**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**


**Form
      10-Q**


(Mark
      One)


x **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934.**





For
      the
      quarterly period ended June 30, 2008.




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
            
            (IRS
                Employerincorporation
                or organization)
            
            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 x   No o





Indicate
      by check mark whether the 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. (Check one)





Large
                accelerated filer  o
            
            Accelerated
                filer    xNon-accelerated
                filer   o
            
            Smaller
                reporting company  o





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





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: 18,531,335 shares as of July 24,
      2008.









LCA-Vision
      Inc.


INDEX





Part
                I.
            Financial
              InformationItem 1.
            
            Financial
                StatementsCondensed
                Consolidated Balance Sheets as of June 30, 2008
                (unaudited)and
                December 31, 2007
            3Condensed
                Consolidated Statements of Income for the Three and SixMonths
                Ended June 30, 2008 and 2007 (unaudited)
            4Condensed
                Consolidated Statements of Cash Flow for the Six Months
                EndedJune
                30, 2008 and 2007 (unaudited)
            5Notes
                to Condensed Consolidated Financial Statements
            6Item 2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            15Item 3.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            22Item 4.
            
            Controls
                and Procedures
            23Part
                II. Other InformationItem 1.
            
            Legal
                Proceedings
            23Item 1A.
            
            Risk
                Factors
            24Item 4.
            
            Submission
                of Matters to a Vote of Security Holders
            24Item 6.
            
            Exhibits
            25Signatures
            26


2





**PART
      1. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**LCA-Vision
      Inc.**


**Condensed
      Consolidated Balance Sheets**


(Dollars
      in thousands)





June 30, 2008
            
            
            December 31, 2007(Unaudited)AssetsCurrent
                assetsCash
                and cash equivalents
            
            $
            22,941
            
            $
            17,614Short-term
                investments
            
            
            39,205
            
            
            42,534Patient
                receivables, net of allowance for doubtful accounts of $2,984 and
                $2,987
            
            
            12,902
            
            
            12,712Other
                accounts receivable
            
            
            4,942
            
            
            5,941Prepaid
                professional fees
            
            
            1,353
            
            
            1,872Prepaid
                income taxes
            
            
            1,655
            
            
            6,391Deferred
                tax assets
            
            
            3,441
            
            
            3,450Prepaid
                expenses and other
            
            
            4,996
            
            
            5,076Total
                current assets
            
            
            91,435
            
            
            95,590Property
                and equipment
            
            
            121,140
            
            
            106,788Accumulated
                depreciation and amortization
            
            
            (61,691
            )
            
            (52,872
            )Property
                and equipment, net
            
            
            59,449
            
            
            53,916Long-term
                investments
            
            
            5,727
            
            
            2,250Patient
                receivables, net of allowance for doubtful accounts of $2,244 and
                $2,130
            
            
            4,533
            
            
            4,556Deferred
                compensation plan assets
            
            
            3,425
            
            
            5,540Investment
                in unconsolidated businesses
            
            
            1,141
            
            
            590Deferred
                tax assets
            
            
            12,178
            
            
            13,561Other
                assets
            
            
            2,589
            
            
            3,644Total
                assets
            
            $
            180,477
            
            $
            179,647Liabilities
                and Stockholders' InvestmentCurrent
                liabilitiesAccounts
                payable
            
            $
            3,575
            
            $
            10,396Accrued
                liabilities and other
            
            
            12,335
            
            
            13,219Deferred
                revenue
            
            
            13,527
            
            
            18,719Income
                taxes payable
            
            
            405
            
            
            642Debt
                obligations maturing in one year
            
            
            7,904
            
            
            3,941Total
                current liabilities
            
            
            37,746
            
            
            46,917Long-term
                debt obligations (less current portion)
            
            
            16,676
            
            
            2,012Deferred
                compensation liability
            
            
            3,431
            
            
            5,516Insurance
                reserve
            
            
            9,563
            
            
            8,493Deferred
                revenue
            
            
            17,757
            
            
            23,110Stockholders'
                InvestmentCommon
                stock ($0.001 par value; 25,177,617 and 25,114,244 shares issued
                and18,531,168
                and 18,482,658 shares outstanding as of June 30, 2008 andDecember
                31, 2007, respectively)
            
            
            25
            
            
            25Contributed
                capital
            
            
            173,194
            
            
            172,965Common
                stock in treasury, at cost (6,646,449 and 6,631,586 sharesat
                June 30, 2008 and December 31, 2007)
            
            
            (114,632
            )
            
            (114,427
            )Retained
                earnings
            
            
            36,453
            
            
            34,597Accumulated
                other comprehensive income
            
            
            264
            
            
            439Total
                stockholders' investment
            
            
            95,304
            
            
            93,599Total
                liabilities and stockholders' investment
            
            $
            180,477
            
            $
            179,647




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


3





**LCA-Vision
      Inc.**


**Condensed
      Consolidated Statements of Income (Unaudited)**


(Dollars
      in thousands except per share data)





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2008
            
            2007
            
            2008
            
            2007Revenue —
                Laser
                refractive surgery
            
            $
            54,181
            
            $
            69,685
            
            $
            133,750
            
            $
            148,348Operating
                costs and expensesMedical
                professional and license fees
            
            
            11,260
            
            
            11,419
            
            
            26,022
            
            
            25,393Direct
                costs of services
            
            
            20,119
            
            
            24,629
            
            
            44,846
            
            
            49,095General
                and administrative expenses
            
            
            5,674
            
            
            5,390
            
            
            11,045
            
            
            10,588Marketing
                and advertising
            
            
            15,466
            
            
            15,714
            
            
            35,449
            
            
            32,892Depreciation
            
            
            4,612
            
            
            2,494
            
            
            8,867
            
            
            4,798Operating
                (loss) income
            
            
            (2,950
            )
            
            10,039
            
            
            7,521
            
            
            25,582Equity
                in earnings from unconsolidated businesses
            
            
            265
            
            
            199
            
            
            321
            
            
            354Net
                investment income
            
            
            831
            
            
            1,816
            
            
            1,566
            
            
            3,427Other
                (expense) income, net
            
            
            -
            
            
            (21
            )
            
            18
            
            
            (31
            )(Loss)
                income before taxes
            
            
            (1,854
            )
            
            12,033
            
            
            9,426
            
            
            29,332Income
                tax (benefit) expense
            
            
            (1,281
            )
            
            4,619
            
            
            3,123
            
            
            10,992Net
                (loss) income
            
            $
            (573
            )
            $
            7,414
            
            $
            6,303
            
            $
            18,340(Loss)
                income per common shareBasic
            
            $
            (0.03
            )
            $
            0.37
            
            $
            0.34
            
            $
            0.92Diluted
            
            $
            (0.03
            )
            $
            0.36
            
            $
            0.34
            
            $
            0.90Dividends
                declared per share
            
            $
            0.06
            
            $
            0.18
            
            $
            0.24
            
            $
            0.36Weighted
                average shares outstandingBasic
            
            
            18,525
            
            
            20,069
            
            
            18,510
            
            
            19,987Diluted
            
            
            18,525
            
            
            20,354
            
            
            18,570
            
            
            20,334




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 (Unaudited)**


(Dollars
      in thousands)





Six
                Months Ended June 30,2008
            
            2007Cash
                flow from operating activities:Net
                income
            
            $
            6,303
            
            $
            18,340Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            8,867
            
            
            4,798Provision
                for loss on doubtful accounts
            
            
            3,325
            
            
            3,156Deferred
                income taxes
            
            
            1,686
            
            
            115Stock
                based compensation
            
            
            612
            
            
            2,780Insurance
                reserve
            
            
            1,070
            
            
            1,296Equity
                in earnings of unconsolidated affiliates
            
            
            (321
            )
            
            (354
            )Changes
                in operating assets and liabilitiesPatient
                receivables
            
            
            (3,492
            )
            
            (7,420
            )Other
                accounts receivable
            
            
            999
            
            
            (2,581
            )Prepaid
                income taxes
            
            
            4,736
            
            
            (1,139
            )Prepaid
                expenses and other
            
            
            80
            
            
            2,120Accounts
                payable
            
            
            (6,821
            )
            
            1,085Deferred
                revenue, net of professional fees
            
            
            (9,491
            )
            
