**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 March 31, 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 ofincorporation
                or organization)
            (IRS
                Employer Identification
                No.)





7840
      Montgomery Road, Cincinnati, Ohio 45236


(Address
      of principal executive offices)





(513)
      792-9292


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
      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 x Accelerated
      filer o Non-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
      oNo
x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: 18,523,788 shares as of April 23,
      2008.





1


LCA-Vision
      Inc.


INDEX





Part I.Financial
              InformationItem
                1.Financial
                StatementsCondensed
                Consolidated Balance Sheets as of March 31, 2008 and
                December 31, 2007Condensed
                Consolidated Statements of Income for the Three Months
                Ended March
                31, 2008 and 2007
            
            3Condensed
                Consolidated Statements of Cash Flows for the Three
                Months Ended
                March 31, 2008 and 2007
            
            4Notes
                to Condensed Consolidated Financial
                Statements
            
            5Item
                2.Management’s
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            
            6Item
                3.Quantitative
                and Qualitative Disclosures about Market Risk
            
            15Item
                4.Controls
                and Procedures
            
            21Part II.Other
              Information
            
            21Item
                1. Legal
                Proceedings
            
            22Item
                1A.Risk
                Factors
            
            22Item
                6.Exhibits
            
            23Signatures
            
            24




2


**PART
      1. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**




**LCA-Vision
        Inc.**
 **Condensed
        Consolidated Balance Sheets (Unaudited)**
 (Dollars
        in thousands)


March
                  31, 2008
              
              December
                  31, 2007AssetsCurrent
                  assetsCash
                  and cash equivalents
              
              $
              26,036
              
              $
              17,614Short-term
                  investments
              
              
              21,225
              
              
              42,534Patient
                  receivables, net of allowance for doubtful accounts of $3,455 and
                  $2,987
              
              
              13,901
              
              
              12,712Other
                  accounts receivable
              
              
              6,980
              
              
              5,941Prepaid
                  professional fees
              
              
              1,618
              
              
              1,872Prepaid
                  income taxes
              
              
              173
              
              
              6,391Deferred
                  tax assets
              
              
              3,900
              
              
              3,450Prepaid
                  expenses and other
              
              
              8,020
              
              
              5,076Total
                  current assets
              
              
              81,853
              
              
              95,590Property
                  and equipment
              
              
              117,616
              
              
              106,788Accumulated
                  depreciation and amortization
              
              
              (57,032
              )
              
              (52,872
              )Property
                  and equipment, net
              
              
              60,584
              
              
              53,916Long-term
                  investments
              
              
              10,477
              
              
              2,250Accounts
                  receivable, net of allowance for doubtful accounts of $2,500 and
                  $2,130
              
              
              5,083
              
              
              4,556Deferred
                  compensation plan assets
              
              
              3,381
              
              
              5,540Investment
                  in unconsolidated businesses
              
              
              746
              
              
              590Deferred
                  tax assets
              
              
              12,413
              
              
              13,561Other
                  assets
              
              
              2,828
              
              
              3,644Total
                  assets
              
              $
              177,365
              
              $
              179,647Liabilities
                  and Stockholders' InvestmentCurrent
                  liabilitiesAccounts
                  payable
              
              $
              8,393
              
              $
              10,396Accrued
                  liabilities and other
              
              
              13,079
              
              
              13,219Deferred
                  revenue
              
              
              16,180
              
              
              18,719Income
                  taxes payable
              
              
              3,469
              
              
              642Capital
                  lease obligations maturing in one year
              
              
              4,894
              
              
              3,941Total
                  current liabilities
              
              
              46,015
              
              
              46,917Capital
                  lease obligations
              
              
              2,069
              
              
              2,012Deferred
                  compensation liability
              
              
              3,387
              
              
              5,516Insurance
                  reserves
              
              
              9,798
              
              
              8,493Deferred
                  revenue
              
              
              20,051
              
              
              23,110Stockholders'
                  investmentCommon
                  stock ($0.001 par value; 25,170,237 and 25,114,244 shares and18,523,788
                  and 18,482,658 shares issued and outstanding,
                  respectively)
              
              
              25
              
              
              25Contributed
                  capital
              
              
              172,530
              
              
              172,965Common
                  stock in treasury, at cost (6,646,449 shares and 6,631,586
                  shares)
              
              
              (114,632
              )
              
