30, 2008, the Company sold 123 treatment sets.  The sale of these treatment sets generated revenues of $18,500. Additionally the Company sold 115 Octo Nova Pumps, resulting in revenues of $139,800.  All RHEO™ System inventory was sold or disposed of during 2008.
 

4. FIXED ASSETS

Fixed assets consist of the following:

	September 30, 2009		December 31, 2008
Furniture and office equipment	$	24,812	$	24,539
Computer equipment and software		145,134		254,846
Medical equipment		330,219		315,779
		500,165		595,164
Less accumulated depreciation		344,119		411,780
	$	156,046	$	183,384

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OccuLogix, Inc.

Depreciation expense was $54,700 and $42,296 during the nine months ended September 30, 2009 and 2008, respectively.

5. PATENTS AND TRADEMARKS

Patents and trademarks consist of the following:

	September 30, 2009		December 31, 2008
Patents	$	260,340	$	373,361
Trademarks		32,152		136,767
		292,492		510,128
Less accumulated amortization		45,523		240,730
	$	246,969	$	269,398

Amortization expense was $22,429 and $16,174 during the nine months ended September 30, 2009 and 2008, respectively.

Patents and trademarks are recorded at historical cost and amortized over a period not exceeding 10 years.

6. INTANGIBLE ASSETS

The Company's intangible assets consist of the value of TearLab™ Technology acquired in the acquisition of OcuSense, Inc.  The TearLab™ Technology consists of a disposable lab card and card reader, supported by an array of patents and patent applications that are either held or in-licensed by the Company.  The TearLab™ Technology is being amortized using the straight-line method over an estimated useful life of 10 years. The Company has no indefinite-lived intangible assets.

Intangible assets subject to amortization consist of the following:

	As at September 30, 2009
	Cost		Accumulated Amortization
TearLab™ technology	$	12,172,054	$	3,514,923

	As at December 31, 2008
	Cost		Accumulated Amortization
TearLab™ technology	$	12,172,054	$	2,604,031

Estimated amortization expense for the intangible assets for the balance of 2009 and each of the next four years and thereafter is as follows:

	Amortization of intangible assets
Remainder of  2009	$	303,631
2010		1,214,523
2011		1,214,523
2012		1,214,523
2013		1,214,523
Thereafter		3,495,408
	$	8,657,131

Amortization expense of $910,892 and $903,400 for the nine months ended September 30, 2009 and 2008, respectively are attributable to the TearLab™ technology.

The Company determined that, as of September 30, 2009, there have been no significant events which may affect the carrying value of TearLab, Inc.’s (formerly OcuSense, Inc.) (“TearLab”) TearLab™ technology. However, the Company’s prior history of losses and losses incurred during the current fiscal year reflect a potential indication of impairment, thus requiring management to assess whether the TearLab™ technology was impaired as at September 30, 2009. Based on management’s estimates of forecasted undiscounted cash flows as at September 30, 2009, the Company concluded that there is no indication of an impairment of TearLab's TearLab™ technology. Therefore, no impairment charge was recorded during the three and nine months ended September 30, 2009.

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OccuLogix, Inc.

7. CAPITAL STOCK

(a) Authorized share capital

The total number of authorized shares of common stock of the Company is 40,000,000.  Each share of common stock has a par value of $0.001 per share.  The total number of authorized shares of preferred stock of the Company is 10,000,000.  Each share of preferred stock has a par value of $0.001 per share.

(b) Reverse Stock Split

On September 30, 2008, the Company's Board of Director's approved a reverse stock split referred to as the Reverse Stock Split, with an effective date of October 7, 2008, of the Company's common stock utilizing a 1:25 consolidation ratio.  As a result of the Reverse Stock Split, every twenty-five shares of the Company's issued and outstanding common stock were consolidated into one share of the Company's common stock.  In addition, the exercise prices of the Company's stock options and the conversion prices of the Company's outstanding warrants have been adjusted, such that the number of shares potentially issuable on the exercise of stock options and/or the exercise of warrants will reflect the 1:25 consolidation ratio.  Accordingly, all the Company's issued and outstanding common stock and all outstanding stock options to purchase common stock and warrants to purchase common stock for all periods presented have been restated to reflect the Reverse Stock Split.

(c) Common stock

On February 1, 2007, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement 2007") with certain institutional investors, pursuant to which the Company agreed to issue to those investors an aggregate of 267,094 shares of the Company's common stock (the "Shares 2007") and five-year warrants exercisable into an aggregate of 106,838 shares of the Company's common stock (the "Warrants").  The per share purchase price of the Shares 2007 was $37.50, and the per share exercise price of the Warrants is $46.25, subject to adjustment.  The Warrants became exercisable on August 6, 2007.  Pursuant to the Securities Purchase Agreement 2007, on February 6, 2007, the Company issued the Shares 2007 and the Warrants.  The gross proceeds of the sale of the Shares 2007 and the Warrants totaled $10,016,000 (less transaction costs of $871,215).  On February 6, 2007, the Company also issued to Cowen and Company, LLC a five-year warrant exercisable into an aggregate of 37,400 shares of the Company's common stock (the "Cowen Warrant") in partial payment of the placement fee payable to Cowen and Company, LLC for the services it had rendered as the placement agent in connection with the sale of the Shares 2007 and the Warrants.  The estimated grant date fair value of the Cowen Warrant of $97,222 is included in the transaction costs of $871,215.

On October 6, 2008, the Company issued 7,536,129 common shares resulting from the successful closing of a number of related transactions.  These transactions, a private placement resulting in the issuance of 869,200 common shares of the Company, the conversion of outstanding bridge loans into 3,304,511 common shares of the Company, the issuance of 3,169,938 common shares of the Company to acquire the remaining ownership interest in TearLab, Inc. that it did not already own and the issuance of 192,480 common shares of the Company to Marchant Securities Inc. ("Marchant Securities") as payment for services rendered, (the "Restructuring Transactions") are described in greater detail below.

On May 19, 2008 and amended on August 29, 2008, the Company, Marchant Securities and certain investors entered into a Securities Purchase Agreement (the "Securities Purchase Agreement 2008"), pursuant to which the Company agreed to issue to those investors an aggregate of 869,200 shares of the Company's common stock (the "Shares 2008").  The per share purchase price of the Shares 2008 was $2.50.  The common shares were issued on October 6, 2008 subsequent to receiving the approval of shareholders and the successful completion of the related Restructuring Transactions.  The gross proceeds of the sale of the Shares totaled $2,173,000.

On September 30, 2008, the stockholders of the Company approved the pre-payment by the Company of the aggregate outstanding bridge loans in the amount $6,703,500 and accrued interest of $318,478, transacted under the loan agreement, entered into on February 19, 2008, by the Company, the lenders and Marchant Securities Inc. (the "Loan Agreement") pursuant to which the Company agreed to issue to those lendors an aggregate of 3,304,511 shares of the Company's common stock (the "Loan Shares").  The Company received funding under the Loan Agreement of $3,000,000 on February 19, 2008, $300,000 on May 5, 2008 and $3,403,500 on July 28, 2008.  The date of the pre-payment of the outstanding bridge loans was October 6, 2008 at which time the accrued interest was $318,478.  The per share conversion price of the Loan Shares were $2.125 representing a 15% discount to the purchase price paid by the investors of the Securities Purchase Agreement 2008.  As a result of the discount the Company recorded beneficial conversion on bridge loan shares issued of $1,239,163 in accordance with FASB guidelines.

On September 30, 2008, the shareholders of the Company approved and adopted the Agreement and Plan of Merger and Reorganization, dated April 22, 2008, by the Company, OcuSense Acquireco, Inc. and TearLab, Inc., and as amended by the Amending Agreement, dated as of July 28, 2008, pursuant to which the Company acquired all of the issued and outstanding shares of capital stock of TearLab, Inc. that the Company did not already own in exchange for the issuance of an aggregate of 3,169,938 shares of its common stock (the "Merger Shares") to the minority stockholders of TearLab, Inc..  The per share purchase price of the Merger Shares was $2.50.  The common shares were issued on October 6, 2008 subsequent to receiving the approval of shareholders and the successful completion of the related Restructuring Transactions.

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OccuLogix, Inc.

Included in the Merger Shares issued to the minority stockholders were 119,629 common shares issued to a stockholder who invested in TearLab, Inc. as part of a licensing agreement between the stockholder and TearLab, Inc.  If the licensing agreement is terminated in 2009, at the Company’s option as a result of the stockholder not meeting minimum order requirements as agreed between the stockholder and TearLab, Inc., the Company can be required to redeem the stockholder’s shares at the original purchase price of $250,000, at the stockholder’s option,. The value will be reclassified to stockholders’ equity if the contingency is not met. These shares have been reclassified and reported separately as contingently redeemable common stock.

On September 30, 2008, the shareholders of the Company approved the issuance to Marchant Securities Inc. ("Marchant Securities") of 192,480 shares of the Company's common stock in payment of part of the commission remaining due for services rendered by Marchant Securities in connection with the Securities Purchase Agreement 2008 and the Loan Agreement.  The common shares were issued on October 6, 2008 subsequent to receiving the approval of shareholders and the successful completion of the related Restructuring Transactions.  In addition, Marchant securities was paid cash of $180,000 upon the completion of the initial bridge loan on February 19, 2008 and paid additional cash of $88,800 upon the successful completion of the Restructuring Transactions.  In addition to the fees paid to Marchant Securities, the Company also incurred $457,779 in costs related to the Restructuring Transactions for professional services. As the fees were paid through the issuance of common stock, the financing costs have been recorded as an increase to additional paid-in capital, and $130,672 was associated to the shares issued in private placement and $350,528 was associated to shares issued on conversion of the bridge loans based on the respective proceeds raised. These costs have been recorded as an offset to additional paid-in capital as share issuance costs.

(d) Stock Option Plan

The Company has a stock option plan, the 2002 Stock Option Plan (the "Stock Option Plan"), which was most recently amended in September 30, 2008 in order to, among other things, increase the share reserve under the Stock Option Plan by 2,141,760.  Under the Stock Option Plan, up to 2,400,000 options are available for grant to employees, directors and consultants.  Options granted under the Stock Option Plan may be either incentive stock options or non-statutory stock options.  Under the terms of the Stock Option Plan, the exercise price per share for an incentive stock option shall not be less than the fair market value of a share of stock on the effective date of grant and the exercise price per share for non-statutory stock options shall not be less than 85% of the fair market value of a share of stock on the date of grant.  No option granted to a holder of more than 10% of the Company's common stock shall have an exercise price per share less than 110% of the fair market value of a share of stock on the effective date of grant.

Options granted may be time-based or performance-based options.  Generally, options expire 10 years after the date of grant.  No incentive stock options granted to a 10% owner optionee shall be exercisable after the expiration of five years after the effective date of grant of such option, no option granted to a prospective employee, prospective consultant or prospective director may become exercisable prior to the date on which such person commences service, and with the exception of an option granted to an officer, director or consultant, no option shall become exercisable at a rate less than 20% per annum over a period of five years from the effective date of grant of such option unless otherwise approved by the Board.

The Company has also issued options outside of the Stock Option Plan.  These options were issued before the establishment of the Stock Option Plan, when the authorized limit of the Stock Option Plan was exceeded or as permitted under stock exchange rules when the Company was recruiting executives.  In addition, options issued to companies for the purpose of settling amounts owing were issued outside of the Stock Option Plan, as the Stock Option Plan prohibited the granting of options to companies.  The issuance of such options was approved by the Board and granted on terms and conditions similar to those options issued under the Stock Option Plan.

On October 6, 2008, as part of the acquisition of the remaining ownership interest in TearLab, Inc., the Company agreed to assume the 673,034 outstanding options that were part of the TearLab, Inc. Stock Option Plan. The assumption of these options was approved by the board of directors and is exerciseable into shares of the Company.

