##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended June 30, 2007.
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT.
 For
the transition period from ___ to ___
 Commission file number 0-27610
 LCA-Vision Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    11-2882328(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 7840 Montgomery Road, Cincinnati, Ohio 45236
 (513) 792-9292
  þ o
  þ o o
 o þ




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##### 



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




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



About Our Company
 Plus
  Summary of Significant Accounting Policies
  Restatement of Financial Information
 Accounting for
Separately Priced Extended Warranty and Product Maintenance Contracts
 6




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



Six Months Ended June 30,2006PreviouslyReported
    
    
    RestatedCash flow from operating activities:Net income
    
    $
    23,969
    
    
    $
    17,461Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    4,042
    
    
    
    4,042Provision for loss on doubtful accounts
    
    
    1,212
    
    
    
    1,212Deferred income taxes
    
    
    (19
    )
    
    
    (4,134
    )Tax benefit on disqualified disposition of stock options
    
    
    56
    
    
    
    56Stock-based compensation
    
    
    2,852
    
    
    
    2,852Deferred compensation
    
    
    661
    
    
    
    661Insurance reserve
    
    
    1,562
    
    
    
    1,562Equity in earnings of unconsolidated affiliates
    
    
    (323
    )
    
    
    (323
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,244
    )
    
    
    (2,244
    )Receivables from vendors
    
    
    (588
    )
    
    
    (588
    )Prepaid expenses and other
    
    
    (1,581
    )
    
    
    (1,590
    )Prepaid income taxes
    
    
    (1,610
    )
    
    
    (1,610
    )Accounts payable
    
    
    (880
    )
    
    
    (880
    )Deferred revenue, net of professional fees
    
    
    
    
    
    
    10,632Accrued liabilities and other
    
    
    2,502
    
    
    
    2,502Net cash provided by operations
    
    $
    29,611
    
    
    $
    29,611Cash flow from investing activities:Purchases of property and equipment
    
    
    (3,856
    )
    
    
    (3,856
    )Deferred compensation plan
    
    
    (661
    )
    
    
    (661
    )Other, net
    
    
    3
    
    
    
    3Net cash used in investing activities
    
    $
    (4,514
    )
    
    $
    (4,514
    )Cash flow from financing activities:Principal payments of long-term notes, debt and capital lease obligations
    
    
    (1,226
    )
    
    
    (1,226
    )Shares repurchased for treasury stock
    
    
    (6,248
    )
    
    
    (6,248
    )Tax benefits related to stock-based compensation
    
    
    3,247
    
    
    
    3,247Exercise of stock options
    
    
    4,203
    
    
    
    4,203Distribution paid to minority equity investees
    
    
    (19
    )
    
    
    (19
    )Dividends paid to stockholders
    
    
    (5,034
    )
    
    
    (5,034
    )Net cash used in financing activities
    
    
    (5,077
    )
    
    
    (5,077
    )Increase in cash and cash equivalents
    
    
    20,020
    
    
    
    20,020Cash and cash equivalents at beginning of period
    
    
    110,531
    
    
    
    110,531Cash and cash equivalents at end of period
    
    $
    130,551
    
    
    $
    130,551
 9




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##### Table of Contents



Consolidation and Basis of Presentation
 Application of FASB Statement 94
and APB Opinion No. 16 to Physician Management Entities and Certain Other Entities with Contractual
Management Agreements
 Use of Estimates
  Reclassification
  Short-Term Investments
   EstimatedGross
    
    Gross
    
    Fair ValueAmortized
    
    Unrealized
    
    Unrealized
    
    (Net CarryingCost
    
    Gains
    
    Losses
    
    Value)Corporate bonds
    
    $
    18,399
    
    
    
    
    
    
    
    
    
    
    $
    18,399US Government securities
    
    
    12,464
    
    
    
    
    
    
    
    (17
    )
    
    
    12,447Municipal bonds
    
    
    51,541
    
    
    
    12
    
    
    
    (40
    )
    
    
    51,513Total short term investments
    
    $
    82,404
    
    
    $
    12
    
    
    $
    (57
    )
    
    $
    82,359
  10




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##### Table of Contents



Amortized
    
    Estimated(dollars in thousands)
    
    Cost
    
    Fair ValueDue in one year or less
    
    $
    37,345
    
    
    $
    37,325Due after one year through three years
    
    
    13,139
    
    
    
    13,104Due after three years
    
    
    31,920
    
    
    