              (114,427
              )Retained
                  earnings
              
              
              38,138
              
              
              34,597Accumulated
                  other comprehensive (loss) income
              
              
              (16
              )
              
              439Total
                  stockholders' investment
              
              
              96,045
              
              
              93,599Total
                  liabilities and stockholders' investment
              
              $
              177,365
              
              $
              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)**
 (Amounts
        in thousands except per share data)
  Three
                  Months Ended March 31,2008
              
              2007Revenues
                  - Laser refractive surgery
              
              $
              79,568
              
              $
              78,663Operating
                  costs and expensesMedical
                  professional and license fees
              
              
              14,761
              
              
              13,975Direct
                  costs of services
              
              
              24,726
              
              
              24,465General
                  and administrative expenses
              
              
              5,372
              
              
              5,198Marketing
                  and advertising
              
              
              19,984
              
              
              17,178Depreciation
              
              
              4,254
              
              
              2,304Operating
                  income
              
              
              10,471
              
              
              15,543Equity
                  in earnings from unconsolidated businesses
              
              
              56
              
              
              154Net
                  investment income
              
              
              736
              
              
              1,611Other
                  income (expense), net
              
              
              18
              
              
              (10
              )Income
                  before taxes on income
              
              
              11,281
              
              
              17,298Income
                  tax expense
              
              
              4,405
              
              
              6,372Net
                  income
              
              $
              6,876
              
              $
              10,926Income
                  per common shareBasic
              
              $
              0.37
              
              $
              0.55Diluted
              
              $
              0.37
              
              $
              0.54Dividends
                  declared per share
              
              $
              0.18
              
              $
              0.18Weighted
                  average shares outstandingBasic
              
              
              18,495
              
              
              19,903Diluted
              
              
              18,587
              
              
              20,274




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




4


**LCA-Vision
        Inc.**


**Condensed
        Consolidated Statements of Cash Flows (Unaudited)**
 (Dollars
        in thousands)
  Three
                  Months Ended March 31,2008
              
              2007Cash
                  flow from operating activities:Net
                  income
              
              $
              6,876
              
              $
              10,926Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              4,254
              
              
              2,304Provision
                  for loss on doubtful accounts
              
              
              2,080
              
              
              1,460Deferred
                  income taxes
              
              
              980
              
              
              268Stock
                  based compensation
              
              
              (101
              )
              
              1,240Insurance
                  reserves
              
              
              1,305
              
              
              726Equity
                  in earnings of unconsolidated affiliates
              
              
              (56
              )
              
              (154
              )Changes
                  in operating assets and liabilities:Patient
                  accounts receivable
              
              
              (3,796
              )
              
              (4,463
              )Other
                  accounts receivable
              
              
              (1,039
              )
              
              (476
              )Prepaid
                  income taxes
              
              
              6,218
              
              
              2,356Prepaid
                  expenses and other
              
              
              (2,944
              )
              
              721Accounts
                  payable
              
              
              (2,003
              )
              
              5,254Deferred
                  revenue, net of professional fees
              
              
              (5,038
              )
              
              5,060Income
                  taxes payable
              
              
              2,827
              
              
              3,145Accrued
                  liabilities and other
              
              
              (157
              )
              
              1,789Net
                  cash provided by operations
              
              
              9,406
              
              
              30,156Cash
                  flow from investing activities:Purchases
                  of property and equipment
              
              
              (9,330
              )
              
              (1,973
              )Purchases
                  of investment securities
              
              
              (54,942
              )
              
              (63,163
              )Proceeds
                  from sale of investment securities
              
              
              67,287
              
              
              62,324Other,
                  net
              
              
              480
              
              
              (18
              )Net
                  cash provided by (used in) investing activities
              
              
              3,495
              
              
              (2,830
              )Cash
                  flow from financing activities:Principal
                  payments of capital lease obligations
              
              
              (570
              )
              
              (849
              )Shares
                  repurchased for treasury stock
              
              
              (205
              )
              
              (452
              )Tax
                  (expense) benefits related to stock-based compensation
              
              
              (517
              )
              
              1,094Exercise
                  of stock options
              
              
              148
              
              
              2,895Dividends
                  paid to stockholders
              
              
              (3,335
              )
              
              (3,613
              )Net
                  cash used in financing activities
              
              
              (4,479
              )
              