The Company accounts for stock-based compensation under the provisions of FASB guidance which requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period.  The amount of expense recognized during the period is affected by many complex and subjective assumptions, including: estimates of the Company’s future volatility, the expected term for its stock options, option exercise behavior, the number of options expected to ultimately vest, and the timing of vesting for the Company’s share-based awards.

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OccuLogix, Inc.

The following table sets forth the total stock-based compensation expense resulting from stock options included in the Company’s consolidated statements of operations and changes in stockholders’ equity:

	Nine months ended September 30,
	2009		2008
General and administrative	$	242,379	$	32,223
Clinical and regulatory		113,689		3,292
Sales and marketing		37,982		(24,201	)
Restructuring		—		74,128
Stock-based compensation expense before income taxes	$	394,050	$	85,442

There were no common stock options that were exercised for the nine months ended September 30, 2009 and 2008, respectively. As such, no income tax benefit was realized from stock option exercises during the nine months ended September 30, 2009 and 2008. In accordance with FASB guidance, the Company presents excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows.

The weighted-average fair value of stock options granted during the nine months ended September 30, 2009 and 2008 was $1.07 and $2.63 respectively.  The estimated fair value was determined using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Nine months ended September 30,
	2009			2008
Volatility		102	%		107	%.
Expected life of options	5.6 years			6.84 years.
Risk-free interest rate		1.80	%		3.26	%.
Dividend yield		0	%		0	%.

The Company’s computation of expected volatility for the nine months ended September 30, 2009 and 2008 were based on the Company’s historical stock prices since its initial public offering in December 2004. The expected life of the options represents the period of time that awards granted are expected to be outstanding. The expected term is calculated as the average of the contractual term and the vesting period.  The risk-free interest rate for an award is based on the U.S. Treasury yield curve with a term equal to the expected life of the award on the date of grant.

A summary of the option transactions during the nine months ended September 30, 2009 is set forth below:

	Number of options outstanding		Weighted average exercise price		Weighted average remaining contractual life (years)		Aggregate intrinsic value
Outstanding, December 31, 2008		2,278,483	$	4.95		8.41	$	522,547
Granted		852,894		1.45		—
Exercised		—		—		—
Forfeited		122,840		5.07		—
Outstanding,  September 30, 2009		3,008,537		3.87		8.00		289,640
Vested or expected to vest September 30, 2009		2,143,856		4.62		7.87		289,640
Exercisable, September 30, 2009		2,030,049	$	4.28		7.80	$	289,640

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value i.e., the difference between the Company’s closing stock price on the last trading day of September 30, 2009 of $1.22 and the exercise price, multiplied by the number of shares that would have been received by the option holders if the options had been exercised on September 30, 2009.  As of September 30, 2009, $1,948,722 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of 2.77 years.

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OccuLogix, Inc.

(e) Warrants

On February 6, 2007, pursuant to the Securities Purchase Agreement 2007 between the Company and certain institutional investors, the Company issued warrants to these investors (the “Warrants”).  The Warrants are five-year warrants exercisable immediately into an aggregate of 106,838 shares of the Company's common stock at $46.25 per common share.  On February 6, 2007, the Company also issued the warrants to Cowen and Company, LLC in partial payment of the placement fee payable for the services it had rendered as the placement agent in connection with the private placement of the Shares and the Warrants pursuant to the Securities Purchase Agreement 2007 (the “Cowan Warrant”).  The Cowen Warrant is a five-year warrant exercisable into an aggregate of 3,740 shares of the Company's common stock.  The per share exercise price of the Cowen Warrants is $46.25, and the Cowen Warrants became exercisable on August 6, 2007.

The Company accounts for the Warrants and the Cowen Warrant in accordance with the applicable guidance from FASB which requires every derivative instrument within its scope (including certain derivative instruments embedded in other contracts) to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in the derivative's fair value recognized currently in earnings unless specific hedge accounting criteria are met.  Also based on the applicable guidance from FASB, the Company determined that the Warrants and the Cowen Warrant do not meet the criteria for classification as equity.  Accordingly, the Company has classified the Warrants and the Cowen Warrant as a current liability at September 30, 2009 and December 31, 2008, respectively.

The estimated fair value of the Warrants and the Cowen Warrant as of September 30, 2009 was determined using the Black-Scholes option-pricing model with the following assumptions:

Volatility		127	%
Remaining term of Warrants	2.33 years
Risk-free interest rate		1.12	%
Dividend yield		0	%

The Company initially allocated the total proceeds received, pursuant to the Securities Purchase Agreement, to the Shares and the Warrants based on their relative fair values. This resulted in an allocation of $2,052,578 to obligations under warrants, which includes the fair value of the Cowen Warrant of $97,222.

In addition, FASB guidance requires the Company to record the outstanding warrants at fair value at the end of each reporting period, resulting in an adjustment to the recorded liability of the derivative, with any gain or loss recorded in earnings of the applicable reporting period. The Company, therefore, estimated the fair value of the Warrants and the Cowen Warrant as at September 30, 2009 and determined the aggregate fair value to be $13,590, a decrease of approximately $44,076 over the measurement of the aggregate fair value of the Warrants and the Cowen Warrant on December 31, 2008.  The change in the fair value of the Warrants for the nine months ended September 30, 2008 was an increase of $68,281.

Accordingly, the Company recognized a gain of $44,076 in its consolidated statement of operations for the nine months ended September 30, 2009 which reflects the decrease in the fair value of the warrants at September 30, 2009 compared to December 31, 2008.

A summary of the Warrants issued during the nine months ended September 30, 2009 and the total number of warrants outstanding as of that date is set forth below:

	Number of warrants outstanding		Weighted average exercise price
Outstanding, December 31, 2008		110,578	$	46.25
Granted		—		—
Forfeited		—		—
Outstanding, September 30, 2009		110,578	$	46.25

8. LOSS PER SHARE

Loss per share, basic and diluted, is computed using the treasury method. Potentially dilutive shares have not been used in the calculation of loss per share as their inclusion would be anti-dilutive.

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OccuLogix, Inc.

The following are potentially dilutive securities which have not been used in the calculation of diluted loss per share as they are anti-dilutive:

	Nine months ended September 30,
	2009		2008
Stock options		3,008,537		164,787
Warrants		110,578		110,578
Total		3,119,115		275,365

On February 11, 2009, the Company filed with the Securities and Exchange Commission, or the SEC, a prospectus as part of a registration statement on Form S-3 using a "shelf" registration process.  Under the shelf process, if the registration statement is declared effective by the SEC, we may from time to time offer or sell any combination of common stock, preferred stock, debt securities, depository shares or warrants in one or more offering up to a total dollar value of $30,000,000.  The registration statement was declared effective by the SEC on July 20, 2009.

9. RELATED PARTY TRANSACTIONS

The following are the Company’s related party transactions:

TLC Vision

TLC Vision Corporation held a 7.61% and 7.68% ownership interest in the Company, on an issued and outstanding basis, on September 30, 2009 and December 31, 2008, respectively. TLC provided computer and administrative support to the Company in the nine months ended September 30, 2009 and 2008, respectively, for which the Company recorded expense of $18,270 and $81,767, respectively.

The Company reported amounts due to TLC Vision Corporation as amounts Due to Shareholders of $38,422 and $23,152 for the nine months ended September 30, 2009 and the year ended December 31, 2008, respectively. The balance due from TLC Vision is related to computer and administrative support provided by TLC Vision. All amounts have been expensed during the nine months ended September 30, 2009 and 2008 and included in general and administrative expenses.

Other

Marchant, a firm beneficially owned as to approximately 32% by Mr. Elias Vamvakas, the Chairman, Chief Executive Officer and Secretary of the Company and members of his family, introduced the Company to the lenders of the (i) $3,000,000 aggregate principal amount Original Bridge Loan that the Company secured and announced on February 19, 2008; (ii) the $300,000 aggregate principal amount Additional Bridge Loan I secured and announced on May 5, 2008; and (iii) the $3,403,500 aggregate principal amount Additional Bridge Loan II secured and announced on July 28, 2008.  The Company also has retained Marchant in connection with the proposed private placement of $2,173,000 of OccuLogix's common stock, announced by the Company on July 28, 2008, for which Marchant was paid $750,000 representing approximately 17% of the gross aggregate proceeds of such private placement and bridge loans by Canadian investors.  Marchant has been paid $268,800 in cash and $481,200 in the form of equity securities of the Company.  As $570,000 of this balance was payable only upon the successful completion of the private placement, this amount was recorded as an offset to proceeds received.  The remaining $180,000 was paid in conjunction with the bridge loans and was recorded as finance costs.

On January 25, 2007, the Company entered into a consulting agreement with Dr. Michael Lemp, a former member of the board of OcuSense, Inc., for the purpose of procuring consulting services as TearLab's Chief Medical Officer.  Dr. Lemp is entitled to $100,000 per annum to be paid at the end of each month and a $99 monthly expense reimbursement stipend.  Dr. Lemp agreed to a 30% reduction in fees, effective June 1, 2009 to assist the Company’s efforts to reduce its cash requirements.  Dr. Lemp will be available to OcuSense on an average of 20 hours a week or 1,000 hours per year for which the Company recorded an expense of $64,169 and $77,671 for the nine months ended September 30, 2009 and 2008, respectively.  There were $5,616 and zero $ balances due at September 30, 2009 and September 30, 2008 respectively.

10. INCOME TAXES

The Company records tax benefits related to tax losses as deferred income tax assets to offset deferred income tax liabilities arising from its intangible assets.

The Company reported a recovery of income taxes of $1,967,583 for the nine months ended September 30, 2009 of which $1,551,055 represented deferred tax assets reported for losses incurred in the nine months ended September 30, 2009 and $416,528 represented amortization of deferred tax liabilities in the nine months ended September 30, 2009.

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OccuLogix, Inc.

The Company reported an income tax expense of $430,465 for the nine months ended September 30, 2008 of which $791,825 represented a net reversal of income tax benefits previously reported, offset by $361,360 which represented amortization of deferred tax liabilities in the nine months ended September 30, 2008.

The October 6, 2008 closing of the private investment by certain investors, the acquisition of the remaining ownership interest in TearLab, Inc. and the conversion of the bridge loans combined to result in a change of control for tax purposes causing Section 382 and 383 restrictions on the use of tax losses to apply.  Utilization of the net operating loss and capital loss carryforwards will be subject to a substantial annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions due to ownership change limitations that have occurred. These ownership changes will limit the amount of net operating loss and capital loss carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. Such limitations will result in approximately $42.3 million of tax benefits related to net operating loss and capital loss carryforwards that will expire unused. Accordingly, the related net operating loss and capital loss carryforwards have been removed from deferred tax assets accompanied by a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, related to our operations in the U.S. will not impact our effective tax rate.

At December 31, 2008, we had federal net operating loss carryforwards of approximately $80.8 million, of which $60.3 million will expire due to the 382 limitation, and California net operating loss carryforwards of approximately $9.4 million, of which $8.8 million will expire due to 382 limitation. The federal net operating loss carryforwards begin to expire in 2012, and the California net operating loss carryforwards begin to expire in 2015.

On January 1, 2007, the Company adopted the provisions of the FASB’s authoritative guidance for uncertain tax positions.  The Company accounts for uncertain income tax positions using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement.  If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold.  The standard also provides guidance on derecognition, classification, interest and penalties on income taxes and accounting in interim periods and requires increased disclosure.

As a result of the implementation of the provisions of authoritative guidance, the Company recognized a reduction to the January 1, 2007 deferred tax liability balance in the amount of $4.6 million with a corresponding reduction to accumulated deficit.

As of January 1, 2007, the Company had unrecognized tax benefits of $24.8 million which, if recognized, would favorably affect the Company’s effective tax rate.

