10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2007.

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT.

For the transition period from ___ to ___

Commission file number 0-27610

LCA-Vision Inc.

(Exact name of registrant as specified in its charter)

Delaware	11-2882328
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

7840 Montgomery Road, Cincinnati, Ohio 45236
(Address of principal executive offices)

(513) 792-9292
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 þ No o

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

Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,075,602 shares as of July 27, 2007.

LCA-Vision Inc.
INDEX

Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	3
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006	4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006	5
Notes to Condensed Consolidated Financial Statements	15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. Controls and Procedures	23
Part II. Other Information
Item 6. Exhibits	23
Signatures	24
EX-31.1
EX-31.2
EX-32

2

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

LCA-Vision Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

	June 30, 2007			December 31, 2006
				(Restated)
Assets
Current assets
Cash and cash equivalents	$	34,907		$	27,251
Short-term investments		82,359			70,801
Accounts receivable, net of allowance for doubtful accounts of $2,911 and $2,310 at June 30, 2007 and December 31, 2006, respectively		17,948			15,470
Prepaid professional fees		2,508			2,223
Deferred tax assets		10,534			11,155
Prepaid expenses and other		7,789			8,081
Total current assets		156,045			134,981
Property and equipment		86,970			77,323
Accumulated depreciation and amortization		(51,386	)		(46,399	)
Property and equipment, net		35,584			30,924
Accounts receivable, net of allowance for doubtful accounts of $1,208 and $532		4,230			2,174
Deferred tax assets		12,629			12,141
Other assets		11,014			9,250
Total assets	$	219,502		$	189,470
Liabilities and Stockholders’ Investment
Current liabilities
Accounts payable	$	6,349		$	5,264
Accrued liabilities and other		12,061			9,111
Deferred revenue		25,088			22,234
Capital lease obligations maturing in one year		3,549			3,360
Total current liabilities		47,047			39,969
Capital lease obligations		2,037			2,431
Insurance reserve		7,459			6,163
Deferred revenue		31,283			27,608
Other		5,132			4,183
Stockholders’ Investment
Common stock ($0.001 par value; 25,079,217 and 24,814,542 shares issued and 20,075,269 and 19,821,348 shares outstanding as of June 30, 2007 and December 31, 2006, respectively)		25			25
Contributed capital		169,274			162,245
Common stock in treasury, at cost (5,003,948 and 4,993,194 shares outstanding at June 30, 2007 and December 31, 2006)		(69,939	)		(69,487	)
Retained earnings		27,190			16,320
Accumulated other comprehensive (loss) income		(6	)		13
Total stockholders’ investment		126,544			109,116
Total liabilities and stockholders’ investment	$	219,502		$	189,470

The notes to the Condensed Consolidated Financial Statements are an integral part of this statement.

3

LCA-Vision Inc.

Condensed Consolidated Statements of Income

(In thousands except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
				(Restated)						(Restated)
Revenues — Laser refractive surgery	$	69,685		$	60,297		$	148,348		$	127,047
Operating costs and expenses
Medical professional and license fees		11,419			10,798			25,393			23,711
Direct costs of services		24,629			18,259			49,095			39,174
General and administrative expenses		5,390			5,312			10,588			10,241
Marketing and advertising		15,714			11,421			32,892			22,768
Depreciation		2,494			2,107			4,798			4,042
Operating income		10,039			12,400			25,582			27,111
Equity in earnings from unconsolidated businesses		199			185			354			323
Investment income		1,938			1,478			3,632			2,981
Interest expense		(122	)		(64	)		(205	)		(125	)
Other expense, net		(21	)		(7	)		(31	)		(15	)
Income before taxes on income		12,033			13,992			29,332			30,275
Income tax expense		4,619			5,959			10,992			12,814
Net income	$	7,414		$	8,033		$	18,340		$	17,461
Income per common share
Basic	$	0.37		$	0.39		$	0.92		$	0.84
Diluted	$	0.36		$	0.37		$	0.90		$	0.81
Dividends declared per share	$	0.18		$	0.12		$	0.36		$	0.24
Weighted average shares outstanding
Basic		20,069			20,836			19,987			20,791
Diluted		20,354			21,474			20,334			21,469

The notes to the Condensed Consolidated Financial Statements are an integral part of this statement.

4

LCA-Vision Inc.

Condensed Consolidated Statements of Cash Flow

(Dollars in thousands)

	Six Months Ended June 30,
	2007			2006
				(Restated)
Cash flow from operating activities:
Net income	$	18,340		$	17,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,798			4,042
Provision for loss on doubtful accounts		3,156			1,212
Deferred income taxes		115			(4,134	)
Stock-based compensation		2,780			2,852
Deferred compensation		936			661
Insurance reserve		1,296			1,562
Equity in earnings of unconsolidated affiliates		(354	)		(323	)
Changes in operating assets and liabilities		2,609			6,278
Net cash provided by operations	$	33,676		$	29,611
Cash flow from investing activities:
Purchase of property and equipment		(7,427	)		(3,856	)
Purchases of investment securities		(160,515	)		—
Proceeds from sale of investment securities		148,741			—
Deferred compensation plan		(984	)		(661	)
Other, net		(74	)		3
Net cash used in investing activities	$	(20,259	)	$	(4,514	)
Cash flow from financing activities:
Principal payments of capital lease obligations		(2,249	)		(1,226	)
Shares repurchased for treasury stock		(452	)		(6,248	)
Tax benefits related to stock-based compensation		1,055			3,247
Exercise of stock options		3,112			4,203
Dividends paid to minority equity investees		—			(19	)
Dividends paid to stockholders		(7,227	)		(5,034	)
Net cash used in financing activities		(5,761	)		(5,077	)
Increase in cash and cash equivalents		7,656			20,020
Cash and cash equivalents at beginning of period		27,251			110,531
Cash and cash equivalents at end of period	$	34,907		$	130,551

The notes to the Consolidated Condensed Financial Statements are an integral part of this statement.