              (925
              )Increase
                  in cash and cash equivalents
              
              
              8,422
              
              
              26,401Cash
                  and cash equivalents at beginning of period
              
              
              17,614
              
              
              24,431Cash
                  and cash equivalents at end of period
              
              $
              26,036
              
              $
              50,832




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




5


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)








**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 vision correction procedures 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 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
      March 31, 2008, we had 76 Lasik *Plus* 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 March 31, 2008
      and
      December 31, 2007; condensed consolidated Statements of Income for the three
      months ended March 31, 2008 and 2007; and condensed consolidated Statements
      of
      Cash Flow for the three months ended March 31, 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 ended March 31, 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, enhancement 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 (Unaudited)







**Reclassification**





Certain
      prior-period amounts have been reclassified in the Condensed Consolidated
      Balance Sheets and Condensed Consolidated Statements of Cash Flows 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 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
      March 31, 2008 and December 31, 2007 there were available-for-sale securities
      of
      $31,702 and $44,784, respectively. The following table is a summary of
      available-for-sale securities at March 31, 2008 (dollars in
      thousands):


**AmortizedCost**
              
              **GrossUnrealizedGains**
              
              **GrossUnrealizedLosses**
              
              **EstimatedFair
                  Value(Net Carrying Value)**Corporate
                  bonds
              
              $
              11,333
              
              $
              -
              
              $
              (356
              )
              $
              10,977U.S.
                  Government securities
              
              
              859
              
              
              -
              
              
              -
              
              
              859Municipal
                  bonds
              
              
              17,153
              
              
              99
              
              
              (117
              )
              
              17,135Equities
              
              
              2,917
              
              
              -
              
              
              (186
              )
              
              2,731Total
                  investments
              
              $
              32,262
              
              $
              99
              
              $
              (659
              )
              $
              31,702




The
      gross
      realized gains on sales of available-for-sale securities for the three months
      ended March 31, 2008 was $10,000. The gross realized loss on sales of
      available-for-sale securities for the three-month period ended March 31, 2007
      was $4,000.





At
      March
      31, 2008, the corporate and municipal bonds included in our available-for-sale
      security portfolio included $12,075,000 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 March 31, 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
      March
      31, 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 March 31, 2008. We believe
      these temporary unrealized
      losses, 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 March 31, 2008, $1,125,000 of our auction rate
      instruments have been redeemed and these were classified as short term
      investments. 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 March 31, 2008, our auction rate instruments are not currently
      liquid. Due to this recent change and 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 March 31,
      2008 as long-term. The fair value and par value of our long-term auction rate
      instruments were $10,477,000 and $10,950,000 at March 31, 2008, respectively.





The
      net
      carrying value and estimated fair value of debt securities available for sale
      at
      March 31, 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)
              
              **AmortizedCost**
              
              **EstimatedFair
                  Value**Due
                  in one year or less
              
              $
              14,732
              
              $
              14,785Due
                  after one year through three years
              
              
              2,538
              
              
              2,584Due
                  after three years
              
              
              12,075
              
              
              11,602Equities
              
              
              2,917
              
              
              2,731Total
                  investments
              
              $
              32,262
              
              $
              31,702





**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 March 31,
      2008 for assets and liabilities measured at fair value on a recurring basis
      (dollars in thousands):


Fair
                    Value Measurements as March 31, 2008 UsingQuoted
                    Prices in
                
                
                
                SignificantActive
                    Markets for
                
                Significant
                    Other
                
                UnobservableIdentical
                    Assets
                
                Observable
                    Inputs
                
                InputsDescription
                
                (Level
                    1)
                
                (Level
                    2)
                
                (Level
                    3)
                
                TotalAssets:Cash
                    and cash equivalents
                
                $
                26,036
                
                $
                -
                
                $
                -
                
                $
                26,036Available-for-sale
                    securities
                
                
                2,731
                
                
                18,494
                
                
                10,477
                
                
                31,702Deferred
                    compensation assets
                
                
                3,381
                
                
                -
                
                
                -
                
                
                3,381Total
                
                $
                32,148
                
                $
                18,494
                
                $
                10,477
                
                $
                61,119Liabilities:Deferred
                    compensation laibilities
                
                $
                3,387
                
                $
                -
                
                $
                -
                
                $
                3,387
  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 value of 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 value 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.