When applicable, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as other expense in its consolidated statements of operations, which is consistent with the recognition of these items in prior reporting periods.  As of January 1, 2007, the Company did not have any liability for the payment of interest and penalties.

The Company does not expect a significant change in the amount of its unrecognized tax benefits within the next 12 months.  Therefore, it is not expected that the change in the Company’s unrecognized tax benefits will have a significant impact on the Company’s results of operations or financial position.

All of the federal income tax returns for the Company and its subsidiaries remain open since their respective dates of incorporation due to the existence of net operating losses.  The Company and its subsidiaries have not been, nor are they currently, under examination by the Internal Revenue Service or the Canada Revenue Agency.

State and provincial income tax returns are generally subject to examination for a period of between three and five years after their filing.  However, due to the existence of net operating losses, all state income tax returns of the Company and its subsidiaries since their respective dates of incorporation are subject to re-assessment.  The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.  The Company and its subsidiaries have not been, nor are they currently, under examination by any state tax authority.

11. PREPAID EXPENSES

	September 30, 2009		December 31, 2008
Prepaid insurance	$	81,892	$	236,369
Prepaid financing costs		93,543		—
Prepaid regulatory fees		10,300		6,424
Deferred royalty costs		43,500		43,500
Other fees and services		64,330		29,765
	$	293,565	$	316,058

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OccuLogix, Inc.

12. ACCRUED LIABILITIES

	September 30, 2009		December 31, 2008
Due to professionals	$	314,714	$	274,206
Due to clinical trial sites		145,188		120,247
Due to clinical trial specialists		67,734		104,133
Product development costs		27,633		96,359
Legal settlement payment		—		125,000
Corporate compliance		66,305		102,907
Obligation to repay advances received		68,410		127,301
Severance liability		38,500		—
Vacation pay entitlements		73,096		53,361
Goods received but not invoiced		13,452		58,530
Miscellaneous		73,511		139,749
	$	888,543	$	1,201,793

13. SHORT-TERM LIABILITIES AND ACCRUED INTEREST

 On July 15, 2009, the Company announced that it had entered into and closed an agreement with certain investors whereby the investors agreed to provide financing (the “Financing”) to the Company through the purchase of convertible secured notes, in the aggregate amount of $1.55 million.  On August 31, 2009, an additional $200,000 of financing was received by the Company to bring the aggregate total funding received to $1.75 million. The convertible secured notes (the “Notes”) evidencing the Financing, mature on the second anniversary of their issuance (“the Maturity Date”), bear interest at a rate of 12% per annum and are convertible into shares of the Company’s common stock upon the request of holders of 51% or more of the outstanding principal amount of the Notes at any time after August 31, 2009 and prior to the Maturity Date.  The conversion price of the Notes (the “Discount Price”) is $1.3186 determined on August 31, 2009 and represents 80% of the volume weighted average price on the NASDAQ stock market for the ten trading days prior to August 31, 2009.  Any such conversion is limited to prevent the number of shares issued upon conversion of the Notes from exceeding 19.9% of the outstanding common stock of the Company, measured prior to the date of the Financing.  The Notes are secured by substantially all of the assets of the Company and the financing is subject to customary conditions to closing.

 In connection with the Financing, the Company will issue warrants with a life of five years to purchase shares of common stock equal in value to ten percent of the aggregate principal amount of the notes (the “Warrants”).  The exercise price of the Warrants is $1.60 per common share representing the price per share equal to the closing bid price per share of the Company’s common stock on the NASDAQ stock market on July 15, 2009.  The warrants will not be issued until the convertible secured notes are converted to common shares of the Company. The Company has recorded $162,621 representing the fair value of the warrants in additional paid-in capital which has been calculated using the Black-Scholes value model. The value of the warrant is being accreted over the two year term of the convertible secured debt and in the three and nine month periods ending September 30, 2009, an accreted amount of $23,550 is included in other income (expense).

As the conversion price of the convertible secured debt, reflects a price discounted from the fair market value of the Company’s common stock, there is a deemed beneficial conversion feature associated with the Financing. The Company has recorded $727,582 representing the value of the beneficial conversion feature in additional paid-in capital which has been determined by calculating the fair value of shares that could be acquired as the difference between the discounted conversion price and the fair value on the date of funding. The value of the beneficial conversion is being accreted over the two year term of the convertible secured debt and in the three and nine month periods ending September 30, 2009, an accreted amount of $106,879 is included in other income (expense).

The Company incurred $67,008 in expenses related to the Financing which was allocated to deferred finance charges ($32,923) and cost of equity ($34,085) in proportion to the allocation of the Financing amount between equity and liabilities.  The value of the deferred financing is being accreted over the two year term of the convertible secured debt and in the three and nine month periods ending September 30, 2009, an accreted expense amount of $4,816 is included in other income (expense).

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OccuLogix, Inc.

Richard Lindstrom, M.D. and Tom Davidson, both of whom are directors of the Company, invested $100,000 each in the Financing.  Greybrook Corporation, an entity controlled by Elias Vamvakas, Chairman and Interim CEO of the Company, or members of his family, invested $310,000 in the Financing.  NASDAQ Listing Rule 5635(c) states that any sale of discounted stock to employees, officers or directors constitutes “equity compensation,” and therefore requires stockholder consent prior to issuance.  In connection with the investment, the Company has entered into letter agreements with Dr. Lindstrom and Messrs. Vamvakas and Davidson pursuant to which they each agreed not to convert their Note into shares of common stock of the Company unless and until the stockholders have approved such conversion in accordance with NASDAQ rules.

Prior to closing the Financing, the Company entered into agreements with all salaried members of the management team where they agreed to reductions of up to one-third in their salaries.  These salary reductions are part of a number of cost cutting measures put in place by the management team.

As both the conversion price of the convertible secured notes and the exercise price of the warrants were known at August 31, 2009, it was possible to determine the value of the short-term liability as $859,874 representing the funding received of $1.75 million reduced by the value of the warrants and the beneficial conversion feature. The amount of warrants and beneficial conversion feature accreted since the closing of the offering are added to the value of the short-term liabilities.

Accrued interest of $40,752 has been reported in the three and nine months ended September 30, 2009 and is included in short-term liabilities.

14. NON-CONTROLLING INTEREST

The adoption of the FASB’s authoritative guidance for non-controlling interests requires the reclassification of amounts previously attributable to minority interest (now referred to as non-controlling interest) to a separate component of Shareholders’ Equity. Additionally, net income attributable to non-controlling interests is shown separately from net income in the consolidated statements of income. This reclassification had no effect on our previously reported financial position or results of operations.

On October 6, 2008, the Company purchased that portion of the non-controlling shareholders ownership interest in TearLab, Inc. that it did not previously own. The following table reconciles equity attributable to non-controlling interest,

	Nine months ended September 30
	2009		2008
Non-controlling interest at the beginning of  period	$	—	$	4,953,960
Non-controlling share of loss from operations in the period		—		(1,964,540	)
Fair value of stock-based compensation		—		135,538
Investment to acquire minority interest		—		—
Non-controlling interest at the end of period	$	—	$	3,124,958

15. CONSOLIDATED STATEMENTS OF CASH FLOWS

The net change in non-cash working capital balances related to operations consists of the following:
 

	Nine months ended September 30,
	2009			2008
Accounts receivable, net	$	240,749		$	345,606
Inventory		(47,412	)		—
Prepaid expenses		22,493			271,908
Other current assets		(15,537	)		(260,742	)
Accounts payable		(66,012	)		(758,156	)
Accrued liabilities		(203,250	)		588,674
Deferred revenue		(68,060	)		97,444
Due to stockholders		15,276			(17,297	)
Short term liabilities		40,752			305,255
	$	(81,001	)	$	572,692

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OccuLogix, Inc.

The following table lists those items that have been excluded from the consolidated statements of cash flows as they relate to non-cash transactions and additional cash flow information:

	Nine months ended September 30,
	2009			2008
Non-cash investing activities
Accrued fixed assets additions	$	(15,840	)	$	—
Additional cash flow information
Cash paid for taxes		—			—
Interest paid	$	—		$	—

16. FINANCIAL INSTRUMENTS

Currency risk

The Company's activities which result in exposure to fluctuations in foreign currency exchange rates consist of the purchase of inventory from suppliers billing in foreign currencies.  The Company does not use derivative financial instruments to reduce its currency risk.

Credit risk

The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and amounts receivable.  The Company maintains its accounts for cash with large low credit risk financial institutions in the United States and Canada in order to reduce its exposure.

During the first nine months of fiscal 2009, the Company derived 100% of its revenue from the sale of the new TearLab product.  17% of this revenue from the TearLab product was from a single distributor and two distributors represented an additional 12% and 11% of the revenue, respectively from the TearLab product.  The Company has recognized the risk and is engaging additional distributors in Europe, Asia, Canada and South America to broaden its customer base and reduce exposure. Currently, there is only one supplier for each of the reader and pen components of the TearLab Osmolarity System and the test cards.  The Company recognizes the risk of having single source suppliers and it is identifying potential solutions to mitigate this exposure.

17. FAIR VALUE MEASUREMENTS

The Company accounts for the methods of measuring fair value in accordance with the provisions of the FASB’s authoritative guidance on fair value measurement. As defined in the guidance, fair value is based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a three-tier fair value hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

At September 30, 2009, the Company has a liability for convertible secured notes which arose on the current quarter and is reported at a carrying value of $990,309.  As a result of the proximity of the completion of the convertible secured note offering to the end of the quarter, the Company determined the carrying value to be a reasonable estimate of fair value.

At September 30, 2009, the Company has a liability for warrants to purchase 110,578 shares of common stock at an exercise price of $46.25 that are valued at $13,590 under the level 3 hierarchy.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Obligations Under Warrants
Beginning balance at January 1, 2009		57,666
Transfer to Level 3		-
Change in fair value included in other (income) / expense		(44,076	)
Purchases, issuances and settlements		-
Ending balance at September 30, 2009		13,590

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OccuLogix, Inc.

18. SEGMENTED INFORMATION

The Company had two reportable segments: retina and point-of-care. The retina segment was in the business of commercializing the RHEO™ System which was used to perform the Rheopheresis™ procedure, a procedure that selectively removes molecules from plasma, which is designed to treat Dry AMD. On November 1, 2007, the Company announced an indefinite suspension of the RHEO™ System clinical development program for Dry AMD. That decision was made following a comprehensive review of the respective costs and development timelines associated with the products in the Company’s portfolio.  In the period subsequent to that decision, the Company has incurred costs to wind up RHEO™ System related outstanding clinical trials. As a result of the suspension of RHEO-AMD activities and the sale of the Company’s investment in SOLX, the Company’s primary business segment is the TearLab™ business.

The point-of-care segment is made up of the TearLab™ business which is currently developing technologies that enable eyecare practitioners to test, at the point-of-care, for highly sensitive and specific biomarkers in tears using nanoliters of tear film.

Inter-segment sales and transfers are minimal.

The Company’s reportable units are strategic business units that offer different products and services. They are managed separately, because each business unit requires different technology and marketing strategies. The business units’ managements were acquired or developed individually. OcuSense’s management was retained at the time of acquisition.