    31,930Total securities
    
    $
    82,404
    
    
    $
    82,359
  Allowance for Doubtful Accounts
  Accrued Enhancement Expense
  Deferred Revenues
   11




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##### Table of Contents



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




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##### Table of Contents



Accounting for Uncertainty in Income
Taxes
       Per Share Data
  13




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Basic Earnings per Share:Net income
    
    $
    7,414
    
    
    $
    8,033
    
    
    $
    18,340
    
    
    $
    17,461Weighted average shares outstanding  basic
    
    
    20,069
    
    
    
    20,836
    
    
    
    19,987
    
    
    
    20,791Basic earnings per share
    
    $
    0.37
    
    
    $
    0.39
    
    
    $
    0.92
    
    
    $
    0.84Diluted Earnings per Share:Net income
    
    $
    7,414
    
    
    $
    8,033
    
    
    $
    18,340
    
    
    $
    17,461Weighted average shares outstanding  basic
    
    
    20,069
    
    
    
    20,836
    
    
    
    19,987
    
    
    
    20,791Effect of dilutive securitiesStock options
    
    
    259
    
    
    
    616
    
    
    
    309
    
    
    
    665Restricted stock
    
    
    26
    
    
    
    22
    
    
    
    38
    
    
    
    13Weighted average common shares and potential
dilutive shares
    
    
    20,354
    
    
    
    21,474
    
    
    
    20,334
    
    
    
    21,469Diluted earnings per share
    
    $
    0.36
    
    
    $
    0.37
    
    
    $
    0.90
    
    
    $
    0.81
 Revenue Recognition
  Stock-Based Compensation
 Share Based Payment
  14




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##### Table of Contents



Commitments and Contingencies
    New Accounting Pronouncement
 Fair Value Measurements
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   15




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##### Table of Contents



Three MonthsEnded June 30,
    
    
    Six Months Ended2006
    
    
    June 30, 2006Previously reported
    
    $
    10,877
    
    
    $
    23,969Pretax adjustments:Deferred revenues
    
    
    (5,156
    )
    
    
    (11,802
    )Deferred professional fees
    
    
    514
    
    
    
    1,179Total pre-tax adjustments
    
    
    (4,642
    )
    
    
    (10,623
    )Related tax effect
    
    
    1,798
    
    
    
    4,115Net after-tax adjustments
    
    
    (2,844
    )
    
    
    (6,508
    )Restated
    
    $
    8,033
    
    
    $
    17,461
 Overview
 Plus
   
    
    Our ability to generate customers through our arrangements with managed care companies,
direct-to-consumer advertising and word-of-mouth referrals
    
    Our mix of procedures among the different types of laser technology
    
    New vision center openings and our ability to increase procedure volume at existing vision centers
    
    The availability of patient financing
    
    General economic conditions and consumer confidence levels
    
    The continued growth and increased acceptance of laser vision correction
    
    The effect of competition and discounting practices in our industry
    
    Pricing of our services and acuity plans
  
    
    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
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##### Table of Contents



The following table details the number of laser vision correction procedures performed at our
consolidated vision centers.
 2007
    
    2006Procedures
    
    ProceduresQ1
    
    
    59,101
    
    
    
    53,372Q2
    
    
    48,668
    
    
    
    47,308Q3
    
    
    
    
    
    
    42,539Q4
    
    
    
    
    
    
    42,049Year
    
    
    
    
    
    
    185,268
   Lifetime if Base
    
    Lifetime if Base
    
    One-Year if BasePrice Included the
    
    Price Did Not
    
    Price Did NotOne-Year Acuity
    
    Include an Acuity
    
    Include an AcuityPlan
    
    Plan
    
    Plan
    
    TotalBalance at June 30, 2007
    
    $
    41,778
    
    
    $
    13,794
    
    
    $
    799
    
    
    $
    56,371Estimated amortization:2007 Q3
    
    $
    3,477
    
    
    $
    3,826
    
    
    $
    402
    
    
    $
    7,7052007 Q4
    
    
    3,683
    
    
    
    2,890
    
    
    
    263
    
    
    
    6,8362008 Q1
    
    
    3,881
    
    
    
    1,607
    
    
    
    111
    
    
    
    5,5992008 Q2
    
    
    4,026
    
    
    
    898
    
    
    
    22
    
    
    
    4,9462008 Q3
    
    
    3,766
    
    
    
    638
    
    
    
    
    
    
    
    4,4042008 Q4
    
    
    3,225
    
    
    
    544
    
    
    