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 SignificantUnobservable Inputs (Level
                  3)Taxable
              
              Tax-ExemptAuction
              
              AuctionRate
              
              RateSecurities
              
              Securities
              
              TotalBalance
                  as of January 1, 2008
              
              $
              2,600
              
              $
              15,125
              
              $
              17,725Assets
                  acquired
              
              
              -
              
              
              2,150
              
              
              2,150Assets
                  sold
              
              
              (350
              )
              
              (8,575
              )
              
              (8,925
              )Transfers
                  in (out) of Level 3
              
              
              -
              
              
              -
              
              
              -Gains
                  (losses) included in earnings
              
              
              -
              
              
              -
              
              
              -Gains
                  (losses) included in other comprehensive income
              
              
              (356
              )
              
              (117
              )
              
              (473
              )Balance
                  as of March 31, 2008
              
              $
              1,894
              
              $
              8,583
              
              $
              10,477




9


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)








**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; the remainder of the fee is generally deducted automatically
      from the patient’s checking account over a period of 12 to 36 months. We have
      recorded an allowance for doubtful accounts as a best estimate of the amount
      of
      probable credit losses from our patient financing program. Each month, we review
      the allowance and adjust the allowance based upon our 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 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 collectibility rates and recent default activity.





**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 the revised 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.





**Deferred
      Revenues**





We
      offer
      our patients extended acuity programs. Prior to June 15, 2007, these programs
      were separately priced and included a no-acuity plan, a one-year acuity plan,
      and a lifetime acuity plan. Under 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.





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. Under this pricing
      model, no warranty-related revenue deferrals have occurred or will occur for
      procedures performed after June 15, 2007. Revenue previously deferred from
      the
      sale of the separately priced acuity programs will be recognized in the future
      over a seven-year period.




10


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)








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
      March 31, 2008 and December 31, 2007, the deferred revenue balance totaled
      $36,231,000 and $41,829,000, respectively.





**Captive
      Insurance Company**




We
      maintain 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, none of whom 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 March 31, 2008 and December 31, 2007, we maintained insurance
      reserves of $9,798,000 and $8,493,000, respectively, which primarily represent
      an actuarially determined estimate of future costs associated with claims filed
      as well as claims incurred but not yet reported. The loss reserves developed
      by
      our actuaries are determined by comparing our historical claim experience to
      comparable insurance industry experience.





**Income
      Taxes**





The
      following table summarizes the components of the income tax provision for the
      three-month period ended March 31, 2008 and 2007 (dollars in
      thousands):


**March
                  31,****2008**
              
              **2007**Federal
                  income taxes
              
              $
              3,685
              
              $
              5,374State
                  income taxes, net of federal benefit
              
              
              720
              
              
              998Income
                  tax provision
              
              $
              4,405
              
              $
              6,372Effective
                  income tax rate
              
              
              39.0
              %
              
              36.8
              %





Our
      effective income tax rate increased for the three-month period ended March
      31,
      2008 as compared with the corresponding period ended March 31, 2007 due to
      the
      application of FAS 123(R) to the disqualifying dispositions for incentive stock
      options, which were large in first quarter 2007 producing a tax
      benefit.





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.





11


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)








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





Our
      total
      unrecognized tax benefits at December 31, 2007 were $574,000. Of this amount,
      $141,000 would affect the effective tax rate, if recognized. We recognize
      interest and penalties related to unrecognized tax benefits as a component
      of
      income tax expense in the Consolidated Statements of Income. We recorded
      approximately $12,000 in interest and penalties related to unrecognized tax
      benefits during the first quarter of 2008. During the three months ended March
      31, 2008, there were no significant changes to the liability for unrecognized
      tax benefits or potential interest and penalties recorded. It is reasonably
      possible that the amount of the unrecognized tax benefit may increase or
      decrease within the next 12 months as a result of settlements of ongoing audits.
      We currently do not anticipate that any increase or decrease in unrecognized
      tax
      benefits will be material to the condensed consolidated financial
      statements.





We
      file
      income tax returns in the U.S. federal jurisdiction, various U.S. state
      jurisdictions and Canada. Our federal and state income tax return filings
      generally are subject to a three-year statute of limitations from date of
      filing; however, the statute of limitations also remains open for prior tax
      years because, in 2007, we utilized net operating losses that were generated
      in
      prior years. The net operating loss carryforwards from those prior tax years
      are
      subject to adjustments for three years after the filing of the income tax return
      for the year in which the net operating losses are utilized. The Internal
      Revenue Service recently began an audit of our 2006 tax year. Based on the
      early
      status of the audit and the protocol of finalizing audits by the relevant tax
      authorities, it is not possible to estimate the impact of the changes, if any,
      to previously recorded unrecognized tax benefits.