The Company’s business units are as follows:

	Three months ended September 30, 2009
	Retina			Point-of-care			Total
Revenue	$	—		$	263,221		$	263,221
Expenses:
Cost of goods sold		—			138,831			138,831
Operating		484			886,803			887,287
Depreciation and amortization		—			328,957			328,957
Loss from continuing operations		(484	)		(1,091,370	)		(1,091,854	)
Interest income		—			8			8
Interest expense		—			(40,752	)		(40,752	)
Changes in fair value of warrant obligation		—			12,639			12,639
Amortization of deferred financing charges		—			(135,245	)		(135,245	)
Other income (expense), net		—			(17,820	)		(17,820	)
Recovery of income taxes		—			618.371			618,371
Net loss attributable to OccuLogix, Inc.	$	(484	)	$	(654,169	)	$	(654,653	)
Total assets	$	11,822		$	10,662,521		$	10,647,343

	Nine months ended September 30, 2009
	Retina			Point-of-care			Total
Revenue	$	—		$	603,328		$	603,328
Expenses:
Cost of goods sold		—			388,648			388,648
Operating		(1,709	)		3,752,308			3,750,599
Depreciation and amortization		—			988,021			988,021
Loss from continuing operations		1,709			(4,525,649	)		(4,523,940	)
Interest income		—			2,277			2,277
Interest expense		—			(40,752	)		(40,752	)
Changes in fair value of warrant obligation		—			44,076			44,076
Amortization of deferred financing charges		—			(135,245	)		(135,245	)
Other income (expense), net		—			7,749			7,749
Recovery of income taxes		—			1,967,583			1,967,583
Net loss attributable OccuLogix, Inc.	$	1,709		$	(2,679,961	)	$	(2,678,252	)
Total assets	$	11,822		$	10,662,521		$	10,647,343

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OccuLogix, Inc.

	Three months ended September 30, 2008
	Retina			Point-of-care			Total
Revenue	$	23,900		$	—		$	23,900
Expenses:
Cost of goods sold		1,945			—			1,945
Operating		191,226			1,311,935			1,503,161
Restructuring Charges		74,128			—			74,128
Depreciation and amortization		776			334,400			335,176
Loss from continuing operations		(244,175	)		(1,646,335	)		(1,890,510	)
Interest income		16,200			1,746			17,946
Interest expense		(169,540	)		—			(169,540	)
Amortization of finance costs		(48,000	)		—			(48,000	)
Changes in fair value of warrant obligation		(68,281	)		—			(68,281	)
Other income (expense), net		93,999			37,656			131,655
Recovery of income taxes		—			(1,649,632	)		(1,649,632	)
Net loss for the period		(419,797	)		(3,256,565	)		(3,676,362	)
Net loss attributable to non-controlling interest, net of tax		—			1,393,410			1,393,410
Net loss attributable OccuLogix, Inc.	$	(419,797	)	$	(1,863,155	)	$	(2,282,952	)
Total assets	$	1,915,285		$	1,529,513		$	3,444,798

	Nine months ended September 30, 2008
	Retina			Point-of-care			Total
Revenue	$	158,300		$	—		$	158,300
Expenses:
Cost of goods sold		26,501			—			26,501
Operating		2,242,124			3,745,071			5,988,145
Restructuring Charges		1,029,646			—			1,029,646
Depreciation and amortization		16,209			946,611			961,870
Loss from continuing operations		(3,156,180	)		(4,691,682	)		(7,847,862	)
Interest income		63,782			4,713			68,495
Interest expense		(305,256	)		—			(305,256	)
Amortization of finance costs		(180,000	)		—			(180,000	)
Changes in fair value of warrant obligation		(68,281	)		—			(68,281	)
Impairment of investments		(450,072	)		—			(450,072	)
Other income (expense), net		114,163			37,730			151,893
Recovery of income taxes		—			(430,465	)		(430,465	)
Net loss for the period		(3,981,844	)		(5,079,704	)		(9,061,548	)
Net loss attributable to non-controlling interest, net of tax		—			1,964,540			1,964,540
Net loss attributable OccuLogix, Inc.	$	(3,981,844	)	$	(3,115,164	)	$	(7,097,008	)
Total assets	$	1,915,285		$	1,529,513		$	3,444,798

22

OccuLogix, Inc.

19. COMPREHENSIVE LOSS

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events, including foreign currency translation adjustments and unrealized gains (losses) on available for sale investments. For the three and nine months ended September 30, 2009 and 2008, Comprehensive loss and Net loss are the same.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our restated consolidated financial statements and related notes, included in Item 1 of this Report.  Unless otherwise specified, all dollar amounts are U.S. dollars.

Overview

We are an in vitro diagnostic company that has developed a proprietary tear testing platform, the TearLab™ Osmolarity System.  The TearLab test measures tear film osmolarity for assisting in the diagnosis and treatment of Dry Eye Disease, or DED.  Tear osmolarity is a quantitative and highly specific biomarker that has been shown to correlate with DED.  The TearLab test enables the rapid measurement of tear osmolarity in a doctor's office.  We refer to the results of our TearLab testing platform as our TearLab business division in the discussion of our operating results below.  Commercializing our TearLab tear testing platform is now the focus of our business.

In the fourth quarter of 2008, we began to generate revenue from the sales of the TearLab point-of-care testing platform in Europe. In October 2008, our testing platform received CE mark approval which allowed us to begin sales efforts in the European Union and other countries recognizing the CE mark.  We subsequently entered into exclusive distribution agreements with distributors in over 17 countries globally.

We received 510(k) clearance of the TearLab™ Osmolarity System from the United States Food and Drug Administration, or FDA.  The 510(k) allows us to market our TearLab Osmolarity System to those reference and physician operated laboratories with certifications under the regulations of the Clinical Laboratory Improvement Amendments, or CLIA, allowing them to perform moderate and high complexity tests.  Considering that most of our target customers are eye care practitioners without such certifications, we intend to seek a CLIA waiver from the FDA for the TearLab Osmolarity System.  We anticipate receiving the CLIA waiver during the first half of 2010.  A CLIA waiver would greatly reduce the regulatory compliance for our future customers and permit them to perform the TearLab Osmolarity test in their offices.  If we receive a CLIA waiver, we will be able to market our product to the approximately 50,000 eye care practitioners that do not currently operate with moderate and high complexity CLIA certifications.

The Company’s strategy is to educate eye care practitioners everywhere that the TearLab Osmolarity System provides objective evidence of Hyperosmolarity, enabling them to effectively diagnosis and treat their patients with DED. The Company is partnering with key opinion leaders globally to generate local country data to increase awareness and educate eye care professionals.  The Company will be presenting the results of the clinical trials at conferences and trade shows and will publish the data in peer-reviewed journals.

Management believes that the ability to generate increasing sales will require both obtaining the previously discussed 510(k) clearance and CLIA waiver approvals from the FDA as well as the implementing a successful awareness campaign. While we obtained the 510(k) clearance from the FDA earlier this year we are still pursuing the CLIA waiver approval and until both have been achieved, sales growth is expected to be modest.

Our success is highly dependent on our ability to increase sales of our testing platform in European and other countries recognizing the CE mark and the 510(k) clearance from the FDA and on obtaining receipt of both the 510(k) clearance and a CLIA waiver which will enable us to begin full commercialization efforts in the United States.  Meeting either of these objectives requires that we raise additional capital to fund our operations.  Including the financing received in July and August 2009, we have sufficient cash to fund our operations at current levels through approximately the end of December 2009.  We are actively evaluating and pursuing various financing possibilities at this time.

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OccuLogix, Inc.

Recent Developments

On January 16, 2009, we announced that we would begin to conduct business as TearLab Corporation.  We also changed our ticker symbols on the NASDAQ and Toronto Stock Exchange to TEAR and TLB, respectively.  We anticipate that the official name change will be effective some time after stockholder approval is received.

On February 11, 2009, we filed with the Securities and Exchange Commission, or the SEC, a prospectus as part of a registration statement on Form S-3 using a "shelf" registration process.  Under the shelf process, once the registration statement was declared effective by the SEC, we may from time to time offer or sell any combination of common stock, preferred stock, debt securities, depository shares or warrants in one or more offerings up to a total dollar value of $30,000,000.  The registration statement was declared effective by the SEC on July 20, 2009.

On July 15, 2009, the Company announced that it had entered into and closed an agreement with certain investors whereby the investors agreed to provide financing (the “Financing”) to the Company through the purchase of convertible secured notes, in the aggregate amount of $1.55 million.  On August 31, 2009, an additional $200,000 of financing was received by the Company to bring the total funding received to $1.75 million. The convertible secured notes (the “Notes”) evidencing the Financing, mature on the second anniversary of their issuance (“the Maturity Date”), bear interest at a rate of 12% per annum and are convertible into shares of the Company’s common stock upon the request of holders of 51% or more of the outstanding principal amount of the Notes at any time after August 31, 2009 and prior to the Maturity Date.  The conversion price of the Notes (the “Discount Price”) is $1.3186 determined on August 31, 2009 and represents 80% of the volume weighted average price on the NASDAQ stock market for the ten trading days prior to August 31, 2009.  Any such conversion is limited to prevent the number of shares issued upon conversion of the Notes from exceeding 19.9% of the outstanding common stock of the Company, measured prior to the date of the Financing.  The Notes are secured by substantially all of the assets of the Company and the financing is subject to customary conditions to closing.

RESULTS OF OPERATIONS

Revenue, Cost of Sales and Gross Margin

	Three Months Ended September 30, (in thousands)									Nine Months Ended September 30, (in thousands)
	2009			2008			Change			2009			2008			Change
	$			$			$			$			$			$
TearLab revenue		263			—			263			603			—			603
Retina revenue		—			24			(24	)		—			158			(158	)
TearLab – cost of sales		139			—			139			389			—			389
Retina cost of sales		—			2			(2	)		—			27			(27	)
TearLab gross margin (loss)		124			—			124			214			—			214
Percentage of TearLab revenue		47	%		—			N/M	*		35	%		—			N/M	*
Retina gross margin (loss)		—			22			22			—			131			(131	)
Percentage of retina revenue		—			92	%		N/M	*		—			83	%		N/M	*

*N/M – Not meaningful

24

OccuLogix, Inc.

Revenues

TearLab Revenue

TearLab revenue consists of sales of the TearLab Osmolarity System, which is a hand-held tear film test for the measurement of tear osmolarity, a quantitative and highly specific biomarker that has shown to correlate with DED.

The TearLab Osmolarity System consists of the following three components: (1) the TearLab disposable, which is a single-use microfluidic labcard; (2) the TearLab pen, which is a hand-held device that interfaces with the TearLab disposable; and (3) the TearLab reader, which is a small desktop unit that allows for the docking of the TearLab disposable and the TearLab pen and provides a quantitative reading for the operator.

In October 2008, the TearLab Osmolarity System received CE mark approval, clearing the way for sales in the European Union and all countries recognizing the CE mark.  In connection with the CE mark clearance, we have entered into multi-year agreements with distributors for exclusive distribution of TearLab Osmolarity System in over 17 countries including the United Kingdom, the Republic of Ireland, Germany, Spain, Switzerland, France, Turkey, Benelux, Russia, Ukraine, Korea, Australia, Austria, Hungary, Greece, Canada and Italy.  We intend to expand our distribution network to include additional European, Asian and Latin American countries in the future.  The Company is supporting these distributors in local clinical trials and in providing them with the required guidance to understand the relationship between DED and osmolarity and how to manage their patients with objective diagnostic data. We recognized our first revenue from the sales of TearLab in October 2008 and recognized a total of $300,000 of revenue during the year ended December 31, 2008. In May 2009, the Company received 510(k) approval from the FDA which allows us to market our TearLab Osmolarity System to those reference and physician operated laboratories with certifications under the regulations of CLIA, allowing them to perform moderate and high complexity tests. The Company completed the required updating of its labeling to reflect the 510(k) approval and began selling in the United States in the third quarter of 2009.  The Company recognized revenue of $603,328 and $0 in the nine months ended September 30, 2009 and 2008, respectively.

Retina Revenue

The key components of the RHEO™ System consist of (1) a Rheofilter filter, a Plasmaflo filter and tubing which, together, comprise a disposable treatment set and (2) an Octo Nova pump.

