The following discussion and analysis presents our consolidated financial condition at March 31, 2009 and the results of operations for the three months ended March 31, 2009 and 2008. 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 20 of this quarterly report.

Overview

We consider our core business to be the ownership and operation of ambulatory surgery centers (ASCs). As of March 31, 2009, we owned and operated 37 ASCs, of which 35 were jointly owned with physician-partners. We also own a 25% equity interest in an ASC that we plan to divest. We also own other businesses including an optical laboratory, an optical products purchasing organization, and marketing products and services businesses. In addition, we provide management services to two eye care practices.

Year-to-Date Financial Highlights:



†         Consolidated net revenue increased 13.3% to $38.3 million.  Surgical
facilities net revenue increased 16.3% to $31.9 million (same-facility surgical
net revenue decreased 1.6% to $27.0 million).

†          Operating income increased 12.6% to $9.3 million.

†          Income from continuing operations attributable to NovaMed, Inc.
increased 9.8% to $1.7 million.

†          Cash flow from operations of $4.2 million.

Results of Operations



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



                                                        Three months ended
                                                            March 31,
                                                        2009         2008
Net Revenue:
Surgical facilities                                        83.3 %       81.1 %
Product sales and other                                    16.7         18.9
Total net revenue                                         100.0        100.0

Operating expenses:
Salaries, wages and benefits                               31.4         30.3
Cost of sales and medical supplies                         22.4         23.6
Selling, general and administrative                        18.1         18.6
Depreciation and amortization                               3.7          3.0
Total operating expenses                                   75.6         75.5

Operating income                                           24.4         24.5

Interest expense (income), net                              5.7          5.7
Other (income) expense, net                                   -            -
Income before income taxes                                 18.7         18.8
Income tax provision                                        2.9          3.0
Income from continuing operations                          15.8         15.8
Income from discontinued operations                           -          0.1
Net income                                                 15.8         15.9

Net income attributable to noncontrolling interests        11.2         11.1

Net income attributable to NovaMed, Inc.                    4.6 %        4.8 %

Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008

Net Revenue

Consolidated. Total net revenue increased 13.3% from $33.8 million to $38.3 million. Net revenue by segment is discussed below.

Surgical Facilities. The table below summarizes surgical facilities net revenue and procedures performed for the first quarter of 2009 and 2008. 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 16.3% from $27.4 million to $31.9 million. This increase was primarily the result of $4.9 million of net revenue from ASCs acquired or developed after January 1, 2008 ("new ASCs") offset by a $0.4 million, or 1.6%, decrease from ASCs that we owned for the entire comparable reporting periods ("same-facility"). The decrease in same-facility net revenue was primarily the result of a 5.5% decrease in the number of same-facility procedures performed offset by a 3.9% increase in the net revenue per procedure due to a change in procedure and payor mix.

                         Three Months Ended
                             March 31,           Increase
Dollars in thousands      2009         2008     (Decrease)

Surgical Facilities:
Same-facility:
Net revenue            $    26,967   $ 27,415   $      (448 )
# of procedures             31,027     32,835        (1,808 )

New ASCs:
Net revenue            $     4,924   $      -   $     4,924
# of procedures              7,917          -         7,917

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 quarter of 2009 was flat compared to the first quarter of 2008. Net revenue at our optical products and services business decreased by $0.1 million due to a decrease in existing customer orders. Net revenue from our marketing products and services businesses increased by $0.2 million primarily due the acquisition of a call center and marketing solutions business during the third quarter of 2008 partially offset by a reduction in sales of marketing products to medical device manufacturers. Net revenue at our optical laboratory business decreased by $0.2 million due to a decrease in existing customer orders. Net revenue at our ophthalmology practice increased by $0.2 million due to an increase in the number of patient visits.