**Per
      Share Data**





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





The
      following is a reconciliation of basic and diluted earnings per share for the
      three months ended March 31, 2008 and 2007 (amounts in thousands, except per
      share amounts):


**Three
                  Months Ended****March
                  31,****2008**
              
              **2007**Basic
                  EarningsNet
                  income
              
              $
              6,876
              
              $
              10,926Weighted
                  average shares outstanding
              
              
              18,495
              
              
              19,903Basic
                  earnings per share
              
              $
              0.37
              
              $
              0.55Diluted
                  EarningsNet
                  income
              
              $
              6,876
              
              $
              10,926Weighted
                  average shares outstanding
              
              
              18,495
              
              
              19,903Effect
                  of dilutive securitiesStock
                  options
              
              
              70
              
              
              336Restricted
                  stock
              
              
              22
              
              
              35Weighted
                  average common shares and potential dilutive shares
              
              
              18,587
              
              
              20,274Diluted
                  earnings per share
              
              $
              0.37
              
              $
              0.54




12


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)








For
      the
      three months ended March 31, 2008, 500,716 shares 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.





**Treasury
      Stock and Dividends**





On
      August
      21, 2007, our board of directors authorized a share repurchase plan under which
      the Company is authorized to purchase up to $50,000,000 of its common stock.
      Through March 31, 2008, we had repurchased 588,408 shares of its 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
      quarter of 2008.





In
      the
      first quarter of 2008, the board of directors declared a dividend to common
      stockholders of $0.18 per share, which resulted in a cash payment of
      approximately $3,335,000.





**Revenue
      Recognition**





We
      recognize revenues as services are performed and pervasive evidence of an
      arrangement for payment exists. Additionally, revenue is recognized when the
      price is fixed and determinable and collectibility is reasonably assured.
      Revenues associated with separately priced acuity programs are deferred and
      recognized over the period in which future costs of performing the post-surgical
      enhancement procedures are expected to be incurred as we have sufficient
      experience to support that costs 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 (income) expense, net
      of
      forfeitures, and associated income tax benefits were as follows for the three
      months ended March 31:


**2008**
              
              **2007**Stock
                  options
              
              $
              (94,000
              )
              $
              700,000Restricted
                  stock
              
              
              (7,000
              )
              
              540,000(101,000
              )
              
              1,240,000Income
                  tax benefit
              
              
              10,000
              
              
              325,000$
              (111,000
              )
              $
              915,000




13


LCA-Vision
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements (Unaudited)







**Commitments
      and Contingencies**




On
      September 13, 2007, and October 1, 2007, two complaints were filed against
      LCA-Vision and certain of its 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
      LCA-Vision and certain of its 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 April 9, 2008. The plaintiffs in the
      consolidated complaint, seeking damages on behalf of a class of shareholders
      who
      purchased our common stock between October 24, 2006, and November 2, 2007,
      assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act
      of
      1934. They allege that certain of LCA-Vision's public disclosures regarding
      its
      financial prospects and historical accounting for bad-debt reserves and expenses
      were false or misleading. LCA-Vision continues to evaluate these claims. We
      strongly believe that these actions lack merit, and we intend to defend against
      them vigorously. However, 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 this claim
      at
      March 31, 2008.





On
      October 5, 2007, a complaint was filed in the Court of Common Pleas, Hamilton
      County, Ohio, against certain current and former officers and directors of
      LCA-Vision, 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 many of the disclosures that also are the subject of the securities class
      action described above. LCA-Vision 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 to be filed in the consolidated
      class action, discussed above. LCA-Vision is in the process of evaluating these
      claims. However, 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 this claim at March
      31,
      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 $895,000 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.





**Subsequent
      Events**





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%.





14


**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. These forward-looking statements contained
      herein are based on information available to us as of the date hereof. Actual
      results could differ materially from those stated or implied in our
      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, which recent results
      would indicate are no longer as effective as they have been in prior periods;
      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. 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 a function of the number
      of laser vision correction procedures performed and the pricing for those
      services. Our vision centers have a relatively high degree of operating leverage
      due to the fact that many of our costs are fixed in nature. As a result, our
      level of procedure volume can have a significant impact on our level of
      profitability.