The Company owned consignment inventory of 400 disposable treatment sets held by Macumed AG, a company based in Switzerland. During the nine months ended September 30, 2008, Macumed consumed a total of 123 treatment sets, at a negotiated price of $150 per treatment set, resulting in revenue of $18,500.  Also during the nine months ended September 30, 2008, Diamed Medizintechnik GmbH, or Diamed purchased 115 Octo Nova Pumps at $1,200 per pump, resulting in $139,800 in revenue.

There was no revenue from retina sales in the nine months ended September 30, 2009 as all RHEO System inventory had been sold or disposed of in 2008.

TearLab Cost of Sales

TearLab cost of sales includes costs of goods sold and royalty costs.  Our cost of goods sold consists primarily of costs for the manufacture of the TearLab test, including the costs we incur for the purchase of component parts from our suppliers, applicable freight and shipping costs, fees related to warehousing and logistics inventory management. Also included in TearLab cost of sales for the nine month period ended September 30, 2009 were costs for excess inventory of $56,340.

Retina Cost of Sales

Cost of sales includes costs of goods sold and royalty costs. Our cost of goods sold for the nine months ended September 30, 2008 includes royalty fees of $25,000, and shipping and handling costs of $1,500.  In 2007, all RHEO System inventory was written down to nil as a result of the decision to suspend all RHEO™ System-related activities.  Accordingly, there was no additional cost of sales recorded in the nine months ended September 30, 2008.

TearLab Gross Margin

During the nine months ended September 30, 2009, gross margin was $214,000 or 35% of revenue; largely impacted by the provision recorded for excess inventory of $56,340. There was no gross margin from TearLab sales in the nine months ended September 30, 2008 as the TearLab Osmolarity System did not receive CE mark approval until October 2008.

Retina Gross Margin

25

OccuLogix, Inc.

During the nine months ended September 30, 2008, gross margin was $131,000 or 83% of revenue, reflecting nil-value inventory items sold and royalty and shipping fees of $25,000 and $1,500 respectively.

There was no gross margin from retina sales in the nine months ended September 30, 2009 as all RHEO System inventory had been sold or disposed of in 2008.

Operating Expenses

	Three months ended September 30 (in thousands)							Nine months ended September 30  (in thousands)
	2009		2008		Change			2009		2008		Change
	$		$		$			$		$		$
Amortization of intangible assets		304		317		(13	)		911		903		8
General and administrative		566		630		(64	)		2,460		2,914		(454	)
Clinical and regulatory		229		672		(443	)		868		2,503		(1,635	)
Sales and marketing		117		219		(102	)		500		629		(129	)
Restructuring charges		—		74		(74	)		—		1,030		(1,030	)
Operating expense		1,216		1,912		(696	)		4,739		7,979		(3,240	)

Amortization of Intangible Assets

Amortization of intangible assets decreased by $13,000 or 4% during the three months ended September 30, 2009, as compared with the corresponding fiscal period in fiscal 2008 and amortization of intangible assets increased by $8,000 or 1% during the nine months ended September 30, 2009, as compared with the corresponding fiscal period in fiscal 2008. Variances in the amortization amounts arose from adjustments to Section 382 losses benefitted and capitalized from January through October of 2008.

General and Administrative Expenses

General and administrative expenses decreased by $64,000 or 10% during the three months ended September 30, 2009, as compared with the corresponding period in fiscal 2008, primarily due to a $118,000 reduction in audit, tax, and Sarbanes-Oxley compliance costs.  In addition, executive costs and Board of Directors fees have been reduced by $150,000.  Finally legal and administration costs have been reduced by $93,000 as a result of management headcount reductions and reduced occupancy costs.

These decreases were offset by a $263,000 increase in public company costs as a result of an adjustment to accruals in 2008, and a $40,000 increase in employee-related costs which reflects an increase in administrative headcount as our operations have substantially shifted to San Diego, CA.

General and administrative expenses decreased by $454,000 or 16% during the nine months ended September 30, 2009, as compared with the corresponding period in fiscal 2008, due in part to a $411,000 reduction in audit, tax, compliance and franchise tax costs.  Legal department costs decreased by $280,000 reflecting reduced department headcount and settlement costs incurred 2008.  Executive and administrative costs were reduced by $171,000 and $98,000 respectively due to reduced management headcount and consolidation of operations.

These decreases were offset by a $310,000 increase in manufacturing and operations department costs as our operations have substantially shifted to San Diego, CA and increased investor relations expenses of $210,000 as a result of an adjustment to accruals in 2008.

We are continuing to focus our efforts on controlling costs by reviewing and improving upon our existing business processes and cost structure.

Clinical, Regulatory and Research and Development Expenses

Total clinical and regulatory expenses decreased by $443,000 or 66% during the three months ended September 30, 2009, as compared with the corresponding prior year period.  Research and development expenditures specific to TearLab product for the three months ended September 30, 2009 and 2008 were $87,000 and $580,000 respectively.  The decrease of $493,000 reflects the maturing stage of TearLab technological development in that the development of the TearLab Osmolarity System ended at the end of September 2008 and moved to a production or commercial focus.  This decrease was offset by a $15,000 increase in labor expense in the current year for on-going engineering support.

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OccuLogix, Inc.

An additional decrease of $25,000 relates to the indefinite suspension of our RHEO™ System clinical development program. This is offset by a $60,000 increase in clinical trial expenses related to FDA 510K and CLIA certification. These achievements allowed the Company to move forward with clinical trials and attain the CE Mark in Europe and 510(k) approval from the FDA in the US, in advance of commercialization but resulted in a reduced need for development activities.

For the nine months ended September 30, 2009 total clinical and regulatory expenses decreased by $1,635,000 or 65%, as compared with the corresponding prior year period.  Research and development expenditures specific to the TearLab product for the nine months ended September 30, 2009 and 2008 were $277,000 and $1,997,000, respectively. The decrease of $1,720,000 reflects the maturing stage of TearLab technological development in that the development of the TearLab Osmolarity System ended at the end of September 2008 and moved to a production or commercial focus.  This decrease was offset by a $121,000 increase in labor expense in the current year for on-going engineering support.

An additional decrease of $107,000 relates to the indefinite suspension of our RHEO™ System clinical development program.  This is offset by a $71,000 increase in clinical trial expenses related to FDA 510K and CLIA certification. These achievements allowed the Company to move forward with clinical trials and attain the CE Mark in Europe and 510(k) approval from the FDA in the US, in advance of commercialization but resulted in a reduced need for development activities.

Sales and Marketing Expense

Sales and marketing expenses decreased by $102,000 or 47% during the three months ended September 30, 2009, as compared with the prior period in fiscal 2008. The decrease in TearLab marketing costs primarily reflects a $176,000 reduction in advertising and trade show costs in the current year, offset by a $74,000 increase in stock compensation expense after a one-time adjustment in 2008.  These cost reductions have been achieved as the Company has used fewer financial resources following the launch of the TearLab product in Europe, Asia and the U.S.A.

Sales and marketing expenses decreased by $129,000 or 21% during the nine months ended September 30, 2009, as compared with the prior period in fiscal 2008. The decrease in TearLab marketing costs primarily reflects a reduction in advertising and trade show costs.  These costs reductions have been achieved as the Company has used fewer financial resources following the launch of the TearLab product in Europe, Asia and the U.S.A.

The cornerstone of our sales and marketing strategy to date has been to increase awareness of our products among eye care professionals and, in particular, the key opinion leaders in the eye care professions. We assist key opinion leaders in performing clinical trials to generate increased data to provide an increased understanding in the use of the TearLab Osmolarity System for diagnostic, treatment and monitoring of patients.  Presently we are primarily focused on commercialization in Europe and developing plans to do the same in North America when we receive the CLIA waiver. We will continue to develop and execute our conference and podium strategy to ensure visibility and evidence-based positioning of the TearLab™ Osmolarity System among eye care professionals.

Restructuring and Other

In 2006, due to unfavorable product trial results and other factors we began to restructure our operations, which were then focused on the commercialization of our RHEO™ System for treatment for age-related eye disease (our Retina business division), the SOLX Glaucoma System glaucoma treatment platform and the TearLab, Inc. testing platform.  During 2007, we indefinitely suspended our RHEO System clinical development program and disposed of our SOLX subsidiary.  We recognized restructuring charges of $2.4 million, $1.3 million and $820,000 in 2008, 2007 and 2006, respectively, primarily resulting from the cost of severance and benefits paid to terminated employees.  Also during 2007, we recognized an impairment of an intangible asset related to RHEO distribution agreements of $20.9 million.

We do not expect to realize any revenue related to RHEO in the future.  The operating results of SOLX, referred to as our Glaucoma business division, are reflected as discontinued operations for all periods prior to its disposition in December 2007.

During 2008, we completed a number of restructuring transactions, collectively referred to as the Restructuring Transactions, including a private placement, or PIPE, the receipt and conversion of bridge loans, or the Bridge Loans, the acquisition of the minority shareholdings of TearLab, Inc. that we did not already own, and a reverse stock split of 25:1.  The successful completion of these Restructuring Transactions enabled us to focus our ongoing efforts on the commercialization and continued development of the TearLab testing platform.

The Company incurred restructuring expenses of $74,128 and $1,029,646 in the three and nine months ended September 30, 2008, respectively. There were no similar costs incurred in 2009.

Other Income (Expense)

27

OccuLogix, Inc.

	Three Months Ended September 30, (in thousands)									Nine Months Ended September 30, (in thousands)
	2009			2008			Change			2009			2008			Change
	$			$			$			$			$			$
Interest income		―			18			(18	)		2			68			(66	)
Changes in fair value of warrant obligation		13			―			13			44			(68	)		112
Interest expense		(41	)		(170	)		129			(41	)		(305	)		264
Amortization of finance costs		(135	)		(48	)		(87	)		(135	)		(180	)		45
Impairment of investments		―			(68	)		68			―			(450	)		450
Other		(18	)		132			(150	)		8			152			(144	)
		(181	)		(136	)		(45	)		(122	)		(783	)		661

Interest Income

Interest income consists of interest income earned in the current period and the corresponding prior period as a result of the Company’s cash and short-term investment position following the raising of capital and debt.  The decrease in interest income in the three and nine month periods ended September 30, 2009 and 2008 is indicative of the Company’s liquidation of its short-term investment positions.

Changes in Fair Value of Obligation under Warrants and Warrant Expense

On February 6, 2007, pursuant to the Securities Purchase Agreement between the Company and certain institutional investors, the Company issued five-year warrants exercisable into an aggregate of 106,838 shares of the Company’s common stock to these investors. On February 6, 2007, the Company also issued a five-year warrant exercisable into an aggregate of 3,740 shares of the Company’s common stock to Cowen and Company, LLC in part payment of the placement fee payable to Cowen and Company, LLC for the services it had rendered as the placement agent in connection with the private placement of the Company’s shares of common stock and warrants. The per share exercise price of the warrants is $46.25, subject to adjustment, and the warrants became exercisable on August 6, 2007. All of the terms and conditions of the warrants issued to Cowen and Company, LLC (other than the number of shares of the Company's common stock into which the warrant is exercisable) are identical to those of the warrants issued to the institutional investors. The Company accounts for the warrants in accordance with the applicable FASB provisions.Based on these applicable provisions, the Company determined that the warrants issued during the nine months ended September 30, 2007 do not meet the criteria for classification as equity. Accordingly, the Company has classified the warrants as a current liability. The estimated fair value was determined using the Black-Scholes option-pricing model. In addition, applicable FASB guidance requires the Company to record the outstanding warrants at fair value at the end of each reporting period resulting in an adjustment to the recorded liability of the derivative, with any gain or loss recorded in earnings of the applicable reporting period. The Company therefore estimated the fair value of the warrants as of September 30, 2009 and determined the aggregate fair value to be $13,590, a decrease of $44,076 from the nominal value calculated as at December 31, 2008.