            5,877Income
                taxes payable
            
            
            (237
            )
            
            -Accrued
                liabilities and other
            
            
            (993
            )
            
            2,308Net
                cash provided by operations
            
            $
            6,323
            
            $
            30,381Cash
                flow from investing activities:Purchase
                of property and equipment
            
            
            (12,590
            )
            
            (7,427
            )Purchases
                of investment securities
            
            
            (171,849
            )
            
            (160,515
            )Proceeds
                from sale of investment securities
            
            
            170,910
            
            
            148,741Other,
                net
            
            
            787
            
            
            (74
            )Net
                cash used in investing activities
            
            $
            (12,742
            )
            $
            (19,275
            )Cash
                flow from financing activities:Principal
                payments of capital lease obligations and debt
            
            
            (2,367
            )
            
            (2,249
            )Proceeds
                from loan
            
            
            19,184
            
            
            -Shares
                repurchased for treasury stock
            
            
            (205
            )
            
            (452
            )Tax
                benefits related to stock-based compensation
            
            
            (566
            )
            
            1,055Exercise
                of stock options
            
            
            147
            
            
            3,112Dividends
                paid to stockholders
            
            
            (4,447
            )
            
            (7,227
            )Net
                cash provided by (used in) financing activities
            
            
            11,746
            
            
            (5,761
            )Increase
                in cash and cash equivalents
            
            
            5,327
            
            
            5,345Cash
                and cash equivalents at beginning of period
            
            
            17,614
            
            
            24,431Cash
                and cash equivalents at end of period
            
            $
            22,941
            
            $
            29,776




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 Lasik *Plus* 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. Most of our patients currently receive a procedure called LASIK,
      which we began performing in the United States in 1997.





As
      of
      June 30, 2008, we had 76 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, 2008 and
      December 31, 2007; condensed consolidated Statements of Income for the three
      and
      six months ended June 30, 2008 and 2007; and condensed consolidated Statements
      of Cash Flow for the six months ended June 30, 2008 and 2007. 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. These financial statements and notes should be
      read together with the financial statements and notes in our annual report
      on
      Form 10-K for the fiscal year ended December 31, 2007. Results of operations
      for
      the period ending June 30, 2008 are not necessarily indicative of results to
      be
      expected for the year ended December 31, 2008.





**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 investments, patient financing receivables and reserves,
      insurance reserves, income taxes and enhancement accruals. 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.


6





LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements





**Reclassification**





Certain
      prior-period amounts have been reclassified in the Condensed Consolidated
      Balance Sheets and Condensed Consolidated Statements of Cash Flow to conform
      to
      current period presentation. The reclassifications were not material to the
      consolidated financial statements.





**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 other comprehensive income, a component of stockholders’ investment.
      The amortized cost of debt securities in this category reflects amortization
      of
      premiums and accretion of discounts to maturity computed under the effective
      interest method. Such amortization is included in net investment income.
      Realized gains and losses and declines in value judged to be other than
      temporary are also included in net 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 net investment
      income.





As
      of
      June 30, 2008 and December 31, 2007, there were available-for-sale securities,
      both current and long-term, of $44,932,000 and $44,784,000, respectively. The
      following table is a summary of available-for-sale securities at June 30, 2008
      (dollars in thousands):





**Amortized Cost**
            
            **Gross**
              **Unrealized**
              **Gains**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Estimated Fair**
              **Value (Net**
              **Carrying Value)**Corporate
                bonds
            
            $
            22,960
            
            $
            -
            
            $
            (416
            )
            $
            22,544U.S.
                Government securities
            
            
            5,931
            
            
            -
            
            
            -
            
            
            5,931Municipal
                bonds
            
            
            13,713
            
            
            73
            
            
            (57
            )
            
            13,729Equities
            
            
            2,917
            
            
            -
            
            
            (189
            )
            
            2,728Total
                investments
            
            $
            45,521
            
            $
            73
            
            $
            (662
            )
            $
            44,932





The
      gross
      realized gains on sales of available-for-sale securities for the three and
      six
      months ended June 30, 2008 were $10,000, at each date. 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.





At
      June
      30, 2008, the corporate and municipal bonds included in our available-for-sale
      security portfolio included $7,600,000 in amortized cost of auction rate
      instruments that pay a floating rate of interest set periodically through a
      Dutch Auction process typically held every 7, 28 or 35 days. Rates are
      determined by the credit quality of the issuer, supply and demand of a
      particular issue, frequency of the rate reset and any tax benefits associated
      with the security. The securities have historically traded at par and are
      callable at par at the option of the issuer. Interest is typically paid at
      the
      end of each auction period. At June 30, 2008, the majority of our auction rate
      instruments were investment grade and some were backed by monoline insurance
      companies. Until January 2008, the auction rate securities market was highly
      liquid. Beginning in January 2008, certain of our auction rate instruments
      “failed,” meaning that there was insufficient demand to sell all of the
      securities that holders desired to sell at auction. The immediate effect of
      a
      failed auction is that holders cannot sell the securities at auction and the
      interest rate on the security generally resets to a maximum auction rate.


7


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)





At
      June
      30, 2008, there was insufficient observable auction rate market information
      available to determine the fair value of most of our auction rate security
      investments. Therefore, we estimated fair value using a discounted cash flow
      model employing assumptions that market participants would use in their
      estimates of fair value. Certain of these assumptions included credit quality,
      final stated maturities, estimates of the probability of the issue being called
      prior to final maturity, expected changes in interest rates paid on the
      securities, interest rates paid on similar instruments, and an estimated
      illiquidity discount due to extended redemption periods. Based on this analysis,
      we recorded a temporary unrealized loss of $473,000, or $284,000 on an after-tax
      basis, related to our auction rate instruments as of June 30, 2008. We believe
      these temporary unrealized
      losses, which are recorded as a component of accumulated other comprehensive
      income within stockholders’ investment, can be attributed to fair value
      fluctuations in an unstable credit environment.





We
      currently have no reason to believe that any of the underlying issuers of our
      auction rate instruments are presently at risk of default. We have continued
      to
      receive interest payments on the auction rate instruments in accordance with
      their stated terms. Since June 30, 2008, $1,400,000 of our auction rate
      instruments, which have been classified as short-term investments, have been
      redeemed at par. We believe that we will ultimately be able to liquidate the
      remainder of our auction rate instruments without significant loss. However,
      as
      a result of the failed auctions and excluding those securities redeemed
      subsequent to June 30, 2008, our auction rate instruments are not currently
      liquid. Due to the continuation of the unstable credit environment, we believe
      the recovery period for our auction rate instruments will exceed 12 months.
      Accordingly, we have classified the fair value of the auction rate instruments
      that have not been redeemed subsequent to June 30, 2008, as long-term. The
      fair
      value and par value of our long-term auction rate instruments were $5,727,000
      and $6,200,000 at June 30, 2008, respectively.





The
      net
      carrying value and estimated fair value of debt securities available for sale
      and equity investments at June 30, 2008, 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.




(dollars
                in thousands)
            
            **Amortized Cost**
            
            **Estimated Fair Value**Due
                in one year or less
            
            $
            31,416
            
            $
            31,450Due
                after one year through three years
            
            
            3,588
            
            
            3,627Due
                after three years
            
            
            7,600
            
            
            7,127Equities
            
            
            2,917
            
            
            2,728Total
                investments
            
            $
            45,521
            
            $
            44,932





**Fair
      Values of Financial Instruments**





Effective
      January 1, 2008, we adopted Financial Accounting Standards Board (FASB)
      Statement No. 157 (SFAS 157), *Fair
      Value Measurements.* SFAS
      No. 157 clarifies the definition of fair value, prescribes methods for
      measuring fair value, establishes a fair value hierarchy based on the inputs
      used to measure fair value and expands disclosures about the use of fair value
      measurements. In accordance with Financial Accounting Standards Board Staff
      Position No. FAS 157-2 (FSP 157-2), *Effective
      Date of FASB Statement No. 157* ,
      we will
      defer the adoption of SFAS No. 157 for our nonfinancial assets and
      nonfinancial liabilities, except those items recognized or disclosed at fair
      value on an annual or more frequently recurring basis, until January 1,
      2009. The adoption of SFAS No. 157 did not have a material impact on our
      fair value measurements.