5

LCA-Vision Inc.

Notes to Condensed Consolidated Financial Statements

About Our Company

We are a leading provider of fixed-site laser vision correction services at our LasikPlus vision centers. Our vision centers provide the staff, facilities, equipment and support services for performing laser vision correction that employ advanced laser technologies to help correct nearsightedness, farsightedness and astigmatism. We currently use three suppliers for fixed-site excimer lasers: Bausch & Lomb, Advanced Medical Optics and Alcon. Our vision centers are supported mainly by independent, board-certified ophthalmologists and credentialed optometrists, as well as other healthcare professionals. The ophthalmologists perform the laser vision correction procedures in our vision centers, and either ophthalmologists or optometrists conduct pre-procedure evaluations and post-operative follow-ups in-center. We have performed over 845,000 laser vision correction procedures in our vision centers in the United States and Canada since 1991. Most of our patients currently receive a procedure called LASIK, which we began performing in the United States in 1997.

As of June 30, 2007 we had 68 LasikPlus fixed-site laser vision correction centers in the United States and a joint venture in Canada.

Summary of Significant Accounting Policies

This filing includes condensed consolidated Balance Sheets as of June 30, 2007 and December 31, 2006; condensed consolidated Statements of Income for the three and six months ended June 30, 2007 and 2006; and condensed consolidated Statements of Cash Flow for the six months ended June 30, 2007 and 2006. In the opinion of management, these condensed consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. We suggest that these financial statements be read together with the financial statements and notes in our amended annual report on Form 10-K/A for the fiscal year ended December 31, 2006.

Restatement of Financial Information

In March 2007, LCA-Vision received a comment letter from the Securities and Exchange Commission (“SEC”) related to a staff review of our annual report on Form 10-K for the year ended December 31, 2006 that was filed with the SEC on February 27, 2007. The single issue raised in this letter addressed the Company’s revenue recognition policy regarding services provided subsequent to the initial surgical procedure. The Company’s prior accounting policy had been to defer revenues for separately priced extended warranties only for those patients expected to receive treatment under the warranty. Historical data indicates that only 7% of patients elected to receive treatment under the warranty. The accounting for separately priced extended warranties is subject to Financial Accounting Standards Board (“FASB”) Technical Bulletin 90-1 (“FTB 90-1”), Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts. Following receipt of the SEC staff comment letter and upon further examination of the manner in which we historically had accounted for the revenues associated with the lifetime acuity program, we determined that our accounting for deferred revenues was not appropriate under FTB 90-1 and resulted in a misstatement of revenues. Under FTB 90-1, 100% of revenues from separately priced extended warranties are to be deferred and recognized over the life of the contract on a straight-line basis unless we have sufficient experience to indicate that the costs to provide the service will be incurred other than on a straight-line basis. As a result, we restated our financial statements and filed an amended Form 10-K on May 9, 2007.

6

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

The following table reflects the impact of the restatement on the Company’s Consolidated Statement of Income. The amounts previously reported are derived from the Form 10-Q for the quarter ended June 30, 2006 (in thousands, except per share amounts):

	Three months ended June 30,						Six months ended June 30,
	2006						2006
	Previously						Previously
	Reported			Restated			Reported			Restated
Revenues — Laser refractive surgery	$	65,453		$	60,297		$	138,849		$	127,047
Operating costs and expenses
Medical professional and license fees		11,312			10,798			24,890			23,711
Direct costs of services		18,259			18,259			39,174			39,174
General and administrative expenses		5,312			5,312			10,241			10,241
Marketing and advertising		11,421			11,421			22,768			22,768
Depreciation		2,107			2,107			4,042			4,042
Operating income		17,042			12,400			37,734			27,111
Equity in earnings from unconsolidated businesses		185			185			323			323
Investment Income		1,478			1,478			2,981			2,981
Interest expense		(64	)		(64	)		(125	)		(125	)
Other expense, net		(7	)		(7	)		(15	)		(15	)
Income before taxes on income		18,634			13,992			40,898			30,275
Income tax expense		7,757			5,959			16,929			12,814
Net income	$	10,877		$	8,033		$	23,969		$	17,461
Income per common share
Basic	$	0.52		$	0.39		$	1.15		$	0.84
Diluted	$	0.51		$	0.37		$	1.12		$	0.81
Dividends declared per share	$	0.12		$	0.12		$	0.24		$	0.24
Weighted average shares outstanding
Basic		20,836			20,836			20,791			20,791
Diluted		21,474			21,474			21,469			21,469

7

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

The following table reflects the impact of the restatement on our Consolidated Balance Sheet. The amounts previously reported are derived from our Annual Report on Form 10-K for the year ended December 31, 2006 as originally filed (in thousands):

	December 31, 2006
	Previously Reported			Restated
Assets
Current assets
Cash and cash equivalents	$	27,251		$	27,251
Short-term investments		70,801			70,801
Accounts receivable, net of allowance for doubtful accounts of $2,310		15,470			15,470
Prepaid professional fees		—			2,223
Deferred tax assets		3,022			11,155
Prepaid expenses and other		8,081			8,081
Total current assets		124,625			134,981
Property and equipment		77,323			77,323
Accumulated depreciation and amortization		(46,399	)		(46,399	)
Property and equipment, net		30,924			30,924
Accounts receivable, net of allowance for doubtful accounts of $532		2,174			2,174
Deferred tax assets		2,775			12,141
Other assets		6,489			9,250
Total assets	$	166,987		$	189,470
Liabilities and Stockholders’ Investment
Current liabilities
Accounts payable	$	5,264		$	5,264
Accrued liabilities and other		9,111			9,111
Deferred revenue		—			22,234
Capital lease obligations maturing in one year		3,360			3,360
Total current liabilities		17,735			39,969
Capital lease obligations		2,431			2,431
Insurance reserve		6,163			6,163
Deferred revenue		—			27,608
Other		4,183			4,183
Stockholders’ investment
Common stock ($0.001 par value; 24,814,542 shares and 19,821,348 shares issued and outstanding, respectively)		25			25
Contributed capital		162,245			162,245
Common stock in treasury, at cost (4,993,194 shares)		(69,487	)		(69,487	)
Retained earnings		43,679			16,320
Accumulated other comprehensive income		13			13
Total stockholders’ investment		136,475			109,116
Total liabilities and stockholders’ investment	$	166,987		$	189,470