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




·
            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
                continued growth and increased acceptance of laser vision
                correction




·
            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




15


Our
      operating costs and expenses include:





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




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




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




·
            Marketing
                and advertising costs




·
            Depreciation
                of equipment





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. We expect the U.S. economy,
      including its impact on consumer spending habits, to be challenging throughout
      2008, which we expect will negatively affect our revenues. 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
              
              
              
              
              
              48,668Third
                  Quarter
              
              
              
              
              
              44,547Fourth
                  Quarter
              
              
              
              
              
              39,888Year
              
              
              44,159
              
              
              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.





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).




16


**Lifetime
                  ifBase PriceIncludesthe One-YearAcuity
                  Plan**
              
              **Lifetime
                  ifBase PriceDoes Not Includean Acuity
                  Plan**
              
              **One-Year
                  ifBase PriceDoes Not Includean Acuity
                  Plan**
              
              **Total**Balance
                  as of March 31, 2008
              
              $
              30,740
              
              $
              5,469
              
              $
              22
              
              $
              36,231Estimated
                  amortization:2008
                  Q2
              
              
              4,027
              
              
              898
              
              
              22
              
              
              4,9472008
                  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 March 31, 2008 and
      2007**





*Revenues*


In
      the
      first quarter of 2008, revenues increased by $905,000, or 1.1%, to $79,568,000
      from $78,663,000 in the first quarter of 2007. Procedure volume of 44,159
      decreased 25% from 59,101 in the first quarter of 2007. For vision centers
      open
      at least 12 months, procedure volume decreased by approximately 33% in the
      first
      quarter of 2008 to 39,809 compared to 59,101 in the first quarter of 2007.
      This
      decrease was partially offset by an increase in the average selling price.
      The
      components of the revenue change include (dollars in thousands):


Decrease
                  in revenue from lower procedure volume
              
              $
              (21,309,000
              )Impact
                  from average selling price, before revenue deferral
              
              
              10,993,000Change
                  in deferred revenue
              
              
              11,221,000Increase
                  in revenues
              
              $
              905,000





The
      average reported revenue per procedure, which includes the impact of deferring
      revenue from separately priced extended warranties as well as some price
      increases related to the adoption of IntraLase technology, increased 35.4%
      to
      $1,802 in the first quarter of 2008 from $1,331 in the first quarter of 2007.
      IntraLase is now operational in 73 of our 76 vision centers.





We
      have
      seen a decline in both appointment show rates and treatment show rates. Our
      research indicates that, while patient activity remains robust in regards to
      inquiries, there is hesitancy on the part of consumers to proceed with treatment
      at this time. We believe this primarily is 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 first quarters of 2008 and 2007 (dollars
      in
      thousands):


**2008**
              
              **2007**
              
              **Increasein
                  Revenues**Revenues
                  deferred
              
              $
              -
              
              $
              (12,117
              )
              $
              12,117Amortization
                  of prior deferred revenues
              
              
              5,599
              
              
              6,495
              
              
              (896
              )Net
                  increase in revenues
              
              
              
              
              
              
              
              $
              11,221





*Medical
      professional and license fees*


Medical
      professional and license fees increased by $786,000, or 6%, in the first quarter
      of 2008 from the first quarter of 2007. This increase was primarily due to
      deferred medical fees and laser license fees, partially offset by lower
      physician fees associated with lower revenues. As a result of deferring revenue
      associated with separately priced extended warranties, $1,212,000 of medical
      professional fees were deferred in the first quarter of 2007. The amortization
      of the deferred medical professional fees attributable to prior years was
      $560,000 in the first quarter of 2008 and $650,000 in the first 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 increased in the first quarter
      of
      2008 by $261,000, or 1%, over the first quarter of 2007. This increase was
      principally the result of severance costs as well as increases in professional
      liability insurance, rent and utilities, and bad debt, partially offset by
      decreases in stock-based compensation expense, surgical supplies, employee
      incentives and laser rent.