8





LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)





Level
      inputs, as defined by SFAS 157, are as follows:





**Level
                Input:**
            
            **Input
                Definition:**Level
                1
            
            Inputs
                are unadjusted, quoted prices for identical assets or liabilities
                in
                active markets at the measurement date.Level
                2
            
            Inputs
                other than quoted prices included in Level I that are observable
                for the
                asset or liability through corroboration with market data at the
                measurement date.Level
                3
            
            Unobservable
                inputs that reflect management’s best estimate of what market participants
                would use in pricing the asset or liability at the measurement
                date.




The
      following table summarizes fair value measurements by level at June 30,
      2008 for assets and liabilities measured at fair value on a recurring basis
      (dollars in thousands):





**Fair
                Value Measurements as of June 30, 2008 Using****Quoted Prices in**
            
            
            
            **Significant****Active Markets for**
            
            **Significant Other**
            
            **Unobservable****Identical Assets**
            
            **Observable Inputs**
            
            **Inputs****Description**
            
            **(Level
                1)**
            
            **(Level
                2)**
            
            **(Level
                3)**
            
            **Total**Assets:Cash
                and cash equivalents
            
            $
            22,941
            
            $
            -
            
            $
            -
            
            $
            22,941Available-for-sale
                securities
            
            
            2,728
            
            
            35,077
            
            
            7,127
            
            
            44,932Deferred
                compensation assets
            
            
            3,425
            
            
            -
            
            
            -
            
            
            3,425Total
            
            $
            29,094
            
            $
            35,077
            
            $
            7,127
            
            $
            71,298Liabilities:Deferred
                compensation liabilities
            
            $
            3,431
            
            $
            -
            
            $
            -
            
            $
            3,431





Cash
      and
      cash equivalents are comprised of either bank deposits or amounts invested
      in
      money market funds, the fair value of which is based on quoted market prices.
      The fair values of some available-for-sale securities are based on quoted market
      prices from various stock and bond exchanges. Certain of our debt securities
      are
      classified at fair value utilizing Level 2 inputs. For these securities, fair
      value is measured using observable market data that includes dealer quotes,
      live
      trading levels, trade execution data, credit information and the bond’s terms
      and conditions. The fair values of our auction rate instruments are classified
      in Level 3 as previously described. We maintain a self-directed deferred
      compensation plan structured as a rabbi trust for certain highly compensated
      individuals. The investment assets of the rabbi trust are valued using quoted
      market prices. The related deferred compensation liability represents the fair
      value of the participants’ investment elections, determined using quoted market
      prices. We consider our credit risk, taking into consideration the legal rights
      of participants to receive deferred amounts, in the fair value determination
      of
      the deferred compensation liability.


9


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)




For
      assets measured at fair value using significant unobservable inputs (Level
      3)
      during the period, a reconciliation of beginning and ending balances for each
      major category is set forth in the table below (dollars in
      thousands):





**Fair
                Value Measurements Using Significant****Unobservable
                Inputs (Level 3)****Taxable**
            
            **Tax
                Exempt****Auction**
            
            **Auction****Rate**
            
            **Rate****Description**
            
            **Securities**
            
            **Securities**
            
            **Total**Balance
                as of April 1, 2008
            
            $
            1,894
            
            $
            8,583
            
            $
            10,477Assets
                acquired
            
            
            -
            
            
            -Assets
                sold
            
            
            -
            
            
            (3,350
            )
            
            (3,350
            )Transfers
                in (out) of Level 3
            
            
            -
            
            
            -
            
            
            -Gains
                (losses) included in earnings
            
            
            -
            
            
            -
            
            
            -Gains
                (losses) included in other comprehensive income
            
            
            (60
            )
            
            60
            
            
            -Balance
                as of June 30, 2008
            
            $
            1,834
            
            $
            5,293
            
            $
            7,127





**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 it based upon our experience with patient financing.
      Receivables are charged off against the allowance for doubtful accounts when
      it
      is probable a receivable will not be recovered. Our policy is to reserve for
      all
      receivables that remain open past the financial maturity date and to provide
      reserves for receivables prior to the maturity date so as to bring receivables
      net of reserves down to the estimated net realizable value based on historical
      collectibilty rates, recent default activity and the current credit
      environment.





**Accrued
      Enhancement Expense**





Effective
      June 15, 2007, participation in our Lifetime Satisfaction Program (“acuity
      program”) is included in the base surgical price for substantially all of our
      patients. Under the acuity program, we provide post-surgical enhancements free
      of charge should the patient not achieve the desired visual correction during
      the initial procedure. Under this pricing structure, we account for the acuity
      program as a warranty obligation under the provisions of FASB Statement No.
      5
      (SFAS 5), *Accounting
      for Contingencies* .
      Accordingly, the costs expected to be incurred to satisfy the obligation are
      accrued as a liability and direct cost of service at the point of sale given
      our
      ability to reasonably estimate such costs based on historical trends and the
      satisfaction of all other revenue recognition criteria.





We
      record
      the post-surgical enhancement accrual based on our best estimate of the number
      and associated cost of the procedures to be performed. Each month, we review
      the
      enhancement accrual and consider factors such as procedure cost and historical
      procedure volume when determining the appropriateness of the recorded
      balance.


10




LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)





**Deferred
      Revenues**





Prior
      to
      June 15, 2007, our acuity programs were separately priced and included a
      no-acuity plan, a one-year acuity plan, and a lifetime acuity plan. Under FASB
      Technical Bulletin No. 90-1 (FTB 90-1), *Accounting
      for Separately Priced Extended Warranty and Product Maintenance
      Contract* s,
      100%
      of revenues from the sale of an extended acuity program 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 recognition on other than a straight-line
      basis. Accordingly, we have deferred these revenues and are recognizing them
      over the period in which the future costs of performing the enhancement
      procedures are 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, we deferred 100% of all
      revenues associated with the sale of the lifetime acuity plan and are
      recognizing them 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 are being recognized in proportion to the total costs
      expected to be incurred, beginning immediately following the initial surgical
      procedure.





Effective
      June 15, 2007, we changed our pricing model and no longer offer separately
      priced acuity options. For substantially all patients, participation in the
      acuity program now is included in the base surgical price. 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. Revenues
      previously deferred from the sale of the separately priced acuity programs
      are
      being recognized over a seven-year period, our current estimate of the period
      over which costs to provide the enhancement service will be
      incurred.





In
      addition to the deferral of revenues for those procedures performed prior to
      the
      elimination of separately priced acuity programs on June 15, 2007, 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. 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 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.





As
      of
      June 30, 2008 and December 31, 2007, the deferred revenue balance totaled
      $31,284,000 and $41,829,000, respectively.





**Captive
      Insurance Company Reserves**





We
      have a
      captive insurance company to provide professional liability insurance coverage
      for claims brought against us after December 17, 2002. In addition, our captive
      insurance company’s charter allows it to provide professional liability
      insurance for our doctors, although none are currently insured by the captive.
      We use 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 financial statements of the captive insurance company
      are
      consolidated with our financial statements since it is a wholly-owned
      enterprise. As of June 30, 2008 and December 31, 2007, we maintained insurance
      reserves of $9,563,000 and $8,493,000, respectively, which represents an
      actuarially determined estimate of future costs associated with claims filed
      as
      well as claims incurred but not yet reported. The loss reserve developed by
      our
      actuaries is determined by comparing historical claim experience to comparable
      insurance industry experience.





11




LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements




**Debt**





Long-term
      debt obligations consist of (dollars in thousands):





**June 30, 2008**
            
            **December 31, 2007**Capitalized
                lease obligations
            
            $
            5,962
            
            $
            5,953Bank
                loan
            
            
            18,618
            
            
            -Total
                long-term debt obligations
            
            $
            24,580
            
            $
            5,953Debt
                obligations maturing in one year
            
            
            (7,904
            )
            
            (3,941
            )Long-term
                obligations (less current portion)
            
            $
            16,676
            
            $
            2,012




Capitalized
      lease obligations are used to finance purchases of some of our medical
      equipment. The leases cover a period of 24 months to 36 months from the date
      the
      medical equipment is installed.