8

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

The following table reflects the impact of the restatement on the Company’s Consolidated Statement of Cash Flows. The amounts previously reported are derived from the Form 10-Q for the quarter ended June 30, 2006 (in thousands):

	Six Months Ended June 30,
	2006
	Previously
	Reported			Restated
Cash flow from operating activities:
Net income	$	23,969		$	17,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,042			4,042
Provision for loss on doubtful accounts		1,212			1,212
Deferred income taxes		(19	)		(4,134	)
Tax benefit on disqualified disposition of stock options		56			56
Stock-based compensation		2,852			2,852
Deferred compensation		661			661
Insurance reserve		1,562			1,562
Equity in earnings of unconsolidated affiliates		(323	)		(323	)
Changes in operating assets and liabilities:
Accounts receivable		(2,244	)		(2,244	)
Receivables from vendors		(588	)		(588	)
Prepaid expenses and other		(1,581	)		(1,590	)
Prepaid income taxes		(1,610	)		(1,610	)
Accounts payable		(880	)		(880	)
Deferred revenue, net of professional fees		—			10,632
Accrued liabilities and other		2,502			2,502
Net cash provided by operations	$	29,611		$	29,611
Cash flow from investing activities:
Purchases of property and equipment		(3,856	)		(3,856	)
Deferred compensation plan		(661	)		(661	)
Other, net		3			3
Net cash used in investing activities	$	(4,514	)	$	(4,514	)
Cash flow from financing activities:
Principal payments of long-term notes, debt and capital lease obligations		(1,226	)		(1,226	)
Shares repurchased for treasury stock		(6,248	)		(6,248	)
Tax benefits related to stock-based compensation		3,247			3,247
Exercise of stock options		4,203			4,203
Distribution paid to minority equity investees		(19	)		(19	)
Dividends paid to stockholders		(5,034	)		(5,034	)
Net cash used in financing activities		(5,077	)		(5,077	)
Increase in cash and cash equivalents		20,020			20,020
Cash and cash equivalents at beginning of period		110,531			110,531
Cash and cash equivalents at end of period	$	130,551		$	130,551

9

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

Consolidation and Basis of Presentation

We use the consolidation method to report our investment in majority-owned subsidiaries and other companies that are not considered variable interest entities (VIEs) and in all VIEs for which we are considered the primary beneficiary. In addition, we consolidate the results of operations of professional corporations with which we contract to provide the services of ophthalmologists or optometrists at our vision centers in accordance with EITF 97-2, Application of FASB Statement 94 and APB Opinion No. 16 to Physician Management Entities and Certain Other Entities with Contractual Management Agreements. Investments in joint ventures and 20% to 50% owned affiliates where we have the ability to exert significant influence are accounted for by the equity method. Intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include patient financing receivables and reserves, insurance reserves, enhancement reserves, deferred revenues, income taxes and long-lived assets. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.

Reclassification

Certain prior-period amounts have been reclassified in the condensed consolidated financial statements and accompanying notes to conform to current period presentation.

Short-Term Investments

Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Currently all securities are classified as available-for-sale. Available-for-sale securities are carried at fair market value, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other than temporary are also included in investment income. The cost of securities sold is based upon the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

There were no available-for-sale securities at June 30, 2006. The following table is a summary of available-for-sale securities (dollars in thousands) at June 30, 2007:

								Estimated
			Gross		Gross			Fair Value
	Amortized		Unrealized		Unrealized			(Net Carrying
	Cost		Gains		Losses			Value)
Corporate bonds	$	18,399		—		—		$	18,399
US Government securities		12,464		—		(17	)		12,447
Municipal bonds		51,541		12		(40	)		51,513
Total short term investments	$	82,404	$	12	$	(57	)	$	82,359

The gross realized losses on sales of available-for-sale securities for the three and six months ended June 30, 2007 were $18,000 and $22,000 respectively.

10

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

The net carrying value and estimated fair value of securities available-for-sale at June 30, 2007, by contractual maturity, is shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right or obligation to prepay obligations without prepayment penalties.

	Amortized		Estimated
(dollars in thousands)	Cost		Fair Value
Due in one year or less	$	37,345	$	37,325
Due after one year through three years		13,139		13,104
Due after three years		31,920		31,930
Total securities	$	82,404	$	82,359

All securities are classified as short-term investments since the Company intends that such investments are available for operating purposes.

Allowance for Doubtful Accounts

We provide patient financing to some of our customers, including those who could not otherwise obtain third-party financing. The terms of the financing require the patient to pay an up-front fee which is intended to cover some or all of our variable costs, and the remainder is generally deducted automatically from the patient’s checking account over a period of 12 to 36 months. We have recorded an allowance for doubtful accounts as a best estimate of the amount of probable credit losses from our patient financing program. Each month, we review the allowance and adjust the allowance based upon our own experience with patient financing. Receivables are charged off against the allowance for doubtful accounts when it is probable a receivable will not be recovered.

Accrued Enhancement Expense

We provide post-surgical enhancements, free of charge for one year following the date of surgery, should the patient not achieve the desired visual correction during the initial procedure. We record an enhancement accrual based on our best estimate of the number and associated cost of procedures to be performed. Each month, we review the enhancement accrual and consider factors such as procedure cost and historical procedural volume when determining the appropriateness of the recorded balance.