Interest Expense

On July 15, 2009, the Company announced that it had entered into and closed an agreement with certain investors whereby the investors agreed to provide financing (the “Financing”) to the Company through the purchase of convertible secured notes, in the aggregate amount of $1.55 million.  On August 31, 2009, an additional $200,000 of financing was received by the Company to bring the total funding received to $1.75 million. The convertible secured notes (the “Notes”) evidencing the Financing, mature on the second anniversary of their issuance (“the Maturity Date”), bear interest at a rate of 12% per annum and are convertible into shares of the Company’s common stock upon the request of holders of 51% or more of the outstanding principal amount of the Notes at any time after August 31, 2009 and prior to the Maturity Date.  Accrued interest of $40,752 has been reported in the three and nine months ended September 30, 2009 and is included in short-term liabilities.

On February 19, 2008, the Company announced that it had secured bridge loans in an aggregate principal amount of $3,000,000 (less transaction costs paid of approximately $180,000) from a number of private parties. The loan which was converted into equity in October 2008, earned interest at a rate of 12% per annum and has a 180-day term initially, which subsequently was extended to 270 days. The Company had pledged its shares of the capital stock of OcuSense as collateral for these bridge loans. Interest expense due to lenders for the three and nine months ended September 30, 2008 was $169,540 and $305,256, respectively.

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Amortization of Deferred Finance Charges, Warrants and Beneficial Conversion values

As a result of the Financing that the Company entered into and which resulted in the purchase of $1.75 million in convertible secured notes by the investors, investors were in a position to convert the notes at a conversion price of $1.3186 per share at a time when the common shares of the Company were trading at $1.75 (July 15th) and $1.70 (August 31st) providing them with a beneficial conversion feature. The Company has valued this feature as $727,528 and the accretion of this amount as an expense over the two year life of the convertible secured notes in the three and nine months ended September 30, 2009 was $106,879 and $106,879, respectively. No similar expense was reported in the three and nine months ended September 30, 2008.

Investors in the Financing will receive warrants at an exercise price of $1.60 upon conversion of the convertible secured notes. The Company has valued these warrants using the Black-Scholes value model at a value of $162,621. The accretion of this amount as an expense over the two year life of the convertible secured notes in the three and nine months ended September 30, 2009 was $23,550 and $23,550, respectively. No similar expense was reported in the three and nine months ended September 30, 2008.

Issuance costs of the Financing totaled $67,008 and have been allocated to cost of equity and to deferred finance charges. The amortization of the deferred finance charges as an expense over the two year life of the convertible secured notes in the three and nine months ended September 30, 2009 was $4,816 and $4,816, respectively.

Finance costs for the three and nine months ended September 30, 2008 reflect amortization of a $180,000 fee paid to Marchant Securities Inc., or Marchant, a related party, for introducing the Company to the bridge loan lenders who participated in the February 19, 2008 bridge financing.  The finance costs were amortized over the initial 180 day term of the bridge financing and resulted in an expense of $48,000 and $180,000 for the three and nine months ended September 30, 2008, respectively.

Impairment of Investments

As of September 30, 2009 and December 31, 2008, the Company had fully liquidated its prior investments in the aggregate principal amount of $1,900,000 consisting of investments in four separate asset-backed auction rate securities, or ARS. As a result of liquidity issues experienced in the global credit and capital markets, the Company’s ARS experienced multiple failed auctions. During 2008, prior to liquidating the ARS, the Company continued to earn and receive interest on these investments at the maximum contractual rate, but the estimated fair value of these ARS was no longer believed to approximate par value.

Although the Company continued to receive payment of interest earned on these securities, the Company did not previously know when it would be able to convert these investments into cash.   In accordance with a settlement agreement among the New York Attorney General’s Office, the North American Securities Administrators Association and Credit Suisse, the financial institution through which the Company had purchased its ARS, subsequent to September 30, 2008, Credit Suisse purchased all of the Company’s ARS at the Company’s original cost of $1,900,000, plus accrued interest, when each of these securities came up for auction.

Impairment costs of $68,281 and $450,072 for the three and nine months ended September 30, 2008 were reported as an expense.  As the ARS were liquidated in late 2008, no similar expense was incurred in the three and nine months ended September 30, 2009.

Other

Other income for the nine months ended September 30, 2008 was $152,000 including a foreign exchange gain of $107,000 and a gain of $48,000 reflecting prior RHEO system royalty commitments which were not paid.

Other income for the nine months ended September 30, 2009 was $8,000 including a foreign exchange gain of $4,000, and a gain of $4,000 on the disposal of fixed assets.

Recovery of Income Taxes

Recovery of income taxes increased by $2,398,000 to $1,968,000 during the nine months ended September 30, 2009, as compared with an income tax expense of $430,000 in the nine months ended September 30, 2008. The recovery of income taxes for the three months ended September 30, 2009 increased by $2,268,000 to $618,000 as compared to an income tax expense of $1,650,000 reported in the three months ended September 30, 2008. As a result of the completion of the reorganization transactions on October 6, 2008, TearLab, Inc.’s tax filings can be consolidated with those of the Company’s. Accordingly, income tax benefits were reported on losses incurred both by OccuLogix and TearLab, Inc. in the three and nine months ended September 30, 2009 while in the three and nine months ended September 30, 2008, the reorganization transactions reflected a change of control for tax purposes making Section 382 provisions of the Income Tax Code applicable and resulted in the reversal of a large portion of tax losses previously benefitted and reported.

To date, the Company has recognized income tax benefits in the aggregate amount of $3.8 million associated with the recognition of the deferred tax asset from the availability of net operating losses in the United States which may be utilized to reduce taxes in future years. The benefits associated with the balance of the net operating losses are subject to a full valuation allowance since it is not more likely than not that these losses can not be utilized in future years. A portion of the Company’s net operating losses may, however, be subject to annual limitations as a result of the Company’s initial public offering and prior changes of control. Accordingly, until a formal analysis of the effect of the changes of control is performed, a portion of the income tax benefits recognized to date may be affected.

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Recovery of income taxes for the three and nine months ended September 30, 2009 and 2008, respectively also includes the amortization of the deferred tax liability which was recorded based on the difference between the fair value of intangible assets acquired and their tax bases. The amounts recorded during the nine months ended September 30, 2009 were $417,000, as compared with amortization of $361,000 for the nine months ended September 30, 2008. The amounts recorded for the three months ended September 30, 2009 and September 30, 2008 were $174,000 and 121,000, respectively.

The deferred tax liability recorded upon the acquisition of TearLab, Inc. of $5.2 million represents the difference between the fair value of the intangible assets acquired by the Company upon its acquisition of TearLab, Inc. and their respective tax bases. The deferred tax liability is being amortized over an average period of 10 years, the estimated weighted-average useful life of the intangible assets.

The deferred tax liability recorded upon the closing of the Financing of $0.4 million represents the difference between the value of the funding received from investors in the Financing and the book value recorded after allocating value to the warrants and beneficial conversion feature associated with the Financing. The deferred tax liability is being amortized over an average period of two years, the term of the short-term liabilities if not converted.

Non-controlling Interest

Minority stockholder’s share of net losses from TearLab operations for the three and nine months ended September 30, 2008 was $1,393,000 and $1,965,000, respectively. As a result of the Company’s acquisition of the remaining minority shareholders’ interest in TearLab on October 6, 2008, no similar amount was applicable to the three and nine months ended September 30, 2009.

Liquidity and Capital Resources

(in thousands)

	September 30,			December 31,
	2009			2008		Change
Cash and cash equivalents	$	967		$	2,565	$	(1,598	)
Percentage of total assets		9%			19%
Working capital	$	(775	)	$	1,550	$	(2,325	)

Financial Condition

Management believes that our cash, cash equivalents and short-term will be sufficient to meet our operating activities and other demands until approximately the end of December 2009.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties.  Actual results could vary as a result of a number of factors.  We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.  Our future funding requirements will depend on many factors, including but not limited to:

· the cost and results of continuing development of TearLab, Inc.'s TearLab Osmolarity System;

· the cost and results, and the rate of progress, of the clinical trials of the TearLab Osmolarity System that will be required to support TearLab, Inc.'s application to obtain a CLIA waiver approval from the FDA;

· TearLab, Inc.'s ability to obtain a CLIA waiver approval from the FDA for the TearLab Osmolarity System and the timing of such approval, if any;

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OccuLogix, Inc.

· whether government and third-party payers agree to reimburse the TearLab Osmolarity System;

· the costs and timing of building the infrastructure to market and sell the TearLab Osmolarity System;

· the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

· the effect of competing technological and market developments.

At the present time, our only product is the TearLab Osmolarity System, and while we have received 510(k) approval from the FDA which allows us to commercialize our product in the United States, we are currently limited to selling to facilities that have moderate and high complexity CLIA certifications.  Obtaining a CLIA waiver approval from the FDA will enable us to market our product to the approximately 50,000 eye care practitioners that do not operate with moderate and high complexity CLIA certifications.  At this time, we do not know when we can expect to begin to generate significant revenues from the TearLab Osmolarity System in the United States.

We will need additional capital in approximately December 2009, and our prospects for obtaining that capital are uncertain.  Additional capital may not be available on terms favorable to us, or at all.  In addition, future financings could result in significant dilution of existing stockholders.  However, unless we succeed in raising additional capital, we anticipate that we will be unable to continue our operations beyond approximately December 2009.

Ongoing Sources and Uses of Cash

We are actively evaluating and pursuing various financing possibilities at this time.  We typically expect our primary sources of cash will be related to the collection of accounts receivable and, to a lesser degree, interest income on our cash and investment balances.  Our accounts receivable collections will be impacted by our ability to grow our point-of-care revenue, any bad debts we experience and our overall collection rates on the related accounts receivable.

We expect our primary uses of cash will be to fund our operating expenses and pursuing and maintaining our patents and trademarks.  In addition, dependent on available funds, we expect to expend cash to improve production capability of the TearLab test, to further improve the performance of the TearLab test, and to pursue additional applications for the lab-on-a-chip technology.

Changes in Cash Flows

	Nine months ended September 30, (in thousands)
	2009			2008			Change
Cash used in operating activities	$	(3,257	)	$	(6,305	)	$	3,048
Cash used in investing activities		(24	)		(346	)		322
Cash provided by financing activities		1,683			6,523			(4,840	)
Net decrease in cash and cash equivalents  period	$	(1,598	)	$	(128	)	$	(1,470	)

Cash Used in Operating Activities

Net cash used to fund our operating activities during the nine months ended September 30, 2009 was $3,257,000.  Net loss during the nine month period was $2,678,000. The non-cash sources which comprise a portion of the net loss during that period consist primarily of the amortization of intangible assets, fixed assets, patents and trademarks, the provision for obligation under warrants, stock-based compensation, amortization of prepaid or deferred finance charges, accretion of warrant and beneficial conversion values and accrued interest from the convertible secured note financing in the aggregate total of $1,474,000. Offsetting additional non-cash amounts which comprise a portion of the net loss during that period include deferred tax charges of $1,968,000 and gain on disposal of fixed assets of $4,000.

The net change in non-cash working capital balances related to operations for the six months ended June 30, 2009 and 2008 consists of the following:

Cash provided (used)	Nine months ended  September 30, (in thousands)
	2009			2008
	$			$
Amounts receivable, net		241			346
Inventory		(47	)		(31	)
Prepaid expenses		22			303
Other current assets		(16	)		(261	)
Accounts payable		(66	)		(758	)
Accrued liabilities		(203	)		589
Deferred revenue		(68	)		97
Due to stockholders		15			(17	)
Short term liabilities		41			305
		(81	)		573

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OccuLogix, Inc.

· Accounts receivable decreased due to receipts of TearLab distributor fees and recovery of amounts due for sales taxes.