On
      April
      24, 2008, we entered into a bank loan agreement for $19,184,000 to finance
      medical equipment. The loan will be paid in equal monthly installments over
      a
      five-year period at a fixed interest rate of 4.96%. The loan agreement contains
      no financial covenants.





Both
      the
      capital lease obligations and the bank loan are secured by certain medical
      equipment.





**Income
      Taxes**





The
      following table summarizes the components of the income tax provision for the
      three- and six-month periods ended June 30, 2008 and 2007 (dollars in
      thousands):





**Three months ended**
            
            **Six months ended****June 30,**
            
            **June 30,**
            
            **June 30,**
            
            **June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Federal
                income tax (benefit) expense
            
            $
            (1,251
            )
            $
            3,851
            
            $
            2,433
            
            $
            9,226State
                income tax (benefit) expense, net of federal benefit
            
            
            (30
            )
            
            768
            
            
            690
            
            
            1,766Income
                tax (benefit) expense
            
            $
            (1,281
            )
            $
            4,619
            
            $
            3,123
            
            $
            10,992Effective
                income tax rate
            
            
            69.1
            %
            
            38.4
            %
            
            33.1
            %
            
            37.5
            %





Our
      effective income tax rate decreased for the six-month period ended June 30,
      2008
      when compared to the same period last year. The rate decreased primarily because
      of lowered performance expectations for 2008 and the corresponding effect of
      permanent differences constituting a larger percentage of our overall taxable
      income.





Our
      effective tax rate for the three months ended June 30, 2008 is high since the
      projected annual tax expense was revised from 39.0% as of the end of the first
      quarter to 33.1% year-to-date and the entire change flowed through the second
      quarter. The reduction in the year-to-date rate resulted from the decline in
      earnings and the impact of permanent tax differences.





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.




12




LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements




During
      the three and six months ended June 30, 2008, there were no significant changes
      to the liability for unrecognized tax benefits or potential interest and
      penalties recorded as a component of income tax expense. The
      total
      amount of unrecognized tax benefits was approximately $399,000 and $574,000
      at
      June 30, 2008 and December 31, 2007, respectively.During the June 2008
      quarter, the Internal Revenue Service completed its examination of our 2006
      tax
      returns with no significant affect to the financial statements. It
      is
      reasonably possible that there could be a change in the amount of unrecognized
      tax benefits within the next 12 months due to other activities of the IRS or
      other taxing authorities, including possible settlement of audit issues, or
      the
      expiration of applicable statutes of limitations.  It is not possible to
      reasonably estimate the amount of such change in unrecognized tax benefits
      at
      this time.





**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.





Following
      is a reconciliation of basic and diluted earnings per share for the three and
      six months ended June 30, 2008 and 2007 (dollars in thousands, except per share
      amounts):





**Three Months Ended**
            
            **Six Months Ended****June 30,**
            
            **June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Basic
                EarningsNet
                (loss) income
            
            $
            (573
            )
            $
            7,414
            
            $
            6,303
            
            $
            18,340Weighted
                average shares outstanding
            
            
            18,525
            
            
            20,069
            
            
            18,510
            
            
            19,987Basic
                (loss) earnings per share
            
            $
            (0.03
            )
            $
            0.37
            
            $
            0.34
            
            $
            0.92Diluted
                EarningsNet
                (loss) income
            
            $
            (573
            )
            $
            7,414
            
            $
            6,303
            
            $
            18,340Weighted
                average shares outstanding
            
            
            18,525
            
            
            20,069
            
            
            18,510
            
            
            19,987Effect
                of dilutive securitiesStock
                options
            
            
            -
            
            
            259
            
            
            36
            
            
            309Restricted
                stock
            
            
            -
            
            
            26
            
            
            24
            
            
            38Weighted
                average common shares and potential dilutive shares
            
            
            18,525
            
            
            20,354
            
            
            18,570
            
            
            20,334Diluted
                (loss) earnings per share
            
            $
            (0.03
            )
            $
            0.36
            
            $
            0.34
            
            $
            0.90





For
      the
      three and six months ended June 30, 2008, 766,894 and 694,479 weighted shares,
      respectively, that were issuable upon the exercise of stock options and
      non-vested restricted stock were excluded from the computation of diluted
      earnings per share as their effect was antidilutive.





**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 our former separately priced acuity programs have
      been
      deferred and are being recognized over the period in which future costs of
      performing the post-surgical enhancement procedures are expected to be incurred,
      as we have sufficient experience to support that cost associated with future
      enhancements will be incurred on other than a straight line basis.





**Stock-Based
      Compensation**





We
      have
      four stock incentive plans through which employees and directors have been
      or
      are granted stock-based compensation. We recognize compensation expense for
      the
      grant date fair value of stock-based awards over the applicable vesting period.
      The components of our pre-tax stock-based compensation expense, net of
      forfeitures, and associated income tax benefits were as follows for the three
      and six months ended June 30, 2008 (dollars in thousands):





13




LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements




**Three months ended**
            
            **Six months ended****June 30,**
            
            **June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Stock
                options
            
            $
            257
            
            $
            687
            
            $
            163
            
            $
            1,387Restricted
                stock
            
            
            456
            
            
            852
            
            
            449
            
            
            1,392713
            
            
            1,539
            
            
            612
            
            
            2,779Income
                tax benefit
            
            
            244
            
            
            403
            
            
            254
            
            
            728$
            469
            
            $
            1,136
            
            $
            358
            
            $
            2,051





**Commitments
      and Contingencies**




On
      September 13, 2007, and October 1, 2007, two complaints were filed against
      the
      Company and certain of our current and former directors and officers by Beaver
      County Retirement Board and Spencer and Jean Lin, respectively, in the United
      States District Court for the Southern District of Ohio (Western Division)
      purportedly on behalf of a class of shareholders who purchased our common stock
      between February 12, 2007 and July 30, 2007.  On November 8, 2007, an
      additional complaint was filed by named plaintiff Diane B. Callahan against
      the
      Company and certain of our current and former directors and officers in the
      United States District Court for the Southern District of Ohio (Western
      Division).  This third action was filed purportedly on behalf of a class of
      shareholders who purchased our common stock between February 12, 2007 and
      November 2, 2007.  These actions have been consolidated into one action. A
      consolidated complaint was filed on April 19, 2008. The plaintiffs in the
      consolidated complaint are seeking damages on behalf of a class of shareholders
      who purchased our common stock between October 24, 2006 and November 2, 2007,
      asserting claims under Sections 10(b) and 20(a) of the Securities Exchange
      Act
      of 1934. They allege that certain of the Company’s public disclosures regarding
      its financial prospects and historical accounting for bad-debt reserves and
      expenses were false or misleading. On July 10, 2008, the Company, together
      with
      the other defendants, filed a motion to dismiss the consolidated complaint.
      We
      strongly believe that these claims lack merit, and we intend to defend against
      the claims vigorously. Due to the inherent uncertainties of litigation, we
      cannot predict the outcome of the action at this time, and can give no assurance
      that these claims will not have a material adverse effect on our financial
      position or results of operations.  No amount has been accrued for these
      claims at June 30, 2008.





On
      October 5, 2007, a complaint was filed in the Court of Common Pleas, Hamilton
      County, Ohio, against certain of our current and former officers and directors,
      derivatively on behalf of the Company.  The plaintiff, Nicholas Weil,
      asserts that three of the defendants breached their fiduciary duties when they
      allegedly sold LCA-Vision's securities on the basis of material non-public
      information in 2007.  The plaintiff also asserts claims for breach of
      fiduciary duty, abuse of control, corporate waste, and unjust enrichment in
      connection with the disclosures that also are the subject of the securities
      actions described above. The Company is named as a nominal defendant in the
      complaint, although the action is derivative in nature. 
      The plaintiff demands damages and attorneys fees, and seeks other equitable
      relief.  On December 20, 2007, the court stayed this action, pursuant to a
      stipulation of the parties, pending the resolution of the motion to dismiss
      filed in the consolidated class action, discussed above. We are in the process
      of evaluating these claims.  However, due to the inherent uncertainty of
      litigation, we cannot predict the outcome of the action at this time, and can
      give no assurance that these claims will not have a material adverse effect
      on
      our financial position or results of operations. No amount has been accrued
      for
      these claims at June 30, 2008.