Deferred Revenues

We offer our patients extended acuity programs. Prior to June 15, 2007, these programs were separately priced, and included a no-acuity plan, a one-year acuity plan, and a lifetime acuity plan. Under FTB 90-1, 100% of revenues from separately priced extended warranties are to be deferred and recognized over the life of the contract on a straight-line basis unless sufficient experience exists to indicate that the costs to provide the service will be incurred other than on a straight-line basis. We believe we have sufficient experience to support that future enhancements will be incurred on other than a straight-line basis. Accordingly, we recognize deferred revenues over the period in which the future costs of performing the enhancement procedures were expected to be incurred.

For programs that included one-year and lifetime options but did not include a no-acuity option, costs associated with the sale of the lifetime acuity plan begin after the expiration of the one-year acuity plan included in the base price. Accordingly, the Company deferred 100% of all revenues associated with the sale of the lifetime acuity plan and recognizes these revenues over the period in which the future costs of performing the enhancement procedures are expected to be incurred, beginning one year after the initial surgery date. For the programs that included a no-acuity option in addition to the one-year and lifetime options, all revenues from the sale of the one-year and lifetime acuity plans were deferred and these

11

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

deferred revenues are recognized in proportion to the total costs expected to be incurred, beginning immediately following the initial surgical procedures. Recognition of deferred revenues for the lifetime acuity plans currently extend over a period of seven years.

Effective June 15, 2007, the Company eliminated the use of separately priced extended warranties. As such, no warranty-related revenue deferrals have occurred or will occur for procedures performed after that date. Under the revised pricing structure, the Company is accounting for its lifetime acuity plan as a warranty obligation under the provisions of FASB Statement No. 5, “Accounting for Contingencies.” Accordingly, the costs expected to be incurred to satisfy the obligations are accrued as a component of accrued enhancement expense at the time of sale given the Company’s ability to reasonably estimate such costs based on historical trends.

As of June 30, 2007 and 2006, the deferred revenue balance totaled $56,400,000 and $43,600,000, respectively.

In addition to the deferral of revenues under FTB 90-1 for those procedures performed prior to the elimination of separately priced extended warranties on June 15, 2007, we also defer a portion of our costs of service related to professional fees paid to the attending surgeon which are earned when a procedure is performed. The physician receives no incremental fee for an enhancement procedure. Accordingly, a portion of the professional fee paid to the physician relates to the future enhancement procedures to be performed and qualifies for deferral under FTB 90-1 as a direct and incremental cost of the warranty contract. We use the same historical experience to amortize deferred professional fees that we use to amortize deferred revenue.

Captive Insurance Company Reserves

We have a captive insurance company that provides professional liability insurance coverage for claims brought against us. In addition, our captive insurance company’s charter allows it to provide professional liability insurance for our doctors. The financial statements of the captive insurance company are consolidated with our financial statements since it is a wholly-owned enterprise. As of June 30, 2007, we had an insurance reserve of $7,459,000 which represents an estimate of cost to settle claims and an actuarially determined estimate of claims incurred but not yet reported. As of December 31, 2006, the insurance reserve was $6,163,000.

Income Taxes

The following table summarizes the components of the income tax provision for the three and six month periods ended June 30, 2007 and 2006:

	Three months ended						Six months ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
				(Restated)						(Restated)
Federal income taxes	$	3,851		$	4,791		$	9,226		$	10,095
State income taxes, net of federal benefit		768			1,168			1,766			2,719
Income tax provision	$	4,619		$	5,959		$	10,992		$	12,814
Effective income tax rate		38.4	%		42.6	%		37.5	%		42.3	%

12

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

Our effective income tax rate has declined for both the three- and six-month period ended June 30, 2007 as compared with the corresponding periods ended June 30, 2006. These decreases resulted primarily from the benefit of investments in tax-exempt securities and the tax benefit related to disqualified stock option dispositions in 2007, as well as the absence in 2007 of tax expense related to incentive stock options granted in 2006.

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which is effective for fiscal years beginning after December 15, 2006. This interpretation prescribes a framework for recognizing and measuring income tax benefits for inclusion in the financial statements and also provides guidance on derecognition, classification, interest and penalties. FIN 48 provides that an income tax benefit is recognized in the financial statements when it is more likely than not that the benefit claimed or to be claimed on an income tax return will be sustained upon examination. The amount of income tax benefit recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We adopted FIN 48 as of January 1, 2007. The cumulative effect of adopting FIN 48, including adjustments to applicable interest and penalties, was an increase in the liability for uncertainty in income taxes in the amount of $988,000. This was offset in the balance sheet by an increase to non-current deferred tax assets of $745,000 and a reduction of retained earnings in the amount of $243,000.

Our total unrecognized tax benefits at January 1, 2007 were $1,677,000. Of this amount, $113,000 would affect the effective tax rate, if recognized. It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, we do not expect any change to have a significant impact on the results of operations or the financial position of the Company.

The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense. As of January 1, 2007, such accrued interest and penalties were immaterial.

Our federal and state corporate income tax return filings are generally subject to a three-year statute of limitations from date of filing. Thus, our federal and state income tax returns are subject to examination for open tax years 2003 through 2006. We are not currently under examination by the IRS but there are various state and local taxing jurisdictions examining our income tax filings.

The statute of limitations also remains open for prior tax years because we utilized net operating losses that were generated in tax years 1992 through 2002 during 2003 through 2006 and expect to utilize remaining net operating losses in 2007. The net operating loss carryforwards from these prior tax years are subject to adjustment for three years after the filing of the income tax return for the year in which the net operating losses are utilized.

There has been no material change in the liability for unrecognized tax benefits from January 1, 2007 to June 30, 2007.

Per Share Data

Basic per share data is income applicable to common shares divided by the weighted average common shares outstanding. Diluted per share data is calculated by dividing income applicable to common shares by the weighted average common shares outstanding plus shares issuable upon the vesting of outstanding restricted stock units and the exercise of in-the-money stock options.