                                          Three Months Ended March 31,           Increase
Dollars in thousands                        2009                2008            (Decrease)

Product Sales:
Optical laboratories                   $         1,367     $         1,604    $         (237 )
Optical products purchasing
organization                                     1,390               1,518              (128 )
Marketing products and services                  1,150                 928               222
Optometric practice/retail store                   488                 512               (24 )
                                                 4,395               4,562              (167 )
Other:
Ophthalmology practice                           2,008               1,836               172

Total Net Product Sales and Other
Revenue                                $         6,403     $         6,398    $            5

Salaries, Wages and Benefits

Consolidated. Salaries, wages and benefits expense increased 17.5% from $10.2 million to $12.0 million. As a percentage of net revenue, salaries, wages and benefits expense increased from 30.3% to 31.4%. Salaries, wages and benefits expense by segment is discussed below.

Surgical Facilities. Salaries, wages and benefits expense in our surgical facilities segment increased 16.9% from $6.1 million to $7.2 million. The increase was primarily the result of staff costs associated with new ASCs and a shift of some personnel from our Corporate segment to our Surgical Facilities segment.

Product Sales and Other. Salaries, wages and benefits expense in our product sales and other segments increased 20.9% from $2.2 million to $2.7 million primarily due to our acquisition of a call center and marketing solutions business during the third quarter of 2008.

Corporate. Salaries, wages and benefits expense increased 15.4% from $1.9 million to $2.2 million. The increase was primarily due to incentive accrual and health benefit increases partially offset by a shift of some personnel from our Corporate segment to our Surgical Facilities segment.

Cost of Sales and Medical Supplies

Consolidated. Cost of sales and medical supplies expense increased 7.4% from $8.0 million to $8.6 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 23.6% to 22.4%. 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 11.3% from $6.4 million to $7.1 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 23.6% to 22.4%. The expense increase was primarily the result of costs associated with our new ASCs.

Product Sales and Other. Cost of sales and medical supplies expense in our product sales and other segments decreased 8.6% from $1.6 million to $1.5 million primarily due to decreased revenue at our optical laboratories business and marketing products and services businesses.

Selling, General and Administrative

Consolidated. Selling, general and administrative expense increased 10.4% from $6.3 million to $6.9 million. As a percentage of net revenue, selling, general and administrative expense decreased from 18.6% to 18.1%. Selling, general and administrative expense by segment is discussed below.

Surgical Facilities. Selling, general and administrative expense in our surgical facilities segment increased 17.8% from $5.3 million to $6.3 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 18.9% from $1.0 million to $1.1 million primarily due to our acquisition of a call center and marketing solutions business during the third quarter of 2008.

Corporate. Corporate selling, general and administrative expense decreased by $0.5 million due to an increase in management and billing/collections fees charged to the operating segments for services rendered by certain corporate personnel and lower professional fees.

Depreciation and Amortization. Depreciation and amortization expense increased 39.6% from $1.0 million to $1.4 million due to increases in depreciation associated with our new ASCs and amortization of intangible assets acquired in conjunction with our acquisition of a call center and marketing solutions business during the third quarter of 2008.

Interest (Income) Expense, net. Interest (income) expense, net increased by $0.2 million due to increased borrowings under our revolving credit facility and our adoption of FASB Staff Position No. APB 14-1 ("FSP APB 14-1"), "Accounting for Convertible Debt Instruments that May be settled in Cash Upon Conversion," on January 1, 2009. FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion

(including partial cash settlement) be separately accounted for in a manner that reflects an issuers nonconvertible debt borrowing rate. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. As a result of the adoption of FSP APB 14-1, we recorded additional non-cash interest expense during the first quarter of 2009 and 2008 of $1.0 million and $0.9 million, respectively.

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. 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.

Net Income Attributable to Noncontrolling Interests. Noncontrolling interests in the earnings of our ASCs were $4.3 million in 2009 as compared to $3.7 million in 2008. All of this increase is attributable to new ASCs.

Liquidity and Capital Resources

Operating activities during the first three months of 2009 generated $4.2 million in cash flow from operating activities compared to $4.0 million in the comparable 2008 period. Of the $0.2 million increase in cash flow from operating activities, $1.3 million was due to higher net income after adding back the following non-cash items: depreciation and amortization, amortization of subordinated debt fees, stock-based compensation expense, gain on sale of ASC, deferred income taxes, asset impairment charge and non-cash subordinated debt interest. Changes in operating assets and liabilities resulted in negative cash flow of $1.0 million. The negative impact primarily relates to incentive compensation payments and the timing of vendor payments that were partially offset by improvements in collections of accounts receivable.