Our
      business results in a number of medical malpractice lawsuits. 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 in December 2002,
      we
      established a captive insurance company to provide coverage for claims brought
      against us after December 17, 2002. We use the captive insurance company for
      both primary insurance and excess liability coverage. A number of claims are
      now
      pending with our captive insurance company. Since the inception of the captive
      insurance company in 2002, total claims and expense payments of $986,000 have
      been disbursed.




14




LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements




In
      addition to the above, we are periodically subject to various other claims
      and
      lawsuits. We believe that none of these other claims or lawsuits 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.





**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, and based on current expectations,
      forecasts and assumptions of LCA-Vision that are subject to risks and
      uncertainties. These forward-looking statements 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; the acceptance
      rate
      of new technology, and our ability to successfully implement new technology
      on a
      national basis; market acceptance of our services; the successful execution
      of
      marketing strategies to cost effectively drive patients to our vision centers;
      competition in the laser vision correction industry; an inability to attract
      new
      patients; the possibility of long-term side effects and adverse publicity
      regarding laser vision correction; operational and management instability;
      legal
      or regulatory action against us or others in the laser vision correction
      industry; our ability to successfully open new vision centers, including our
      ability to reach profitability targets for new vision centers within a specified
      time period; the relatively high fixed cost structure of our business; the
      continued availability of non-recourse third-party financing for our patients
      on
      terms similar to what we have paid historically; and the future value of
      revenues financed by us and our ability to collect on such financings which
      will
      depend on a number of factors, including the consumer credit environment and
      our
      ability to manage credit risk related to consumer debt, bankruptcies and other
      credit trends. In addition, an ongoing FDA study about post-Lasik quality of
      life matters could potentially impact negatively the acceptance of Lasik. Except
      to the extent required under the federal securities laws and the rules and
      regulations promulgated by the Securities and Exchange Commission, 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 this report
      and our annual report on Form 10-K for the fiscal year ended December 31, 2007
      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 should be read together with our Condensed Consolidated
      Financial Statements and the accompanying Notes included in this Quarterly
      Report.





**Overview**


We
      are a
      leading provider of fixed-site laser vision correction centers at our
      Lasik *Plus* vision
      centers. Our vision centers provide the staff, facilities, equipment and support
      services for performing vision correction procedures 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 impacted by a number
      of
      factors, including the following:




·
            General
                economic conditions and consumer confidence
                levels


·
            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


·
              The
                  level of consumer acceptance of laser vision
                  correction






15




·
            The
                effect of competition and discounting practices in our
                industry


·
            Deferred
                revenue from the sale, prior to June 15, 2007, of separately priced
                extended warranties





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, finance
                charges for third-party patient financing 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





Our
      revenues are primarily a function of the number of laser vision correction
      procedures performed and the pricing for these 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. As indicated below, we have
      experienced significant declines in levels of procedure volume during the first
      half of 2008. We believe this is due to the occurrence of a number of factors
      cited in the first paragraph of this Item 2 as risks and uncertainties
      associated with our business. These factors include the effect the deteriorating
      U. S. economic conditions are having on consumer spending habits, the inability
      of our marketing strategies to drive procedure volume in the current economic
      environment and, perhaps, an increase in consumer concern about laser vision
      correction resulting from the ongoing FDA study. We expect these conditions
      will
      continue to affect adversely our procedure volume and our revenues for at least
      the balance of 2008.





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




**2008**
            
            **2007**First
                Quarter
            
            
            44,159
            
            
            59,101Second
                Quarter
            
            
            30,086
            
            
            48,668Third
                Quarter
            
            
            
            
            
            44,547Fourth
                Quarter
            
            
            
            
            
            39,888Year
            
            
            74,245
            
            
            192,204





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.





We
      offer
      our patients 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 applicable accounting rules, 100% of revenues from
      the sale of an extended acuity program 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 recognition on other than a straight-line basis. Accordingly, we have
      deferred these revenues and are recognizing them over the period in which the
      future costs of performing the enhancement procedures are 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, we deferred 100% of all revenues associated with
      the sale of the lifetime acuity plan and are recognizing them beginning one
      year
      after the initial surgery date. For 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 are being recognized in
      proportion to the total costs expected to be incurred, beginning immediately
      following the initial surgical procedure.




16




Effective
      June 15, 2007, we 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. The following table provides an estimate of the run-off of the
      balance in future periods based upon historical enhancement rates. These rates
      are reviewed quarterly and the amortization will be modified as needed (dollars
      in thousands).





**Lifetime if Base**
            
            **Lifetime if Base**
            
            **One-Year if Base****Price Includes**
            
            **Price Does Not**
            
            **Price Does Not****the One-Year**
            
            **Include an**
            
            **Include an****Acuity Plan**
            
            **Acuity Plan**
            
            **Acuity Plan**
            
            **Total**Balance
                as of June 30, 2008
            
            
            $
            26,713
            
            $
            4,571
            
            $
            -
            
            $
            31,284Estimated
                amortization:2008
                Q3
            
            
            
            3,766
            
            
            639
            
            
            -
            
            
            4,4052008
                Q4
            
            
            
            3,225
            
            
            543
            
            
            -
            
            
            3,7682009
                Q1
            
            
            
            2,618
            
            
            441
            
            
            -
            
            
            3,0592009
                Q2
            
            
            
            1,972
            
            
            322
            
            
            -
            
            
            2,2942009
                Q3
            
            
            
            1,659
            
            
            267
            
            
            -
            
            
            1,9262009
                Q4
            
            
            
            1,572
            
            
            255
            
            
            -
            
            
            1,8272010
            
            
            
            5,266
            
            
            885
            
            
            -
            
            
            6,1512011
            
            
            
            3,713
            
            
            663
            
            
            -
            
            
            4,3762012
            
            
            
            2,119
            
            
            397
            
            
            -
            
            
            2,5162013
            
            
            
            727
            
            
            144
            
            
            -
            
            
            8712014
            
            
            
            76
            
            
            15
            
            
            -
            
            
            91





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.





**Results
      of Operations for the Three Months Ended June 30, 2008 and
      2007**





In
      the
      second quarter of 2008, revenues decreased by $15,504,000, or 22.2%, to
      $54,181,000 from $69,685,000 in the second quarter of 2007. Procedure volume
      of
      30,086 was a decrease of 38.2% from 48,668 in the second quarter of 2007. For
      vision centers open at least 12 months, procedure volume decreased by
      approximately 43.3% in the second quarter of 2008 to 27,615 compared to 48,668
      in the second quarter of 2007. The components of the revenue change include
      (dollars in thousands):





Decrease
                in revenue from lower procedure volume
            
            $
            (26,953
            )Impact
                from average selling price, before revenue deferral
            
            
            5,595Change
                in deferred revenue
            
            
            5,854Decrease
                in revenues
            
            $
            (15,504
            )




The
      average reported revenue per procedure, which includes the impact of taking
      into
      income deferred revenue from separately priced extended warranties as well
      as
      some price increases related to the adoption of IntraLase technology, increased
      25.8% to $1,801 in the second quarter of 2008 from $1,432 in the second quarter
      of 2007. IntraLase is now operational in most of our vision
      centers.




Effective
      July 1, 2008, we implemented a simplified market-specific pricing structure
      based on the results of four months of earlier testing in multiple markets.
      The
      revised structure, which is intended to drive procedure volume while maintaining
      acceptable margins, establishes local price points that take into account market
      competition and other factors. When excluding the impact of deferred revenue,
      the
      revised pricing structure has resulted in a slightly lower average price per
      procedure towards the end of the second quarter.





We
      have
      seen a decline in appointments and the show rates for both appointments and
      treatments. We believe this is primarily due to the current economic uncertainty
      and other macroeconomic factors.