13

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

Following is a reconciliation of basic and diluted earnings per share for the three and six months ended June 30, 2007 and 2006 (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
			(Restated)				(Restated)
Basic Earnings per Share:
Net income	$	7,414	$	8,033	$	18,340	$	17,461
Weighted average shares outstanding — basic		20,069		20,836		19,987		20,791
Basic earnings per share	$	0.37	$	0.39	$	0.92	$	0.84
Diluted Earnings per Share:
Net income	$	7,414	$	8,033	$	18,340	$	17,461
Weighted average shares outstanding — basic		20,069		20,836		19,987		20,791
Effect of dilutive securities
Stock options		259		616		309		665
Restricted stock		26		22		38		13
Weighted average common shares and potential dilutive shares		20,354		21,474		20,334		21,469
Diluted earnings per share	$	0.36	$	0.37	$	0.90	$	0.81

Revenue Recognition

We recognize revenues as services are performed and pervasive evidence of an arrangement for payment exists. Additionally, revenue is recognized when the price is fixed and determinable and collectibility is reasonably assured. Revenues associated with separately priced acuity programs are deferred and recognized over the period in which future costs of performing the enhancement procedures are expected to be incurred.

Stock-Based Compensation

Effective January 1, 2006, on a modified prospective basis, we began using the fair value method under Statement of Financial Accounting Standards No. 123(R), Share Based Payment (SFAS 123(R)), to recognize equity compensation expense in our results of operations. SFAS 123(R) requires the cost of all stock-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of later modification, over the requisite service period.

Under the modified prospective approach, the amount of compensation cost recognized includes: (i) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimate in accordance with the provisions of SFAS 123(R) and (ii) compensation cost for all stock-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimate in accordance with the provisions of SFAS 123(R). We recognize the cost of stock-based awards on a straight-line basis over the requisite service period. The stock-based compensation expense recognized for the three and six months ended June 30, 2007 was approximately $1,540,000 and $2,780,000, respectively. The stock-based compensation expense for the three and six months ended June 30, 2006 was approximately $1,603,000 and $2,852,000, respectively.

14

LCA-Vision Inc.
Notes to Condensed Consolidated Financial Statements

During the second quarter of 2007 options to purchase 3,232 shares were exercised. 3,985 restricted stock units were issued to employees and 1,403 restricted stock awards were issued to directors under the 2006 Stock Incentive Plan.

Commitments and Contingencies

Our business results in a number of medical malpractice claims. Claims reported to us prior to December 18, 2002 were generally covered by external insurance policies and to-date have not had a material financial impact on our business other than the cost of insurance and our deductibles under those policies. Due to substantial increases in insurance premiums, effective as of December 18, 2002, we established a captive insurance company to provide coverage for claims brought against us after December 17, 2002.

Since December 18, 2003, the Company has used the captive insurance company for both primary insurance and excess liability coverage. A number of claims are now pending with our captive insurance company. The losses paid by the captive insurance company have not been material.

In addition, we are periodically subject to various claims and lawsuits. We believe that none of the legal proceedings to which we are currently subject, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations or cash flows.

New Accounting Pronouncement

In September 2006, the FASB issued SFAS No.157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements because the FASB has previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS 157 becomes effective for us on January 1, 2008. We are currently in the process of determining the effect, if any, the adoption of SFAS 157 will have on the consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements contained herein are based on information available to us as of the date hereof. Actual results could differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with our business, including, without limitation, those concerning economic, political and sociological conditions; market acceptance of our services; the successful execution of marketing strategies; competition in the laser vision correction industry; our ability to attract new patients; the possibility of long-term side effects and adverse publicity regarding laser vision correction; operational and management instability; regulatory action against us or others in the laser vision correction industry; and the relatively high fixed cost structure of our business. Except to the extent required under the federal securities laws and the rules and regulations promulgated by the SEC, we assume no obligation to update the information included herein, whether as a result of new information, future events or circumstances, or otherwise. In addition to the information given herein, please refer to “Item 1A. Risk Factors” in our annual report on Form 10-K/A for the fiscal year ended December 31, 2006 for a discussion of important factors that could affect our results.

The following discussion and analysis of the Company’s financial condition and results of operations, including the effects of the restatement described in the Notes to the Condensed Consolidated Financial Statements, should be read together with our Consolidated Financial Statements and the accompanying Notes included in this Quarterly Report.

15

The following table sets forth a reconciliation of previously reported and restated net income as of the dates and for the periods shown (in thousands):

	Three Months
	Ended June 30,			Six Months Ended
	2006			June 30, 2006
Previously reported	$	10,877		$	23,969
Pretax adjustments:
Deferred revenues		(5,156	)		(11,802	)
Deferred professional fees		514			1,179
Total pre-tax adjustments		(4,642	)		(10,623	)
Related tax effect		1,798			4,115
Net after-tax adjustments		(2,844	)		(6,508	)
Restated	$	8,033		$	17,461

Overview

We are a leading provider of fixed-site laser vision correction centers at our LasikPlus vision centers. Our vision centers provide the staff, facilities, equipment and support services for performing laser vision correction that employ advanced laser technologies to help correct nearsightedness, farsightedness and astigmatism.

We derive all of our revenues from the delivery of laser vision correction services performed in our U.S. vision centers. Our revenues are primarily a function of the number of laser vision correction procedures performed and the pricing for those services. Our vision centers have a relatively high degree of operating leverage due to the fact that many of our costs are fixed in nature. As a result, our level of procedure volume can have a significant impact on our level of profitability.

