The following discussion and analysis presents our consolidated financial condition at June 30, 2008 and the results of operations for the three and six months ended June 30, 2008 and 2007. You should read the following discussion together with our consolidated financial statements and the related notes contained elsewhere in this quarterly report. In addition to the historical information provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated or implied by these estimates and forward-looking statements as a result of certain factors, including those discussed in the CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS on page 25 of this quarterly report.

Overview

We consider our core business to be the ownership and operation of ambulatory surgery centers (ASCs). As of June 30, 2008, we owned and operated 34 ASCs, of which 32 were jointly owned with physician-partners. We also own other businesses including an optical laboratory, an optical products purchasing organization, and a marketing products and services company. In addition, we provide management services to two eye care practices.

Year-to-Date Financial Highlights:



†          Consolidated net revenue increased 10.4% to $69.0 million.  Surgical
facilities net revenue increased 11.5% to $56.5 million (same-facility surgical
net revenue increased 3.0% to $51.4 million).

†          Operating income increased 14.8% to $17.5 million.

†          Income from continuing operations increased 44.7% to $4.5 million.

†          Cash flow from operations of $10.8 million

Results of Operations



The following table summarizes our operating results as a percentage of net
revenue:



                                          Three months ended        Six months ended
                                               June 30,                 June 30,
                                          2008         2007         2008        2007
Net Revenue:
Surgical facilities                          82.6 %       82.5 %      81.9 %      81.0 %
Product sales and other                      17.4         17.5        18.1        19.0
Total net revenue                           100.0        100.0       100.0       100.0

Operating expenses:
Salaries, wages and benefits                 30.5         30.6        30.4        31.3
Cost of sales and medical supplies           23.3         23.7        23.4        23.2
Selling, general and administrative          17.2         18.1        17.9        18.4
Depreciation and amortization                 2.9          2.8         3.0         2.7
Total operating expenses                     73.9         75.2        74.7        75.6

Operating income                             26.1         24.8        25.3        24.4

Minority interests in earnings of
consolidated entities                        12.0         12.1        11.6        11.9
Other (income) expense                        3.0          4.5         3.0         4.2
Income before income taxes                   11.1          8.2        10.7         8.3
Income tax provision                          4.3          3.2         4.2         3.2
Net income from continuing
operations                                    6.8          5.0         6.5         5.1
Net loss from discontinued
operations                                   (0.1 )       (0.4 )         -        (0.3 )
Net income                                    6.7 %        4.6 %       6.5 %       4.8 %

Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007

Net Revenue

Consolidated. Total net revenue increased 10.1% from $31.9 million to $35.2 million. Net revenue by segment is discussed below.

Surgical Facilities. The table below summarizes surgical facilities net revenue and procedures performed for the second quarter of 2008 and 2007. Revenues generated from surgical facilities are derived from the fees charged for the procedures performed in our ASCs and through our laser services agreements. Our procedure volume is directly impacted by the number of ASCs we operate, the number of excimer lasers in service, and their respective utilization rates. Net surgical facilities revenue increased 10.3% from $26.4 million to $29.1 million. This increase was primarily the result of $2.0 million of net revenue from ASCs acquired or developed after April 1, 2007 ("new ASCs") and a $0.8 million, or 3.1%, increase from ASCs that we owned for the entire comparable reporting periods ("same-facility"). The increase in same-facility net revenue was primarily the result of a 0.2% increase in the number of same-facility procedures performed and a 2.9% increase in the net revenue per procedure due to a change in procedure mix.

On July 18, 2008, the Centers for Medicare and Medicaid Services (CMS) published their proposed 2009 rates for ASCs. The proposal includes a decrease in the cataract rate in 2009. As with previous rate changes, the cataract rate change tends to determine the overall impact to us as the changes in the other procedure rates tend to net each other out. Our preliminary estimate is that the proposed 2009 rates, based on our current procedure volumes and mix, will negatively impact annual surgical facilities net revenue by approximately $0.6 million. This does not include any potential wage-index changes. This revenue reduction approximates a $0.01 impact on earnings per share.