    
    
    
    
    3,7692009 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
    
    
    77
    
    
    
    15
    
    
    
    
    
    
    
    92
  17




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##### Table of Contents



Results of Operations for the Three Months Ended June 30, 2007 and 2006
  Revenue from higher procedure volume
    
    $
    1,881,000Impact from average selling price, before revenue deferral
    
    
    3,258,000Change in deferred revenue
    
    
    4,249,000Increase in revenues
    
    $
    9,388,000
  Change in deferred revenue
  Increase in2007
    
    
    2006
    
    
    RevenuesRevenues deferred
    
    $
    (7,937
    )
    
    $
    (9,887
    )
    
    $
    1,950Amortization of prior deferred revenues
    
    
    7,030
    
    
    
    4,731
    
    
    
    2,299Net increase in revenues
    
    
    
    
    
    
    
    
    
    $
    4,249
 Medical professional and license fees
  Direct costs of services
  General and administrative
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##### Table of Contents



Marketing and advertising expenses
  Depreciation expense
  Non-operating income and expenses
  Income taxes
  June 30,
    
    
    June 30,2007
    
    
    2006(Restated)Federal income taxes
    
    $
    3,851
    
    
    $
    4,791State income taxes, net of federal benefit
    
    
    768
    
    
    
    1,168Income tax provision
    
    $
    4,619
    
    
    $
    5,959
  Results of Operations for the Six Months Ended June 30, 2007 and 2006
  Revenues from higher procedure volume
    
    $
    9,777,000Impact from average selling price, before revenue deferral
    
    
    6,251,000Change in deferred revenues
    
    
    5,273,000Increase in revenues
    
    $
    21,301,000
  19




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##### Table of Contents



Change in deferred revenues
  Increase in2007
    
    
    2006
    
    
    RevenuesRevenues deferred
    
    $
    (20,054
    )
    
    $
    (20,552
    )
    
    $
    498Amortization of prior deferred revenues
    
    
    13,525
    
    
    
    8,750
    
    
    
    4,775Net increase in revenues
    
    
    
    
    
    
    
    
    
    $
    5,273
 Medical professional and license fees
  Direct costs of services
    General and administrative
  Marketing and advertising expenses
  Depreciation expense
  Non-operating income and expenses
  20




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##### Table of Contents



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



New Accounting Pronouncements
 Fair Value Measurements
 Critical Accounting Estimates
  
 Item 3. Quantitative and Qualitative Disclosure About Market Risk.
    
 Item 4. Controls and Procedures.
  (a)
    
    Evaluation Of Disclosure Controls And ProceduresUnder the supervision of and with the participation of the Companys management, including
the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), an evaluation
of the effectiveness of the Companys disclosure controls and procedures was performed as of
June
30, 2007. Based on this evaluation, and giving effect to the remediation actions that
concluded during the quarter covered by this report, discussed in Item 4(b) below, the CEO
and CFO have concluded that the Companys disclosure controls and procedures are effective
to ensure that material information is recorded, processed, summarized and reported by
management of the Company on a timely basis in order to comply with the Companys disclosure
obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.
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##### Table of Contents



(b)
    
    Changes In Internal Control Over Financial ReportingDuring the quarter ended June 30, 2007, we had fully remediated the material weakness in our
internal control over financial reporting with respect to the deferral of revenues
associated with separately priced extended warranties pursuant to FTB 90-1 as more fully
described in our Annual Report on Form 10-K/A. Our remediation actions included:
 
    
    The review of and deferral of revenues associated with all historical
sales of separately priced extended warranties consistent with the application of
FTB 90-1, and the recording of accounting adjustments as appropriate; and
    
    Implementation of controls and processes to properly account for the
deferral of revenues associated with separately priced extended warranties going
forward. These controls and processes include new reconciliation and monitoring
controls.
 Otherwise, there were no significant changes in internal control over financial reporting,
or in other factors, that occurred during the period covered by this quarterly report that
have materially affected, or are reasonable likely to materially affect, the Companys
internal control over financial reporting.
 
 PART II. OTHER INFORMATION.
 
 Item 6. Exhibits
 ExhibitsNumber
    
    Description31.1
    
    
    CEO Certification under Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    CFO Certification under Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Signatures
  LCA-VISION INC.Date: July 31, 2007
    /s/ Steven C. StrausSteven C. StrausChief Executive OfficerDate: July 31, 2007
    /s/ Alan H. BuckeyAlan BuckeyChief Financial Officer 24