17





*Change
      in deferred revenue*


The
      following table summarizes the effect on period-over-period revenues of the
      change in deferred revenues for the second quarters of 2008 and 2007 (dollars
      in
      thousands):





**2008**
            
            **2007**
            
            **Increase in**
              **Revenues**Revenues
                deferred
            
            $
            -
            
            $
            (7,937
            )
            $
            7,937Amortization
                of prior deferred revenues
            
            
            4,947
            
            
            7,030
            
            
            (2,083
            )Net
                increase in revenues
            
            
            
            
            
            
            
            $
            5,854




*Medical
      professional and license fees*


Medical
      professional and license fees decreased by $159,000, or 1.4%, in the second
      quarter of 2008 from the second quarter of 2007. This decrease was primarily
      due
      to lower costs and physician fees associated with lower revenues, partially
      offset by higher costs associated with IntraLase license fees. As a result
      of
      deferring revenue associated with separately priced extended warranties,
      $794,000 of medical professional fees were deferred in the second quarter of
      2007. The amortization of the deferred medical professional fees attributable
      to
      prior years was $494,000 in the second quarter of 2008 and $703,000 in the
      second quarter of 2007.





*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 decreased in the second quarter
      of 2008 by $4,510,000, or 18.3%, over the second quarter of 2007. This decrease
      was principally the result of procedure volume declines, driving decreases
      in
      surgical supplies, bad debt expense, insurance costs, finance fees, and employee
      incentives, and secondarily to workforce reductions, which reduced salary and
      stock-based compensation expense. These decreases were partially offset by
      increases in rent/utilities for new centers, moving expense for key personnel
      and other fringe benefits. New center costs in the second quarter 2008 were
      $2,432,000.




In
      response to lower procedure volume, we reduced our workforce by approximately
      16% in the first quarter and by an additional 25% in July 2008. We expect to
      record a severance charge of approximately $700,000 during the third quarter
      in
      connection with this recent workforce reduction.


*General
      and administrative*


General
      and administrative expenses increased by $284,000, or 5.3%, in the second
      quarter of 2008 from the second quarter of 2007. This was primarily due to
      an
      increase in professional services, travel/entertainment, salaries and fringe
      benefits, partially offset by a decrease in stock-based compensation and
      employee incentive compensation as a result of lower performance expectations
      for 2008.





*Marketing
      and advertising expenses*


Marketing
      and advertising expenses decreased by $248,000, or 1.6%, in the second quarter
      of 2008 from the second quarter of 2007. We are continuing to work to develop
      revised, more efficient marketing techniques. Our future operating profitability
      will depend in large part on the success of our efforts in this regard. Due
      to
      marginal returns on some marketing initiatives, marketing spending levels were
      reduced in the second quarter of 2008 compared to the first quarter of
      2008.




We
      are
      further reducing our marketing expenditures in the third quarter and currently
      expect that these costs will be approximately 55% to 60% of those realized
      in the third quarter of 2007.





*Depreciation
      expense*


Depreciation
      expense increased by $2,118,000 in the second quarter of 2008 from the second
      quarter of 2007 as a result of capital investments in new vision centers over
      the past year, the purchase of IntraLase lasers and capital improvements made
      to
      our Bausch & Lomb laser platforms.





*Non-operating
      income and expenses*


Net
      investment income in the second quarter of 2008 decreased $985,000, or 54.3%,
      due to a decrease in investment income of $1,118,000 as a result of a decline
      in
      investment holdings that were used for our share buyback program in 2007. This
      decrease was partially offset by a $276,000 increase in income from patient
      financing charges.





18





*Income
      taxes*


The
      following table summarizes the components of the income tax provision for the
      second quarter of 2008 and 2007 (dollars in thousands):




**June 30,**
            
            **June 30,****2008**
            
            **2007**Federal
                income tax (benefit) expense
            
            $
            (1,251
            )
            $
            3,851State
                income tax (benefit) expense, net of federal benefit
            
            
            (30
            )
            
            768Income
                tax (benefit) expense
            
            $
            (1,281
            )
            $
            4,619Effective
                income tax rate
            
            
            69.1
            %
            
            38.4
            %




Income
      tax expense increased from 38.4% of pre-tax income during the second quarter
      of
      2007 to 69.1% of pre-tax loss during the second quarter of 2008. Our effective
      tax rate for the three months ended June 30, 2008 is high since projected annual
      tax expense was revised from 39.0% as of the end of the first quarter to 33.1%
      year-to-date and the entire change flowed through the second quarter. The
      reduction in the year-to-date rate resulted from the decline in earnings and
      the
      impact of permanent tax differences.





**Results
      of Operations for the Six Months Ended June 30, 2008 and
      2007**





In
      the
      first six months of 2008, revenues decreased by $14,598,000, or 9.8%, to
      $133,750,000 from $148,348,000 in the first six months of 2007. Procedure volume
      of 74,245 was a decrease of 31.1% from 107,769 in the first half of 2007. The
      components of the revenue change include (dollars in thousands):





Decrease
                in revenues from lower procedure volume
            
            $
            (48,178
            )Impact
                from average selling price, before revenue deferral
            
            
            16,505Change
                in deferred revenues
            
            
            17,075Increase
                in revenues
            
            $
            (14,598
            )




The
      average reported revenue per procedure, which includes the impact of taking
      into
      income deferred revenue from separately priced extended warranties, increased
      30.9% to $1,801 in the first six months of 2008 from $1,377 in the first six
      months of 2007.





We
      have
      seen a decline in pre-operative appointment bookings and the show rates for
      both
      appointments and treatments. We believe this is primarily due to the current
      economic uncertainty and other macroeconomic factors.





*Change
      in deferred revenues*


The
      following table summarizes the effect on revenues of the change in deferred
      revenues for the first six months of 2008 and 2007 (dollars in
      thousands):




**2008**
            
            **2007**
            
            **Increase in**
              **Revenues**Revenues
                deferred
            
            $
            -
            
            $
            (20,054
            )
            $
            20,054Amortization
                of prior deferred revenues
            
            
            10,546
            
            
            13,525
            
            
            (2,979
            )Net
                increase in revenues
            
            
            
            
            
            
            
            $
            17,075




*Medical
      professional and license fees*


Medical
      professional and license fees increased by $692,000, or 2.5%, in the first
      six
      months of 2008 from the first six months of 2007. This increase was the result
      of the effect of deferred medical professional fees and higher costs associated
      with IntraLase license fees, partially offset by lower costs and physician
      fees
      associated with lower revenues. As a result of deferring revenue associated
      with
      separately priced extended warranties, $2,006,000 of medical professional fees
      were deferred in the second half of 2007. The amortization of the deferred
      medical professional fees attributable to prior years was $1,054,000 in the
      first half of 2008 and $1,353,000 in the first half of 2007.




19




*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 expenses. Direct costs of services decreased in the first six
      months of 2008 by $4,249,000, or 8.7%, over the first six months of 2007. This
      decrease was primarily the result of lower expense for surgical supplies,
      employee incentives, laser rent and financing fees due to lower procedure
      volumes and to lower stock-based compensation due to lower performance
      expectations for 2008. This decrease is partially offset by increased
      rent/utilities for new centers, fringe benefits, insurance costs and moving
      expense for key personnel.





*General
      and administrative*


General
      and administrative expenses increased by $457,000 or 4.3%, in the first six
      months of 2008 from the first six months of 2007. This amount was primarily
      due
      to increases in professional services, salaries, fringe benefits, and
      telecommunications costs for the new call center, partially offset by decreases
      in stock-based and employee incentive compensation due to lower performance
      expectations for 2008.





*Marketing
      and advertising expenses*


Marketing
      and advertising expenses increased by $2,557,000, or 7.8%, in the first six
      months of 2008 from the first six months of 2007. During the first half of
      2008,
      these expenses were 26.5% of revenue, compared with 22.2% during the first
      half
      of 2007. The increase resulted primarily from additional spending in existing
      markets, spending related to opening eight new vision centers since June 2007
      and investment in marketing research and program development. We are continuing
      to work to develop revised, more efficient marketing techniques. Our future
      operating profitability will depend in large part on the success of our efforts
      in this regard.





*Depreciation
      expense*


Depreciation
      expense increased by $4,069,000 in the first six months of 2008 from the first
      six months of 2007 as a result of capital investments in new centers over the
      past year, the purchase of IntraLase lasers and capital improvements made to
      our
      Bausch & Lomb laser platforms.





*Non-operating
      income and expenses*


Net
      investment income in the first six months of 2007 decreased $1,860,000, or
      54.3%, due to a decrease in investment income of $2,238,000 as a result of
      a
      decline in investment holdings that were used for our share buyback program
      in
      2007. This decrease was partially offset by a $584,000 increase in income from
      patient financing charges.