                                                        Three Months Ended
                                                             June 30,             Increase
Dollars in thousands                                    2008          2007       (Decrease)

Surgical Facilities:
Same-facility:
Net revenue                                          $    26,507    $  25,707    $       800
# of procedures                                           31,468       31,406             62

New ASCs:
Net revenue                                          $     2,565    $     573    $     1,992
# of procedures                                            2,732          724          2,008

Expired laser services agreement and ASC closures
Net revenue                                          $         -    $      84    $       (84 )
# of procedures                                                -          214           (214 )

Product Sales and Other. The table below summarizes net product sales and other revenue by significant business component. Product sales and other revenue for the second quarter increased 9.3% from $5.6 million to $6.1 million. Net revenue at our optical products and services business increased by $0.7 million due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007 and an increase in existing customer orders.

                                              Three Months Ended
                                                   June 30,            Increase
Dollars in thousands                           2008         2007      (Decrease)

Product Sales:
Optical laboratories                        $    1,551    $  1,622   $        (71 )
Optical products purchasing organization         1,519         808            711
Marketing products and services                    756         800            (44 )
Optometric practice/retail store                   481         474              7
                                                 4,307       3,704            603
Other:
Ophthalmology practice                           1,801       1,878            (77 )
Other                                                -           6             (6 )
                                                 1,801       1,884            (83 )

Total Net Product Sales and Other Revenue   $    6,108    $  5,588   $        520

Salaries, Wages and Benefits

Consolidated. Salaries, wages and benefits expense increased 9.7% from $9.8 million to $10.7 million. As a percentage of net revenue, salaries, wages and benefits expense decreased from 30.6% to 30.5%. Salaries, wages and benefits expense by segment is discussed below.

Surgical Facilities. Salaries, wages and benefits expense in our surgical facilities segment increased 10.7% from $5.4 million to $6.0 million. The increase was primarily the result of staff costs associated with new ASCs and staffing required at some of our same-facility ASCs.

Product Sales and Other. Salaries, wages and benefits expense in our product sales and other segments increased 4.2% from $2.0 million to $2.1 million primarily due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007.

Corporate. Salaries, wages and benefits expense increased 12.3% from $2.3 million to $2.6 million. The increase was primarily due to incentive accrual and health insurance increases.

Cost of Sales and Medical Supplies

Consolidated. Cost of sales and medical supplies expense increased 8.2% from $7.6 million to $8.2 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 23.7% to 23.3%. Cost of sales and medical supplies expense by segment is discussed below.

Surgical Facilities. Cost of sales and medical supplies expense in our surgical facilities segment increased 11.2% from $6.1 million to $6.8 million. The expense increase was primarily the result of costs associated with our new ASCs and increased supply costs at some of our same-facility ASCs.

Product Sales and Other. Cost of sales and medical supplies expense in our product sales and other segments decreased 4.2% from $1.5 million to $1.4 primarily do to a decrease in volume at our optical laboratories business.

Selling, General and Administrative

Consolidated. Selling, general and administrative expense increased 4.3% from $5.8 million to $6.0 million. As a percentage of net revenue, selling, general and administrative expense decreased from 18.1% to 17.2%. Selling, general and administrative expense by segment is discussed below.

Surgical Facilities. Selling, general and administrative expense in our surgical facilities segment increased 8.8% from $5.0 million to $5.4 million. The increase is due to costs associated with our new ASCs and an increase of $0.2 million in management and billing/collections fees charged to the ASCs for services rendered by our corporate personnel.

Product Sales and Other. Selling, general and administrative expense in our product sales and other segments increased 10.4% from $0.9 million to $1.0 million primarily due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007.

Corporate. Corporate selling, general and administrative expense decreased by $0.3 million. The net expense decrease consists of two components. Corporate selling, general and administrative expenses decreased by $0.2 million due to an increase of $0.2 million in management and billing/collections fees charged to the operating segments for services rendered by certain corporate personnel. Corporate selling, general and administrative expenses decreased by $0.1 million due to lower travel and other expenses.