Bad
      debt
      expense increased by $620,000 in the first quarter of 2008, as compared to
      the
      first quarter of 2007 for three reasons: (1) a higher percentage of total
      revenues were financed by us in 2008; (2) the mix of patient financing shifted
      to a greater use of 36-month financing from 12-month financing, with the longer
      term receivables having increased credit risk; and (3) adverse changes in
      collection rates with our patient financing program given the downturn in the
      U.S. economy.





The
      future value of revenues we finance and our ability to collect on such
      financings 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. The allowance for doubtful accounts has
      been increased to appropriately reflect the increase in credit loss exposure.
      We
      have recently re-evaluated and increased the down payment associated with our
      financing programs to respond to the increased levels of risk associated with
      the portfolio.





*General
      and administrative*


General
      and administrative expenses increased by $174,000, or 3%, in the first quarter
      of 2008 from the first quarter of 2007. This was primarily due to severance
      costs as well as to an increase in professional services, salaries and fringe
      benefits, partially offset by a decrease in stock-based compensation and travel
      and entertainment expenses.





In
      the
      first quarter of 2008, we reduced our workforce by 16%. The resulting cost
      of
      $456,000, impacting both direct costs of services and general and administrative
      expenses, includes severance costs for salaries, payroll taxes, and benefit
      continuation. These costs were substantially paid before March 31,
      2008.





*Marketing
      and advertising expenses*


Marketing
      and advertising expenses increased by $2,806,000, or 16%, in the first quarter
      of 2008 from the first quarter of 2007. The increase resulted primarily from
      additional spending in existing markets, spending related to opening 15 new
      vision centers since March 2007 and investment in marketing research and program
      development. We are continuing to work to develop revised, more efficient
      marketing techniques. Our future operating margins will depend in large part
      on
      the success of our efforts in this regard.




18


*Depreciation
      expense*


Depreciation
      expense increased by $1,950,000 in the first quarter of 2008 from the first
      quarter of 2007 as a result of capital investments in new vision centers over
      the past year, purchase of IntraLase lasers and capital improvements to Bausch
      & Lomb lasers.





*Non-operating
      income and expenses*


Net
      investment income in the first quarter of 2008 decreased $875,000, or 54%,
      due
      to a decrease in investment income of $1,151,000 as a result of a decline in
      investment holdings used for our share buyback program in 2007, partially offset
      by a $308,000 increase in income from patient financing charges.





*Income
      taxes*


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


**March
                  31,****2008**
              
              **2007**Federal
                  income taxes
              
              $
              3,685
              
              $
              5,374State
                  income taxes, net of federal benefit
              
              
              720
              
              
              998Income
                  tax provision
              
              $
              4,405
              
              $
              6,372




Income
      tax rate increased from 36.8% of pre-tax income during the first quarter of
      2007
      to 39% of pre-tax income during the first quarter of 2008. In the first quarter
      2007, the effective tax rate was lower than the first quarter 2008 due to the
      application of FAS 123(R) to the disqualifying dispositions of incentive stock
      options, which produced a tax benefit in 2007.





**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents and short-term investments totaled $47,261,000 as of March
      31,
      2008, down from $60,148,000 at December 31, 2007. Net cash provided by operating
      activities in the first three months of 2008 was $9,406,000, as compared to
      $30,156,000 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 uses of working capital.





Long-term
      investments total $10,477,000 as of March 31, 2008, up from $2,250,000 at
      December 31, 2008. These assets are comprised of auction rate securities that
      are currently failing auctions. 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, $8,950,000 of which had been redeemed by March
      31,
      2008 and another $1,125,000 of which was redeemed in April 2008. During the
      quarter $2,725,000 of auction rate securities were acquired. These investments
      are being reported at fair value which is estimated at 95.7% of amortized cost
      calculated using a discounted cash flow valuation model.





At
      March
      31, 2008, the corporate and municipal bonds included in our available-for-sale
      security portfolio included $12,075,000 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 March 31, 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
      March
      31, 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 March 31, 2008. We believe
      these temporary unrealized
      losses, recorded as a component of accumulated other comprehensive income with
      stockholders’ investment, can be attributed to fair value fluctuations in an
      unstable credit environment.





19


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 March 31, 2008, $1,125,000 of our auction rate
      instruments have been redeemed and these were classified as short term
      investments. 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 March 31, 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
      this recent change and 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 March 31, 2008 as
      long-term. The fair value and par value of our long-term auction rate
      instruments is $10,477,000 and $10,950,000 at March 31, 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
      $150,000.