Cash flows used in investing activities was $1.2 million during the first three months of 2009 compared to $1.9 million during the first three months of 2008. Investing activities during the first three months of 2009 included the purchase of property and equipment for $1.5 million and proceeds of $0.3 million relating to the sale of noncontrolling interests in one of our ASCs. Investing activities during the first three months of 2008 included the purchase of property and equipment for $1.3 million, the payment of additional purchase price consideration of $0.9 million for one of our ASCs and proceeds of $0.2 million relating to the sale of our Thibodaux, Louisiana ASC.

Cash flows from financing activities during the first three months of 2009 included net payments of $0.5 million under our credit facility, payments of $1.1 million relating to the repurchase of our common stock and $0.8 million of capital lease and other debt obligation payments. Cash flows from financing activities during the first three months of 2008 included proceeds of $0.1 million from the exercise of stock options and issuance of stock to employees as part of our employee stock purchase plan and borrowings of $0.5 million relating to the development and relocation of an ASC. These proceeds were offset by $0.3 million of capital lease and other debt obligation payments.

In June 2007, we issued $75.0 million aggregate principal amount of 1.0% convertible senior subordinated notes due June 15, 2012 (the "Convertible Notes"). At March 31, 2009, we had $58.0 million in convertible subordinated debt outstanding, net of debt issuance costs. As of March 31, 2009, the fair value of the $75.0 million Convertible Notes was approximately $31.7 million, based on the level 2 valuation hierarchy under SFAS No. 157. Effective January 1, 2009, we adopted FSP APB 14-1. FSP APB 14-1 applies to convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, when the conversion option does not need to be bifurcated and accounted for separately as a derivative instrument in accordance with FAS 133. FSP APB 14-1 requires that issuers of convertible debt instruments that, upon conversion, may be settled fully or partially in cash, must separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Additionally, debt issuance costs are required to be allocated in proportion to the allocation of the liability and equity components and accounted for as debt issuance costs and equity issuance costs, respectively. FSP APB 14-1 requires retrospective application and, accordingly, the prior periods' financial statements included herein have been adjusted. In accordance with the provisions of FSP APB 14-1, we determined that the fair value of our Convertible Notes at issuance in 2007 was approximately $52.1 million, and we designated the residual value of approximately $22.9 million as the equity component. Additionally, we allocated approximately $1.8 million of the $2.6 million original Convertible Notes issuance

cost as debt issuance cost and the remaining $0.8 million as equity issuance cost. For further discussion about the Convertible Notes, see Note 11 in the Notes to Consolidated Financial Statements in our Annual Report filed on Form 10-K on March 16, 2009.

At March 31, 2009, we had $56.6 million of borrowings outstanding under our revolving credit facility with a weighted average interest rate of 3.8% and were in compliance with all of our covenants. Our credit facility expires in February 2010 and we are currently in discussion with our banks to extend the term. The maximum commitment available under the facility is the lesser of $125 million or the maximum allowed under the calculated ratio limitations. At March 31, 2009, we had approximately $67.5 million of potential borrowing availability under our credit facility. 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 0.0% 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. 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 acquisition exceeding $20.0 million individually under certain conditions. The weighted average interest rate on credit line borrowings at March 31, 2009 was 3.7%.

During 2006, we entered into two interest rate swap agreements. The interest rate swaps protected us against certain interest rate fluctuations of the LIBOR rate on $24 million of our variable rate debt under our credit facility. The date of the first interest rate swap was April 12, 2006, and it expired on April 19, 2009. This interest rate swap effectively fixed our LIBOR rate on $12 million of variable rate debt at a rate of 5.34%. The date of the second interest rate swap was June 28, 2006 and it expired on September 30, 2008. This interest rate swap effectively fixed our LIBOR rate on $12 million of variable rate debt at a rate of 5.75%. Effective August 1, 2006, NovaMed Eye Surgery Center of New Albany, LLC ("New Albany ASC"), of which we own a 67.5% majority interest, entered into a $4 million installment note which matures on August 1, 2013. Interest is payable at the lender's one month LIBOR rate, designated or published on the first of each month, plus 2.0%. The New Albany ASC entered into a five-year interest rate swap agreement that effectively fixes the LIBOR rate on this debt at 5.51%.