· Inventory increased, reflecting sales of the TearLabTM  Osmolarity System at a slower rate than production inventory acquired.

· Prepaid expenses decreased primarily due to the amortization of prepaid insurance.

· Other current assets increased due to deferred finance charges associated with the Financing.

· Accounts payable decreased due primarily to the timing of payment cycles in the monthly accounting process.

· Accrued liabilities decreased primarily due to the payment of annual audit fees and payment of accrued TearLab related royalty liabilities.

· Deferred revenue decreased, reflecting the shipment of TearLab products for which customers had paid in advance.

· Amounts due to stockholders increased, reflecting unpaid amounts related to administrative services provided by TLC Vision Corporation.

Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2009 was $24,000. Cash used in investing activities during the period consists of $28,000 used to acquire fixed assets, net of proceeds of $4,000 on sale of fixed assets.

Net cash used in investing activities for the nine months ended September 30, 2008 was $346,000. Cash used in investing activities during the period consisted of cash in the amount of $51,000 used to acquire fixed assets, cash in the amount of $95,000 used for capitalizable patents and trademark costs and restricted funds at quarter end of $200,000.

Cash Provided by Financing Activities

During the first nine months ended September 30, 2009, the Company issued convertible secured notes in a principal amount of $1,750,000, offset by costs of $67,000. The notes have a two year term. During the first nine months ended September 30, 2008, the Company secured bridge financing in a principal amount of $6,703,500, offset by costs of $180,000. The debt was prepaid in full on October 6, 2008.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related 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. We continually evaluate our estimates and judgments, the most critical of which are those related to revenue recognition and inventory valuation. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

There were no significant changes during the nine months ended September 30, 2009 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting Pronouncements

For information on the recent accounting pronouncements impacting our business, see Note 2 of the Notes to the unaudited Consolidated Financial Statements for the nine months ended September 30, 2009 included in Item 1.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currency Fluctuations and Exchange Risk

All of our sales are in U.S. dollars, while a portion of our expenses are in Canadian dollars and Australian dollars.  We cannot predict any future trends in the exchange rate of the Canadian dollar or Australian dollar against the U.S. dollar.  Any strengthening of the Canadian dollar or Australian dollar in relation to the U.S. dollar would increase the U.S. dollar cost of our operations, and affect our U.S. dollar measured results of operations.  We maintain bank accounts in both Canadian dollars and Australian dollars to meet short term operating requirements.  Based on the balances in the Canadian dollar and Australian dollar denominated bank accounts at September 30, 2009, hypothetical increases of $0.01 in the value of the Canadian dollar and the Australian dollar in relation to the U.S. dollar would not have a material impact on the results of our operations.  We do not engage in any hedging or other transactions intended to manage these risks.  In the future, we may undertake hedging or other similar transactions or invest in market risk sensitive instruments if we determine that is advisable to offset these risks.

Interest Rate Risk

The primary objective of our investment activity is to preserve principal while maximizing interest income we receive from our investments, without increasing risk.  We believe this will minimize our market risk.  We do not use interest rate derivative transactions to manage our interest rate risk.  We reduce our exposure to interest rate risk by investing in investment grade securities or money market accounts.  Declines in interest rates over an extended period of time will reduce our interest income while an increase over an extended period of time will increase our interest income.  A reduction of interest rate by 100 basis points over the nine months ended September 30, 2009 would reduce interest income by under $10,000 annually.

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OccuLogix, Inc.

ITEM 4. CONTROLS AND PROCEDURES

(a)  Disclosure Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time reports specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including our principal executive officer, or the CEO, and our principal financial officer, or the CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the nine-month period ended September 30, 2009, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) . Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of the end of that fiscal period, the Company’s disclosure controls and procedures are effective to provide reasonable assurance of achieving the desired control objectives.

(b)Changes in Internal Control over Financial Reporting. During the three-month period ended September 30, 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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OccuLogix, Inc.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not aware of any material litigation involving us that is outstanding, threatened or pending.

ITEM 1A. RISK FACTORS

Risks Relating to our Business

Our near-term success is highly dependent on the success of the TearLab Osmolarity System, and we cannot be certain that it will receive regulatory approval or be successfully commercialized in the United States.

The TearLab™ Osmolarity System is currently our only product.  Our product is currently sold outside of the United States pursuant to CE mark approval and in the United States as a result of having received 510(k) approval from the FDA to market the TearLab™ Osmolarity System to those reference and physician operated laboratories with moderate and high complexity CLIA certifications.  We intend to seek a CLIA waiver, from the U.S. Food and Drug Administration, or the FDA which will allow us to sell to those eye care professionals who do not have Clinical Laboratory Improvement Act, or CLIA certifications to perform moderate and high complexity tests.  Even if the TearLab Osmolarity System receives all regulatory approvals in the United States, it may never be successfully commercialized.  If the TearLab Osmolarity System does not receive all regulatory approvals or is not successfully commercialized, we may not be able to generate revenue, become profitable or continue our operations.  Any failure of the TearLab Osmolarity System to receive regulatory approvals or to be successfully commercialized in the United States would have a material adverse effect on our business, operating results, financial condition and cash flows and could result in a substantial decline in the price of our common stock.

Our near-term success is highly dependent on increasing sales of the TearLab Osmolarity System outside the United States, and we cannot be certain that we will successfully increase such sales.

Our product is currently sold outside of the United States pursuant to CE mark approval.  Our near-term success is highly dependent on increasing our international sales. We may also be required to register our product with health departments in our foreign market countries.  A failure to successfully register in such markets would negatively affect our sales in any such markets.  In addition, import taxes are levied on our product in certain foreign markets. These foreign markets include Turkey, Spain, Italy and France.  Other countries may adopt taxation codes on imported products. Increases in such taxes or other restrictions on our product could negatively affect our ability to import, distribute and price our product.

Our financial condition and history of losses have caused our auditors to express doubt as to whether we will be able to continue as a going concern.

We have prepared our consolidated financial statements on the basis that we will continue as a going concern.  However, we have sustained substantial losses for each of the years ended December 31, 2005, 2006, 2007 and 2008.  Our net working capital balance at December 31, 2008 was $1,549,581, which represents a $2,546,443 increase from our working capital deficiency of $996,862 at December 31, 2007.  Our net working capital deficit at September 30, 2009 was $775,428, which represents a $2,325,009 decrease from our working capital at December 31, 2008. As a result of our history of losses and current financial condition, there is substantial doubt about our ability to continue as a going concern.

On October 6, 2008, we completed a private placement of 869,200 shares of our common stock for gross aggregate proceeds of $2,173,000, pre-paid in full our $6,703,500 aggregate principal amount bridge loan plus outstanding accrued interest by issuing to the lenders thereof an aggregate of 3,304,511 shares of our common stock, at a per share price of $2.125, and paid $481,200 of the commission remaining owing for placement agency services by issuing aggregate of 192,480 shares of our common stock.  On August 31, 2009, we completed a convertible secured debt funding for gross proceeds of $1,750,000. As a result of these transactions, and having received the principal of, and the accrued interest on, our asset-backed auction rate securities, we believe that our cash and cash equivalents as well as the proceeds received from the July 15, 2009 and August 31, 2009 convertible secured debt financing will be sufficient to meet our operating activities and other demands only until approximately December 2009.

Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if we were not able to continue as a going concern.

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OccuLogix, Inc.

We have incurred losses since inception and anticipate that we will incur continued losses for the foreseeable future.

We have incurred losses in each year since our inception.  Our net losses for the fiscal years ended December 31, 2004, 2005, 2006, 2007 and 2008 were $21.8 million, $162.8 million, $82.2 million, $69.8 million and $9.4 million, respectively.  The losses in 2005, 2006 and 2007 include a charge for impairment of goodwill of $147.5 million, $65.9 million and $14.4 million, respectively.  Our losses in the nine months ended September 30, 2009 were $2.7 million and as of September 30, 2009, we had an accumulated deficit of $370.7 million.  Our losses have resulted primarily from expenses incurred in research and development of our product candidates from our discontinued businesses.  We do not know when or if we will receive CLIA waiver approval from the FDA for the TearLab Osmolarity System or successfully commercialize it in the United States.  As a result, and because of the numerous risks and uncertainties facing us, it is difficult to provide the extent of any future losses or the time required to achieve profitability, if at all.  Any failure of our product candidate to obtain regulatory approval and any failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue operations.

We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, and to defend our intellectual property.

As of September 30, 2009, our total indebtedness was approximately $2.4 million.  Our significant debt and debt service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities.  For example, our high level of debt presents the following risks:

· our substantial leverage increases our vulnerability to economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged;

· our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and our industry and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the future and implement our business strategies; and

· our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements.

If we are at any time unable to generate sufficient cash flow to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing.  There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.

We may not be able to raise the capital necessary to fund our operations.

Since inception, we have funded our operations through debt and equity financings, including 2008 common stock and debt bridge financings and 2009 convertible secured debt financings.  We estimate that we have sufficient resources to fund operations through December 2009, and our prospects for obtaining additional financing are uncertain.  Our most recent capital-raising efforts, the convertible secured debt financing consummated in third quarter of 2009, took an amount of time, consumed our resources and required an effort on the part of management that was disproportionately large, relative to the total amount of the capital raise.

Additional capital may not be available on terms favorable to us, or at all.  If financing is available, it may not be sufficient for us to continue as a going concern and it may be on terms that adversely affect the interest of our existing stockholders.  In addition, future financings could result in significant dilution of existing stockholders and adversely affect the economic interests of existing stockholders.  However, unless we succeed in raising additional capital, we anticipate that we will be unable to continue our operations beyond approximately December 2009.  Our financial condition and history of losses have caused our auditors to express doubt as to whether we will be able to continue as a going concern.

We will face challenges in bringing the TearLab Osmolarity System to market in the United States and may not succeed in executing our business plan.

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OccuLogix, Inc.

There are numerous risks and uncertainties inherent in the development of new medical technologies.  In addition to our requirement for additional capital, our ability to bring the TearLab Osmolarity System to market in the United States and to execute our business plan successfully is subject to the following risks, among others:

· Our clinical trials may not succeed.  Clinical testing is expensive and can take longer than originally anticipated.  The outcomes of clinical trials are uncertain, and failure can occur at any stage of the testing.  We could encounter unexpected problems, which could result in a delay in the submission of our application for the sought-after CLIA waiver from the FDA or prevent its submission altogether.

· We may not receive the CLIA waiver for the TearLab Osmolarity System from the FDA, in which case our ability to market the TearLab Osmolarity System in the United States will be hindered severely.

· Our suppliers and we will be subject to numerous FDA requirements covering the design, testing, manufacturing, quality control, labeling, advertising, promotion and export of the TearLab Osmolarity System and other matters.  If our suppliers or we fail to comply with these regulatory requirements, the TearLab Osmolarity System could be subject to restrictions or withdrawals from the market and we could become subject to penalties.

· Even if we succeed in obtaining the sought-after FDA approvals, we may be unable to commercialize the TearLab Osmolarity System successfully in the United States.  Successful commercialization will depend on a number of factors, including, among other things, achieving widespread acceptance of the TearLab Osmolarity System among physicians, establishing adequate sales and marketing capabilities, addressing competition effectively, the ability to obtain and enforce patents to protect proprietary rights from use by would-be competitors, key personnel retention and ensuring sufficient manufacturing capacity and inventory to support commercialization plans.

If we are subject to regulatory enforcement action as a result of our failure to comply with regulatory requirements, our commercial operations would be harmed.

While we received the 510(k) clearance that we were seeking, we will be subject to significant ongoing regulatory requirements, and if we fail to comply with these requirements, we could be subject to enforcement action by the FDA or state agencies, including:

· adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties;

· repair, replacement, refunds, recall or seizure of our product;

· operating restrictions or partial suspension or total shutdown of production;

· delay or refusal of our requests for 510(k) clearance or premarket approval of new products or of new intended uses or modifications to our existing product;

· refusal to grant export approval for our products;

· withdrawing 510(k) clearances or premarket approvals that have already been granted; and

· criminal prosecution.