As
      of
      March 31, 2008, we had approximately $18,984,000 in patient accounts receivable,
      net of our allowance for doubtful accounts, which was an increase of
      approximately $1,716,000 since December 31, 2007. Gross patient accounts
      receivable increased $2,554,000 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 $838,000 from $5,117,000 to
      $5,955,000.





Prepaid
      taxes decreased from $6,391,000 at December 31, 2007 to $173,000 at March 31,
      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.





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





As
      of
      March 31, 2008, accounts payable decreased to $8,393,000 from $10,396,000 at
      December 31, 2007. This decrease was the result of timing of payment
      processing.





On
      August
      21, 2007, our Board of Directors authorized a share repurchase plan under which
      the Company is authorized to purchase up to $50,000,000 of its common stock.
      Through March 31, 2008, the Company had repurchased 588,408 shares of its 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
      quarter of 2008.





In
      the
      first quarter of 2008, the Board of Directors declared a dividend to common
      stockholders of $0.18 per share, which resulted in a cash payment of
      approximately $3,335,000.





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




Year-to-date,
      we have opened four new vision centers in the following cities: Savannah, GA;
      Des Moines, IA; Tulsa, OK and Woodbridge, NJ. We currently have additional
      facilities under development. Capital expenditures through March 31, 2008 were
      $9,330,000, which were comprised primarily of the costs to open new vision
      centers and purchases of IntraLase lasers.





20


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





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 leases provided by the vendors and these are reflected
      in
      our Balance Sheet and Statement of Cash Flows. 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 purposes. Until the funds are
      used
      in operations, they will be added to our investment portfolio.





**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.





Short-term
      investments are recorded at fair 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 auction 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 our 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 March 31, 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 March 31, 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 March
      31, 2008 that have materially affected, or are reasonably likely to materially
      affect, the company’s internal control over financial reporting.





21


**PART
      II. OTHER INFORMATION.**





**Item
      1. Legal Proceedings**





On
      September 13, 2007, and October 1, 2007, two complaints were filed against
      LCA-Vision and certain of its 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
      LCA-Vision and certain of its 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 April 9, 2008. The plaintiffs in the
      consolidated complaint, seeking damages on behalf of a class of shareholders
      who
      purchased our common stock between October 24, 2006, and November 2, 2007,
      assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act
      of
      1934. They allege that certain of LCA-Vision's public disclosures regarding
      its
      financial prospects and historical accounting for bad-debt reserves and expenses
      were false or misleading. LCA-Vision continues to evaluate these claims. We
      strongly believe that these actions lack merit, and we intend to defend against
      them vigorously. However, 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 this claim
      at
      March 31, 2008.





On
      October 5, 2007, a complaint was filed in the Court of Common Pleas, Hamilton
      County, Ohio, against certain current and former officers and directors of
      LCA-Vision, 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 many of the disclosures that also are the subject of the securities class
      action described above. LCA-Vision 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 to be filed in the consolidated
      class action, discussed above. LCA-Vision is in the process of evaluating these
      claims. However, 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 this claim at March
      31,
      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 $895,000 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.




22


**Item
      1A. Risk Factors**





The
      FDA’s
      advisory board on ophthalmic devises is currently reviewing concerns about
      post-Lasik quality of life matters and the advisory board may propose a major
      new study on Lasik outcomes. The outcome of this review could potentially impact
      negatively the acceptance of Lasik. In
      addition to the risk factors discussed in our Forms 10-K and 10-Q, 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.**





None.





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





Exhibits




Number
            Description 10.1
            Letter
                Agreement between LCA-Vision Inc. and David L. Thomas (Exhibit 99.2
                toCurrent
                Report on Form 8-K filed March 24,
                2008)*


31.1
            CEO
                Certification under Section 302 of the Sarbanes-Oxley Act of
                2002


31.2
            CFO
                Certification under Section 302 of the Sarbanes-Oxley Act of
                2002


32
            Certifications
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





**** *
      Incorporated by reference





23


**Signatures**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




**LCA-VISION
              INC.**Date:
              April 29, 2008
            
            /s/ Steven
              C.
              StrausSteven
              C. StrausChief
              Executive Officer  Date: April
                29, 2008
              
              /s/ Alan
                BuckeyAlan
                BuckeyChief
                Financial Officer
  24