Depreciation and Amortization.Depreciation and amortization expense increased 16.1% from $0.9 million to $1.0 million due to increases in depreciation associated with our new ASCs and amortization of intangible assets acquired in conjunction with our acquisition of an optical products purchasing organization during the fourth quarter of 2007.

Minority Interests and Other (Income) Expense. Minority interests in the earnings of our ASCs were $4.2 million in 2008 as compared to $3.9 million in 2007. All of this increase is attributable to new ASCs.

Interest (Income) Expense, net. Interest (income) expense, net decreased from $1.5 million to $1.0 million due to a lower effective interest rate on borrowings primarily due to our convertible note offering during the second quarter of 2007.

Provision for Income Taxes. Our effective tax rate was unchanged at 39.0%. Our effective tax rate is affected by expenses that are deducted from operations in arriving at pre-tax income that are not allowed as a deduction on our federal income tax return.

Discontinued Operations. We continued to incur costs associated with our Laredo, Texas ASC during the second quarter of 2008. On August 7, 2008, our Laredo, Texas ASC, of which we own a 96% interest, sold substantially all its assets for $0.2 million.

Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007

Net Revenue

Consolidated. Total net revenue increased 10.4% from $62.5 million to $69.0 million. Net revenue by segment is discussed below.

Surgical Facilities. The table below summarizes surgical facilities net revenue and procedures performed for the first six months of 2008 and 2007. Revenues generated from surgical facilities are derived from the fees charged for the procedures performed in our ASCs and through our laser services agreements. Our procedure volume is directly impacted by the number of ASCs we operate, the number of excimer lasers in service, and their respective utilization rates. Net surgical facilities revenue increased 11.5% from $50.6 million to $56.5 million. This increase was primarily the result of $4.6 million of net revenue from ASCs acquired or developed after January 1, 2007 ("new ASCs") and a $1.5 million, or 3.0%, increase from ASCs that we owned for the entire comparable reporting periods ("same-facility"). The increase in same-facility net revenue was primarily the result of a 0.4% increase in the number of same-facility procedures performed and a 2.6% increase in the net revenue per procedure due to a change in procedure mix.

On July 18, 2008, the Centers for Medicare and Medicaid Services (CMS) published their proposed 2009 rates for ASCs. The proposal includes a decrease in the cataract rate in 2009. As with previous rate changes, the cataract rate change tends to determine the overall impact to us as the changes in the other procedure rates tend to net each other out. Our preliminary estimate is that the proposed 2009 rates, based on our current procedure volumes and mix, will negatively impact annual surgical facilities net revenue by approximately $0.6 million. This does not include any potential wage-index changes. This revenue reduction approximates a $0.01 impact on earnings per share.

                                                      Six Months Ended
                                                          June 30,           Increase
Dollars in thousands                                   2008        2007     (Decrease)

Surgical Facilities:
Same-facility:
Net revenue                                         $   51,362   $ 49,875   $     1,487
# of procedures                                         61,459     61,244           215

New ASCs:
Net revenue                                         $    5,125   $    573   $     4,552
# of procedures                                          5,576        724         4,852

Expired laser services agreement and ASC closures
Net revenue                                         $        -   $    193   $      (193 )
# of procedures                                              -        485          (485 )

Product Sales and Other. The table below summarizes net product sales and other revenue by significant business component. Product sales and other revenue for the first six months increased 5.3% from $11.9 million to $12.5 million. Net revenue at our optical products and services business increased by $1.4 million due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007 and an increase in existing customer orders. Net revenue from our marketing products and services business decreased by $0.6 million primarily due to a reduction in sales of marketing products to medical device manufacturers to promote their refractive intraocular lens technology.