Our revenues are impacted by a number of factors, including the following:

• Our ability to generate customers through our arrangements with managed care companies, direct-to-consumer advertising and word-of-mouth referrals

• Our mix of procedures among the different types of laser technology

• New vision center openings and our ability to increase procedure volume at existing vision centers

• The availability of patient financing

• General economic conditions and consumer confidence levels

• The continued growth and increased acceptance of laser vision correction

• The effect of competition and discounting practices in our industry

• Pricing of our services and acuity plans

Our operating costs and expenses include:

• Medical professional and license fees, including per procedure fees for the ophthalmologists performing laser vision correction and license fees per procedure paid to certain equipment suppliers of our excimer lasers

• Direct costs of services, including center rent and utilities, equipment lease and maintenance costs, surgical supplies, center staff expense, financing charges and costs related to other revenues

• General and administrative costs, including headquarters staff expense and other overhead costs

• Marketing and advertising costs

• Depreciation of equipment

16

The following table details the number of laser vision correction procedures performed at our consolidated vision centers.

	2007		2006
	Procedures		Procedures
Q1		59,101		53,372
Q2		48,668		47,308
Q3				42,539
Q4				42,049
Year				185,268

Our strongest quarter in terms of procedures performed historically has been the first quarter of the year. We believe this is related to a number of factors, including the availability of funds under typical employer medical flexible spending programs and the general effect of the New Year season.

Effective June 15, 2007, the Company eliminated the use of separately priced extended acuity warranties. No warranty-related revenue deferrals have occurred for procedures performed after that date and there will be no additions to the deferral account in the future. As of June 30, 2007 the deferred revenue balance totaled $56.4 million. The following table provides an estimate of the run-off of the balance in future periods based upon historical enhancement rates. These rates will be reviewed quarterly and the amortization will be modified as needed. (dollars in thousands)

	Lifetime if Base		Lifetime if Base		One-Year if Base
	Price Included the		Price Did Not		Price Did Not
	One-Year Acuity		Include an Acuity		Include an Acuity
	Plan		Plan		Plan		Total
Balance at June 30, 2007	$	41,778	$	13,794	$	799	$	56,371
Estimated amortization:
2007 Q3	$	3,477	$	3,826	$	402	$	7,705
2007 Q4		3,683		2,890		263		6,836
2008 Q1		3,881		1,607		111		5,599
2008 Q2		4,026		898		22		4,946
2008 Q3		3,766		638		—		4,404
2008 Q4		3,225		544		—		3,769
2009 Q1		2,618		441		—		3,059
2009 Q2		1,972		322		—		2,294
2009 Q3		1,659		267		—		1,926
2009 Q4		1,572		255		—		1,827
2010		5,266		885		—		6,151
2011		3,713		663		—		4,376
2012		2,119		397		—		2,516
2013		727		144		—		871
2014		77		15		—		92

In addition to the deferral of revenues under FTB 90-1, we also have deferred a portion of our costs of service related to professional fees paid to the attending surgeon when a procedure is performed. These costs total 10% of the revenue. The physician receives no incremental fee for an enhancement procedure. Accordingly, a portion of the professional fee paid to the physician relates to the future enhancement procedures to be performed and qualifies for deferral under FTB 90-1 as a direct and incremental cost of the warranty contract. We use the same historical experience to amortize deferred revenue and deferred professional fees.

17

Results of Operations for the Three Months Ended June 30, 2007 and 2006

In the second quarter of 2007, revenues increased by $9,388,000 or 16%, to $69,685,000 from $60,297,000 in the second quarter of 2006. Procedure volume of 48,668 increased 3% from 47,308 in the second quarter of 2006. For vision centers open at least 12 months, procedures decreased by approximately 8% in the second quarter of 2007 to 43,426 compared to 47,308 in the second quarter of 2006. The components of the revenue change include:

Revenue from higher procedure volume	$	1,881,000
Impact from average selling price, before revenue deferral		3,258,000
Change in deferred revenue		4,249,000
Increase in revenues	$	9,388,000

The average reported revenue per procedure, which includes the impact of deferring revenue from separately priced extended warranties, increased 12% to $1,432 in the second quarter of 2007 from $1,275 in the second quarter of 2006.

Change in deferred revenue

The following table summarizes the effect on revenues of the change in deferred revenues for the second quarter of 2007 and 2006 (in thousands):

							Increase in
	2007			2006			Revenues
Revenues deferred	$	(7,937	)	$	(9,887	)	$	1,950
Amortization of prior deferred revenues		7,030			4,731			2,299
Net increase in revenues							$	4,249

Medical professional and license fees

Medical professional and license fees increased by $621,000, or 6%, in the second quarter of 2007 from the second quarter of 2006. This increase was primarily due to costs and physician fees associated with higher revenues partially offset by lower enhancement expense this quarter. As a result of deferring revenue associated with separately priced extended warranties, a portion of the medical professional fees also have been deferred. The deferred amounts were $794,000 and $987,000 in the second quarters of 2007 and 2006, respectively. These deferrals were partially offset by the amortization of the deferred medical professional fees attributable to prior years of $703,000 in the second quarter of 2007 and $473,000 in the second quarter of 2006.

Direct costs of services

Direct costs of services include the salary component of physician compensation for certain physicians employed by us, staffing, equipment, financing charges, medical supplies, facility costs of operating laser vision correction centers and bad debt expense. Direct costs of services increased in the second quarter of 2007 by $6,370,000, or 35%, over the second quarter of 2006. Approximately $3,672,000 of the increase was the result of 16 more vision centers being in operation at June 30, 2007 than at June 30, 2006. Bad debt expense increased by $1,177,000 in the second quarter of 2007, as compared to the second quarter of 2006 for three reasons: 1) a higher percent of total revenues were financed by the company in 2007; 2) the mix of patient financing shifted to a greater use of 36-month financing from 12-month financing and the longer term receivables are reserved at a higher rate than shorter term receivables; and 3) the reserve rate on 18-month and 36-month receivables was increased as a result of recent collection rates with these programs. The balance of the increase relates primarily to increases in salary expense for inflation and the addition of operational management positions and travel costs for our annual management conference held in May 2007.