*Income
      taxes*


The
      following table summarizes the components of income tax provision for
      the first half of 2008 and 2007 (dollars in thousands):


**June
                  30,****2008**
              
              **2007**Federal
                  income tax expense
              
              $
              2,433
              
              $
              9,226State
                  income tax, net of federal benefit
              
              
              690
              
              
              1,766Income
                  tax expense
              
              $
              3,123
              
              $
              10,992Effective
                  income tax rate
              
              
              33.1
              %
              
              37.5
              %




Income
      tax expense decreased from 37.5% of pre-tax income during the first six months
      of 2007 to 33.1% of pre-tax income during the first six months of 2008. The
      decrease resulted primarily from the lowering of performance expectations for
      2008 and the corresponding effect of permanent differences constituting a larger
      percentage of our overall tax provision.





**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents and short-term investments totaled $62,146,000 as of June
      30,
      2008, up from $60,148,000 at December 31, 2007. Net cash provided by operating
      activities in the first six months of 2008 was $6,323,000 as compared to
      $30,381,000 for the corresponding period in the prior year. The decrease in
      cash
      provided by operating activities from 2007 to 2008 resulted from lower earnings
      and the use of $15,219,000 for operating assets and liabilities, primarily
      a
      reduction in accounts payable and deferred revenue.





20





Long-term
      investments totaled $5,727,000 as of June 30, 2008, up from $2,250,000 at
      December 31, 2007. These assets are comprised of auction rate securities that
      were failing auction at those dates. The auction rate securities have maturity
      dates ranging from 2016 to 2036. As of December 31, 2007, the Company had
      $18,300,000 of auction rate securities, $10,700,000 of which had been redeemed
      by June 30, 2008 and another $1,400,000 in July 2008. These investments are
      being reported at a fair value which is estimated at 93.8% of amortized cost
      calculated using a discounted cash flow valuation model.





At
      June
      30, 2008, the corporate and municipal bonds included in our available-for-sale
      security portfolio included $7,600,000 in amortized cost of auction rate
      instruments that pay a floating rate of interest set periodically through a
      Dutch Auction process typically held every 7, 28 or 35 days. Rates are
      determined by the credit quality of the issuer, supply and demand of a
      particular issue, frequency of the rate reset and any tax benefits associated
      with the security. The securities have historically traded at par and are
      callable at par at the option of the issuer. Interest is typically paid at
      the
      end of each auction period. At June 30, 2008, the majority of our auction rate
      instruments were investment grade and some were backed by monoline insurance
      companies. Until January 2008, the auction rate securities market was highly
      liquid. Beginning in January 2008, certain of our auction rate instruments
      “failed,” meaning that there was insufficient demand to sell all of the
      securities that holders desired to sell at auction. The immediate effect of
      a
      failed auction is that holders cannot sell the securities at auction and the
      interest rate on the security generally resets to a maximum auction rate.





At
      June
      30, 2008, there was insufficient observable auction rate market information
      available to determine the fair value of most of our auction rate security
      investments. Therefore, we estimated fair value using a discounted cash flow
      model employing assumptions that market participants would use in their
      estimates of fair value. Certain of these assumptions included credit quality,
      final stated maturities, estimates of the probability of the issue being called
      prior to final maturity, expected changes in interest rates paid on the
      securities, interest rates paid on similar instruments, and an estimated
      illiquidity discount due to extended redemption periods. Based on this analysis,
      we recorded a temporary unrealized loss of $473,000, or $284,000 on an after-tax
      basis, related to our auction rate instruments as of June 30, 2008. We believe
      these temporary unrealized
      losses, which are recorded as a component of accumulated other comprehensive
      income with stockholders’ investment, can be attributed to fair value
      fluctuations in an unstable credit environment.





We
      currently have no reason to believe that any of the underlying issuers of our
      auction rate instruments are presently at risk of default. We have continued
      to
      receive interest payments on the auction rate instruments in accordance with
      their stated terms. Since June 30, 2008, $1,400,000 of our auction rate
      instruments, which were classified as short-term investments, have been
      redeemed. We believe that we will ultimately be able to liquidate the remainder
      of our auction rate instruments without significant loss. However, as a result
      of the failed auctions and excluding those securities redeemed subsequent to
      June 30, 2008, our auction rate instruments are not currently liquid. We have
      the intent and ability to hold the auction rate securities for a sufficient
      period of time to allow for recovery of the principal amounts invested.





Due
      to
      the continuation of the unstable credit environment, we believe the recovery
      period for our auction rate instruments will exceed 12 months. Accordingly,
      we
      have classified the fair value of the auction rate instruments that have not
      been redeemed subsequent to June 30, 2008 as long-term. The fair value and
      par
      value of our long-term auction rate instruments is $5,727,000 and $6,200,000
      at
      June 30, 2008, respectively. Every 1% change in the discount rate or 12-month
      extension in the duration of the redemption period would impact the internal
      valuation model by approximately $120,000.





As
      of
      June 30, 2008, we had approximately $17,435,000 in patient receivables, net
      of
      allowance for doubtful accounts, which was an increase of approximately $167,000
      since December 31, 2007. Gross patient receivables increased $278,000 since
      December 31, 2007, primarily as a result of an increase in the number of
      patients financed by us. At the same time, the allowance for doubtful accounts
      increased by $111,000 from $5,117,000 to $5,228,000.




Recent
      collection patterns have shown a deterioration in the collection rate for
      certain patient receivable programs. In response, we have implemented new
      policies and strengthened our underwriting standards. Although it will take
      approximately 18 to 36 months to fully assess the impact of these changes,
      early
      results are positive. We are carefully monitoring our collection rates and
      related underwriting standards in order to ensure the adequacy of our allowance
      for doubtful accounts and that collectability of our revenue is reasonably
      assured at the time of sale.


Prepaid
      taxes decreased from $6,391,000 at December 31, 2007 to $1,655,000 at June
      30,
      2008. This decrease occurred primarily as a result of receiving the refund
      of
      previously paid taxes due to a change in tax accounting methods for deferred
      revenue.




21




Deferred
      compensation plan assets and liabilities both declined from December 31, 2007
      to
      June 30, 2008. This decline was primarily attributed to participant
      withdrawals.





As
      of
      June 30, 2008, accounts payable decreased to $3,575,000 from $10,396,000 at
      December 31, 2007. This decrease was the result of decreased activity and a
      high
      level of invoiced but not paid capital expenditures at year end which have
      subsequently been paid.





On
      April
      24, 2008, we entered into a loan agreement with PNC Equipment Finance, LLC
      to
      finance the majority of the IntraLase units purchased by us. At closing, we
      drew
      $19,184,000 on the loan facility with monthly payments over a five-year period
      at a fixed interest rate of 4.96%. We have typically financed our laser
      purchases with capital lease obligations provided by the vendors. The IntraLase
      purchases were made with cash at the time of purchase, and this loan transaction
      will free-up that capital to be used in the business for other corporate
      purposes. The remaining unpaid balance on the bank loan was $18,618,000 at
      June
      30, 2008.





On
      August
      21, 2007, our Board of Directors authorized a share repurchase plan under which
      we are authorized to purchase up to $50,000,000 of our common stock. Through
      June 30, 2008, we have repurchased 588,408 shares of our common stock at an
      average price of $16.99 per share, for a total cost of approximately
      $10,000,000. No shares were repurchased under this program during the first
      half
      of 2008.





In
      the
      second quarter of 2008, the Board of Directors declared a dividend to common
      stockholders of $0.06 per share, which resulted in a cash payment of
      approximately $1,112,000 on June 6, 2008. The Board has decided to eliminate
      the
      dividend in the third quarter of 2008 and will revisit this decision in the
      future.





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 five new vision centers: Savannah, Georgia; Des Moines, Iowa;
      Tulsa, Oklahoma; Woodbridge, New Jersey; and Nashville, Tennessee. Capital
      expenditures through June 30, 2008 were $12,590,000, which were comprised
      primarily of the costs to open new vision centers and the purchases of IntraLase
      lasers.




We
      intend
      to reduce capital expenditures for the remainder of the year by halting new
      2008
      center openings after an opening planned for late in the third quarter, reducing
      the number of center relocations planned for the year from five to three, and
      limiting new laser purchases by moving under-utilized lasers to new centers
      opening in the third quarter.