                                              Six Months Ended
                                                  June 30,           Increase
Dollars in thousands                           2008        2007     (Decrease)

Product Sales:
Optical laboratories                        $    3,155   $  3,261   $      (106 )
Optical products purchasing organization         3,037      1,611         1,426
Marketing products and services                  1,684      2,260          (576 )
Optometric practice/retail store                   993        952            41
                                                 8,869      8,084           785
Other:
Ophthalmology practice                           3,637      3,780          (143 )
Other                                                -         15           (15 )
                                                 3,637      3,795          (158 )

Total Net Product Sales and Other Revenue   $   12,506   $ 11,879   $       627

Salaries, Wages and Benefits

Consolidated. Salaries, wages and benefits expense increased 7.0% from $19.6 million to $21.0 million. As a percentage of net revenue, salaries, wages and benefits expense decreased from 31.3% to 30.4%. Salaries, wages and benefits expense by segment is discussed below.

Surgical Facilities. Salaries, wages and benefits expense in our surgical facilities segment increased 12.6% from $10.8 million to $12.1 million. The increase was primarily the result of staff costs associated with new ASCs and staffing required at same-facility ASCs.

Product Sales and Other. Salaries, wages and benefits expense in our product sales and other segments increased 5.3% from $4.2 million to $4.4 million primarily due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007.

Corporate. Salaries, wages and benefits expense decreased 4.4% from $4.6 million to $4.4 million. The decrease was primarily due to staffing reductions and a decrease in stock compensation expense.

Cost of Sales and Medical Supplies

Consolidated. Cost of sales and medical supplies expense increased 11.4% from $14.5 million to $16.2 million. As a percentage of net revenue, cost of sales and medical supplies expense increased from 23.2% to 23.4%. Cost of sales and medical supplies expense by segment is discussed below.

Surgical Facilities. Cost of sales and medical supplies expense in our surgical facilities segment increased 15.6% from $11.4 million to $13.2 million. The expense increase was primarily the result of costs associated with our new ASCs and increased supply costs at some of our same-facility ASCs.

Product Sales and Other. Cost of sales and medical supplies expense in our product sales and other segments decreased 3.8% from $3.1 million to $3.0 million primarily due to decreased revenue at our marketing products and services business.

Selling, General and Administrative

Consolidated. Selling, general and administrative expense increased 7.4% from $11.5 million to $12.3 million. As a percentage of net revenue, selling, general and administrative expense decreased from 18.4% to 17.9%. Selling, general and administrative expense by segment is discussed below.

Surgical Facilities. Selling, general and administrative expense in our surgical facilities segment increased 9.8% from $9.8 million to $10.8 million. The increase is due to costs associated with our new ASCs and an increase of $0.4 million in management and billing/collections fees charged to the ASCs for services rendered by our corporate personnel.

Product Sales and Other. Selling, general and administrative expense in our product sales and other segments increased 11.1% from $1.7 million to $1.9 million primarily due to our acquisition of an optical products purchasing organization during the fourth quarter of 2007.

Corporate. Corporate selling, general and administrative expense decreased by $0.3 million due to an increase of $0.4 million in management and billing/collections fees charged to the operating segments for services rendered by certain corporate personnel. Excluding the management and billing/collections fees, corporate selling, general and administrative expense were flat compared to the first six months of 2007.

Depreciation and Amortization. Depreciation and amortization expense increased 19.3% from $1.7 million to $2.0 million due to increases in depreciation associated with our new ASCs and amortization of intangible assets acquired in conjunction with our acquisition of an optical products purchasing organization during the fourth quarter of 2007.

Minority Interests and Other (Income) Expense. Minority interests in the earnings of our ASCs were $8.0 million in 2008 as compared to $7.4 million in 2007. All of this increase is attributable to new ASCs.

Interest (Income) Expense, net. Interest (income) expense, net decreased from $2.8 million to $2.1 million due to a lower effective interest rate on borrowings primarily due to our convertible note offering during the second quarter of 2007.

Provision for Income Taxes. Our effective tax rate was unchanged at 39.0%. Our effective tax rate is affected by expenses that are deducted from operations in arriving at pre-tax income that are not allowed as a deduction on our federal income tax return.

Discontinued Operations. We continued to incur costs associated with our Laredo, Texas ASC during the first six months of 2008. On August 7, 2008, our Laredo, Texas ASC, of which we own a 96% interest, sold substantially all of its assets for $0.2 million. As part of our discontinued operations plan announced in the fourth quarter of 2007, we completed the sale of our 70% interest in our Thibodaux, Louisiana ASC in February 2008. We received proceeds of $0.2 million. As a result, we adjusted our previously recorded loss on the sale of the ASC and recorded a pre-tax gain of $0.1 million in the first quarter of 2008.