General and administrative

General and administrative expenses increased by $78,000 or 2%, in the second quarter of 2007 from the second quarter of 2006. This amount was primarily due to increases in salaries, benefits and contracted services.

18

Marketing and advertising expenses

Marketing and advertising expenses increased by $4,293,000, or 38%, in the second quarter of 2007 from the second quarter of 2006. During the second quarter of 2007, these expenses were 23% of revenue, compared with 19% during the second quarter of 2006. The increase resulted primarily from additional spending in existing markets to continue to drive traffic, spending related to opening 16 new centers since June 2006 and investment in marketing research and program development. We are continuing to work to develop revised, more efficient marketing techniques. Our future operating margins will depend in large part on the success of our efforts in this regard.

Depreciation expense

Depreciation expense increased by $387,000 in the second quarter of 2007 from the second quarter of 2006 as a result of an increase in the number of vision centers in operation.

Non-operating income and expenses

Investment income in the second quarter of 2007 increased $460,000 due to income on increased patient financing and higher interest rates.

Income taxes

The following table summarizes the components of income tax provision for the second quarter of 2007 and 2006:

	June 30,		June 30,
	2007		2006
			(Restated)
Federal income taxes	$	3,851	$	4,791
State income taxes, net of federal benefit		768		1,168
Income tax provision	$	4,619	$	5,959

Income tax expense decreased from 42.6% of pre-tax income during the second quarter of 2006 to 38.4% of pre-tax income during the second quarter of 2007. This decrease resulted primarily from the tax benefit of investments in tax-exempt securities in 2007 and the absence in 2007 of tax expense related to incentive stock options granted in 2006.

Results of Operations for the Six Months Ended June 30, 2007 and 2006

In the first six months of 2007, revenues increased by $21,301,000 or 17%, to $148,348,000 from $127,047,000 in the first six months of 2006. Procedure volume of 107,769 increased 7% from 100,680 in the first half of 2006. The components of the revenue change include:

Revenues from higher procedure volume	$	9,777,000
Impact from average selling price, before revenue deferral		6,251,000
Change in deferred revenues		5,273,000
Increase in revenues	$	21,301,000

The average reported revenue per procedure, which includes the impact of deferring revenue from separately priced extended warranties, increased 9% to $1,377 in the first six months of 2007 from $1,262 in the first six months of 2006.

19

Change in deferred revenues

The following table summarizes the effect on revenues of the change in deferred revenues for the first six months of 2007 and 2006 (dollars in thousands):

							Increase in
	2007			2006			Revenues
Revenues deferred	$	(20,054	)	$	(20,552	)	$	498
Amortization of prior deferred revenues		13,525			8,750			4,775
Net increase in revenues							$	5,273

Medical professional and license fees

Medical professional and license fees increased by $1,682,000, or 7%, in the first six months of 2007 from the first six months of 2006. This increase was primarily due to costs and physician fees associated with higher revenues partially offset by lower enhancement expense. As a result of deferring revenue associated with separately priced extended warranties, a portion of the medical professional fees also have been deferred. These deferrals were partially offset by the amortization of the deferred medical professional fees attributable to prior years of $1,353,000 in the first half of 2007 and $875,000 in the first half of 2006.

Direct costs of services

Direct costs of services include the salary component of physician compensation for certain physicians employed by us, staffing, equipment, financing charges, medical supplies, and facility costs of operating laser vision correction centers and bad debt expenses. Direct costs of services increased in the first six months of 2007 by $9,921,000, or 25%, over the first six months of 2006. Approximately $7,347,000 of the increase was the result of 16 more vision centers being in operation at June 30, 2007 than at June 30, 2006.

Bad debt expense increased by $1,944,000 in the first six months of 2007, as compared to the first six months of 2006 for three reasons: 1) a higher percent of total revenues were financed by the company in 2007; 2) the mix of patient financing shifted to a greater use of 36-month financing from 12-month financing and the longer term receivables are reserved at a higher rate than shorter term receivables; and 3) the reserve rate on 18-month and 36-month receivables was increased as a result of recent collection rates with these programs.

The balance of the increase relates primarily to increases in salary expense for inflation and the addition of operational management positions and travel costs for our annual management conference held in May 2007.

General and administrative

General and administrative expenses increased by $347,000 or 3%, in the first six months of 2007 from the first six months of 2006. This amount was primarily due to increases in contracted services, travel and telecommunications.

Marketing and advertising expenses

Marketing and advertising expenses increased by $10,124,000 or 45%, in the first six months of 2007 from the first six months of 2006. During the first half of 2007, these expenses were 22% of revenue, compared with 18% during the first half of 2006. The increase resulted primarily from additional spending in existing markets to continue to drive traffic, spending related to opening new centers and investment in marketing research and program development. We are continuing to work to develop revised, more efficient marketing techniques. Our future operating margins will depend in large part on the success of our efforts in this regard.

Depreciation expense

Depreciation expense increased by $756,000 in the first six months of 2007 from the first six months of 2006 as a result of an increase in the number of vision centers in operation.

Non-operating income and expenses

Investment income in the first six months of 2007 increased $651,000 due to income on increased patient financing and higher interest rates.

20

Income taxes

The following table summarizes the components of income tax provision for the second quarter of 2007 and 2006:

	June 30,		June 30,
	2007		2006
			(Restated)
Federal income taxes	$	9,226	$	10,095
State income taxes, net of federal benefit		1,766		2,719
Income tax provision	$	10,992	$	12,814

Income tax expense decreased from 42.3% of pre-tax income during the first six months of 2006 to 37.5% of pre-tax income during the first six months of 2007. This decrease resulted primarily from the benefit of investments in tax-exempt securities and the tax benefit related to share-based compensation expense of disqualified stock option dispositions in 2007 and tax expense related to share-based compensation expense of incentive stock options in 2006.

Liquidity and Capital Resources

Cash and cash equivalents and short-term investments totaled $117,266,000 as of June 30, 2007, up from $98,052,000 at December 31, 2006. Net cash provided by operating activities in the first six months of 2007 was $33,676,000. Proceeds from the exercise of stock options totaled $3,112,000.