As of March 31, 2009, we had cash and cash equivalents of $5.5 million of which $2.3 million was restricted pursuant to agreements with six of our ASCs. As of March 31, 2009, we had negative working capital of $42.3 million which includes the $56.6 million balance under our revolving credit facility.

We expect our cash flow from operations to be sufficient to fund our operations for at least 12 months. We expect an amended or new credit facility to provide the funds necessary to retire outstanding balances on our expiring credit facility. Our future capital requirements and the adequacy of our available funds will depend on many factors, including the size and timing of our acquisition and expansion activities, capital requirements associated with our surgical facilities, the future cost of surgical equipment, and our ability to renew our credit facility before February 2010.

During the first quarter of 2008, we recorded additional goodwill of $1.7 million for one of our ASCs relating to the resolution of a contingency included in the original purchase agreement. We paid cash of $0.9 million during the first quarter of 2008 and recorded a liability for the remaining balance to be paid no later than July 2009.

During 2008, our Orlando (formerly Altamonte Springs), Florida ASC, of which we own a 70% interest, entered into a $3.3 million installment note which matures on December 31, 2015. Interest is payable on the outstanding principal balance at the lender's one month LIBOR rate, designated or published on the first day of each month, plus 2.5%. The note financed the cost of relocating the ASC from Altamonte Springs, Florida to Orlando, Florida, which was completed in January 2009. As of March 31, 2009, there was $3.2 million outstanding under this note.

In February 2008, we completed the sale of our 70% interest in our Thibodaux, Louisiana ASC. 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.

We had an option to purchase an additional 26% equity interest from our physician-partner in our Ft. Lauderdale, Florida ASC to enable us to increase our interest in the ASC to a majority equity interest. Because we did not exercise this

option by July 2007, we have exercised our option to sell our minority interest to our physician-partner for the original price paid. The sale of this interest has not yet occurred.

Two partners in our Richmond, Virginia ASC who each own a 14.5% equity interest have the option to sell us back their interest at the same price they paid to acquire their interest.

Recently Issued Accounting Pronouncements

In April 2009, the FASB issued Staff Position No. 157-4, "Determining Fair Value When The Volume and Level of Activity For The Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly" ("FSP FAS 157-4"), which provides additional guidance for estimating fair value in accordance with SFAS No. 157, "Fair Value Measurements", when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly and becomes effective for us on June 30, 2009. We do not believe the adoption of FSP FAS 157-4 will have a material effect on our consolidated results of operations and financial condition.

In April 2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments"("FSP FAS 107-1 and APB 28-1"), which requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements and becomes effective for us on June 30, 2009. We do not believe the adoption of FSP FAS 107-1 and APB 28-1 will have a material effect on our consolidated results of operations and financial condition.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS. This Form 10-Q contains certain "forward-looking statements" that reflect our current expectations regarding our future results of operations, performance and achievements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify these forward-looking statements by using words such as "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions. These statements reflect our current beliefs and are based on information currently available to us. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements. These risks and uncertainties relate to our business, our industry and our common stock and include: : the current economic recession and disruption in the financial markets; our current and future debt levels; our ability to access capital on a cost-effective basis to continue to successfully implement our growth strategy; reduced prices and reimbursement rates for surgical procedures; our ability to acquire, develop or manage a sufficient number of profitable surgical facilities; our ability to maintain successful relationships with the physicians who use our surgical facilities; our ability to grow and manage effectively our increasing number of surgical facilities; competition from other companies in the acquisition, development and operation of surgical facilities; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit our business operations, require us to incur significant expenditures or limit our ability to relocate our facilities. These factors and others are more fully set forth in our Annual Report on Form 10-K under "Item 1A-Risk Factors". You should not place undue reliance on any forward-looking statements. We undertake no obligation to update or revise any such forward-looking statements that may be made to reflect events or circumstances after the date of this Form 10-Q to reflect the occurrence of unanticipated events.