Liquidity and Capital Resources

Operating activities during the first six months of 2008 generated $10.8 million in cash flow compared to $5.6 million in the comparable 2007 period. Of the $5.2 million increase in cash flow from operating activities, $2.7 million was due to higher net income after adding back the following non-cash items:
depreciation and amortization, gain on sale of minority interests/divestitures, (earnings) loss on non-consolidated affiliate, stock-based compensation expense, gain on sale of ASC, deferred income taxes and asset impairment charge. Changes in operating assets and liabilities added $3.0 million to the increase in cash flows from operating activities and the difference between minority interest and distributions to minority partners resulted in a decrease of $0.6 million. The primary driver to the cash contribution from the changes in operating assets and liabilities was due to the timing of cash payments and a decrease in incentive compensation payments during 2008.

Investing activities during the first six months of 2008 resulted in negative cash flow of $3.8 million. Investing activities during the first six months of 2008 included the purchase of property and equipment for $2.8 million, the payment of additional purchase price consideration of $0.9 million for one of our ASCs, the payment of additional purchase price consideration of $0.3 million for our optical products purchasing organization, and proceeds of $0.2 million relating to the sale of our Thibodaux, Louisiana ASC. Investing activities during the first six months of 2007 resulted in negative cash flow of $34.1 million which included the acquisition of two ASCs for $32.7 million, the purchase of property and equipment for $1.6 million and proceeds of $0.3 million relating to the sale of minority interests.

Cash flows from financing activities during the first six months of 2008 included net proceeds of $0.4 million from the exercise of stock options and issuance of stock to employees as part of our employee stock purchase plan and borrowings of $1.8 million relating to the development and relocation of an ASC. These proceeds were offset by $0.7 million of capital lease and other debt obligation payments. Cash flows from financing activities during the first six months of 2007 included $62.4 million of net proceeds related to the issuance of convertible debt and $0.7 million from the exercise of stock options and issuance of stock to employees as part of our employee stock purchase plan, offset by $33.7 million of net payments under our credit facility and $1.0 million of capital lease obligation payments.

In June 2007, we issued $75 million aggregate principal amount of 1.0% convertible senior subordinated notes due June 15, 2012 (the "Convertible Notes"). At June 30, 2008, we had $72.9 million in convertible subordinated debt outstanding, net of debt issuance costs. As of June 30, 2008, the fair value of the $75 million Convertible Notes was approximately $58.1 million, based on the level 2 valuation hierarchy under SFAS No. 157. For further discussion about the Convertible Notes, see Note 11 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K filed on March 17, 2008.

At June 30, 2008, we had $24.0 million of borrowings outstanding under our revolving credit facility and were in compliance with all of our covenants. The maximum commitment available under the facility is the lesser of $125 million or the maximum allowed under the calculated ratio limitations. The credit agreement also includes an option allowing us to increase the maximum commitment available to $150 million under certain conditions. Interest on borrowings under the facility is payable at an annual rate equal to our lender's published base rate plus the applicable borrowing margin ranging from 0% to 0.5% or LIBOR plus a range from 1.25% to 2.50%, varying depending upon our ratios and ability to meet other financial covenants. In addition, a fee ranging from .20% to .25% is charged on the unused portion of the commitment. The maximum borrowing availability and applicable interest rates under the credit facility are calculated based on a ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization, all as more fully defined in our credit facility. Our credit facility currently provides for temporary increases in this ratio through September 30, 2008 for purposes of calculating our maximum borrowing availability. This ratio will decrease following September 30, 2008 and will reduce our maximum borrowing capacity. The credit agreement contains customary covenants that include limitations on indebtedness, liens, capital expenditures, acquisitions, investments and share repurchases, as well as restrictions on the payment of dividends. Under the terms of the credit agreement, we are required to obtain the consent of our lenders for any . . .