If any of these enforcement actions were to be taken by the government, our business could be harmed.

In addition to receiving 510(k) clearance of the TearLab Osmolarity System, we will required to demonstrate and maintain compliance with the FDA's Quality System Regulation, or the QSR, prior to marketing the product in the United States.  The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products.  The FDA must determine that the facilities which manufacture and assemble our products that are intended for sale in the United States, as well as the manufacturing controls and specifications for these products, are compliant with applicable regulatory requirements, including the QSR.  The FDA enforces the QSR through periodic unannounced inspections.  Our facilities have not yet been inspected by the FDA, and we cannot assure you that we will pass any future FDA inspection.  Our failure, or the failure of our suppliers, to take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our product, civil or criminal penalties or other sanctions, which would significantly harm our available inventory and sales and cause our business to suffer.

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OccuLogix, Inc.

Our patents may not be valid, and we may not be able to obtain and enforce patents to protect our proprietary rights from use by would-be competitors.  Patents of other companies could require us to stop using or pay to use required technology.
 

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

We have applied for, and intend to continue to apply for, patents relating to the TearLab Osmolarity System and related technology and processes.  Such applications may not result in the issuance of any patents, and any patents now held or that may be issued may not provide adequate protection from competition.  Furthermore, it is possible that patents issued or licensed to us may be challenged successfully.  In that event, if we have a preferred competitive position because of any such patents, any preferred position would be lost.  If we are unable to secure or to continue to maintain a preferred position, the TearLab Osmolarity System could become subject to competition from the sale of generic products.

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

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

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

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

We may face future product liability claims.

The testing, manufacturing, marketing and sale of therapeutic and diagnostic products entail significant inherent risks of allegations of product liability.  Our past use of the RHEO™ System and the components of the SOLX Glaucoma System in clinical trials and the commercial sale of those products may have exposed us to potential liability claims.  Our use of the TearLab Osmolarity System and its commercial sale could also expose us to liability claims.  All of such claims might be made directly by patients, health care providers or others selling the products.  We carry clinical trials and product liability insurance to cover certain claims that could arise, or that could have arisen, during our clinical trials or during the commercial use of our products.  We currently maintain clinical trials and product liability insurance with coverage limits of $2,000,000 in the aggregate annually.  Such coverage, and any coverage obtained in the future, may be inadequate to protect us in the event of successful product liability claims, and we may not be able to increase the amount of such insurance coverage or even renew it.  A successful product liability claim could materially harm our business.  In addition, substantial, complex or extended litigation could result in the incurrence of large expenditures and the diversion of significant resources.

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

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

If we do not introduce new commercially successful products in a timely manner, our products may become obsolete over time, customers may not buy our products and our revenue and profitability may decline.
 

Demand for our products may change in ways we may not anticipate because of:
 

· evolving customer needs;

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OccuLogix, Inc.

· the introduction of new products and technologies; and

· evolving industry standards.

Without the timely introduction of new commercially successful products and enhancements, our products may become obsolete over time, in which case our sales and operating results would suffer.  The success of our new product offerings will depend on several factors, including our ability to:

· properly identify and anticipate customer needs;

· commercialize new products in a cost-effective and timely manner;

· manufacture and deliver products in sufficient volumes on time;

· obtain and maintain regulatory approval for such new products;

· differentiate our offerings from competitors' offerings;

· achieve positive clinical outcomes; and

· provide adequate medical and/or consumer education relating to new products.

Moreover, innovations generally will require a substantial investment in research and development before we can determine the commercial viability of these innovations and we may not have the financial resources necessary to fund these innovations.  In addition, even if we are able to successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not produce revenue in excess of the costs of development and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying new technologies or features.

We rely on a single supplier of each of the key components of the TearLab Osmolarity System and are vulnerable to fluctuations in the availability and price of our suppliers' products and services.

We purchase each of the key components of the TearLab Osmolarity System from a single third-party supplier.  Our suppliers may not provide the components or other products needed by us in the quantities requested, in a timely manner or at a price we are willing to pay.  In the event we were unable to renew our agreements with our suppliers or they were to become unable or unwilling to continue to provide important components in the required volumes and quality levels or in a timely manner, or if regulations affecting the components were to change, we would be required to identify and obtain acceptable replacement supply sources.  We may not be able to obtain alternative suppliers or vendors on a timely basis, or at all, which could disrupt or delay, or halt altogether, our ability to manufacture or deliver the TearLab Osmolarity System.  If any of these events should occur, our business, financial condition, cash flows and results of operations could be materially adversely affected.

We face intense competition, and our failure to compete effectively could have a material adverse effect on our results of operations.
 

We face intense competition in the markets for ophthalmic products and these markets are subject to rapid and significant technological change.  Although we have no direct competitors, we have numerous potential competitors in the United States and abroad.  We face potential competition from industry participants marketing conventional technologies for the measurement of osmolarity and other in-lab testing technologies, as well as industry participants developing and marketing point-of-care tests, such as the technology being developed by the Aborn Eye Clinic, which is reportedly able to measure the osmolarity of nanoliter tear samples, and commercially available methods, such as the Schirmer Test and ocular surface staining.  Many of our potential competitors have substantially more resources and a greater marketing scale than we do.  If we are unable to develop and produce or market our products to effectively compete against our competitors, our operating results will materially suffer.

If we lose key personnel, or we are unable to attract and retain highly qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.

Our success depends, in large part, upon our ability to attract and retain highly qualified scientific, clinical, manufacturing and management personnel.  In addition, any difficulties retaining key personnel or managing this growth could disrupt our operations.  Future growth will require us to continue to implement and improve our managerial, operational and financial systems, and to continue to recruit, train and retain, additional qualified personnel, which may impose a strain on our administrative and operational infrastructure.  The competition for qualified personnel in the medical technology field is intense.  We are highly dependent on our continued ability to attract, motivate and retain highly-qualified management, clinical and scientific personnel.

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OccuLogix, Inc.

Due to our limited resources, we may not be able to effectively recruit, train and retain additional qualified personnel.  If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.

Furthermore, we have not entered into non-competition agreements with our key employees.  In addition, we do not maintain "key person" life insurance on any of our officers, employees or consultants.  The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.

If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business and our stock price.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently.  Failure on our part to maintain effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, financial condition and cash flows, and could cause the trading price of our common stock to fall dramatically.  Due to the failure to account for the consolidation of TearLab, Inc. under the variable interest entity model since our acquisition of a majority interest in TearLab, Inc. on November 30, 2006, there was a material weakness in our internal control over financial reporting as of December 31, 2007.  As a result of this material weakness, our chief executive officer and our chief financial officer determined that, as of December 31, 2007, our internal controls over financial reporting were not effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external reporting in accordance with U.S. GAAP.

Maintaining proper and effective internal controls will require substantial management time and attention and may result in our incurring substantial incremental expenses, including with respect to increasing the breadth and depth of our finance organization to ensure that we have personnel with the appropriate qualifications and training in certain key accounting roles and adherence to certain control disciplines within the accounting and reporting function.  Any failure in internal controls or any additional errors or delays in our financial reporting would have a material adverse effect on our business and results of operations and could have a substantial adverse impact on the trading price of our common stock.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.  Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.  Our management has identified a control deficiency in the past and may identify additional deficiencies in the future.

We cannot be certain that the actions we are taking to improve our internal controls over financial reporting will be sufficient or that we will be able to implement our planned processes and procedures in a timely manner.  In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act of 2002 reveals further material weaknesses or significant deficiencies, the correction of any such material weaknesses or significant deficiencies could require additional remedial measures which could be costly and time-consuming.  In addition, we may be unable to produce accurate financial statements on a timely basis.  Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.

The trading price of our common stock may be volatile.

The market prices for, and the trading volumes of, securities of medical device companies, such as ours, have been historically volatile.  The market has experienced, from time to time, significant price and volume fluctuations unrelated to the operating performance of particular companies.  The market price of our common shares may fluctuate significantly due to a variety of factors, including:

· the results of pre-clinical testing and clinical trials by us, our collaborators and/or our competitors;

· technological innovations or new diagnostic products;

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OccuLogix, Inc.

· governmental regulations;

 

· developments in patent or other proprietary rights;

 

· litigation;

· public concern regarding the safety of products developed by us or others;

· comments by securities analysts;

 

· the issuance of additional shares to obtain financing or for acquisitions;

· general market conditions in our industry or in the economy as a whole; and

· political instability, natural disasters, war and/or events of terrorism.

In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies.  Broad market and industry factors may seriously affect the market price of companies' stock, including ours, regardless of actual operating performance.  In the past, following periods of volatility in the overall market and the market price of a particular company's securities, securities class action litigation has often been instituted against these companies.  This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.

Because we do not expect to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.

We have never paid cash dividends on our common stock and have no present intention to pay any dividends in the future.  We are not profitable and do not expect to earn any material revenues for at least several years, if at all.  As a result, we intend to use all available cash and liquid assets in the development of our business.  Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, our capital requirements, our operating and financial conditions and on such other factors as our board of directors may deem relevant.  As a result, the success of an investment in our common stock will depend upon any future appreciation in its value.  There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

We can issue shares of preferred stock that may adversely affect the rights of holders of our common stock.

Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time to time by our board of directors.  Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock.  For example, an issuance of shares of preferred stock could:

· adversely affect the voting power of the holders of our common stock;

· make it more difficult for a third party to gain control of us;

· discourage bids for our common stock at a premium;

· limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or

· otherwise adversely affect the market price or our common stock.

We may issue shares of authorized preferred stock at any time in the future.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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There has not been any default upon our senior securities.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

2.1	Form of Plan of Reorganization (incorporated by reference to Exhibit 2.1 to the Registrant’s Registration Statement on Form S-1/A No. 4, filed with the Commission on December 6, 2004 (file no. 333-118024)).
3.1	Amended and Restated Certificate of Incorporation of the Registrant as currently in effect (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1/A No. 3, filed with the Commission on November 16, 2004 (file no. 333-118024)).
3.2	Amended and Restated By-Laws of the Registrant as currently in effect (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1/A No. 3, filed with the Commission on November 16, 2004 (file no. 333-118024)).
10.1	2002 Stock Option Plan, as amended and restated on September 30, 2008.
10.2	Amending Agreement, dated as of October 6, 2008, between the Registrant and William G. Dumencu, amending the Employment Agreement between the Registrant and William G. Dumencu dated as of February 25, 2008.
10.3	Termination Agreement, dated as of October 6, 2008, between Suh Kim and the Registrant, terminating the Employment Agreement between the Registrant and Suh Kim dated as of March 12, 2007.
10.4	Termination Agreement, dated as of October 6, 2008, between Elias Vamvakas and the Registrant, terminating the Employment Agreement between the Registrant and Elias Vamvakas dated as of September 1, 2004.
10.5	Securities Purchase Agreement, dated July 15, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 16, 2009).
10.6	Form of 12% Convertible Secured Note (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 16, 2009).
10.7	Form of Warrant (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 16, 2009).
10.8	Security Agreement, dated July 15, 2009 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 16, 2009).
10.9	Form of Director and Affiliate Letter Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 16, 2009).
10.10	Capital Advisory Agreement with Greybrook Capital Inc., dated November 3, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 3, 2009).
31.1	CEO’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	CFO’s Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1	CEO’s Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
32.2	CFO’s Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.

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SIGNATURE

Pursuant to the requirements 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.

	OccuLogix, Inc.
	(Registrant)
Date: November 13, 2009	/s/ Elias Vamvakas
	Elias Vamvakas
	Chief Executive Officer

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