As of June 30, 2007, we had approximately $22,178,000 in accounts receivable, net of allowance for doubtful accounts, which was an increase of approximately $4,534,000 since December 31, 2006. Total accounts receivable increased $5,811,000 since December 31, 2006, primarily as a result of an increase in the number of patients financed by the Company. At the same time, the allowance for doubtful accounts increased by $1,277,000 from $2,842,000 to $4,119,000.

As of June 30, 2007, accounts payable increased to $6,349,000 from $5,264,000 at December 31, 2006. This increase was the result of increased activity and the timing of month-end disbursements.

Other assets include $500,000 of cash maintained by our consolidated captive insurance company pursuant to statutory requirements as of June 30, 2007. These funds are not available for general corporate purposes.

In November 2006, the Company’s board of directors approved a new share repurchase plan under which up to $50 million of LCA-Vision common shares may be repurchased. During the second quarter of 2007, no shares of common stock were purchased under this authorization. As of June 30, 2007, $34,488,000 remains available under this repurchase plan. In the second quarter of 2007, the board of directors declared a dividend to common stockholders of $0.18 per share, which resulted in a cash payment of approximately $3,614,000.

Our costs associated with the opening of a new vision center primarily consist of capital expenditures, including the purchase or lease of lasers, diagnostic equipment and office equipment, rent and leasehold improvements. In addition, we typically incur other startup expenses and pre-opening advertising expenses. Generally, we estimate the costs associated with opening a new vision center to be between $1,000,000 and $1,500,000. Actual costs will vary from vision center to vision center based upon the market, the number of lasers purchased or leased for the vision center, the site of the vision center and the level of leasehold improvements required, among other variables. Our capital expenditures consist primarily of investments incurred in connection with the opening of new vision centers and equipment purchases or upgrades at existing facilities.

Year-to-date, we have opened nine new vision centers: Long Island, NY; Omaha, NE; Green Bay, WI; Harrisburg, PA; Little Rock, AR; Colorado Springs, CO; San Diego, CA; Oklahoma City, OK and Scarsdale, NY. Capital expenditures through June 30, 2007 were $7,427,000. We currently have additional facilities under development.

21

The ability to fund our marketing and advertising program, planned capital expenditures and new vision center rollouts depends on our future performance, which, to a certain extent, is subject to general economic, competitive, legislative, regulatory and other factors, some of which are beyond our control. Based upon our current level of operations and anticipated revenue growth, we believe that cash flow from operations and available cash and short-term investments should provide sufficient cash reserves and liquidity to fund our working capital needs and our capital expenditures.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No.157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements since the FASB has previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS 157 becomes effective for us on January 1, 2008. We are currently in the process of determining the effect, if any, the adoption of SFAS 157 will have on the consolidated financial statements.

Critical Accounting Estimates

There have been no material changes in the critical accounting policies described in Management’s Discussion and Analysis in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2006.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

The carrying values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value because of the short maturity of these instruments.

Short-term investments are recorded at market value. Due to the short-term nature of the investments in corporate bonds and the significant portion of the investments in government bonds, there is little risk to the valuation.

We have a low exposure to changes in foreign currency exchange rates and, as such, have not used derivative financial instruments to manage foreign currency fluctuation risk.

Item 4. Controls and Procedures.

The certifications of our Chief Executive Officer and Chief Financial Officer, filed or furnished as Exhibits 31.1, 31.2 and 32, should be read in conjunction with this Item 4.

(a)

Evaluation Of Disclosure Controls And Procedures

Under the supervision of and with the participation of the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), an evaluation of the effectiveness of the Company’s disclosure controls and procedures was performed as of June 30, 2007. Based on this evaluation, and giving effect to the remediation actions that concluded during the quarter covered by this report, discussed in Item 4(b) below, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.

22

(b)	Changes In Internal Control Over Financial Reporting
	During the quarter ended June 30, 2007, we had fully remediated the material weakness in our internal control over financial reporting with respect to the deferral of revenues associated with separately priced extended warranties pursuant to FTB 90-1 as more fully described in our Annual Report on Form 10-K/A. Our remediation actions included:

• The review of and deferral of revenues associated with all historical sales of separately priced extended warranties consistent with the application of FTB 90-1, and the recording of accounting adjustments as appropriate; and

• Implementation of controls and processes to properly account for the deferral of revenues associated with separately priced extended warranties going forward. These controls and processes include new reconciliation and monitoring controls.

Otherwise, there were no significant changes in internal control over financial reporting, or in other factors, that occurred during the period covered by this quarterly report that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION.

Item 6. Exhibits

Exhibits
Number		Description
	31.1	CEO Certification under Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	CFO Certification under Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

23

Signatures

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.

	LCA-VISION INC.
Date: July 31, 2007	/s/ Steven C. Straus
	Steven C. Straus
	Chief Executive Officer
Date: July 31, 2007	/s/ Alan H. Buckey
	Alan Buckey
	Chief Financial Officer

24

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Steven C. Straus, certify that:

1. I have reviewed this report on Form 10-Q of LCA-Vision Inc.;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2007	/s/ Steven C. Straus
	Steven C. Straus
	Chief Executive Officer

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EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Alan H. Buckey, certify that:

1. I have reviewed this report on Form 10-Q of LCA-Vision Inc.;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2007	/s/ Alan H. Buckey
	Alan H. Buckey
	Executive Vice President/Finance and Chief Financial Officer

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EX-32

Exhibit 32

CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of LCA-Vision Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

This quarterly report on Form 10-Q for the period ended June 30, 2007 of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 31, 2007	/s/ Steven C. Straus
	Steven C. Straus
	Chief Executive Officer
Date: July 31, 2007	/s/ Alan Buckey
	Alan Buckey
	Chief Financial Officer

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