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 anticipated level of operations and planned new center
      investments for the balance of the year, 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 and capital
      expenditure needs.





**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 for the
      fiscal year ended December 31, 2007.





**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.




22




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
      municipal and U.S. Government bonds, we believe there is little risk to the
      valuation of debt securities. The investments in equity securities carry more
      market risk.




Long-term
      investments include auction rate securities that are currently failing auction.
      These investments are recorded at fair value using a discounted cash flow
      approach. We are divesting all auction rate securities as the market allows.
      Many of the issuers of the auction rate securities are redeeming their issues
      so
      as to reduce the overall interest costs for the issuer. There can be no
      assurance, however, that the issuers of the action rate securities we hold
      will
      do so in advance of their maturity or the restoration of a regularized auction
      market.





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.**





(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, 2008. Based on this evaluation, the
      CEO
      and CFO concluded that the Company's disclosure controls and procedures are
      effective to ensure that material information is (1) accumulated and
      communicated to our management as appropriate to allow timely decisions
      regarding disclosure and (2) recorded, processed, summarized and reported within
      the time periods specified in the rules and forms of the Securities and Exchange
      Commission.





(b)
            Changes
                in Internal Control over Financial
                Reporting




Under
      the
      supervision of, and with the participation of our management, including the
      CEO
      and CFO, an evaluation of the company’s internal control over financial
      reporting was performed as of June 30, 2008. Based on this evaluation,
      management concluded that there were no changes in the company’s internal
      control over financial reporting that occurred during the quarter ended June
      30,
      2008 that have materially affected, or are reasonably likely to materially
      affect, the company’s internal control over financial reporting.





**PART
      II. OTHER INFORMATION.**





**Item
      1. Legal Proceedings**





On
      September 13, 2007, and October 1, 2007, two complaints were filed against
      the
      Company and certain of our current and former directors and officers by Beaver
      County Retirement Board and Spencer and Jean Lin, respectively, in the United
      States District Court for the Southern District of Ohio (Western Division)
      purportedly on behalf of a class of shareholders who purchased our common stock
      between February 12, 2007 and July 30, 2007.  On November 8, 2007, an
      additional complaint was filed by named plaintiff Diane B. Callahan against
      the
      Company and certain of our current and former directors and officers in the
      United States District Court for the Southern District of Ohio (Western
      Division).  This third action was filed purportedly on behalf of a class of
      shareholders who purchased our common stock between February 12, 2007 and
      November 2, 2007.  These actions have been consolidated into one action. A
      consolidated complaint was filed on April 19, 2008. The plaintiffs in the
      consolidated complaint are seeking damages on behalf of a class of shareholders
      who purchased our common stock between October 24, 2006 and November 2, 2007,
      asserting claims under Sections 10(b) and 20(a) of the Securities Exchange
      Act
      of 1934. They allege that certain of the Company’s public disclosures regarding
      its financial prospects and historical accounting for bad-debt reserves and
      expenses were false or misleading. On July 10, 2008, the Company, together
      with
      the other defendants, filed a motion to dismiss the consolidated complaint.
      We
      strongly believe that these claims lack merit, and we intend to defend against
      the claims vigorously. Due to the inherent uncertainties of litigation, we
      cannot predict the outcome of the action at this time, and can give no assurance
      that these claims will not have a material adverse effect on our financial
      position or results of operations.  No amount has been accrued for these
      claims at June 30, 2008.





23




On
      October 5, 2007, a complaint was filed in the Court of Common Pleas, Hamilton
      County, Ohio, against certain of our current and former officers and directors,
      derivatively on behalf of the Company.  The plaintiff, Nicholas Weil,
      asserts that three of the defendants breached their fiduciary duties when they
      allegedly sold LCA-Vision's securities on the basis of material non-public
      information in 2007.  The plaintiff also asserts claims for breach of
      fiduciary duty, abuse of control, corporate waste, and unjust enrichment in
      connection with the disclosures that also are the subject of the securities
      actions described above. The Company is named as a nominal defendant in the
      complaint, although the action is derivative in nature. 
      The plaintiff demands damages and attorneys fees, and seeks other equitable
      relief.  On December 20, 2007, the court stayed this action, pursuant to a
      stipulation of the parties, pending the resolution of the motion to dismiss
      filed in the consolidated class action, discussed above. We are in the process
      of evaluating these claims.  However, due to the inherent uncertainty of
      litigation, we cannot predict the outcome of the action at this time, and can
      give no assurance that these claims will not have a material adverse effect
      on
      our financial position or results of operations. No amount has been accrued
      for
      these claims at June 30, 2008.





Our
      business results in medical malpractice lawsuits. 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 in December 2002, we established
      a
      captive insurance company to provide coverage for claims brought against us
      after December 17, 2002. We use the captive insurance company for both primary
      insurance and excess liability coverage. A number of claims are now pending
      with
      our captive insurance company. Since the inception of the captive insurance
      company in 2002, total claim and expense payments of $985,000 have been
      disbursed.





In
      addition to the above, we are periodically subject to various other claims
      and
      lawsuits. We believe that none of these other claims or lawsuits 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.





**Item
      1A. Risk Factors**





The
      following information updates the information provided in “Item 1A. Risk
      Factors” of our 2007 Annual Report on Form 10-K:





The
      FDA’s
      advisory board on ophthalmic devices is currently reviewing concerns about
      post-Lasik quality of life matters and may propose a major new study on Lasik
      outcomes. The outcome of this review could potentially impact negatively the
      acceptance of Lasik. In addition, the acceptance rate of IntraLase technology
      and our ability to successfully implement the IntraLase technology on a national
      basis create additional risk.





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





The
      Company held its Annual Meeting of Stockholders on May 12, 2008. Two matters
      were submitted to the vote of the stockholders. Results were as outlined
      below:





Election
      of directors:




**Shares**
              **Voted For**
            
            **Authority**
              **Withheld**William
                F. Bahl
            
            
            12,659,589
            
            
            1,609,688John
                H. Gutfreund
            
            
            12,643,496
            
            
            1,625,781John
                C. Hassan
            
            
            12,648,596
            
            
            1,620,680Steven
                C. Straus
            
            
            12,831,203
            
            
            1,438,073E.
                Anthony Woods
            
            
            12,659,177
            
            
            1,610,099





24




Ratification
      of Ernst & Young LLP as auditors for the fiscal year ending December 31,
      2008:





**Shares Voted**
              **For**
            
            **Shares Voted**
              **Against**
            
            **Shares**
              **Abstaining**14,171,563
            
            
            33,229
            
            
            64,484




**Item
      6.**  **Exhibits**





ExhibitsNumber
            
            Description*10.1
            
            Loan
                and Security Agreement between LCA-Vision Inc. and PNC Equipment
                Finance,
                LLC dated as of April 24, 2008 (Exhibit 10.1 to Current Report on
                Form 8-K
                filed April 30, 2008)*10.2
            
            Letter
                Agreement between LCA-Vision Inc. and David L. Thomas (Exhibit 99.2
                to
                Current Report on Form 8-K filed March 24, 2008)*10.3
            
            Amendment
                to Employment Agreement between LCA-Vision Inc. and Steven C. Straus
                (Exhibit 99.1 to Current Report on Form 8-K filed May 2,
                2008)*10.4
            
            Form
                of Agreement between LCA-Vision Inc. and its executive officers (Exhibit
                10.1 to Current Report on Form 8-K filed July 1, 2008)*10.5
            
            Form
                of Indemnification Agreement between LCA-Vision Inc. and
                its directors (Exhibit 10.1 to Current Report on Form 8-K filed July
                24, 2008)31.1
            
            CEO
                Certification under Section 302 of the Sarbanes-Oxley Act of
                200231.2
            
            CFO
                Certification under Section 302 of the Sarbanes-Oxley Act of
                200232
            
            Certifications
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





*
      Incorporated by reference.





25


**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
                29, 2008
            /s/
                Steven C. StrausSteven
                C. StrausChief
                Executive OfficerDate:  July
                29, 2008
            /s/
                Michael J. CelebrezzeMichael
                J. CelebrezzeInterim
                Chief Financial OfficerSenior
                Vice President of Finance and
                Treasurer




26